Wisconsin Competitiveness Study

1. Wisconsin Competitiveness Study Executive Summary July 29, 2010 Deloitte Consulting LLP and NKF Global Corporate Services

2. A collaborative effort by

3. Background

4. Wisconsin’s economy has struggled based on a wide range of indicators, and for many years Per capita personal income ranking has fallen from #19 of the 50 states in 1998 to #27 in 2008 Wisconsin’s per capita income of $37,770 was nearly $2,400 under the US average for 2008 and far below neighboring Minnesota's average of $42,953 178,000 jobs lost from December 2007 to December 2009 Poor to fair business climate rankings in many national publications #48 in Forbes “Best States to do Business” (2009) #42 in Chief Executive “Best and Worst States for Business” (2010) #29 in CNBC “Best States for Business” (2010) 4 Secretaries of Commerce in past 3 years Outreach to efforts to businesses and site consultants have been minimal – for decades Wisconsin’s Change Imperative

5. Project Objectives The primary objectives of the Wisconsin Competitiveness Study are to: Benchmark Wisconsin against various regional and national competitors on a variety of business climate factors Evaluate Wisconsin’s competitiveness in selected sample industries with regional competitors across the business lifecycle Recommend improvements to existing economic development strategies to promote growth throughout the state Create consensus with economic development stakeholders across the state related to the conclusions of this study and proposed next steps

6. Project Scope Our study does: Build on the findings and recommendations of existing studies Rely on rigorous, fact-based objective analysis to draw meaningful conclusions Identify actions that will tangibly impact the state’s overall ability to attract, retain, and grow business Our study does not: • Engage in “just another target industry analysis” • Develop public policy for local or state government or advocate any political party’s platform or approach • Develop a detailed, tactical economic development plan for Wisconsin

7. Project Approach Our overall approach includes four primary work steps: Step B Step B CMM Analysis Cost & Conditions • Leverage maturity model framework • Define leading practices in Economic Development • Utilize past experience with Economic Development organizations • Interview economic development stakeholders • Research relevant costs and conditions influencing business location decisions • Utilize collective experience in benchmark states Step D • Determine gaps between current operations and leading practices • Determine criticality of the gap • Determine alternatives to close the gap • Recommendations for improvement • Prioritization of improvements Recommendations Step A Project Kickoff Past Study Review Step C • Research industry deployment trends and dynamics • Focus critical location factors on industry, function, and lifecycle • Summarize leading perception surveys • Review investment patterns and innovation economy variables Benchmark Industry Analysis

8. Review of Past Studies and Survey Findings

9. Review of Past Studies Our team reviewed the following studies provided by WEDA and various regional groups: This study was prepared with the assistance of NKF Global Corporate Services This study was prepared with the assistance of Deloitte Consulting LLP

10. Common Themes from Past Studies The previous studies have had many consistent themes: Growth of Wisconsin per capita income is the primary measure of successful economic development Wisconsin’s overall trend in several key economic metrics has been declining relative to the US Average and regional peers The studies identified a few common recommendations to improve Wisconsin’s economy: Improving the quality of the workforce and infrastructure in the state Building industry clusters in sectors including food processing, advanced manufacturing, medical products and services Increased investment in R&D throughout the state, leveraging innovation in traditional Wisconsin industries Encouraging a culture of entrepreneurship, venture capital and startups Improved technology transfer and harnessing of resources at Wisconsin colleges and universities Reducing health care costs and taxes on business and individuals in the state

11. Common Pitfalls of Past Studies Many of the past studies suffer from common problems: • Studies succeed in describing the problem and presenting recommendations, but they often do not present concisely or logically the underlying evidence and analysis that led to the recommendations • Recommendations are numerous (often exceeding 100) but are rarely prioritized • Recommendations generally lack specific initiatives, operating models, funding strategies, or implementation plans that would help make them a reality • Recommendations typically are not focused on economic development organizational change or operational process improvements

12. Sample Stakeholder Survey Results How successful do you think Wisconsin is, as a state, in terms of economic development? The survey was developed at project onset to assess various stakeholders’ attitudes and beliefs related to economic development in Wisconsin. The survey was distributed to stakeholders via SurveyMonkey, an online survey tool, and included 7 questions and 100 participants.

13. Sample Stakeholder Survey Results (Continued) Currently, what do you think are the largest obstacles to advancing economic development in Wisconsin? Weighted Scores from Survey (1 = Biggest Obstacle) The survey was developed at project onset to assess various stakeholders’ attitudes and beliefs related to economic development in Wisconsin. The survey was distributed to stakeholders via SurveyMonkey, an online survey tool, and included 7 questions and 100 participants.

14. General Benchmarking Assessment Findings

15. Capabilities Maturity Model (CMM) Introduction The Capabilities Maturity Model (CMM) assesses each State’s economic development organization based on multiple operating dimensions • Inputs into the CMM framework • Secondary research on economic development organizations • Past experience with economic development organizations • 100+ factors • Quantitative and qualitative criteria • Individuals Interviewed • Current high ranking state economic development officials • Past employees of state economic development organizations • State EDO Partners and collaborators • 10 Dimensions of Capability • Strategy • Organization • Partnerships • Marketing / Branding • Attraction Process • Retention Process • Entrepreneurship/Innovation Economy • Budgeting / Funding • Incentives • Technology

16. Characteristics of State Economic Development Organizations • Leading/Advanced Characteristics: • Focused, consistent delivery • Simplicity of tools, programs, strategies • Work from strength to address weakness • Skilled, tenured professionals • Clear voice from the top • Robust industry capability • ED departments are focused on ED • Understanding that it takes YEARS to change perception • Common/Outdated Characteristics: • Bureaucratic organizations and operations • No clear voice from the top being driven through the EDC • Mission and responsibilities include multiple non-ED entities • Complex intake process • High turnover • Poor regional partnerships • Budget fluctuations • Constantly changing strategies which are seldom implemented

17. CMM Approach and Wisconsin Interview List • In order to compile the results for the Wisconsin CMM, our team interviewed the individuals listed on the table to the left • All of the opinions and data provided were aggregated prior to inclusion • Discussions also resulted in several common themes and related insights on Wisconsin’s economic development approach

18. Key Themes Emerging from our Interviews Opportunities Observations • Wisconsin appears to have been relatively successful recently in expanding and retaining several large employers within the state, including Mercury Marine and Oshkosh Truck • Some of Wisconsin’s new incentive programs are impactful (e.g., Jobs Tax Credit) • Some innovative programs are being piloted for manufacturing innovation, such as the “Green to Gold” program • Regional and local economic development groups have been doing the work of providing a “face-to-the-customer” for their regions • There is a lack of understanding in the corporate market of Wisconsin’s value proposition • Wisconsin’s Department of Commerce appears to play a facilitator and enabler role, often not a leadership role in economic development activities • The organizational mandate for Commerce is vast and includes business development, community development, housing, trade, safety and buildings, and petroleum regulation • Entrepreneurship efforts are facilitated through multiple organizations with no single point of contact, yielding unclear results • Wisconsin’s incentive programs are poorly communicated and not well marketed to potential users • Wisconsin’s economic development connections to businesses (“face-to-the customer”) appears to be reactive and fragmented

19. CMM Observations for Wisconsin Wisconsin Department of Commerce

20. General Benchmark Assessment – Cost and Conditions Summary * Primary source used for shading of heat maps 1 Forbes, 2009 2 Site Selection Magazine, 2010 3 Kauffman Index, 2009 4 Bachelor’s or greater 5 Milwaukee Journal Sentinel, “The Tax Tale: 50 State Comparison”, April 2010. More Favorable Moderately Favorable Less Favorable

21. Industry Benchmarking Analysis Findings

22. Industries and Locations Included in the Analysis

23. Benchmark Industry Location Drivers 1 Presence of relevant talent (by industry and occupation), and labor quality, are key drivers for each benchmark industry, and therefore not listed individually. Critical location drivers derived from Deloitte / NKF location advisory experience.

24. Agriculture, Dairy, Food Processing – Conclusions • Wisconsin’s strengths for attracting/growing food manufacturing include: • Large existing food industry presence • High concentration of relevant occupations • Robust utility capacity (particularly water) • Moderate real estate costs • Primary challenges include: • Lack of certified, shovel-ready industrial sites • Few incentives to encourage capital intensive investment • Less favorable logistics for national distribution models

25. Renewable Energy Manufacturing – Conclusions • Wisconsin’s strengths include: • Strong occupational presence to support wind and biofuels (and potentially biomass) manufacturing • Transferrable skills from advanced manufacturing sector • Abundant electric capacity • Primary challenges include: • Poor value proposition to attract solar manufacturing • Lack of certified, shovel-ready industrial sites • Few incentives to encourage capital intensive investment

26. Software Development – Conclusions • Wisconsin’s strengths include: • Lower cost labor (lowest among US benchmark locations) • Low cost real estate (lowest among US benchmark locations) • Moderate quality of life (higher ratings in Madison compared to other geographies) • Primary challenges include: • Comparatively low presence of key occupations • Not perceived as a software hub (either in US or globally)

27. Medical Device Manufacturing – Conclusions • Wisconsin’s strengths include: • High industry presence (including major industry player in GE Medical Systems) • High occupational presence (for core manufacturing positions) • Skills availability and healthcare infrastructure • Proximity to Minneapolis and Lake County (IL) medical device clusters • Relatively low real estate costs • Primary challenges include: • Low concentration of biomedical engineers • Lack of certified shovel-ready sites • Few incentives to encourage capital intensive investment

28. FIRE – Conclusions • Wisconsin’s strengths include: • Low natural disaster risk • Low real estate costs • Presence of significant players in insurance industry • Workforce education and quality • High LQ in select high-end occupations (e.g. actuaries) • Primary challenges include: • Low LQ in certain occupations (e.g. financial analysts, and select higher-end FIRE positions) • Moderate air access compared with other FIRE clusters • Tax climate (specifically personal income tax for HQ executives) • Limited applicable incentives

29. Recommendations

30. Framework for Recommendations Development

31. Overarching Goals The Recommendations are designed to help Wisconsin reach two overarching goals… • Wisconsin will rank among the top 10 states for starting a business by 2016 • Currently #28 in Kauffman Index of Entrepreneurial Activity • Wisconsin will rank among the top 10 states for expanding a business by 2016 • Currently #29 on CNBC’s America’s Top States for Business (July 2010) … with the ultimate objective of raising per capita income and creating greater opportunities for Wisconsin residents

32. The recommendations may be summarized into Change Imperatives Change Imperatives Recommendations Structure: Create a quasi-public entity charged with crafting, delivering and overseeing Wisconsin’s economic development strategy 1 Structure and Strategy Image / Branding: Reposition Wisconsin’s brand through an aggressive and targeted marketing campaign 2 Alignment:  Align State economic development efforts, educational programs, and public/private sector leaders around select targeted industries 3 Retention:  Develop a structured, pro-active approach to business retention 4 Capability and Focus Innovation:  Create a statewide, not-for-profit entity to centralize and streamline the state’s innovation programs 5 Attraction:  Reinvigorate and focus Wisconsin’s business attraction capabilities 6 Sites / Permitting:  Deploy a statewide “shovel-ready” sites program with expedited permitting procedures 7 Tools and Technology Incentives:  Implement new programs geared toward capital-intensive and startup projects 8 Technology:  Apply technology to enable and underpin Wisconsin’s economic development strategy 9

33. Recommendation # 1: Create a new quasi-public entity to oversee statewide economic development efforts Description Priority Develop a public-private model, comparable to Indiana’s IEDC or Michigan’s MEDC, while incorporating leading innovation, collaboration, and metrics best practices from other states Lower priority Higher priority Rationale Potential Benefits • Current mission / responsibilities of Commerce do not enable it to be effective in proactive retention or attractive efforts • Commerce viewed by several as a political instrument rather than an independent advocate for business development • States which have adopted a “Corporation” model for economic development (e.g. Indiana, Michigan) tend to have high-performing economic development organizations • Growing trend among states, including recent proposal by Arizona to replace Commerce with a new quasi-public entity • Enables focus on economic development by removing extraneous responsibilities • Can help address challenges related to compensation, career path, training and talent attraction • Helps mitigate turnover risk among top leadership position(s) • Helps align public and private sector entities Supporting Information Potential Implementation Challenges • Pushback from existing organizations (Department of Commerce, Forward Wisconsin, etc.) • Significant administrative change which requires new legislation 2 FDImarkets.com database (published by Financial Times); database consists of major business investment announcements and may not be fully comprehensive 1 WI Department of Commerce responsibilities include: Business Development, Community Development, Housing, Export and Trade, Petroleum and Tanks, Safety and Buildings

34. Recommendation # 2: Reposition Wisconsin’s brand through an aggressive and targeted marketing campaign Description Priority Develop a cohesive, statewide marketing campaign which rallies around targeted themes, industries, and success stories Lower priority Higher priority Rationale Potential Benefits • Wisconsin spends substantially less on non-tourism marketing / branding than most competing Midwestern states • Current marketing efforts are often led by local or regional economic development groups with disparate value propositions • Wisconsin has been unable to react to the new realities of economic development marketing (internet, social media, etc.) • Critical to business attraction efforts • Important to business retention efforts • Enables promotion of recent success stories • Can help address “business climate” concerns (i.e. perception vs. reality of business taxes) • Helps Wisconsin keep pace with neighboring states (e.g. MI, IA and IN) and global competitors Supporting Information Potential Implementation Challenges • Requires development of a clear value proposition • Requires substantial funding increase from Wisconsin’s current marketing allocation • Requires balancing interests of various diverse regions throughout the state * Based on interviews with economic development officials in each state

35. Recommendation # 3: Align state economic development efforts and resources around select targeted industries Description Priority Identify target industries for the state. Tailor educational programs (university, community college, etc), economic development personnel, and private sector efforts around targets Lower priority Higher priority Rationale Potential Benefits • Limited connections between universities and State economic development efforts • Wisconsin’s government leaders and business leaders are often misaligned • Target industries are typically central to effective state economic development marketing campaigns and resource allocation • Provides universities with the direction they crave to assist with economic development • Promotes greater success in attraction and retention of target industries • Provides a foundation for training, infrastructure, targeted incentives, talent development, and marketing / branding Supporting Information Potential Implementation Challenges • Requires leadership from State agency to determine target industries • Must balance the interests of companies / industries which are not primary targets 1 Per discussion with WI Department of Commerce, the State does not follow a target industry strategy

36. Recommendation # 4: Develop a structured, proactive approach to business retention Description Priority Establish a regular calling program for existing industry to help detect early symptoms of flight risk. Develop industry orientation and knowledge base. Manage program with web-enabled CRM software. Lower priority Higher priority Rationale Potential Benefits • Wisconsin retention efforts are mainly driven by local or regional groups (State may be minimally aware / involved) • Retention is a primary focus of the State’s economic development strategy, but most efforts are reactive • Most benchmark states utilize CRM software to centralize and manage retention (and attraction) efforts • Early-stage detection provides more time to adequately address company needs • Provides existing companies with a regular and frequent opportunity to voice business climate concerns • “Personal touch” can help offset ongoing and aggressive marketing efforts by other states Supporting Information Potential Implementation Challenges • Likely requires additional personnel to manage statewide program • Timing/costs of installing a CRM software system • Requires coordination among state and local/ resources

37. Recommendation # 5: Create a statewide not-for-profit entity to centralize and streamline innovation programs Description Priority Create a statewide entrepreneurship not-for-profit organization focused on investment and acceleration of early stage high growth companies across the State. This organization would also support manufacturing innovation investment. Lower priority Higher priority Rationale Potential Benefits • Wisconsin’s innovation programs are difficult to navigate, are highly decentralized, and lack scale • Leading entrepreneurship initiatives in the US are coordinated at the state level and have the capability of investing capital and promoting start-up acceleration • Investment capital can provide the bridge between angel financing and venture equity • Simplify accessibility to existing programs • Increase the base of venture capital within the state, a key weakness in Wisconsin’s innovation efforts • Leverage existing state resources in R&D centers, universities, and existing entrepreneurship programs (e.g. BizStarts) to create tangible economic impact Supporting Information Potential Implementation Challenges • Will require the consolidation of multiple existing initiatives across the state • Additional funding will be required from local and national foundations, individuals, etc. • Must have top talent to operate the organization successfully Venture Capital Funding ($ per capita) Source: National Venture Capital Association MoneyTree Report – Per Capita VC dollars

38. Recommendation # 6: Reinvigorate and focus Wisconsin’s business attraction capabilities Description Priority Develop a focused business attraction program with dedicated State resources, consistent/streamlined processes, and targeted outreach Lower priority Higher priority Rationale Potential Benefits • Intake through execution processes are highly fragmented, resulting in local or regional groups taking the lead • State lacks dedicated resources to provide timely, effective response to Requests for Information (RFIs) • Efforts are currently highly reactive – minimal outreach to prospective corporate investors, decision makers, and leading industry associations • Faster, more streamlined response time to RFIs • Can help enhance perception of Wisconsin as a “can do” environment • Likely to result in more “at bats” and greater conversion rate for new attraction projects • Can help advance high-potential industries and clusters within the state • Attraction wins reinforce Wisconsin’s value proposition to existing industry Supporting Information Potential Implementation Challenges • Requires additional personnel who are dedicated to attraction efforts • Requires identifying target industries / companies for focused efforts • Requires a shift in mindset for the State to assume a leadership role in business attraction Jobs Created in New Projects Source: FDImarkets.com database (published by Financial Times); database consists of major business investment announcements and may not be fully comprehensive

39. Recommendation # 7: Deploy a statewide “shovel-ready” sites program with expedited permitting procedures Description Priority Deploy a statewide “shovel-ready” sites program resulting in certified, pre-permitted industrial sites Lower Priority Higher Priority Rationale Potential Benefits • Site readiness/permitting is a key location factor for most manufacturing projects (including the benchmark industries of food processing, renewable energy, and medical devices) • Most Midwestern states offer some type of “shovel-ready” certification program, providing a competitive advantage over Wisconsin • Expedites implementation timing for various project types • Helps mitigate Wisconsin’s reputation as a cumbersome permitting environment • Ready-to-go sites can influence business attraction and expansion projects Supporting Information Potential Implementation Challenges • Requires funding and coordination with DNR to complete the various certifications (wetlands, environmental, geotechnical, etc.) • May create competition among local jurisdictions to participate in the program States with “shovel-ready” sites programs Source: uscertifiedsites.com, supplemented by Deloitte/NKF research

40. Recommendation # 8: Implement new incentives geared toward capital-intensive and startup projects Description Priority Implement new incentive programs geared toward capital intensive investors, and an equity fund to invest in start-ups. Remove $5M cap on refundable jobs tax credit. Consider refundable tax credit programs for start-ups. Lower priority Higher priority Rationale Potential Benefits • Wisconsin’s current incentive programs do not reward the capital intensive investments of advanced manufacturers • Wisconsin’s venture capital availability is lowest among benchmark states • The job tax credit is one of Wisconsin’s most powerful programs and is tied directly to job creation. Removing the cap will enable and encourage even greater job creation by qualifying companies • Increased ability to compete for advanced manufacturing expansion and attraction projects • Additional resources to nurture capital-deficient start-up companies • Increased rankings/perceptions of Wisconsin’s business climate Supporting Information Potential Implementation Challenges • Requires additional funding (for select programs, e.g. VC equity fund) • Requires legislative support, particularly from regions without significant manufacturing presence Total Capex (in Millions $USD) Source: FDImarkets.com (Financial Times); database consists of major business investment announcements and may not be fully comprehensive

41. Recommendation # 9: Deploy technology to enable and underpin Wisconsin’s economic development strategy Description Priority Adopt modern ED technologies including CRM software, web-enabled sites/buildings database, online GIS capabilities, enhanced website, etc. Lower priority Higher priority Rationale Potential Benefits • Current site and building inventories are fragmented across multiple entities and technologies • Attraction and retention efforts are not visible across economic development entities (upstream, downstream) • Wisconsin has invested less in economic development technology than most Midwestern states • Commerce website is outdated, difficult to navigate, and not aligned with industry best practices • Greater speed to value and recognition of the pace of business in 2010 and beyond • Enhanced website will offer a more favorable first impression to existing and prospective investors • CRM software enables greater structure, visibility, and coordination of attraction and retention efforts • Sites/buildings database can benefit attraction and retention/expansion projects Supporting Information Supporting Information Potential Implementation Challenges • Requires funding to implement new technologies • Requires dedicated resources to update and administer databases • Requires close collaboration among entities (e.g. if WEDA manages sites/buildings database, must tie to Commerce efforts) • Avoid redundancies with local/regional groups … … * Currently under development by WEDA – expected to be live in Fall 2010