In part four of the digital transformation series, we discuss why onshore could be the solution to IT’s digital transformation and backlog problems and the key strategies to consider when developing an onshore sourcing model.
If one accepts that digital transformation is driving the need for new skills, an expansive range of skills, and skills in close proximity AND that budget inadequacy inhibits a company’s ability to make the necessary investments then…
The simplest of logic states that if IT projects need a lower cost price point and can’t go offshore, then the solution must reside in the U.S. If the solution is in the U.S. then the alternatives are employee, onsite and onshore. Employee and onsite resources for the most part reside in urban areas. Given there is a supply and demand issue for these resources, it is not difficult to conclude that onshore must work as the cost for onsite and employee resources will only increase with time.
The second argument is one for offshore. For any type of resource there are two variables to consider: cost and quality. While offshore has many cost advantages, it is lacking in quality. Offshore resources don’t quite understand the business like U.S. based consultants who possess inherent familiarity. U.S. based consultants can learn the business faster, driving quality. Include the quality variable with the lower cost variable and the only answer is onshore.
Key Components to a Successful Onshore Sourcing Model
Onshore must play a significant role in digital transformation. This is why Gartner made the declaration that, “onshore delivery is no longer just an offshore alternative. The onshore/ on-site delivery option has become imperative within a provider’s global delivery strategy.”
The key components to onshore success can be divided into three categories: resources, environment, and financial assistance.
The technology hub must be located in a non-urban environment, i.e. not a major metropolitan area. It is unlikely that a successful investment model can be developed for an urban environment. The non-urban location must also become a destination for the millennial as this age group will make up the majority of resources. In addition, technology centers must become importers of people from outside the state.
For the foreseeable future, technology hubs must reside in non-urban areas for the simple reason of Resource Return on Investment (“RROI”). RROI is the driver for a non-urban environment. In a non-urban environment, it takes three years to train an employee from raw, unskilled to a productive technical resource making the RROI positive. In an urban environment the RROI is quite different. The cost of training a new employee is at least 20% greater and the probability of a new employee leaving the organization within the first two years is at least 40% greater. These numbers generate a risk/reward model that most IT organizations find unbearable, which is reflective of why these same organizations will not hire and train newly graduated IT students. It is near impossible to make a financial argument on how an urban technology hub can be cost effective
A resource technology hub is built on three key processes: recruiting, relocation and training. There are no shortcuts to the process of recruiting, relocating and training. No cost-cutting techniques. No volume reductions. All other costs associated within a technology hub are relatively insignificant including rent abatement, tax abatement and capital expenditure financing. Economic development must be directed at subsidizing the recruitment, relocation and training of the individual. Consequently, there is an educational adjustment process that needs to take place between the economic development community and the organization building the technology hub.
As new circumstances are evolving and giving rise to new needs in the market, it is clear there are a finite set of solutions emerging from the adoption of digital technologies and strategies. Frameworks exist to help guide these changes and provide a template to help achieve balance in services and sourcing models—balance that reflects consideration to these new pressures and drives a rational and diverse services formula to support the modern enterprise.
Harnessing the opportunity presented by digital transformation is about technology, expertise and how to balance the deployment of such expertise. Developing mobile applications, deploying purchased solutions and integrating and supporting them requires a new balance of in-house and partner resources. The demands of digital require a balanced approach—one that reflects the needs of the business and accommodates the nature of new technologies.
U.S. businesses have engaged offshore for the last 15 years. In this period of time, these organizations have concluded offshore cannot and will not provide 100% of the required technology services solution for the future.
Solving the digital transformation dilemma, U.S. onshore allows an organization to best manage price, quality and risk in software development, deployment and support. It enables the advancement of digital initiatives while accommodating a static budget, permitting reduction in the backlog, and the application of the right skills using the most effective methods.