Neeraj Gupta, Systems In Motion’s CEO was invited to participate in a discussion on how Federal Government policies may be used to drive greater US IT job creation. Based on the specific work that Systems In Motion has done in creating a globally competitive US based IT services organization, Neeraj had the following feedback.

“Businesses will create U.S. jobs if it is their best option. We can make that so by creating a strong partnership across all stakeholders—business, government, schools and the public. The ‘centralized software factory’ model can be developed in the U.S. to reduce the [cost] gap between offshore and domestic delivery. The government needs to provide support for such models in the form of incentives. Education policy should align skills development with business requirements, providing training incentives to IT services businesses. Immigration policy should focus on attracting top skilled talent while the rest of the talent pool is developed locally. Global services companies should be required to hire Americans for U.S. positions.”

Read the whole article here.

McKinsey calls it ‘close-shoring’, combining Inshore and Nearshore into one category. According to their research, more and more companies are beginning to realize the value of Inshoring as a complement to their global sourcing strategies, especially for application development and business technology management in new technology areas. Full report available at https://www.mckinseyquarterly.com/Operations/Outsourcing/IT_services_The_new_allure_of_onshore_locales_2661

An interesting article came out recently in the Wall Street Journal covering the proposed H1-B visa fee hike, slated to go into effect as soon as the House votes on the $600 Billion spending bill to enhance border security. It appears that the hike will be to the tune of $2000 (increasing the fees to $4500 for new visas and $4000 for visa extensions respectively).

Given the discussion about restrictive trade practices and whether a visa fee hike should be taken up to the WTO; and in the face of discussion by Indian IT services companies about how this will restrict American competitiveness in the global marketplace, we decided to take a quick look at the ruling and judge it’s impact.

What does the H1-B visa fee hike mean?

A $2000 fee hike equates to approximately $0.35/hour over the  3-year term of the visa – not too much to create a genuine issue with legal immigration of valuable global talent, probably not enough to seriously bother even the H1-B visa abusers, and something that can be easily absorbed by offshore firms in their operating margins. On the other hand, if the US issues 85,000 new H1-B visas (which is the current combined quota of capped and advanced degree visas), and renews another 85,000 (assuming many visa holders from 3 years ago will extend their visas) and conservatively, half those are requested by companies with less than 50% US citizen or permanent residents in their employee base, it increases revenues to USCIS by about $200 million that can be used to cover the additional border security expenditures.

So yes, from Systems In Motion’s perspective this bill is generally a good one. Brings in additional revenues without seriously hurting the ability to bring in appropriate global talent.The net of it is that this bill gets an additional $200 million in government revenues, from an area with low elasticity, without making any fundamental changes to demand/supply dynamics.

The bigger picture point is much bigger!

Let’s start by stating that we believe that Andy Grove is absolutely right. Rebuilding America’s IT leadership will not come simply by investing in R&D and innovation, and then transferring that knowledge offshore to build the scale necessary to actually leverage the fruits of that investment. America needs to retain the ability to create scale and execute on the actual business value potentially generated by technology innovation. To that extent, government polices need to encourage more development, not only of innovation, but of organizations that create scalability in executing programs that leverage the innovation. That means bringing global talent into the US and making sure that the talent is retained here, helping build operations, and jobs! It also means investing in programs that develop the local workforce.

Over the last 10 years, US enterprises (including US IT services companies) have created few, if any, net new IT jobs in the US. All the investment in developing the large scale execution capability has happened overseas on the promise of cheaper available talent. The refrain that the US does not have enough qualified resources has, in the end, become a self fulfilling prophecy. Today, after years of neglecting the American IT worker and American CS and Engineering Graduates, we really do find ourselves in a situation where experienced talent for most types of technology implementation needs to come from offshore.

There are many prescriptions we could propose, but if we started with one change for each stakeholder trying to solve the large problem, we’ll have taken several strides toward ensuring American IT competitiveness and leadership well into the next few decades.

1. For technology workers – realize that standard skills are becoming commoditized and you face competition from around the globe. That’s not to say that it’s a race to the bottom. Just that you need to stop expecting to be able to afford to drive around in a BMW on your Java Developer salary like you did in 2001. We still need your skills and experience, though.

2. For US enterprises – it’s important to understand the short term and long term implications of the sourcing choices you make. An offshore sourcing model, while cost-efficient for ‘keep the lights on’ work, can quickly become cost-prohibitive when implementing business technology initiatives. Instead of increasing investment in offshore talent development, program management and governance to achieve innovation and business-alignment, turn your attention back to the American labor force.

3. For institutions of higher learning – develop curricula in partnership with enterprises and technology organizations to develop more readily productive talent in areas of new technology innovation that will create the scale necessary for the next generation execution leadership. And finally,

4. For public policy leaders – focus on creating greater incentives for retaining and investing in a local pool of talent. Start with creating equity in Tax and Trade policies that favor global distribution of execution talent. And fix immigration policies to attract the best talent from around the world, while stopping abusive practices that undermine the true value of the work visa programs.

So, yes to that extent the visa fee hike was probably a good idea.

A recent BusinessWeek article by Andy Grove (ex-Chairman and CEO of Intel) is a must read for anyone interested in understanding the need for, and value of, domestic technology services.

His opinion mirror Systems In Motion’s leadership team’s views of the long term sustainability of American technology leadership. In an era when almost all of the investment in downstream scaling of American technology innovation is going overseas, we’re left with an ever-widening gap between the development of new innovation and the value created from it for American society.

According to Andy Grove…

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

Read his article. It’s worth the time.

While Systems In Motion is not a “Rural Sourcing” company, being in the same overall market space helping enterprises with cost-effective domestic technology service capability, I’m proud and happy to see my friends over at Onshore Technology Services and Rural Sourcing, Inc. get prominent and positive press from CNN Money and CNBC.

The first link is a CNN Money article by Jennifer Alsever. Jennifer did a solid amount of research for this article including spending a couple of days discussing the various models with Systems In Motion.

The second link is a CNBC interview with Monty Hamilton, CEO, Rural Sourcing Inc. Great interview on how the US is beginning to develop really competitive and cost-efficient service delivery models to compete with the decade-old trend of investing in IT resources offshore. Worth checking it out.

Monty’s right that the new model for cost-effective and business-aligned domestic technology services is a very small sliver of the total global outsourcing industry. But so was was outsourcing to India, back in 1997.

Tags: Inshore Outsourcing, Onshore Outsorucing, Rural Sourcing

Gartner Research VP Frances Karamouzis recently wrote an interesting blog post comparing IT service costs between India and China. In her blog, she highlighted a number of key factors that make it difficult to generalize the answer to that question. There are too many variables – type of service, skills, supplier maturity, risk factors, etc. On the face of it, China’s labor costs are lower than India’s, but factoring the other issues that go into a total cost of outsourcing (TCO) calculation, the final analysis isn’t that obvious.

However, the fundamental question got us revisiting the same question in the context India and the US mid-west. Does offshoring to India save money? It’s literally the million-dollar question US enterprises, especially mid-sized companies have been asking. On the surface it can appear that offshore IT initiatives saves money, but very frequently hidden costs and challenges need to be managed can lessen or even negate these savings.

This is especially true for high performing mid-market companies that need to deploy new technologies quickly. In these circumstances, where the technology deployment initiatives tie closely to business, have to be necessarily iterative in nature and lack significant scale and stability, going global can actually end up being a drag on ‘time-to-value’, and ultimately result in higher TCO.

Sometime ago, Joseph W. Rottman & Mary C. Lacity from the University of Missouri, St. Louis completed an exhaustive, case study of a large offshore IT outsourcing engagement by a Fortune 500 company. The case study uses the pseudonym ‘Biotech’ to identify the company. Their study makes for very interesting reading. The study includes extensive data collection and individual interviews with stakeholders across the enterprise to drill down into the complex layers of the offshoring initiative.

Budget cuts at Biotech led to offshoring to reduce IT costs. Officially, the project was a success with total cost savings consistently reported in line with expectations, but only if measured in terms of total payouts to the supplier. Other than a comparison of payments, Biotech had no formal metrics to assess the effectiveness of the 21 offshored projects in meeting their overall goals.

Rottman and Lacity’s study created metrics to evaluate the projects in subjective terms. The participants gave an overall grade of C to C- to “the degree to which project objectives were met, budgets and schedules were met, and the quality of the delivered product…

What caused these low grades, if the project seemed on paper to be successful? Rottman and Lacity summed up their findings: “It is quite clear from our interviews that the projects sourced offshore were not as uniformly successful as the official PMO reports.”

Several factors led to problems with offshoring. A lack of social networks between Biotech IT employees and offshore suppliers was compounded by technical barriers including security concerns, bandwidth constraints and restrictions on access to production data and the code repository. Biotech has a culture they refer to as “sneaker-net.” In other words, employees and domestic contractors typically walk to each other to discuss projects and get clarification. Documentation processes were similarly informal, often consisting of personal notes and scribblings on white boards. Indian-based IT workers were left out of the loop on both the “sneaker-net” and informal knowledge transfer.

In addition, “Biotech’s project management processes and expectations were often incompatible with offshore suppliers….many participants that the offshore IT workers could not be relied upon to report that the project was behind schedule or that they did not understand the requirements.”

Systems In Motion’s Inshore service delivery creates tighter integration between internal IT and business stakeholders and the offsite teams, largely avoiding the pitfalls that Biotech experienced. Our US location relieves social networking and cultural concerns. In addition, small projects, which are typically difficult to outsource, are easily handled by SIM’s agile, scalable teams. Inshoring offers the best of both worlds: the per-employee cost saving of offshoring combined with the quality, timely delivery and project satisfaction of onsite works.

There was an interesting article on TechCrunch.com a few days ago that took the position that tech startups shouldn’t outsource product development.

While we generally agree that startups should steer away from outsourcing the core of their technology, we think that collaborating with a specialized outside team is very effective in accelerating time-to-market for products of companies of any size. System In Motion’s Inshore model, combined with our core product development expertise, especially in new technology areas like open source, social networking, mobility and rich web applications, is a highly cost effective way to accelerate product development and roll-out, without adding complexity to the delivery organization.

The article’s author, Vivek Wadhwa gives six reasons against outsourcing (which he actually confuses with offshoring). As we see it, an Inshore approach, where the outsourced development team is tightly integrated with the core engineering teams and working in the same time zone, mitigates all the challenges. Here’s a look at Vivek’s issues, and our take on each.

1. Communications and customer needs. “Locating R&D personnel away from customers limits the ability to develop innovative products…” That’s right. With Systems In Motion’s Inshore model, all personnel are located in the United States, in direct proximity to the company and its customers. The Inshore development team is much more aligned, culturally and demographically, to US customer base
2. Component Integration. “…members of a software-development team need to work closely together.” Exactly right. The Inshore approach leverages collaboration tools like Skype, Box.net, GoogleSites, Webex , and of course cars, trains and planes to seamlessly integrate development and test teams across the development lifecycle. Having product development in the DNA of the partner organization also ensures that teams are reading from the same page.
3. Management bandwidth. “It is a lot more challenging to manage diverse teams at multiple location and in different time zones than to manage them together.” In an Inshore development model, teams are co-located and offsite development happens within similar timezones, making program management and governance a much easier ask than globally distributed teams that iterate in 24 hour cycles.
4. Fewer developers can often produce more. “In the tech world, scaling up development teams doesn’t always lead to greater productivity.” Right. In fact, a flexible, dynamic team of bright engineering talent working together are far more productive than offshore teams. They don’t have to be all sitting in Silicon Valley.
5. Skills scarcity. “The specialized skill and mindset that tech companies look for are hard to find.” There’s no dearth of talent in the US. A scarcity in access to skills needs some investment and heavy-lifting in on-going training and workforce development – something Systems In Motion has committed to to, in partnership with state governments and local universities. The training investments in new technology product development is coupled with strong mentoring to build a highly capable and productive outsourced team.
6. Intellectual-property protection. “Employees often leave to start ventures that compete directly with their foreign employers, and the laws provide little protection…” . Not a problem for a domestic service delivery organization. In any case, Systems In Motion implements strict security processes.

Is Inshoring, then, the right model for outsourced product development? We think so.

So, the real question is the one around cost-performance. Despite the productivity gap, investment of management bandwidth, the sleepless nights and 75 different iterations, is globally distributed delivery still cheaper? The simple answer is NO.With an Inshore delivery center located in the mid-west, near some of the top engineering and technical schools in the country, with serious long-term unemployment challenges, outsourced product development is a whole lot faster, and as cost-effective as teams in Bangalore, Krakow or St. Pete..

Read the whole article here:
http://techcrunch.com/2010/04/17/should-tech-startups-outsource-product-development/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29&utm_content=Bloglines

and let us know what you think!

A recent article on nearshoreamericas.com looked at the burgeoning inshore industry as a way for companies, particularly small to mid-sized operations, to save costs and increase productivity in the wake of the US recession. This is a great overview on inshoring that also highlights a few lesser known benefits:

“When it comes to staying involved in your outsourcing operation, the onshore industry can’t be beaten. With your provider in the same country with the same culture and language, effective communication increases while cost of travel decreases….Onshore customers also aren’t bothered by many of the complications of offshoring – wage and price inflation, corruption, unstable political environments, high attrition rates, access to skilled bilingual workers, etc. There is a greater sense of security since the work is governed by US law. Data or software protection and intellectual property concerns are less of a hassle.”

“Dana Stiffler, Research Director for Global Business and Outsourcing at AMR Research, says that proximity is especially important for small to medium size firms that operate only in the US, since they can’t outsource on a large scale. ‘One thing that Indian and Latin American outsourcers never figured out is how to serve smaller companies. Their business model just doesn’t work for those clients. Whereas the onshore industry is relevant for SMBs since it dials down the level of complexity.’”

“Debashish Sinha, CMO of Systems in Motion, maintains that the onshore industry can be cost-competitive. ‘You can’t think solely in terms of wage rates, but total cost on an outcome basis’, he says. ‘Productivity of an offshore resource can be 25-50% less than a US-based resource. So while our wage rate may be higher, when you consider efficiency and hidden costs, we’re actually very competitive’. His point is helped by the appreciation of the Indian rupee this quarter (3.5% against the dollar).”

Read the entire article:
http://www.nearshoreamericas.com/u-s-sourcing-firms-reverse-offshoring-trend-3240/3240/

Facebook, Twitter, LinkedIn, YouTube, blogs, community forums. Every minute of every day, customers and prospects are on social media networks interacting with each other and with brands.

Companies that haven’t tapped into these networks are missing out on an opportunity to drive brand awareness and downstream revenues. Unfortunately, utilizing social media is often confusing and incredibly time-consuming.

To help companies leverage these networks, Systems In Motion has developed Social Media Integration Solutions that ensures a speedy time to market, better visibility, deeper audience engagement, reduced costs and less overheads, Business Intelligence and higher ROI from social media initiatives. Our flexible, scalable engagement model incorporates:

• Social Media Integration Framework - Manages content aggregation, publishing and monitoring across social media channels and aligns the tools with the specific nature of a company’s business.
• Enterprise Integration Services – Links social analytics with existing CRM and BI tools. Provides on-going support for content development and community building.
• Data Analytics and Decision Support Services – Manages, monitors and reports on multiple social media channels.
• Maintenance and Management Services – Utilizes our Inshore service delivery methods to cost-efficiently manage, maintain and update technology operations.

The foundation layer of our solution is the social media content publishing and monitoring technologies from Involver (www.involver.com),including their Audience Management Platform (AMP). Involver is the industry leader in social media and mobility integration and is used by leading companies and brands. The platform features:

• Pre-built connectors to leading social media networks
• Multi channel publishing and monitoring
• User Dashboard to monitor activity streams
• Integration to eCommerce and back-end content management systems
• Consulting and Professional services for customization, integration, deployment and maintenance

Customers and prospects are updating their Facebook status, Tweeting about the latest news, connecting through LinkedIn, posting YouTube videos, writing blogs and commenting on community forums. Every company should be doing the same.

To learn more about Systems In Motion’s Social Media Integration solution, visit www.systemsinmotion.com.

Tags: Facebook, Social CRM, Twitter

Planning for anti-offshoring legislation

In his State of the Union address this year, President Obama reiterated his position against offshoring: “…it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America.”

It isn’t known whether Congress will pass this kind of legislation, but an article yesterday by Stephanie Overby on cio.com advised companies to prepare now for the possibility of anti-offshoring legislation. Overby says:

“Such regulations may come in many forms—from restrictions on the export of personal data to changes in tax law, grants and incentive programs, to various reporting requirements about where work is being done and by whom.”

Suggestions offered to mitigate risk

1. Modify the “change in laws” provision. George Kimball, an attorney in the San Diego office of Baker and McKenzie, says the clause should “…provide for a process of consultation and adjustment that might lead to relocation of operations, equitable adjustment of charges, or in extreme situations, termination if future legislation prohibits, restricts or taxes offshore operations so severely that they cannot practically or economically continue.”

This clause leaves the question of what the company would actually do up in the air and offers no strategic solutions. The existing contract would essentially need to be renegotiated, a lengthy and expensive process. Companies could lose significant money while scrambling to come up with a plan.

2. A benchmark clause in the outsourcing agreement to cover changes in cost and service as a result of legislation.

Of course, benchmarking is expensive, needs to be conducted every year and takes months to complete.http://www.cio.com/article/29102/Outsourcer_Benchmarking_The_Sanity_Clause

3. Choose providers with a large US presence in case operations are forced onshore. “It’s important to remember that this will not be just about price, but also about migration risk,” says Edward J. Hansen, a partner in Morgan Lewis and Brockius’s business and finance practice. “It may be preferable to pay a little more for a domestic provider to re-solution than to have to migrate [to a new vendor].”

Though this solution is the most proactive, it still gambles against legislation and puts the financial and logistical impact in the future.

A better idea?

Complement your global sourcing strategies with an ‘Inshore’ operation. Including Systems in Motion’s domestic service delivery alternative as a part of your strategic sourcing options ensures the ability to dynamically rationalize operations with changes in market conditions – whether driven by politics, policy, or market drivers like escalating costs and attrition in the global arena.

Systems In Motion’s Inshoring model is a scalable and flexible model for developing an agile, highly trained domestic resource pool that can be more productive—at a sustainably competitive price point— than a globally distributed team.

An added advantage? Investing in workforce development in the US today creates a greater sense of community, re-builds a local consumer base, and establishes the foundation for identifying and growing the future IT leaders needed to retain America’s technology advantage.

http://www.cio.com/article/582863/Outsourcing_Prepare_Now_for_Anti_Offshoring_Legislation