TIMIT’s “NeOn” IT Delivery Model (Part II of II)

TIMIT’s “NeOn” IT Delivery Model (Part II of II)

In Part I of II, we revisited “offshore”. We reminisced about the evolution that solved many of the initial challenges, and helped mold the delivery models used to outsource IT. Here we will explain what TIMIT has termed “NeOn”, why it has come about, and what it offers.

Let’s start by dispelling any claim by us to turning offshoring GREEN. NeOn is not a color but simply one alternative to traditional “offshore”. Some elements of traditional offshore delivery models present challenges to an ever-changing world. Differing attitudes — liberal versus conservative, Gen X versus Millennials, global expansion versus nationalism, and the speed of change in business to business (B2B) and business to consumer (B2C) all need to be factored in to today’s IT delivery models.

NeOn first reflects the changing global economy; labor rates in particular. Offshore IT labor rates dipped into the single digits two decades ago (lowest for BPO). As demand picked up, salaries increased. As more people came to the US to work onsite they came to expect higher incomes, and many stayed getting Green Cards and citizenship. All this has acted to reduce the variance in labor rates between India and the US. At the same time India developed IT Services at an alarming rate, where many IT people got Masters Degrees, MBAs and even PhDs. Great strides in delivery process maturity increased the value of offshore in terms of throughput quality. These factors provided a balance between increasing labor costs and increased value.

While India and other parts of Asia showed great vitality in IT Services an interest to do work closer to home (in the US) arose for various reasons. At first some offshore providers promised a mix of nearshore services which in my experience took the form of a sales office or minimal delivery capabilities. The real capability of nearshore came to fruition over time. Today it’s not difficult to find nearshore success stories, and availability of a growing talent pool.

Before getting into what we mean by “NeOn”, let’s first dispel with the term “offshore”. Let’s call work being done far from where you sit “farshore”. Then it makes sense to call work being done nearer where you sit what has been termed “nearshore”. Farshore and nearshore can be debated in terms of pros and cons until the cows come home. Let’s leave the cows out of this discussion. We like to think of a model that simply takes advantage of all the pros, and avoids the cons. To us that means the “mix” that best suits your specific needs of cost, quality, speed, scale and “fit”.

We believe following the 80/20 rule, “NeOn” is a great option for many businesses. “NeOn” quite simply means – you guessed it – the appropriate mix of nearshore and onshore. Not rocket science, but let us explain some elements of this that may not be fully explained by the term itself.

Touted advantages for US companies using nearshore versus farshore include:

  • Cultural fit
  • Time zone alignment
  • US work styles affinity
  • Agile friendly
  • Lower attrition
  • Creativity and Innovation
  • English/Spanish language skills
  • Lower overhead
  • IP Protection/Legal jurisdiction
  • Quicker startup cycles …

Nearshore is a relative term. It can be Mexico or Latin America for the US, but for Europe it is Eastern European countries. To accommodate preferences and sensitivities, onsite plays as important a role. If you’re located in Europe this combination may be a mix of Belarus, Ukraine or Poland with talent from your home country. So, what about the farshore component? We’ll address that a bit later. Not only does NeOn address preferences and sensitivity, it satisfies the need for speed. Agile development is a methodology that persistently produces short-term deliverables (days or weeks, versus months). Agile depends on an elevated level of team interaction. Working in the same/near time zone makes Agile easier. It also increases the odds of having a similar work culture and language(s). Travel time is shorter and the cost is lower for team integration activities. NeOn benefits can also be measured in reduced overhead costs, improved communications, better cultural fit, and better aligned management styles.

If NeOn provides an effective and efficient IT delivery model does farshore still have a role? Absolutely. NeOn is not a silver bullet, and likely will not provide the total solution for large corporations requiring large volumes of talent, or who have long-established farshore partnerships or operations (their own Global Insource Centers, or GICs). Wherever cost is the most significant factor, farshore still offers the greatest comparative advantage; if we use farshore to mean India and other countries with more competitive labor.

The predominant advantages of farshore today continue to include:

  • By far largest talent pool
  • Best choice for large scale IT Service Operations
  • Most mature IT Delivery Processes (omitting new, smaller companies)
  • Leverage of IT and BPO/KPO Services
  • Experience working with large NGOs (omitting new, smaller companies)
  • Labor arbitrage (declining but still significant on large deals)

NeOn does have some advantages not always available with farshore. NeOn provides a model that works very well with Agile, and where elevated team integration is required. NeOn also provides an answer where there is a desire to do more work at home, or close to home.  Close to home may be at your partner’s US office, which is especially helpful for SMBs who may not have office space available. NeOn is a great starting point, especially for SMB companies that have not outsourced IT, but would like to. SMBs may find it easier to work out the minor kinks of NeOn delivery. Additional benefits can be gleaned by adding a farshore component later, if needed. In this case it is best to segment types of work best suited for nearshore, onshore and farshore to form an effective, and efficient delivery model. Yet SMB companies may find NeOn alone provides everything they need, at a price point that provides both lower costs and barriers to entry.

In summary, NeOn takes advantage of the pros of working closer to home. It’s a great starting point for SMB companies who have little/no experience outsourcing IT. For larger engagements, NeOn can be complimented with farshore to take advantage of even lower labor, greater pools of talent, and more mature delivery processes. Larger companies have, or will find, NeOn adds another option to their existing farshore partnerships and operations.

This blog is based on my many years working with great people pioneering “offshore”/outsourcing (customer side), providing it (partner side), and now co-managing TIMIT Software Development, Consulting and Staffing.

TIMIT’s “NeOn” IT Delivery Model (Part I of II)

Before we get into what TIMIT has termed “NeOn”, let’s first revisit the precursor to “NeOn”. (“NeOn” will be explained in Part II).

I’ll bet some of you have been around around long enough to remember when IT “offshoring” was nascent. In any case you have certainly heard about IT “outsourcing” in some context. My first exposure was in the mid 90’s. Offshoring, as it quickly became known, was new and unproven from a process stand-point. Any major change brings challenges that need to be solved. It’s important to note there was no fault on either side, but simply differences that needed to be respected and worked through. Today these have largely been resolved, or can be effectively managed. The most talked about ones related to:

Each year efforts to solve to these challenges molded new elements of the “Delivery Model”. Each model included key elements of:

  • Mix, or Leverage saw the pendulum swing ratios of offshore/onshore as high as 90%/10%, and in some cases 100% for “Extreme Offshore”. Over time initiatives to swing the pendulum back took on the forms of “Rightsourcing”, “Rural Sourcing”, and in a more extreme sense “In-sourcing” (what had been offshored).
  • Project Delivery key decision to be made was where to place PM authority, responsibility, and accountability. Part of the issue came early on when it was assumed all authority stayed with the customer (onsite). Most of the work was to be done offshore, and process maturity (as measured by CMMI) was usually higher offshore than in the US. Placing authority onsite was like trying to watch the hen house through a concrete wall. Project Management transitioned to a shared approach often termed “Two in a Box” where onsite had a counterpart offshore. Then came Agile; and the evolution continues.
  • Subject Matter Expertise (SME) & Skill Retention was a decision about what is “core” to your business. What percent of SME must be maintained? What skills are critical to “keep in house”? Decisions on these helped to answer leverage percentage, and whether IT correlated strongly to the “secret sauce” of your business; or not.
  • Single or Multiple Source vendor/partner relationships were important in terms of managing delivery and to the value your offshore partner(s) placed on you as a customer. Typically, it was best to start with a single partner to iron out the kinks in the delivery process, and to command the most account value by your partner. Over time and with growth, as measured in people and spend, the advantages of sole source inverted to become problems in some cases. An example of this is that your partner would claim to have everything to keep the competition out. This naturally increased the variance of delivery quality across various domains and/or skills outside your partner’s sweet spot. How many partner’s was best came down to how many you needed, based on a partner’s sweet spot, and how many you could keep interested based on your total spend.
  • Pricing Models first came in variants of Time & Materials (T&M), Fixed-Price and Turn-Key. Even though Managed Services existing for Business Process Outsourcing (BPO) this came later for IT Project Outsourcing (ITO).
  • People Management was a decision on who “controlled” the people working offshore. Early on the norm was that the partner paid and managed the people doing the work, within the guidelines of whatever delivery process was agreed to. This evolved to include models of: Build-Operate-Transfer (BOT), Joint Ventures (in more rare cases), Virtual Captives, Global In-House Centers (GIC) and some other offshoots of these. The evolution of people management is now more generally termed Global Sourcing.

Other elements factored into these models such as partner co-investment, training, and domain and skill Centers of Excellence.

In summary, IT offshoring promised exuberant savings, and came with some real challenges. Misconceptions and challenges have largely been resolved. Key elements of offshore delivery models have evolved to form and effective set of variants. The whole idea of “offshore” has become a practice of global sourcing. In Part II (of II) we will explain what TIMIT has termed “NeOn”.

This blog is based on my many years working with great people pioneering “offshore” (customer side), providing it (partner side), and now co-managing TIMIT Software Development, Consulting and Staffing.