Many companies historically viewed IT as a nonstrategic support function charged with ensuring reliable operations at the lowest cost possible. As a result, IT workers were clustered for convenience at headquarters or for cost in low-wage countries. Salaries hovered at the market average or somewhat lower. That strategy delivered average talent at best, but it was good enough in the past.

Today, most firms recognize that digital innovation is a strategic imperative and that technology talent is a competitive ace. That’s prompting leadership teams to rethink their talent models and IT location strategies. The most successful technology organizations follow three important guidelines.

• Match the talent and proximity to the work. Strategic IT work, such as building an e-commerce app, benefits hugely when developers are located near internal and external customers. By contrast, commodity work, such as maintaining a finance system, can be done more efficiently in low-cost locations. Work requiring top-tier data scientists—for example, a machine learning–based inventory allocation model—should be located in the few global cities where that talent is available. The key is recognizing what kind of talent is needed for a given type of work.
• Open new hubs to fill portfolio gaps. When executives seek to match technology talent and proximity to the work, most discover that their current IT locations—selected at a different time with different needs—are not optimal. Leaders fill the gaps by opening new hubs and closing locations that are subpar for any type of work.
• Make better use of distributed teams. While colocated teams are usually the most effective, well-managed distributed teams come close. Some of the most talented technology workers are not located in high-tech hubs, and others prefer to work from home. A powerful combination we’ve seen is a product manager located with internal customers and supported by a distributed team. That allows the product owner to build strong relationships with staff in the office while staying well connected with the virtual team.