Can ‘the other Washington’ lead the way to a more diversified local economy?


CEB Chief Executive Tom Monahan at the company’s Arlington office. (Jeffrey MacMillan/for Capital Business)
December 15, 2013

It’s been a gloomy year for the industries that make up the bedrock of the Washington area economy.

Amid tightening budgets, the federal government shed 8,100 local jobs in the one-year period ending in October. As the government pulled back, so too did federal contracting companies, which continued to trim their workforces, shrank their real estate footprints, and looked for fresh ways to bring in revenue.

And those weren’t the only head winds. As a result of automatic budget cuts known as sequestration, the government shutdown, and now, the prospect of additional sequestration cuts in the new year, many sectors face an unabating sense of uncertainty.

But for many businesses in “the other Washington” — the segment whose fortunes are not closely tied to the government — the year had a different feel. CEB, the new name for research and talent assessment firm Corporate Executive Board, grew its business 20 percent and expanded its Rosslyn offices to accommodate a bigger staff. Decking manufacturer Trex saw its stock price double this year as it rolled out new products. Children’s National Medical Center invested millions of dollars to build the nation’s first pediatric health informatics institute. At Capital One, a spirit of experimentation, not caution, spurred new projects at Capital One Labs, its entrepreneurial hub of innovation.

Some economists have suggested that a more diversified Washington economy would be a more durable one. So could these companies and others like them be the antidote to our flagging labor market and sluggish economic growth?

Here are four Post 200 businesses across a range of sectors that have come to thrive in this government town. Their success hasn’t come without some challenges that are unique to Washington: Some have had a hard time luring talented commercial sector workers here, since there’s a perception that there isn’t much work here outside of government contracting. And some have seen customers, clients and nonprofit partners struggle to adapt to the government budget cuts.

But each is building products and services that it hopes will transform its industry.

Corporate Executive Board

In a globalized world that increasingly relies on a highly skilled labor force, CEB has noticed a trend taking root among major companies: Now, more than ever, employers are focused on talent. And with its legions of industrial psychologists, financial analysts and other researchers — CEB has been well-positioned to take advantage of that shift.

The firm churns out research and devises talent assessment tests for high-profile corporate clients, including more than 85 percent of the Fortune 500. It is aiming to transform how those clients make decisions about talent by bringing analytics to a field that has long been more art than science.

“Technology’s gotten cheaper and science has gotten better, so we can do analyses that we couldn’t do five or 10 years ago,” chief executive Thomas L. Monahan III said.

CEB’s data and recommendations come into play in a wide range of scenarios: They might, for example, be used when a customer service division is trying to reduce turnover in its call center. They might be used by a company looking to boost productivity in its sales division, or by an oil refinery working to increase safety compliance on a rig.

CEB boosted its capacity to provide such insights last year through a $660 million acquisition of SHL, a British talent measurement company. Innovations in big data have further helped the company expand its talent solutions capabilities.

Until recently, CEB was what Monahan described as a “quiet company.” As a business-to-business enterprise, Monahan said he long believed CEB simply needed to focus on serving its corporate customers well, not marketing its name to the masses.

“I was probably the roadblock in understanding the value of a big brand,” Monahan said.

To achieve better name recognition, the company is pushing to have a greater presence at events that draw corporate thought leaders and in prominent business publications, such as the Harvard Business Review.

The company is also hoping that a better-known brand will help it attract top talent, which Monahan said can be a challenge.

“When you try to get someone to come here from New York or the Bay Area or Atlanta or Houston or Chicago, if they’re truly a commercial animal, the question they always have is: ‘Wait a minute. It’s a government town. I’m a technologist, what am I going to do there?’ ”

CEB is working to convince them that the business community here is more dynamic than they might think. While data-driven information businesses may not be one of the region’s banner industries, Monahan says there is already a thriving community of them here. Sterling-based Neustar, for example, provides insights into the Internet and telecommunications industries, while District-based CoStar provides commercial real estate analytics.

“Somebody somewhere is going to leave one of those companies and start the next one. So I think the dynamic entrepreneurial environment will be great,” Monahan said.

Monahan also said that the move toward transparency around federal data is creating new market opportunities for companies in the analytics sector.

“The downside, if there is one, is these are pretty scalable businesses, so they don’t employ millions of people,” Monahan said. “But they create lots of great outcomes.”

Capital One Financial

I n an airy, eighth-floor office near the Clarendon Metro station, groups of designers, software engineers, and product managers are huddled together in a work space that was built with collaboration in mind. Some are clustered around white board walls plastered with a rainbow of Post-it notes and scrawled with stick people and flow charts. Some are curled up on couches or cushy benches, and still others are sitting at tables mounted on wheels that allow the work space to be reconfigured on the fly.

To optimize productivity, they’re divided into “two-pizza teams,” meaning each group is small enough to be fed by two pies.

It’s an office that feels more Silicon Valley than inside the Beltway, and more like a lean tech start-up than a major corporation.

In fact, it is actually an outpost of one of the region’s (and the nation’s) largest finance companies.

This is Capital One Labs, a division the McLean-based company started as part of a mission to invest more heavily in innovation in order to deliver a better customer experience.

“We’re going to use creativity and technology to change banking in a way that helps people,” said Mark Jamison, a managing vice president at Capital One who oversees Cap One Labs.

This internal incubator is piloting a variety of inventions, whether it is creating new ways to leverage rewards points or developing new approaches to digital payments, money transfers and software-delivered banking.

One product born out of this division is Spark Pay, a mobile payment process similar to Square that enables small-business owners to process credit card payments on the go. The company said Spark Pay has “thousands” of users so far, and based on its early results, Jamison said the product is “key to the future of where our small-business customers are headed.” Cap One Labs also recently started a partnership with crowdfunding site Kiva in which customers can use their rewards points to lend to entrepreneurs.

Jamison said his collaborative, freewheeling environment has helped him lure the kind of worker that might typically be drawn to a start-up.

“You can be an entrepreneur without having to be worried about whether you’ll be paid on Friday,” Jamison said.

Trex

T rex was part of the green economy long before the term had become a policymaker’s buzzword.

The 17-year-old manufacturing company makes decks that are largely comprised of material that would otherwise end up in a landfill. It buys up used stretch wrap and grocery bags from retailers, including Target and Wal-Mart. It obtains wood waste from companies such as American Woodmark, the cabinet manufacturer down the street. And then it blends that refuse to make decking that is more eco-friendly than wood.

When chief executive Ronald W. Kaplan arrived at the Winchester-based company five years ago, it was reeling from a wide-ranging set of troubles.

“The overhead was bloated. The operations were out of control. There were quality problems, product [lawsuits], issues with bank debt. The financial performance was horrendous,” Kaplan said.

These issues had driven the company’s stock price into single digits.

To right the ship, Kaplan had a long to-do list: Improve the operations. Restore the company’s credibility with lenders. At the heart of his turnaround efforts, though, was a push for greater innovation.

“Our research indicated that people liked the fact that composite decking wouldn’t rot or splinter or warp,” Kaplan said. “But it would stain and fade. And that became a [point of dissatisfaction].”

With that in mind, Kaplan issued a charge to his research and development team: They had one year to develop a product that Trex could guarantee would not stain or fade for 25 years. The team created Trex Transcend, a composite decking product that hit the market in 2010. In its first quarterly earnings filing after Trex Transcend was unveiled, the company reported its net sales rocketed 75 percent. Soon, Trex was gaining market share and continuing its commitment to constant reinvention.

“By the end of this year, every product that we make did not exist four years ago,” Kaplan said.

The company this year moved to expand its offerings, adding products at lower price points to attract a broader range of customers.

“Trex always had the Cadillac brand,” Kaplan said. “But we never had a Chevy and a Buick. And now we do.”

Even as Trex continues to develop products, the company has no plans to try to patent them.

“If you patent it, you have to reveal the ingredients,” Kaplan said. “And then somebody could defeat the patent.”

Instead, Kaplan plans to protect the product by making sure the components are known to only a very small group of employees.

“We’re going to treat it like a trade secret, like the formula for Coca-Cola,” Kaplan said.

Children’s National Medical Center

Children’s National Medical Center noticed a peculiar dichotomy when it came to young patients suffering from sickle cell disease and acute pain. Of 347 patients admitted for this condition, 248 were not readmitted to the hospital within 30 days of discharge. But 125 of them wound up back in the hospital. Doctors wanted to find out what was behind the difference.

By analyzing electronic health records, researchers were able to create a predictive algorithm that can tell doctors whether or not a child has a high likelihood of being readmitted. Using that information, the doctor can then direct the patient’s care plan accordingly: The patient might get a medication change upon discharge, for example, or their discharge might be delayed.

That kind of work — wrangling of massive amounts of data with the help of information technology — is exactly what Children’s hopes to do more of at the Bear Institute, a health care informatics center that the hospital announced earlier this year. The center will be built in collaboration with Cerner, a health care technology firm, and the organizations believe it will be the only facility of its kind focused on pediatrics.

“Health IT is expensive. And it’s not necessarily one of our core competencies as an organization. So it just made sense,” said Brian Jacobs, the chief medical information officer at Children’s.

One of the Bear Institute’s areas of focus will be projects like the sickle cell disease algorithm, in which they’ll aggregate data to better understand broad patient groups such as those with obesity or asthma.

The center will also aim to be an innovator in so-called personalized medicine, in which treatment is tailored to an individual’s specific case and his or her genetic make-up.

Not all of the hospital’s recent inventions are geared toward physicians. A new mobile Web application allows users to instantly see how long their wait time will be if they come to the emergency room. The app also provides helpful hints such as how much parking costs and the day’s cafeteria menu.

The health care information technology sector is a fast-evolving field that is seeing a shortage of workers nationwide. But Jacobs said the Washington region may be better positioned than other areas to deal with that obstacle, thanks to its abundance of government IT workers whose skill sets are highly transferable.

In addition to its goal of improving care for its patients, the work done at the Bear Institute could create new revenue streams for the hospital and for Cerner.

“The innovation center is looking to create new intellectual property and if applicable, to commercialize that,” Jacobs said.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economic news.
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