Monday, July 23 2018
By Dennis J. Donovan, Wadley Donovan Gutshaw Consulting
This article focuses on one large and rapidly-growing segment of high-tech. That is information technology. The sector consists of systems and operation software (including web and mobile), infrastructure support (e.g., network enablement), and customer support (e.g., help desk).
Before proceeding it should be noted that most industries that traditionally considered high-tech have been locationally active. Such industries include biopharma, medical devices, scientific instruments, micro-electronics, robotics, 3-D manufacturing, aerospace, autonomous vehicles, optics, photonics, telecommunications, and mobile devices. Location activity has been strong across key functions including R&D, manufacturing, and distribution.
These industries (list is not all-inclusive) have a significant dependence on science and technology innovation, which leads to new or improved products/services. In addition, high-tech industries have an above-average concentration of STEM (science, technology, engineering, and mathematics) workers.
When siting new facilities the most critical factor is talent. Second is often presence of an industry ecosystem. Other prominent considerations typically include education/training, available buildings, attractive/ecofriendly/ready-to-go sites, air service, customer and/or supplier proximity, quality-of-life/cost-of-living, transportation linkage/services, taxation policy/rates and financial incentives.
In the remainder of the article, we will concentrate on information technology. Let’s begin with a synopsis of trends influencing the IT industry.
A Few Key Trends
Drawing from published reports by groups such as Gartner, Forbes, Stackify, and WDGC client experience, nine overarching technology trends are as follows: Big Data, Blockchain Technology, Cloud/Cloud Edge, Open Source, Mobile, Artificial Intelligence, Virtual Reality, Virtual Media, and Cyber Security.
These trends reflect a core transformative dynamic: that is the rapidly evolving digitization of business operations and consumer applications. Accelerated, disruptive, innovative technology changes have placed an inordinate demand for IT skills. These include legacy and new skills. In fact, many job functions in the IT world didn’t exist five years ago. To sum up what is perhaps the most crucial requirement for IT enterprises: Developers Needed/Wanted.
The HR Equation
HR needs for Information Technology continue to evolve and change at lightning speed. Many positions in high demand today have only recently emerged. Among the hottest and hence most difficult positions to fill are:
In turn there are several programming languages which are challenging for any business to successfully recruit and retain these experts in sufficient numbers. Illustrative programming languages that are in greatest demand appear below:
The implication for site selection is that any potential location must be capable of producing sufficient talent in these positions and languages. This embraces both depth of the existing pool and the pipeline emanating from colleges/universities. Finding locations wherein demand for such skillsets does not markedly exceed supply will comprise a daunting and critical task for companies considering new/expanded IT facilities.
WDGC aggregated several occupational categories to generate information technology employment by U.S. metro area. The top 100 metros display industry employment levels varying from 10,600 (western Michigan) to 264,400 (Washington DC Metro).
The industry’s concentration parallels population size. Other contributing factors include government presence (e.g., Washington DC), corporate HQ density (e.g., New York, Chicago, Bay Area), and extensive university network (nearly all the major areas along with several mid-size metros such as Raleigh-Durham, Austin, and Salt Lake City).
We also examined the industry’s location quotient (IT to total employment). The national proportion equates to an index of one. Areas displaying a quotient well above one suggest that the industry has above average presence and significant ecosystem.
The map appearing below depicts the top 50 metros by IT employment. Location quotients are also shown. The following chart highlights the top 25 metros. Those bolded appear on both lists.
Locating New Facilities
IT location activity can best be described as “high velocity.” Choosing an optimal location for a software development or related IT operations will be dependent on several considerations. These include:
1. Strategic drivers
2. Skills mix
4. Importance of industry ecosystem
5. Importance of cost (especially labor)
We have observed several pronounced geographic trends relative to deployment of IT operations. One dimension of these trends includes companies requiring significant numbers of new, hot skills. They will sometimes opt for Tier One metros that have large numbers of IT professionals and extensive presence of universities. Examples would be Amazon’s tech hub in Boston and Linkedin’s regional office in NYC.
Another and even more pronounced trend embraces targeting larger metros characterized by strong population growth including in-migration, welcoming leadership attitude toward immigration, large university presence, magnet for university graduates from surrounding states, comparatively moderate business costs, and reasonable cost-of-living. Examples include Anthem (Atlanta), NTT Data (Dallas), and Kaiser Permanente (Denver), and Deloitte (Orlando).
Another trend is to locate in mid-size (Tier Two or Three) metros that have a lower operating cost platform, decent IT industry scale, and impressive university resources. Examples include Credit Suisse (Raleigh/Durham), Uber (Pittsburgh), Oracle (Salt Lake City), Infosys (Indianapolis and Providence), and DXC Technologies (New Orleans).
Of course, areas with a renowned university(s), a national high-tech reputation, and established industry ecosystem can also comprise landing spots for IT enterprises. Examples would be Facebook (Austin), Code 42 (Boulder), and Google (Ann Arbor).
For larger corporations, footprint/geographic diversity has emerged as a conspicuous deployment strategy. Such a scenario involves creating several IT centers scaled to the company’s future staffing needs. Facilities might be sized anywhere from 500 to 1,500 FTEs. A major reason for following this strategy is human resources limitations in most locations. This also allows companies flexibility for future headcount deployment, in part based upon local labor market dynamics.
It should be a priority for companies to formally track labor market performance across all IT locations. Metrics should comprise both internal and external variables. Among internal metrics are time to reach projected headcount, qualified applicant flow, time to fill open positions, cost of hiring, annual turnover, labor cost, etc. External metrics embody population trends, labor force growth, IT occupational growth, annual college graduates (IT related fields), new/expanding companies, downsizing companies, highway/mass transit improvements, housing cost escalation, etc. Tracking these metrics can prove to be invaluable for determining which operations to expand, cap, or downsize. This would also lead to ascertaining when new or greenfield operations will be required.
Most companies today follow an “allshore” gameplan for deploying IT operations. When siting offshore, cost reduction/containment is still a main driver. But given both STEM differences in the U.S. and immigration restrictions, companies will offshore for labor availability reasons as well. In Asia, India remains a major player followed by The Philippines. Other destinations include Malaysia (multiple languages), Vietnam (fairly good English in major metros), and, as English becomes more widely spoken, China.
In Europe, moderately-priced countries with good English language capabilities are being targeted. These include Portugal, Spain, Northern Ireland, Poland, Romania, Bulgaria, Croatia, and Serbia.
Regarding Latin America, representative countries for IT include Columbia, Costa Rica, Uruguay, Brazil (English and Spanish can be a challenge), and Argentina (political and financial stability being issues), and Chile (large scale English can be a challenge), and Mexico (here again numbers of English speakers in IT will vary by metro areas). Canada is getting more attention due to labor resources, including more liberal immigration policies. The exchange rate also is beneficial for U.S. companies.
Nonetheless, onshore remains a desirable option for most corporations. The most challenging task is to find labor markets capable of sustaining recruitment/retention needs. The operational scale (how large) must be clearly defined before scouting for potential locations within the U.S.
Keys to Site Selection Success
A structured, multi-phase process should be followed to ensure selection of a location that will allow for successful operation of the new IT center. The graphic below summarizes the essentials by phase. A few suggestions to reach an optimal location solution follow.
1. Spend considerate time projecting year one and future skill mix. Of critical importance will be degree of reliance on new college grads, mid-level experience (3-5 years), and senior level experience (10+ years)
2. In Phase Two location screening only rely on government occupational data sources (e.g., Bureau of Labor Statistics) to identify preliminary candidates. Thereafter, measure labor pool depth by analyzing job posting sites such as Dice, LinkedIn, and Indeed. This is very important as the government has yet to classify and report on many IT occupations, especially the newer ones.
3. Similarly, gauge annual college graduates first by broad indicators (e.g., computer science grads) and then by specific skills (e.g., Java development). This requires outreach to universities in the metro and ideally up to a 50-mile radius.
4. Carefully examine who’s new and expanding (obtain information from economic development groups) to get a handle on future competitive conditions, in any area under serious consideration.
5. In Phase Three, interview IT employers along with other knowledge organizations including staffing agencies, the state’s career center, and education/training institutions.
6. Expend considerable effort to identify the optimal sub labor market considering:
• Location of labor market competitors
• Residential concentration of targeted skills
• Accessibility/commuting distances
• Composition of growth, including in high tech/info tech
7. Only select a building or site in the best sub labor market.
8. Ensure that the worksite will strengthen the ability to attract and keep requisite talent (e.g., office space layout, parking, mass transit, amenities, green/sustainable, operating environment, image/ appearance, etc.).
9. Determine HR practices/policies necessary to earn/maintain employer-of-choice status and be sure your company has the appetite to play in that arena
10. During the initial staffing period it is advisable to have a local, physical recruiting team. Be sure to reach-out to and establish formal relations with smaller colleges/universities (in addition to the major schools).
11. When recruiting talent don’t overlook niche job board sites. Of course, the larger sites led by Dice along with Computer Jobs and IT Job Café are excellent. But other sites can help produce qualified candidates for highly-specialized skills. Such sites include Big Data jobs, Data jobs, Ember Job Board, Geek Work, Hacker News Y Combinator, Hired, iCrunch data, IT Job Pro, Just Tech jobs, Pycoders jobs, Python jobs, Ruby Now, Ruby on Rails jobs, Smashing Magazine jobs, Tech Careers, TechCrunch Crunchboard, Top Tech jobs, and WP Hired.
12. Take full advantage of state and local training resources (can be offered at no cost during startup).
13. Do not let incentives drive to the decision:
14. Create a scorecard to objectively rate locations on labor market, operational, and cost factors. See the illustration below.
Information technology will continue on a fast-paced evolutionary trajectory. The best locations for this industry will have talent pools that match (i.e., keep-up with) the HR needs in this rapidly-changing industry.
Before starting a site selection process companies must “get it right” in terms of delineating specific HR requirements. Then determine how a new operation will fit into the current footprint. Once the project’s building blocks are defined adhere to a data driven, structured process to choose the best long-range location (metro, sub labor market, land or building).
While we have not mentioned H-1B, be aware of substantial changes in the offing. H-1B Visas can be pursued to fill skill gaps. But the demand (last year over 200,000 applications were received) dwarfs limits (85,000/year). Thus, while important, the best strategy is to choose the most robust labor market. Then rely on H-1B to supplement the talent pool available in the ultimate location.
Lastly, the U.S. remains a highly attractive country for IT. If considering offshore, incorporate a “follow the sun” global strategy. Balance cost, skills availability, and customer service as part of an allshore location strategy.
About the Author
Dennis J. Donovan is a principal of Wadley Donovan Gutshaw Consulting based in Bridgewater, NJ and Jacksonville, FL. WDGC specializes in corporate site selection. Clients have included a variety of high-technology enterprises.