In response to recent national events, companies are encouraged to establish robust backup facilities to prevent disruptions in service. How will these new business practices affect the siting criteria for back-office operations?

In April, the Federal Reserve, the Office of the Comptroller of the Currency and the Securities and Exchange Commission issued an interagency paper on sound practices in April 2003 to protect and prevent disruption in the U.S. financial system. Core objectives of the interagency paper are rapid recovery and timely resumption of processing activities following a disaster at the company's primary location, and a high level of confidence that the critical internal and external infrastructure systems are compatible and effective. Adherence to these sound practices is having an impact on the siting decisions for back- office operations.

Geographical Diversity

The interagency paper suggests that the secondary back-office operation should rely on a different set of infrastructure components than the primary site: transportation, telecommunications, water supply and electric supply. Staffing should also be drawn from a different labor pool than the primary site.

Most companies are looking within a 500-mile radius of the primary site. Companies are attracted to communities that can provide redundant workforces, telecommunication and energy sources. Companies are looking for available buildings with the necessary telecommunication and energy supply infrastructure already installed at the site. What's more, developed clusters and incentives make some communities better choices than others.

MasterCard International recently selected Kansas City, Mo., out of 18 other locations within an eight- to nine-hour driving radius of the primary MasterCard International operation in St. Louis, Mo., as the site for its back-up and co-processing center. MasterCard International is a globally recognized and respected payment company and manages a full range of payment programs including MasterCard credit and debit cards, Maestro debit cards and Cirrus ATM cash access. The Kansas City location replaces the company's current back-up facility in a New York City suburb.

The new back-up data center will occupy the 87,000-square-foot-building that was formerly the home of the TWA administrative center.  Processing will be balanced between two fully functional systems at the St. Louis facility and the Kansas City back-up data center.  Co-processing at both facilities provides a safety net should either system encounter problems.

Tim Cowden, senior vice president, business development, Kansas City Area Development Council, says MasterCard officials were pleased at the available building coupled with local and state economic incentives. The incentives included a 50 percent abatement on equipment purchases and sales tax. The redundant data center is also located in an Enterprise Zone, making the company eligible for job creation and investment tax credits.  

Cowden says that Kansas City features a well-established telecommunications system that can offer reliable and redundant services. Because of this highly developed telecommunications system, Kansas City is often selected for new and emerging technology and services within the telecommunications field.

Sufficiently Wired

Aroostook County in northern Maine is a smaller community that has developed a telecommunications infrastructure that competes with metro areas. Walt Elish, director, economic development, Maine Public Service Company, says area companies and county officials have worked diligently with AT&T, Verizon and Time Warner Cable to upgrade the telecommunications infrastructure in the county. This development allows northern Maine to target companies that utilize telecommunications as a core business component.

Northern Maine's telecommunications infrastructure includes a 100 percent digitally switched system utilizing an ATM fiber optics network; a point of presence (POP) switch located in Presque Isle; and SONET OC48 technology to build redundancy and reliability into the network.

Elish says the infrastructure investment is paying off. MBNA, ATX Forms Inc., Sitel, Burrell's Information Service, RS Information Systems and the Maine Mutual Group have located or expanded in northern Maine in the past six years.

To provide redundancy, a variety of communication providers must be present in the community. In the Hudson Valley of New York, POP switches are offered by a variety of providers including AT&T, Sprint, Global Crossing, MCI, Verizon and several regional carriers. In addition, 100 percent of feeder routes have fiber optic transmission capabilities and 100 percent of central offices are on a fiber ring. Route diversity between central offices with self-healing SONET networks is also available.

The abundance of carriers and a highly developed fiber optics network make the Hudson Valley attractive to financial and securities companies located in New York City, says Anthony Campagiorni, president, Hudson Valley Economic Development Corporation.

“From a technology standpoint, the site must allow data synchronization or the ability to mirror data from one site to another.”  Companies that offer core clearing and settlement services are setting up mirrored sites 50 to 70 miles away from the primary operation. Should any disruption occur, the mirrored site prevents loss of data. In addition to a back-up site, the Hudson Valley is also becoming a “second home” to many companies such as New York Life Insurance.

“New York Life was founded in New York City and will remain headquartered in New York City,” says William Werfelman, first vice president, New York Life Insurance. Like many companies, we conducted a thorough review of facilities following September 11. We concluded that an additional campus outside of New York City would be prudent.”  New York Life acquired the Mount Pleasant Executive Center, a 383,000-square-foot building located on 76 acres in Mount Pleasant. Campagiorni says the building, formerly occupied by IBM, was a turnkey solution for New York Life. Approximately 1,000 people will be employed at the Mount Pleasant location.

Bursting with Energy

Back-office companies are looking for not only redundancy in telecommunications, but also in the electrical supply. Communities that receive energy from more than one source and are in a reasonable proximity to the energy source score points in the site-selection process.

The Hudson Valley has recently formed a new consortium of utility, telecommunications, IT and economic development experts to assist companies in the search for suitable locations for data recovery systems.

“The consortium is a SWAT team that serves as a single source for banks, insurance companies and other firms that are looking for places to establish mission critical centers for data and disaster recovery,” Campagiorni says.  Requirements for back-office operations include raised flooring, electrical redundancy, electrical capacity up to 100 watts per square foot, generators and uninterrupted power systems. The Hudson Valley has numerous existing buildings that are tailor-made for back-up data centers, Campagiorni says.

Paul Ganci, chair of the board, Central Hudson Gas and Electric Corporation, says, “Our extensive experience with supplying electricity to high-tech customers makes us uniquely prepared to meet their needs for reliable electric service.”

Kansas City companies will find energy sources from five power plants located within an hour's drive of the area, says Jill McCarthy, vice president, business development, Kansas City Area Development Council. Areas with multiple providers coupled with the close proximity of generating facilities and competitive pricing of energy offer attractive options for companies dependent on consistent energy sources.

Accessible Labor

A reliable energy supply to ensure processing continuity is critical, however, staffing the facilities is also a high priority. That's where a redundant workforce that has easy access to the facility comes into play.

St. Charles County, Mo. understands the accessibility issue and has been doing something about it. “The county and region have been investing in a highway system, including the 15-mile stretch from Chesterfield to Wentzville, that makes it easier for commuters to get to work,” says David Leezer, director, business development, Economic Development Center of St. Charles County. This 15-mile segment of Highway 40 is along the high-tech corridor and is lined with technology-driven companies including MasterCard International, AG Edwards and MCI.

Leezer says the ability to acquire land, the development of a high-tech cluster and easy accessibility, as well as a highly skilled workforce, were contributing factors to the recent CitiMortgage decision to consolidate operations to a new 515,000-square-foot headquarters in O'Fallon, Mo. The $30 million investment will combine consumer finance and credit operations from five separate offices throughout the St. Louis metro area into one facility located at the new interchange of Highway K and Highway 40. The consolidation will retain 3,500 jobs in St. Charles County and create another 1,500 jobs.

“St. Charles County has the most advanced technology workforce in the region,” Leezer says. “More than 800,000 workers between the ages of 18 and 54 are located in a 30-mile radius of the technology corridor.” 

The Hudson Valley also has a vast labor pool. Drawing from eight counties, the Hudson Valley's labor pool is the 18th largest in the country. Campagiorni says the costs of staffing a fully redundant workforce can be very high. The Hudson Valley allows companies to operate a back office that draws from another labor pool without hiring a fully redundant staff. “Staff can work at both the New York City and the Hudson Valley offices,” Campagiorni says. “This allows the company flexibility at a huge cost savings.” 

The Mega Medical Cluster

Although a large labor pool is definitely a plus, some industries, such as health care, require highly specialized workforces. The vast number of individuals who are knowledgeable and experienced in health care management is why Nashville, Tenn., is the Silicon Valley of health care.

Nashville is home to more than 220 health care administrative back-office and headquarters facilities. As a result, health care is the largest industry segment in middle Tennessee, with health care companies and related service firms comprising the largest source of annual payroll among any nongovernment industry sector.

Janet Miller, senior vice president, Nashville Chamber of Commerce, says, “Nashville is the top health care city in the world. Because so many people have been trained and worked in the health care industry, the labor pool in Nashville is larger than in other cities.” 

In May 2003, Caremark Rx, Inc. relocated its corporate headquarters from Birmingham, Ala., to Nashville. Caremark Rx, Inc. provides drug benefit services to 1,200 corporate health plans, managed care organizations, insurance companies, unions and government agencies. It also operates a national retail pharmacy network with more than 55,000 participant pharmacies.

The move to Nashville will create 50 high-salary jobs. Mac Crawford, chair and CEO, Caremark Rx, Inc. says, “Nashville is widely recognized as a center of excellence for the health care industry and will offer our company and employees a high quality of life and a healthy business environment.” 

Miller says that the high concentration of the health care industry draws other professional services in accounting, architecture, banking and law to the area. As a result, an industry cluster has developed and includes American Healthways, AmSurg, Community Health Systems, HCA Inc., LifePoint Hospitals, Renal Care Group and many others.

Miller says health care companies benefit by locating in Nashville because they have exposure to so many other health care corporate offices. In fact, eight in 20 health care executives in the country live in Nashville. She adds that the lack of a personal income tax also attracts top executives to the area.

The Second Home

As back-office companies search for their perfect second home, they do so with different siting criteria in mind. The events of September 11 made the need for redundant telecommunications and energy infrastructures and workforces imperative to ensuring a rapid recovery should disaster strike. Companies are specific in their needs to prevent processing disruptions and are finding that many communities have the proper infrastructure to welcome them to the neighborhood.

Jackie Counts is a free-lance writer in Lawrence, Kan. E-mail her at counts@sunflower.com.

For more information about the organizations and companies featured in this article visit:

Caremark Rx, Inc.,  www.caremarkrx.com

Economic Development Center of St. Charles County, www.edcstcharlescounty.com

Hudson Valley Economic Development Corporation,  www.hvedc.com

Kansas City Area Development Council,  www.smartkc.com

Maine Public Service,  www.mainepublicservice.com

MasterCard International,  www.mastercardinternational.com

Nashville Chamber of Commerce, www.nashvillechamber.com

New York Life,  www.newyorklife.com

Top States for Call Centers

Based on number of establishments

New Branches

1.      Pennsylvania

2.      Florida

3.      California

4.      New York

5.      Texas

6.      Virginia

7.      New Jersey

8.      Nebraska

9.      North Carolina (tie)

9. Minnesota (tie)

9. Illinois (tie)

9. Ohio (tie)

Start-ups

1.      California

2.      Florida

3.      Texas

4.      Arizona

5.      New Jersey (tie)

5. Ohio (tie)

7.      Illinois (tie)

7. Georgia (tie)

9.      New York

10.  Pennsylvania

This data includes the following SICs:

5963-9904

7398-1005

7389-1007

Source: Since 1990 BizMiner has built its reputation on quality research in the fields of economic and business development. It develops vitality benchmarks for more than 18,000 lines of business and every U.S. county, MSA and state. Measures include business retention, entrepreneurial activity, new branch attraction, business relocation trends and concentrations of high growth firms and tracking more than 11 million U.S. business establishments annually. Custom analyses also segment any industry or area by firm age, sales, employment scale or growth. Visit www.bizminer.com for online area benchmarks, or industry benchmarks