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.