A Tech ‘Location’ Crisis

Clustering tech operations made sense—until the pandemic threatened to shut down firms’ access to their networks.

There was no reason to think it wasn’t a smart setup. A financial data supplier split its information technology operations between two centers: one at its New York headquarters, where tech experts could collaborate closely with others in the firm, and another in Bangalore, India, that could provide access to a large talent pool and round-the-clock capabilities.

Then suddenly, the coronavirus hit, shutting down both centers and all 5,000 workers at both. The company’s operations were brought to a virtual standstill.

For decades, companies have long thought about their IT location strategy in terms of access to talent, real estate costs, and proximity to operations and customers. But today’s times have suddenly added a new element of risk that may force many firms to switch gears at a considerable cost. And the reason is simple: employees can’t work remotely if their organization’s data centers and IT systems aren’t operating.

“If more than 50% of your IT team is in one location, that is assuming a ton of risk from both a workforce and business continuity perspective,” says Craig Stephenson, managing director of Korn Ferry’s North America CIO/CTO practice. “If that center closes, it can cripple your business.”

To be sure, firms invest sizable sums into their tech strategies. Research reports show companies spend anywhere from 2% to more than 10% of their annual revenue on IT, with the variation depending mainly on industry. Financial services companies, for example, spend much more on IT than retail companies. Most of that spending is around talent, equipment, data storage, and cybersecurity, along with costs associated with other business-specific technologies such as artificial intelligence. 

Part of the reason why organizations have colocated a majority of their IT operations with other business functions is because of the inherent risk associated with moving data from one site to another. Centralizing IT, says Curtis Britt, director of IT services in North America for Korn Ferry, also allows for more agility by allowing IT workers to collaborate with other units on new products and services.

But, says Britt, companies first started to understand the risk of having a centralized IT operation in the wake of Hurricane Sandy, which hit the New York/New Jersey region especially hard. “Companies that didn’t have any backup outside the area were hurt badly,” he says.

Stephenson says the coronavirus outbreak similarly underscores why companies should approach IT location strategy the same way they do supply chain operations—having alternative centers and dispersed locations lined up in the event of an emergency. Just as companies can’t deliver products and services to customers without a functioning supply chain, they can’t set up virtual offices and remote work options without functioning IT. 

While the location spread depends on many factors, among them company size, global offices, and talent needs, the ideal setup is to have an IT location within one or, at most, two time zones to keep critical business operations running in a timely manner. Stephenson says in the aftermath of the outbreak, companies may start dispersing IT locations “as a way to reduce employee density and mitigate risk of disrupting business continuity.”