July 29, 2020 by Luke Mason
Location, location, location. This phrase has been around for the better part of a century, but it’s even more relevant today. In an increasingly globalized world, with rapid shifts in the economy due to COVID-19, location strategy has certainly evolved. But it remains a critical part of any company’s success story.
Location strategy describes the process companies use to determine where their offices and employees should be located. While business and economic incentives certainly play a public role in site selection (Amazon HQ2, anyone?), successful location strategy incorporates far more than that. A truly comprehensive location strategy analyzes extensive market information and always uses labor data to show companies the cost, availability, and sustainability of labor.
From Main Street to Wall Street, the cost of labor is every company’s largest expense. That’s why labor is the No. 1 priority in location strategy. A company could build the biggest, most beautiful office space in the country. With billions of dollars in incentives. But if the company can’t find enough of the right talent mix, they’ll lose major market share and/or spend a lot of money recruiting talent to the area. Either way, it’s an expensive mistake.
Typically, companies use location strategy for two scenarios:
Location strategy is especially critical now in our post-COVID economy. With remote work on the rise, more companies may need to consolidate their in-office workforce. And growing companies may need to expand with more office locations. Should offices be opened or closed?
If so, where and when?
Whether a company is looking to grow its in-office square footage or reduce it, leaders must approach the site selection process with data. That’s where location strategy comes in. By tracking labor supply and demand metrics, companies can make smart, cost effective decisions about how they expand or consolidate.
When a company wants to open a new office or build a new headquarters (in other words, expand), they have to consider talent supply and demand. When researching potential new markets, companies should look at not only the current availability of talent, but also the sustainability of that talent. Is there a strong enough talent pipeline in the market to fill the company’s needs in the future? For example, are there universities or community colleges in the area producing graduates in the field you’ll be hiring for?
Or alternatively, is the market you’re evaluating a consistent magnet for college graduates? Amazon took that into consideration when it picked New York City and Arlington, VA as co-locations for its HQ2. Both metros are among the best at attracting four-year college graduates who attended school in other regions.
Additionally, it’s also important to look at the cost of talent in prospective markets. Can you find the talent you need at a price that’s doable for your company? If not, how much will it cost to import that talent from another market?
With location strategy (particularly using Emsi’s granular labor data and location economics consulting), companies can analyze potential markets down to the neighborhood level. This is important because large metros typically have distinct neighborhoods. And each neighborhood will have different real estate costs, commuting patterns, talent supply, competitive pressures, education pipeline, etc. It’s not enough to say you’ll locate in San Francisco or Dallas. You have to get more specific when it comes to site selection.
While expansion often gets the most public attention (aka Amazon HQ2), many companies also use location strategy to consolidate. And in a post-COVID economy where more companies are embracing remote work, we anticipate consolidation (or the reduction of physical office space) to be a growing trend.
For example, let’s say a financial services company has set up more than a dozen satellite offices around the country. And they also have a spread out remote workforce. With the rising cost of maintaining so much office space, the company decides to consolidate into a handful of “hubs.” But which markets make the most sense for those hubs? Where are most of their workers currently living? And can they organize those hubs based on occupation (aka do more IT/support staff live closer to one metro than another? Would it make sense to group them together in one of the new hubs?)
Location strategy (with appropriate data) can provide those answers. Using data helps a company consolidate with purpose, precision, and foresight. Because like expansion, there are definite risks to consolidation. Pick the wrong market(s), and you may struggle to recruit and retain talent. And whatever financial savings you gained from reducing office space could quickly be lost.
There are a wide variety of metrics that should be measured in a company’s location strategy. There are the usual suspects like labor supply and demand, education pipeline, competitive pressures, etc. But there are also more personalized metrics, specific to each company’s culture or product. For example, when New Belgium Brewing opened its second location in Asheville, NC in 2016, they looked at water supply, bikeability/walkability, the community’s values, quality of life, etc. While it might sound impossible to quantify “quality of life,” there are metrics that can help.
Location strategy is critical to any company’s long-term success, especially when it comes to navigating challenging economic times. And the strongest location strategies rely on labor data. Data can help pinpoint which markets are not only a good fit economically, but also a good fit culturally. Location strategy takes the guesswork out of the expansion or consolidation process, allowing companies to grow strategically and effectively.
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