Software & Information Technology Industry Extends to Every U.S. State
29 Jul, 2016By: John Rees
The software and information technology (IT) industry remains among the most dynamic drivers of the U.S. economy. During the past decade, software and information technology employment increased five times faster than the overall job market. This growth extends far beyond Silicon Valley; last year, every single state in the U.S. experienced an increase in software and information technology employment. The industry also remains a critical source of high-paying jobs, with salaries exceeding $100,000 annually — more than twice the U.S. average.
Growth in software and information technology continues to be driven by sectors such as mobile, cloud computing and cybersecurity. New health and finance information technologies point to the development of exciting new market opportunities for services via smartphones. In a world awash in information, companies increasingly rely on big data and cloud computing to transform vast volumes of information into actionable intelligence. The exponential increase of information stored in the cloud, combined with a seemingly endless series of serious data breaches fuel a vibrant market for cybersecurity services.
In addition to more established industry segments, emerging sectors such as virtual reality and robotics are also likely to contribute to software and information technology growth. As these technologies approach a tipping point in either sophistication or pricing, widespread adoption becomes increasingly likely. The Oculus Rift, a much-anticipated virtual reality headset released earlier this year, promises to disrupt existing industries such as gaming and film. Tesla’s Model 3 automobile will utilize new, powerful assisted-driving capabilities. Although the car is unlikely to reach widespread market penetration, the company has already booked more than 325,000 preorders. Both Microsoft and Facebook are making big bets that chatbots — automated programs capable of engaging in casual conversation — will soon emerge as a significant technological force.
The collective consequences of these innovations are more important than any single technological trend. When the original iPhone was introduced, apps didn’t exist. A decade later, the app ecosystem supports more than a million and half jobs in the U.S. Novel technologies such as virtual reality or chatbots will require new applications and content, driving demand for a new wave of developers and the corporate facilities that house them.
Given the tremendous pace of change and the fierce competition that characterize the industry, how can software and information technology companies select the most supportive environment possible for their operations? How do site selectors ensure that a corporate investment in a community best serves the company’s long-term growth agenda? Three factors are especially critical in guiding the software and information technology site selection process — talent availability, value proposition and competency convergence.
The More Things Change, the More They Stay the Same
While the current hot new software and information technology product or service may change from one year to the next, one ingredient remains constant to the site selection process — human capital. Thanks to a national deficit of tech skills, the search for talent remains the principal consideration in software and information technology site selection. And no region has a monopoly on talent.
While San Francisco and San Jose are software and information technology titans, industry growth reaches virtually every corner of the U.S. Last year, more than 75 percent of all software and information technology jobs created were located outside of California. Similarly, the greatest rates of employment growth for computer and math workers occurred in many smaller communities not usually recognized for their technology prowess. Texas is enjoying particularly notable gains — among the top 20 metros with the greatest growing employment for computer and math workers, three are located in the Lone Star State.
Communities such as Kansas City and Columbus may be home to relatively small software and information technology clusters, but local employers often face significantly less competition for talent. In San Francisco, for example, job turnover for data processing and hosting workers often exceeds 10 percent quarterly. In Columbus, the figure is less than five percent.
Many of the communities with the fastest-growing computer and math employment also feature strong track records of producing and/or attracting talent. In Austin, for example, the better-known University of Texas is complemented by an even larger and widely admired community college system. In Miami, a quarter million college students help sustain the region’s talent pipeline. Both Charlotte and Charleston have long histories of luring educated workers from other parts of the country — more than two-thirds of college graduates in both metros were born outside of North Carolina and South Carolina respectively.
In addition to talent availability, less established software and information technology hubs often offer prospective firms compelling value propositions.
“Price is What You Pay. Value is What You Get.” Warren Buffett
Costs do not play an especially prominent role in the site selection of most software and information technology sectors. Data centers are a notable exception. Due to the capital-intensive nature of these investments, as well as the limited numbers of workers employed at such facilities, local property tax rates and energy prices play a major role in determining operating costs, and thus site selection. For the rest of the software and information technology industry, however, access to talent usually trumps cost considerations.
From San Francisco to Seattle, many regions with highly concentrated software and information technology industries are among the most expensive places in the U.S. to do business and acquire labor. In San Jose, for example, the average salary for a computer and math worker approaches $130,000 annually. In San Francisco, the figure is nearly $110,000. Stratospheric wages are easily manageable for companies such as Google or Facebook that have both the cash and competitive pressures to acquire the most talented workers regardless of cost. Companies with fewer resources or specific needs, however, may find greater value in locales with less-celebrated techs scenes. Communities with less-concentrated software and information technology industries, for example, often possess another competitive advantage — economic and skill diversity.
Everyone, Anytime, Anywhere
As technology becomes increasingly integrated with other industries, the convergence of formerly unrelated competencies can serve as the basis for new market opportunities. In 1998, Bill Gates wrote that the convergence of technology would “deliver the power of the information age into the hands of everyone, anytime, anywhere.” At the time, Gates was primarily preoccupied with integration of consumer digital devices such as phones and televisions. During the past 20 years, however, technological convergence has proven far more expansive. From medicine to manufacturing, financial services to filmmaking, technology threatens to disrupt nearly every industry.
In an era of convergence, software and information technology firms can actually benefit from locations where the tech industry is less dominant. Tomorrow’s tech innovations are likely to involve industries concentrated outside of Silicon Valley. Charlotte, with its strong concentration of financial services, provides a particularly striking example of competency convergence.
According to a study published by Scratch, a marketing unit of MTV, financial services is the industry most likely to be transformed by Millennials. For a generation raised on the tenants of everyone, anytime, anywhere, banking hours are especially anachronistic. Perhaps unsurprisingly, nearly 75 percent of surveyed Millennials would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank. Despite the entrance of these companies into markets such as mobile payments and digital wallet services, their efforts have thus far proved rather modest. Among the many reasons for the continued relevance of traditional banks is their deep understanding of the complex regulatory environment that governs financial services. During the past year, the integration of technology and financial services in Charlotte contributed to an 18 percemt increase in the number of math and computer workers.
Site Selection Process for Software and Information Technology Companies
Whether your company is looking to develop the next big thing in tech or simply expand existing operations, selecting a site for new or expanded information technology operations typically involves the following steps:
Define Success - The site selection process should begin with the company’s ultimate goals, as these will drive all subsequent efforts. What are the company’s strategic needs? When is a final decision needed? Are there specific considerations that must be addressed by the new site? The answers to these questions can help ensure the company achieves its desired outcome.
Identify Incentives – As many software and information technology companies are new to the site selection process, they are often unfamiliar with financial incentives available to relocating or expanding firms. Few industries are more aggressively courted by communities throughout the U.S. and available incentives can be substantial. Site selection consultants should work with the client’s financial team to identify what types of financial assistance would provide the greatest positive impact to the company’s bottom line. Data centers, for example, are likely to benefit from property tax abatements. Research and development tax credits, on the other hand, may be preferable for software firms.
Issue Requests for Proposals – Requests for Proposals (RFPs) should be issued to a limited number of communities. The short list of potential locations should consist of five to 10 communities that meet certain criteria such as broad geographic considerations and labor requirements. For example, a software company located on the West Coast may require an East Coast location within relative proximity to a research university. Once the initial list of possible sites has been identified, a site selection consultant will request more granular information from each community through a formal RFP. The RFP will focus on those issues most relevant to the client, including workforce availability, utility cost, tax rates and real estate availability. To ensure confidentiality, communities will not be provided with any identifying information about the client.
Proposal Evaluation, Site Visit and Benchmarking – Once the consultant has received all completed proposals, communities will be evaluated against the goals identified during the first phase of the project. Due to the different types of available incentives, the consultant will likely need to complete a financial analysis of the company’s operations to make direct comparisons between communities. The site consultant will then visit those communities with the most compelling proposals. No more than five communities are typically selected for site visits. During these trips, the consultant will meet with public officials and private-sector leaders to obtain a more nuanced portrait of each community’s strengths and weaknesses. These qualitative findings will then be integrated with hard data from each community’s proposal to determine the most attractive locality.
Negotiating Terms – Once a preferred location has been determined, any outstanding issues surrounding incentive packages and/or real estate acquisition should be finalized.
Select Site – The last step in the site selection process involves the careful consideration of each community’s proposal. The consultant should then collaborate with company management to select the most compelling site. The decision regarding the selection should remain private until the client secures a formal agreement with the community. Once accomplished, the site selection consultant should coordinate with local officials on a public unveiling of the community’s new corporate partner.