Friday, December 4th, 2009

The Mayor as CEO

Transformation comes from entering new markets and leaving old ones. Companies rarely transform themselves through cost cutting or improved operational effectiveness. Operational effectiveness is necessary to compete, and world-class operators can create competitive advantage, but in almost all cases, operational effectiveness is insufficient to stave off disruption and drive long-term competitive advantage.” – Scott Anthony

My latest post is online over at Forbes. It is called “The Mayor as CEO” and it is about how cities need to create strategies that are unique to them in order to find sustainable success over the long term.

As always, I’ll offer more commentary here. So many people on the right seem to believe that all you need to succeed as a jurisdiction is low costs/taxes. Cost efficiency is of course important in business and in government. But how many businesses have a strategy that is simply “low costs”? Usually they have some ideas about a target market, brand position, and value proposition they are delivering. Unless you are the low cost producer in a commodity market, low cost is generally not a sufficient strategy. And alas, our core cities are structurally high cost producers (usually higher taxes, more crime, worse schools, and older infrastructure) that cannot compete for jobs with their suburban regions purely on price.

On the other hand, too many on the left lack concern about costs and taxes. There are lots of ideas about what can and should be implemented, but too-seldom and appreciation for the negative impact high taxes, costs, and regulations have on the attractiveness of a place to prospective residents and investors.

In the ideal world, cities would combine the best of these approaches, keeping a keen eye on the bottom line and cost competitiveness while making targeted investments aligned with a focused strategy for success. Too often, however, we get the worst of both worlds in the form of highly subsidized boondoggles.

To illustrate the dilemma facing the central city mayor and how that is so different from other governance challenges, let’s compare the case of Indiana and Gov. Mitch Daniels with Indianapolis and Mayor Greg Ballard. Gov. Daniels is one of America’s premier fiscal conservative leaders. His belief is that Indiana’s attractiveness to business needs to be rooted in low costs, low taxes, and lean government. Now, when you are in his office and survey the world, you see your state surrounded by the likes of Illinois, Ohio, and Michigan. It is easy to see how you can envision yourself having a price advantage over those states. Indeed, while Indiana can never beat the China’s of this world on cost, it is very feasible for Indiana to be one of the lowest cost states in America and probably the lowest cost state in its region. This makes a cost-led strategy appropriate and doable for Indiana. (I should note that Daniels is also investing in infrastructure and elsewhere, but clearly his primary focus is the fiscal realm. If you want to know more about his philosophy of governance, the Indy Star just did a 15-minute video interview with him. I would have embedded it, but the video unfortunately auto-plays).

Mayor Ballard takes a look out his window and sees a very different world. Thanks to the state’s low costs and other factors, his region is very attractive to business. But instead of being surrounded by a collection of high cost states, his city is surrounded by very low cost suburban counties. These greenfield locations have brand new everything, great schools, extremely low crime, and lower taxes. No matter what Ballard does he’s not going to be able to change this. So how does he attract people and business to his part of the region? That’s a very different challenge from the one facing the state or one of those suburban counties. What’s more, many of the people and businesses he might target are those that are also being aggressively targeted by many cities around the country. Simply adding things like bike lanes, trails, and stadiums aren’t likely to produce a particularly compelling offering on a national basis. How do you make yourself stand out in the crowd? It is one of the toughest leadership challenges out there.

So many central cities, particularly those in the Midwest are struggling today. They need to reinvent themselves to recreate relevance for themselves in the 21st century. As the quote at the top says, cost and efficiency are a necessary, but not a sufficient condition to make that happen.

Here is some further reading on this topic:

What Is a Strategy?
The New Discipline of True Urban Design
The Talent Equation
Creative Destruction is Real

Topics: Strategic Planning
Cities: Chicago, Indianapolis

3 Responses to “The Mayor as CEO”

  1. Eric says:

    Great post, as always. One beef is that I object to calling Houston one of today’s “winners” in this context. The Houston region may be doing well economically. It’s doing far worse than Cleveland or St. Louis as a city. I have to spend time there monthly. It’s not a city the way you think of Portland or Boston or Chicago as a city. It’s a fiercely anti-urban place and a nightmare to walk in, even in the most pedestrian-friendly sections. You can’t really call it a winner anymore than you can call Georgia or Schaumburg a winning city.

  2. Alon Levy says:

    Houston pretends to be zoning-free, but has a lot of regulations that in other cities count as zoning: minimum lot sizes, parking minimums, incentives for developers to deed-restrict properties to single-family, minimum setbacks, high traffic speed standards for arterial roads. Where Houston is more pro-development than many other cities is in its lack of regulation of greenfield development.

  3. Thanks for the comments.

    Eric, I spend several months working in Houston and likewise found it not to my taste. However, we shouldn’t mistake our personal preferences for performance. Houston is unquestionably an economic juggernaut. It is adding people and jobs at a fearsome rate, and is surprisingly international and diverse. I believe there are actually more foreign consulates in Houston than Chicago, for example. It might not be my preferred model of success, but that was one of my points. Cities need to find models for success that are right for them, and there is no one-size-fits all urbanist way.

    Alon, Houston’s building code does mimic zoning in many ways, as do deed restrictions in housing developments. But my experience is that they are in fact very tolerant of diverse uses and scale in close proximity to each other. For example, high rises and strip malls co-exist in the Galleria area, as do high end shopping centers and strip clubs.

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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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