Does DevOps Threaten the Labor Arbitrage Service Model? | Sherpas in Blue Shirts

DevOps offers a tantalizing opportunity for the service provider industry. On one level, it’s perfect. It allows service providers to get closer to the business, deploy automation and provide an integrated services stack with greater wallet share. There are even clear indications that it can be applied to a legacy environment as well as private and public cloud environments. Plus it increases productivity, so it delivers services at half the cost and twice the speed. So what could possibly go wrong?

One thing that could go wrong is a service provider that is heavily invested in an offshore-centric talent factory model. The problem is DevOps is different from traditional labor arbitrage services world.

In the arbitrage services world, providers attack cost in two ways. The first way is to move the work offshore to leverage low-cost labor pools. With this comes the tyranny of distance with implications of coordinating by only talking by phone and text and difficulty of coordinating across time zones and the differences in terms of business context.

The second lever is the invention of the talent factory and pyramid model. It relies on the provider constantly bringing in freshers – young people fresh out of college – and training them. This keeps costs low by having junior staff do the work under more experienced supervisors.

How does DevOps challenge this model?

The purpose of DevOps is to get much faster delivery as well as much closer connection to the business. And organizations are finding that DevOps more than makes up for the cost savings of labor arbitrage. It achieves this outcome by two tactics.

  • First, DevOps combines four teams (the development team, testing team, maintenance team, and infrastructure team) into a smaller central group that develops, maintains and manages the environment all from the same place. These tightly integrated DevOps teams require fewer people, and they’re often more than twice as productive as the old-model factory teams. In addition, the teams are located as close to the business as possible, both from a proximity and a time zone perspective. Clients now want to have more participation in their service delivery and want the teams to build a strong connection to the business. So, organizations using DevOps desire having a greater proportion of the team onshore than offshore.
  • Second, DevOps uses persistent teams rather than the leveraged, churning teams in the old factory model. You can’t achieve the productivity gains if you keep changing out the team members. The old pyramid factory model implicitly drives personnel change, which is completely antithetical to the DevOps model. Typically, if the work is delivered out of a talent factory, the client doesn’t get a persistent team. There is a different team for each project, and there is substantial turnover, both in the firm at large, with turnover rates ranging from 15 to 30 percent, and turnover across the pyramid with different people assigned to a wide variety of client projects. So the client always has a junior team and different people for each project.

The tightly integrated, persistent teams located close to the business threaten the labor arbitrage model. Given the clear benefits of adopting DevOps, I see it as a significant challenge to the traditional status quo as practiced in most arbitrage-assisted IT organizations today. DevOps challenges the old 80-20 rule (80 percent of talent offshore, 20 percent onshore). I don’t mean to imply that I believe that all offshore work will move back onshore. I simply don’t believe there is enough talent in the originating destinations for this to happen.

The adoption of DevOps is certainly creating a headwind for a set of issues that I think will, over time, fundamentally question the way we conduct services businesses today. DevOps delivers on its promise for services at half the cost and twice the speed. But the consequence of DevOps is that it takes service delivery to a new business model with different kinds of pricing, a different kind of talent mix and different choices around location.

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