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 includes determining the objectives 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 State of Tech Hiring 2023 study by CoderPad, the majority of teams are now hybrid, with only 15% of developers working 100% on-site. Many companies worldwide have moved to a work-from-home model, and business travel has been replaced by online meetings.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. 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.
3. Costs
In 2023, salaries will increase by 3% to 10% and remuneration is the major motivation for candidates to switch jobs. 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.
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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 transportation costs.
How to find an optimal location?
When it comes to choosing the optimal location, decisions cannot be made overnight. There are many other factors to consider, for example, legal regulations, level of digitization, transportation costs, 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 service 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.
Focus on Poland – the shining star of IT nearshoring services
For many European countries looking for IT nearshoring partners, Poland has become a natural choice. Poland is a valuable European academic center of ICT, science and engineering. The expertise and vast talent pool make this country an advantageous location and an important supply base for other European countries struggling with the problem of an IT talent shortage. According to the “European Cities and Regions of the future 2022/2023” report, Polish cities and regions are ranked highly among the best investment locations. Apart from the ranking of large cities, Poland can boast of 4 mid-sized regions on the list of the top 10 most business-friendly areas in Europe (Lower Silesia, Lodz Voivodeship, Greater Poland, and Lesser Poland).
Warsaw
The capital of Poland is ranked 2nd in Europe in terms of business friendliness. Researchers also emphasize Warsaw’s significant economic potential.
The capital of Poland is number 7 in the overall ranking of major European cities in 2022 / 2023; what is more, the Masovian Region has been recognized as one of the top 10 areas in Europe in terms of cost-effectiveness and investment potential.
Read more about Warsaw!
Katowice
The capital of the Silesia region, traditionally associated with mining and heavy industry, is today one of the best locations for IT nearshoring in Poland.
The city of Katowice is number 5 in the ranking of large European cities of the future. In turn, the Silesian region is ranked 4th on the list of the most important regions for investment.
Read more about Katowice!
Krakow
Krakow, a well-known tourist attraction, is the clear winner in terms of business friendliness. It is also ranked number 2 when it comes to human capital and lifestyle, which makes it the right choice for BOT model-based projects. An extensive base of university graduates makes it an ideal place to build IT teams and open software development projects.
Summary
Choosing the right new locations for companies or outsourcing services is now possible thanks to different techniques such as break-even analysis, the weighted scoring method / factor rating method or the center of gravity method. When it comes to team building (e.g., for multi-location teams), selecting the location is just the first step. The next one is to implement suitable management standards that ensure the efficiency of your team. We recommend you familiarize yourself with our materials and guides on agile methodologies.
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