Lessons about the power of being a 'headquarters economy'

Our governor and legislators might be a little busy now but by next session they should have read a new book called "Headquarters Economy" by business school Prof. Myles Shaver.

It's an easy read, but this isn't a recommendation for book club. They need to read it because they likely don't understand Minnesota's economy as well as they should — and certainly not as well as Shaver does.

Policymakers in other states might want to pick it up, too. Especially anyone who thought chasing after Amazon.com Inc.'s second headquarters seemed like a swell idea.

Shaver, on the faculty of the Carlson School of Management at the University of Minnesota, has been working on his research on the importance of headquarters for a while. The hardest part of his book project, he said, was finding an editor who understood he was explaining a regional economic phenomenon, not talking about one Midwestern metro area.

The Twin Cities became his focus because, almost from the moment he arrived at Carlson nearly 20 years ago, he puzzled over why there were so many big companies here. He saw no obvious explanation for it.

Shaver eventually decided this region somehow had more than its fair share of people who knew how to help big companies succeed. To him the word "headquarters" didn't mean an office tower but the people doing home-office work, like managing teams of salespeople, keeping computer networks secure and overseeing financial reporting.

It's his idea that in the Twin Cities these big headquarters had formed into a kind of business cluster.

This is a new way to think of a cluster, as the term usually describes what happens when a bunch of companies more or less in the same industry locate all in one spot and then thrive. Think Silicon Valley for technology or Hollywood for filmed entertainment.

Companies set up shop in a cluster, even with the daily risk of losing employees to competitors, because of all the specialized talent around. They move, or leak, innovative ideas and know-how between companies. That helps all of them grow.

In a headquarters cluster, managers know how to do their jobs really well, not necessarily in only one industry. They move from company to company in different industries, as all the companies need good managers. That's what helps all of them grow.

In his book, Shaver illustrates this point with a few stories from Twin Cities business, such as when as Win Wallin moved from an executive role with Pillsbury to become chief executive of Medtronic in the mid-1980s.

One of the problems Wallin encountered at Medtronic was losing salespeople to competitors. He fixed it by granting some Medtronic stock options, giving salespeople a lot more to lose by leaving.

Asked if this had been tried in the medical device industry, Wallin said he didn't think so. But it had worked at food maker Pillsbury.

One of the ways Shaver tells his story is from what he learned by surveying nearly 3,000 college-educated workers in management jobs at 23 big Twin Cities employers, including what he called the "hidden headquarters" operations of big businesses with an out-of-town corporate parent.

He found out that only 15 percent of this group — educated and employed in high-paying jobs — grew up in the Twin Cities, went to school here and then stayed for work. Everybody else had been attracted here, or maybe back here, from somewhere else.

In looking at his data, Shaver concluded that it certainly wasn't our Mediterranean climate that attracted them, but simply career opportunity. That turned out to be particularly true for a married couple, as the Twin Cities ranks No. 1 of the 30 largest metro areas in dual-income, college-educated couples. The Twin Cities also leads the list in the equality of earnings between the two partners.

He and his wife found that to be true themselves, Shaver said, because one of the reasons he's at Carlson is that they realized she could find good career opportunities here.

There's net in-migration of these folks into the Twin Cities, but what's notable about the migration patterns is that the Twin Cities is close to the bottom of any ranking by the measure of out-migration. That means Shaver could confirm what he had long heard, that once here managerial employees really don't want to leave. Managers would rather find a Twin Cities job in a completely different industry than accept a transfer out of town or a leave for a new job in the same industry.

And the reason management employees are so rooted? It's the good life they have found here — good public schools, health care, outdoor recreation and so on.

"I was talking to some group on the East Coast, and I literally had someone fall out of their chair" when he explained from the front of the room that nearly 90 percent of these managerial workers in the Twin Cities have kids in a public school, Shaver said.

By far most of his survey respondents couldn't think of another place they would rather live.

It's too soon to say how much of an effect Shaver's work will have on thinking about economic development or even headquarters locations, said management Prof. Zeke Hernandez of the Wharton School at the University of Pennsylvania, who has known Shaver since his own graduate-student days at the University of Minnesota. If readers think it's about one place, he said, they have somehow missed the point.

A lot of regions not as prosperous as the Twin Cities fall in love with the idea that what's needed is a little of the magic of Silicon Valley. Their policymakers fund economic development schemes to attract technology jobs. "And it just doesn't work," Hernandez said.

Shaver has made a good case, he added, that a vibrant economy can result from lots of innovation that has nothing to do with gee-whiz technology.

"What I like about what Myles is doing is that it tells you things that are almost pedestrian," he said. "Just create a place that's really good to live for … normal people that probably have two incomes and a couple of kids. That's something a jurisdiction can do. Then you let the individual creativity and ideas that these people come up with, build the economy."