Articles | October 14, 2021
Location strategy in operations management
There can be a number of reasons to open an office in a new location: relocation of services, rapid growth of an organization, closing another location, and sometimes the need to save money. Regardless of the reason, organizations searching for an answer to the question of “where?” aim to find, if not an ideal location, then at least an optimal location for their business.
What is location strategy in operations management?
What can better navigate you to the right location if not a road map, meaning the right location strategy? Simply put, location strategy is a plan that involves identifying the goals of your company and then finding the right location to achieve them. There are many factors to consider, so choosing a new location should be preceded by an in-depth analysis.
Important factors to consider while choosing a new location include:
1. Geographical proximity
According to IW calculations, due to the pandemic German companies saved $20 billion on business travel in 2020. Many companies worldwide have moved to a work-from-home model, and business travel has been replaced by online meetings. Does this mean that distance does not matter anymore? Not necessarily. When working on digital solutions, geographical proximity can be a competitive advantage. In IT nearshoring, working within a similar time zone facilitates daily communication which is crucial in the case of Agile project software teams.
2. Availability of skilled programmers
The IT talent shortage is a never-ending story. The pandemic has made matters worse and the demand for tech talents has risen on an unprecedented scale. According to CompTIA’s 2021 Workforce and Learning Trends report, 40% of organizations decided to employ tech staff during the COVID-19 pandemic. However, when looking for the right location, it’s also worth considering not only the availability, but also the proficiency of experts. Do they have the know-how and the right level of competences for your project? International rankings such as those published by HackerRank and SkillValue can be helpful here.
In the 1st quarter of 2021, wages in the IT sector rose by 20%. For this reason, hiring qualified software developers is becoming a real challenge. The costs of software development may vary significantly, depending on location. By outsourcing IT services to countries with a vast talent pool (such as Poland) you can lower the cost of software development without compromising quality.
4. Room for development
When searching for a new location, make sure to allow room for expansion – not only in terms of office space but also in the context of scaling the project team. When it comes to IT service centers located in larger cities, the scalability of teams is not an issue. In the case of nearshoring, the IT partner provides all necessary competencies according to the current needs. So, when thinking about development in the context of project growth and involving more specialists, it is worth considering IT nearshoring in the Time and Material model.
5. Availability of amenities and services
Last, but not least, while thinking about relocation, ensure that the appropriate infrastructure is in place for your employees – meaning amenities (housing and shopping areas, communication systems etc.) and services. If you do not plan to relocate employees, perhaps there is a provider on the local market who can take care of part of the work related to setting up a new office (e.g. preparing the facility, recruiting employees, taking care of processes and knowledge transfer). In such a case, you can take advantage of the Build-Operate-Transfer model.
Examples of location strategy methods
- The weighted scoring method / factor rating method
Using a weighted scoring method, you take a variety of aspects into consideration and evaluate them. Creating a list of important factors and weighing them accordingly is recommended. Eventually, you compare all locations and choose the option with the highest score.
- Break-even analysis
With this method, you conduct a cost-volume analysis allowing for an in-depth insight into economic aspects. You need to identify both variable and fixed costs and make a decision based on the results.
- The Center of Gravity Method
This method is particularly helpful in determining locations for distribution centers or in supply chain planning. It consists in determining the optimal location in terms of transport-related costs.
Choosing the location is not a decision that can be made overnight. There are many other factors to consider, such as legal regulations, level of digitization, and quality of life in a given area. A general to specific strategy can come in handy here. After deciding on the country, then it will come time to get a closer look and choose the exact location. In the process of getting to know the best IT providers to support your project, do not underestimate the value of the organizational culture of your IT partner. In the end, people are at the heart of every business.