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Talent continues to be the holy grail of technology transformation and leaders are reimagining their location strategy to help them find it. Talent challenges are impacting the way businesses source their tech staff, with 47% of respondents to McKinsey’s IT strategy survey 2021 saying they are relying more on sourcing partners to supplement internal capabilities.
In this article, we will look at the risks and rewards involved in various location strategies. We also examine what makes a location a good choice to base your IT teams, while exploring the impact of factors such as labour laws, living standards, education levels and more.
As talent acquisition is a challenge for many IT teams, clustering in a particular area is a logical strategy to gain access to a talent pool. It has been a common location strategy for many large businesses to cluster in one city, such as Silicon Valley which is home to the HQs of Alphabet and Meta among others.
Most CIOs recognise that location is a key driver of their organisation’s IT performance. If you can position your organisation in the right place at the right time, you can find a way to strike the perfect balance between market access, talent availability, mitigating risk, and cost.
Google has allocated funds from its $9.5 billion for expansions and investments nationwide in 2022 to build new offices in its home of Mountain View California. With close proximity to world-class universities such as Stanford and Berkley, and a hotbed of VCs, it’s incredibly easy to network and grow which is why Google has remained here while also expanding to new locations.
Large cities may not have the densest clustering of ‘hot skills’, but because cities are very large, you will still find there is sufficient volume and access to the talent you do need. However, as locations become popular with talent, real estate prices and salaries in these locations increase.
You have a greater possibility of finding the future talent you need as your IT goals change when you are located in a talent cluster. The first to enter a location takes the risk that it may not work. But the last enters with higher costs and greater competition to find quality developers.
CIOs are discovering that there is a balance to be made between costs, and market access and talent availability. The increasing complexity of IT systems – along with the emergence of new technologies such as cloud computing, shift-left security, and artificial intelligence – have increased the challenges for finding the skills needed for teams.
There is currently a very fragmented global market for the skills needed to build digital, agile teams. Clusters are developing in areas around the globe; here are some hot-spots and not-spots to watch.
A recent Forrester report ranks Europe’s (EU, Nordics) top skill clusters across a variety of metrics, looking at both technical and digital skills along with soft skills. The top 10 skills clusters in Europe show that the Nordics are a great place to locate. Helsinki leads, followed by Stockholm, Copenhagen and Oslo. Central Europe is also prominent with Berlin, Hamburg, Munich and Amsterdam all in the top 10.
The report shows that these countries have:
The advantage teams in Europe have, is the freedom to move labour. You can employ IT teams that may be based in a different EU country and migrate them with no labour laws to battle. This makes it easier to tap into skill sets that are not in your location.
German pharmaceutical and biotech giant, Bayer, relocated to Finland and it has since become an epicentre for biotechnology. The company was struggling to find talent and the highly educated population made Finland an attractive opportunity. In addition, Finland has a biobank that is collecting the health data of hundreds of thousands of its citizens to aid future research and development of new medicines. Indeed, Bayer cites access to this biobank and the talent pool as “key in research projects in oncology, cardiology, and other areas”.
The Bayer experience demonstrates that entering a talent cluster may come with an increased cost – but this is often a justified expense. You enter a location with an established infrastructure, pre-built offices and a skilled workforce that make assembling a team a relatively painless process. In comparison, setting up in an obscure location may save real estate costs, but the time it takes to find talent or invest in the infrastructure needed will slow down project delivery.
Klarna was founded in 2005 in Stockholm, Sweden, and is now one of Europe’s largest banks. Engineering talent is in high demand across Europe, so Klarna is using its global footprint to support and establish itself in emerging tech centres. The bank already has tech hubs in Stockholm, Milan, and Berlin and last year, when it launched its service in Spain, it also opened a new location in Madrid, taking advantage of the ability to move labour across the EU.
More than one million IT professionals work in Ukraine, Belarus, and Russia, 25% of those working for consulting or outsourcing firms. Due to its scientific legacy, governmental initiatives, and advanced technical education, Ukraine offers a wide talent pool of developers.
However, CIOs are aware they must take into account more than the talent pool and also look at social, political and economic factors. The Ukrainian IT market in 2022 is forecast to fall by 44%. CIOs need to be vigilant in choosing their outsourcing locations as they may need to rapidly halt operations in a region that suddenly experiences geopolitical strife. CIOs are now looking to quickly fill in the absent resources that have resulted from the Russia-Ukraine war to ensure business continuity.
It’s clear that location remains a critical tool for CIOs to use to their advantage in assembling development teams. You must examine global trends and find locations that provide the skills needed across the board – not simply technical skills at a low cost. High standards of living, business English and low corruption also need to be considered, as they affect access to tech skills.
CIOs out of European time zones (for example, in the US) have to consider working hours and how it balances against the positives of a location in a city such as Helsinki. There will be a small window in which all team members are available during their normal working hours, and this can lead to physical and emotional challenges that result from team members having to sacrifice personal time. Efficient teams with a culture predicated on constant communication as a priority should, however, be able to overcome this challenge.
Client Profile:
The Background:A long-standing client identified that they had developers across too many locations and needed to make strategic decisions with which office locations should be consolidated. Offices were located in Europe and Asia. The project involved understanding which smaller offices should be absorbed into larger ones as well as understanding which office sizes were most productive.
The Results:The results of this project determined that larger offices were more productive for this client.
Client Profile:
The Background:The client was looking at outsourcing the company’s most productive division. They had completed a high-level analysis suggesting savings between $10m and $12m by comparing enterprise baselines and developer quantities. They required an in-depth analysis to understand the cost-effectiveness and feasibility of outsourcing to India.
The Results:BlueOptima's analysis provided a more accurate financial outlook:
We provide a SaaS technology that objectively measures software development efficiency. Our core metrics for productivity and code maintainability allow executives to make data-driven decisions related to talent optimization, vendor management, location strategy and much more.
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