Stimulating Economic Growth – How Communities Can Help

By Susan M. Puska (President and CEO) and Carol J. Yee (COO)

Reversing a Downward Cycle

The current low U.S. employment figures belie the fact that many employed people in rural areas and small towns in the U.S. struggle to find jobs that pay enough for them to cover housing, food, transportation, and health insurance. Many are forced to work multiple jobs to cover their families’ needs, which can become very burdensome, especially if they also care for ill or disabled family members. Unfortunately, unemployment and underemployment drive a community’s greatest resource, youth and working age families, away towards urban areas or other parts of the country in search of a livelihood. These losses shrink the economic tax base that pays for local services and infrastructure, which could attract businesses that grow jobs, and can dry up loan and investment opportunities. It is a vicious cycle that local governments and others share in the fight against.

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How can communities create jobs to stem the exodus of talent? Various actors play a role and a collaboration between the government, businesses, and other local players can reverse this cycle. The local government and economic development agencies can ensure there is a strong business environment that makes it attractive for local investments and supports local businesses. Local businesses and non-profits provide goods, services, and jobs. Multinational corporations (MNCs) may also be in the mix, either selling products, manufacturing, and/or engaging in corporate social responsibilities (CSR) in the area. Lastly, foundations may provide grants to local governments or non-profits.

Small Towns Want Growth and Opportunity…But How?

Management capacity can make or break this cycle of growth. Businesses and non-profits must at least maintain their current revenue and cash flow in order to remain viable. Some want to grow beyond their current size, which can increase job opportunities for young people and help strengthen communities. A positive snowball effect begins…greater revenue can lead to more investments in a community, which creates more jobs, which increases the tax base, which increases local investments in infrastructure and community services, and so on.

If these organizations want to grow, how can they acquire the management capacity and systems to do so? Will banks or investors provide capital to them? Will they be able to build their client base? Will CSR managers or foundations see them as good partners?

According to the U.S. Small Business Administration (SBA), 30% of new businesses fail after two years while 50% of new businesses fail during the first five years. These are tough realities for small businesses. KANAVA has found through its experience working with businesses and organizations in the U.S. and overseas that a common foundation for success that is often overlooked is the strength of the management capacity and systems to grow, whether it is a commercial business or a non-profit organization.

Even prospering businesses can fail without strong management systems. Take the example of a popular independent rotisserie chicken restaurant in Pacific Grove, California, that attracted large crowds. The owners had great products, but they were not set-up to service the high volume of customers and eventually were forced to close, victims of their own success and inability to adapt quickly to a higher volume of customers than anticipated.

How can communities help local businesses beat these odds and be better positioned to take on more work that will create jobs and positively impact local communities?

Working Together to Strengthen Communities

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Local governments and economic development agencies can support the business community by streamlining processes for businesses to obtain required licenses and permits and providing an environment that develops and retains a skilled workforce. Attracting younger people into local government can infuse new ideas into a community. A multi-generational team brings together experience as well as insights into the kinds of future younger community members envision, which helps to accelerate economic development. Communities grow economically when qualified and informed people commit to seeking new ways to positively impact all aspects of their communities, whether from an economic, service-oriented, education, or cultural lens. These improvements, in turn attract new businesses and residents.

Community players can promote local economic development by encouraging businesses and non-profits to not only provide great goods or services, but also ensure they have solid management systems in place from which to conduct their business. This is the foundation of the business/organization and includes all aspects of management, including strong financial management, human resources, and administration systems, but also areas such as governance and ethics, financial sustainability, and leadership and team dynamics. By focusing on having strong management systems in place and a systems approach, the organization not only has the wherewithal to support its operations, it also can grow, be sustainable, and be resilient.

Strengthening Management Capacity

Strong management systems enable a business or organization to increase its ability to access capital or funding, attract and retain talent, or respond resiliently to downturns and disasters. Strong management systems are also key to successfully implement the business model of the organization and support its growth. If you do not have strong systems, you have a weak foundation, which increases risk and underperformance.

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One cost effective tool that helps organizations build their management capacity is KANAVA’s Impact Strengthening Development (ISD) methodology. KANAVA works collaboratively with organizations, both commercial companies and non-profits in the US and internationally, applying the ISD methodology to pragmatically and efficiently assess their management capacity in nine key areas. By doing so, we help an organization develop comprehensive situational awareness of its strengths and weaknesses, sorting through the chaos of daily operations versus emphasizing sustainable growth, to prioritize areas for improvement based on where they are versus where they want to go with the resources available.

Some small businesses and non-profits may not have the resources to spend on assessing their management systems and strengthening their operations through training or hiring consultants to address gaps in their systems. Additionally, these organizations may not see how diversification of funding or seeking new revenue streams should be incorporated into their strategic plans. While small businesses can work independently to strengthen and diversify their operations, local economic development agencies, MNCs, and/or foundations can help scale up the economic strength of communities by providing opportunities for these organizations to access cost effective tools to strengthen the management capacity of its businesses and organizations.

Stronger Communities for Long-term Growth and Sustainability

Local economic development can rise or decline without interventions, but for communities to flourish with long-term growth and success in local economic development, especially at a time of great economic change, requires having a strategy that includes management capacity building. Communities that encourage local organizations to strengthen their management systems will strengthen their ability to have higher rates of success in meeting their economic development goals. This community effort includes several different elements:

  • Local governments provide an entrepreneurial, business-focused environment

  • Local economic development agencies encourage businesses and non-profits to strengthen their management systems and management capacity

  • Multinational companies and foundations partner with businesses and non-profits who have strong management systems in place or the will to develop them, which will position them to be strong, reliable partners with which to work and lower the risks for the MNCs and foundations.

By emphasizing the importance of management capacity, communities can strengthen the ability of these organizations to be sustainable, contributing to the economic development of the community, and creating jobs.

Kanava International