Page 83 - Harvard Business Review, Sep/Oct 2018

Navigating Talent Hot Spots

From 1975 to 1979 the Bay Area accounted 1 2 3 4 5 6 7
for 4.5% of patents, or the combined output
of 20 states. In 2011 to 2015 its share rose to
17%, equaling the output of 34 states.

in digital fields in hub cities is typically two to three times as but there’s no better way than meeting in person to kick off or
high as the national average. Moreover, many talented young renew a relationship.
people want to work in hip downtown locations with sleek new A third risk is negative press and the loss of political capital.
offices, not aging suburban complexes with lots of parking. No city wants a leading firm to leave, but the potential for ill
But a headquarters relocation poses several risks. For large will extends to new locations, too. Many companies seek tax
incumbents it can be incredibly difficult, time-consuming, breaks and other incentives for their new headquarters; it’s
and expensive. The need to uproot an existing workforce, a delicate balancing act to secure preferential treatment but
change legacy customer locations, and establish new local also be perceived as a partner in the new home city. Amazon
political connections and responsibilities means that any has been criticized for the multiround bidding contest it held
relocation will be disruptive, offsetting the advantages a and the incentives it sought when scouting sites for its second
talent cluster might offer. What’s more, HQ moves are hard North American headquarters. As Apple began its search for
to reverse. Because talent hot spots can rise and fall—in the the site of a fourth U.S. campus, CEO Tim Cook remarked that
1950s, Silicon Valley was barely a dot on the economic map, his company would not hold a beauty pageant like Amazon’s.
and Detroit was the epicenter of rapidly growing industry— “That’s not Apple,” he told Recode.
corporations may end up overinvesting in a temporary Headquarters moves must also deliver on high expecta-
competitive advantage. tions. They must weather any changes in corporate lead-
One way to mitigate that risk is to build smaller headquar- ership and the ups and downs of company performance.
ters that are focused on innovation and the key needs of top Shortly after John Flannery took over as CEO of GE, in 2017,
decision makers. GE is moving fewer than 800 people (out of the company announced that it would delay construction
a workforce of more than 300,000) to Boston; only those who on its new $200 million building in Boston. And after GE
are especially focused on innovation and digitization are being announced job cuts, some of which would affect Boston
relocated. At some incumbents the top leaders already work workers, last fall, a local newspaper columnist wondered,
mostly remotely, especially if they have heavy travel sched- “Was Boston sold a lemon?” GE remains committed to its
ules. New corporate HQs are starting to look and operate more new HQ but is also rethinking the role of the HQ as it works
like the offices of unicorn start-ups than of industrial giants. to realign itself.
Communication technologies and connectivity allow corpo- A fourth risk that companies must guard against is a “leaky
rate leadership to oversee operations with ever greater scope bucket.” Although they can recruit more easily in hubs, they
and scale from a small command post. can see ideas and talent flow out, too. In top clusters being an
This points to the second broad risk with headquarters attractive local employer often means stacking up well against
moves: that ideas generated within the talent hub may fail to an Apple or a Spotify with competitive salaries and benefits.
spread to the rest of the organization. Cutting-edge concepts Finally, there’s a risk of unintended and unforeseen con-
picked up in Boston or Berlin will benefit a global company sequences. Research shows that companies are more likely to
only if they improve the productivity of operations around close plants that are distant from HQs than plants close by, for
the world. Moving key executives to talent clusters may instance. Headquarters moves permanently shift the internal
distance leaders from other employees in the firm, whereas workings of a firm in material ways. The company will also
the older corporate HQs in suburban office parks tended to adopt more of the culture of the new home base—which was
minimize internal distances. As a result, careful thought will often the point of the move, after all—and executives will
have to go into diffusing acquired knowledge throughout the have a new peer group going forward. But for executives and
organization’s facilities. directors looking to deeply transform their organizations, all
Talent rotations can mitigate this risk. A study of an Indian those risks may be warranted.
R&D center at a leading multinational showed that short
business trips to the firm’s U.S. headquarters boosted the Option #2
productivity of the site’s scientists and engineers upon their
return home, because they had gained technical knowledge Creating Outposts and
and formed tighter personal relationships with leaders at Innovation Labs
headquarters and were better able to match people’s skills to
assignments. And as more companies are learning, commu- At many companies, moving the headquarters is not up for
nication technology is not a substitute for people flows but a discussion. In September 2017, the same month that Amazon
complement. Yes, great videoconferencing technology helps, began its search for a second North American headquarters,

SEPTEMBER–OCTOBER 2018 HARVARD BUSINESS REVIEW 83