Anchor Institutions and Local Economic Development through Procurement: An Analysis of Strategies to Stimulate the Growth of Local and Minority Enterprises through Supplier Linkages by MASSAHUETTS INSITUTE Iris Marlene De La 0 BA in International Development University of California, Berkeley Berkeley, CA (2007) RA R IES Submitted to the Department of Urban Studies and Planning in partial fulfillment of the requirements for the degree of ARCHIVES Master in City Planning at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2012 © 2012 Iris Marlene De La 0. All Rights Reserved The author here by grants to MIT the permission to reproduce and to distribute publicly paper and electronic copies of the thesis document in whole or in part in any medium now known or hereafter created. A I ?\ Author Department of Urban Studies and Planning May 24, 2012 1\1 4f Certified by _ Senior Lecturer Karl F. Seidman Department of Urban Studies and Planning Thesis Supervisor A.qd Accepted by L 4 (V Professor Alan Berger Department of Urban Studies and Planning Chair, MCP Committee 1 Anchor Institutions and Local Economic Development through Procurement: An Analysis of Strategies to Stimulate the Growth of Local and Minority Enterprises through Supplier Linkages by Iris Marlene De La 0 Submitted to the Department of Urban Studies and Planning on May 24, 2012 in Partial Fulfillment of the Requirements for the Degree of Master of City Planning ABSTRACT Anchor institutions, such as hospitals and universities are increasingly engaging in community and economic development initiatives in their host cities. Annually, these institutions spend millions of dollar on a variety of goods services. If these dollars were redirected to purchasing local and to minority-owned firms, the anchors' purchasing power could have enormous impacts on the local and regional economies. The thesis examines two case studies of anchor institutions, the University of Pennsylvania and University Hospitals, which engaged in community and economic development in their cities. It particularly examines the strategies developed to successfully implement procurement programs that enabled the growth of local and minority- owned firms. The thesis seeks to understand how cities like Springfield, Massachusetts, with high unemployment and poverty rates, could utilize anchor institutions to stimulate local economic development. Thesis Advisor: Karl F. Seidman Senior Lecturer in Economic Development Thesis Reader: Ceasar McDowell Professor of the Practice of Community Development 2 Acknowledgements Thank you to my thesis advisor, Karl Seidman, for his patience, advice, and support during the research and writing process. Thank you to my thesis reader, Ceasar McDowell, for his support and for introducing me to a community of inspiring folks in Springfield, Massachusetts. 3 Table of Contents Chapter 1: Introduction................................................................................................................6 1.1 Anchor Institutions and Socially Responsible Procurement Policies ............................................ 6 1.2 Context- North End Neighborhood in Springfield, M assachusetts .............................................. 8 1.3 Research Question............................................................................................................................. 10 1.4 M ethodology ..................................................................................................................................... 10 1.5 Research Outline ............................................................................................................................... 11 Chapter 2: Literature Review .................................................................................................. 13 2.1 Literature Review on Anchor Institutions...................................................................................... 13 2.2 Literature Review on M inority Procurement ................................................................................. 17 Chapter 3: Challenges to Achieving Socially Responsible Procurement............................20 3.1 Institutional Challenges..................................................................................................................... 21 3.11 Opposition to Socially Responsible Purchasing ..................................................................... 21 3.12 Commitment from Leadership................................................................................................. 22 3.13 Going against Supply Chain Rationalization.......................................................................... 22 3.14 Familiarity with M inority-Owned Enterprises........................................................................ 23 3.15 The Need to M eet Quotas ....................................................................................................... 23 3.2 Challenges for M inority Business Enterprises............................................................................... 25 3.21 Competitive Disadvantages ..................................................................................................... 25 3.22 Inability to Attract Qualified M anagers and Other Professionals.......................................... 26 3.23 Insufficient Knowledge of the Procurement System .............................................................. 27 3.24 Breaking the "Old-Boys" Network........................................................................................ 27 3.25 Uneven Power Relationship with Buyer................................................................................. 28 3.26 Industry Shifts to Large Contracts .......................................................................................... 29 3.3 Achieving Socially Responsible Procurement............................................................................... 29 Chapter 4: Anchor Institutions and Minority Procurement Case Studies.........................31 4.1 University of Pennsylvania Case Study ........................................................................................ 32 4.11 Background on Penn and the Surrounding Communities........................................................ 32 4.12 Brief History of Penn's Involvement in West Philadelphia.................................................... 33 4.13 The University and Its Revitalization and Economic Development Plan............................... 34 4.14 The University's Procurement Programs............................................................................... 36 4.2 University Hospitals Case Study................................................................................................... 40 4.21 Background on Cleveland, University Circle, and University Hospitals............................... 40 4.22 Overview of Vision 2010............................................................................................................ 42 4 4.23 University Hospitals' M inority Procurement Initiatives........................................................ 42 4.3 Henry Ford Health System ................................................................................................................ 46 4.31 Background on the Henry Ford System ................................................................................. 46 4.32 Henry Ford Health System and Community Outreach ............................................................... 46 4.33 Henry Ford Health System and M inority Procurement .......................................................... 47 4.4 Lessons Learned from Anchor Institutions and Minority Procurement Programs ....................... 50 4.41 Commitment from Leadership.................................................................................................... 50 4.42 Procurement part of Larger Project that Emphasized Community Wellbeing........................ 51 4.43 Creating a Plan that Benefits M BEs ....................................................................................... 51 4.44 Accountability through Contracts ............................................................................................ 52 4.45 A committed Purchasing Department..................................................................................... 52 4.46 Direct Benefits to M BEs............................................................................................................. 53 4.47 Effective M onitoring...................................................................................................................53 4.48 Supporting the Creation of New Businesses.......................................................................... 53 Chapter 5: Baystate Medical Center and Latino Businesses in Springfield.......................56 5.1 Overview of Springfield, Massachusetts........................................................................................ 56 5.2 Baystate M edical Center as a Purchasing Anchor Institution ........................................................ 58 5.21 Operations................................................................................................................................... 59 5.22 Baystate's Purchasing Culture ................................................................................................ 59 5.23 Standards for Suppliers...............................................................................................................61