Tag: location optimization

Onshoring, Talent Development, Automation – My Top 10 Picks from RevAmerica 2015 | Sherpas in Blue Shirts

Last month I had the opportunity to attend and co-present with Eric Simonson at a special event in the outsourcing sector, RevAmerica 2015, held in New Orleans, LA. You can download our keynote presentation here. For those who might not know, RevAmerica is a domestic outsourcing event in its second year. The event focused on a multitude of topics and was attended by a strong community of service providers, buyers, economic development agencies, analysts/consulting firms, and academic institutions. Here are my top 10 takeaways from the event:

  1. Buyers are looking at their IT and BP service delivery portfolio more holistically than ever and asking the shoring question more seriously. They are willing to evaluate onshoring as an alternate and in some cases willing to even bend their rules around cost savings to get the extra flexibility in delivery.

  2. Service providers have a major role to play in onshoring growth as they can not only harness the available talent pool, but also create a delivery model that makes economic sense.

  3. Domestic pure-play service providers are diligently making the business case for onshoring. The ones that do this without demeaning the offshoring benefits are likely to be more successful in not only winning pursuits, but also in sharpening their own value proposition for buyers. In this regard, I liked Genesis10, Nexient, and Rural Sourcing’s approach that are playing on the strengths of onshoring rather than making unnecessary comparisons with offshoring.

  4. Economic development agencies (EDAs) are evolving in their thinking and go-to-market approach. Those who are serious about this sector, such as North Dakota Dept. of Commerce and Louisiana Economic Development (LED), have a more collaborative approach towards working with providers/enterprises. However, there is a lack of collaboration among economic development agencies for the common goal.

  5. Talent development continues to be an area of immense interest. Partnership with universities, training/re-skilling programs to create talent in places where people have limited opportunities, and hiring veterans and their spouses are all examples of initiatives to strategically develop the available talent for domestic sourcing. A great example of this is the partnership between IBM, LED, and LSU College of Engineering where State of Louisiana will invest in the institution to expand higher education programs in order to increase the annual computer science graduate output to support IBM’s delivery center in Baton Rouge.

  6. Tier-3 cities are the epicenter of activity in the domestic sourcing space, with maximum centers and headcount located in this cities. They are also the ones that will see maximum growth in the future, but we should watch for saturation trends.

  7. The buzz around robotic process automation (RPA) is getting stronger, especially in the context of domestic sourcing as onshore providers can compete with the offshore labor arbitrage model by harnessing the potential of RPA (where applicable).

  8. The role of educational institutions has to increase to make onshoring a compelling alternative in the eyes of both providers and buyers. EDAs can only promise sustainable talent pool, but not deliver it unless educational institutions show the flexibility and support at a sustained, tactical level – implying changing curriculum, adding industry interaction programs, etc. while still serving the overall mission.

  9. Agile methodology and its implications for working models for IT teams are a great blessing for the onshore model. However, agile can only be one of the selling points. Domain expertise, ability to ramp up/ramp down, technology expertise, and cost of delivery are all factors for evaluating a provider’s capabilities in the onshore context.

  10. The notion of “domestic sourcing = impact sourcing” is flawed. Beyond generating jobs for the underprivileged, domestic sourcing’s larger mandate is to create jobs for the unemployed educated people of the country. There are some domestic sourcing plays such as Onshore Outsourcing and Liberty Source that are doing impact sourcing in an onshore model.

Overall the event touched upon some very relevant topics from the domestic outsourcing perspective and is paving the way for developing a stronger ecosystem to support this sector. Kudos to the Ahilia team for organizing a great event! Last but not the least, in case you are interested in learning more about the domestic outsourcing landscape, you can download Everest Group’s full report here. You may also want to read Eric’s blog on tier-3 cities: John Mellencamp Named Honorary Everest Group Analyst of the Month.


Photo credit: Omni Royal Orleans

John Mellencamp Named Honorary Everest Group Analyst of the Month | Sherpas in Blue Shirts

“Well I was born in a small town
And I live in a small town
Prob’ly die in a small town
Oh, those small communities

All my friends are so small town
My parents live in the same small town
My job is so small town
Provides little opportunity

— John Mellencamp, Small Town (1985)

Turns out Mr. Mellencamp was a pretty good analyst when it comes to assessing global services employment opportunities in small communities. So much so, that I am officially naming him as “Honorary Everest Group Analyst of the Month.”

No, I am not smoking something.

We just completed a first of its kind analysis of the U.S. Domestic Outsourcing location landscape for RevAmerica and finally have the key facts the industry has been lacking. In short, although smaller communities are sometimes used for service delivery, the reality is that the vast majority of the market is concentrated in larger communities with populations measured in the 100,000s vs. 10,000s. In particular, tier-3 cities are the sweet spot…the largest number of centers, the largest employment, and the largest centers.

Defining the city tiers

In order to analyze approximately 250 metro cities, we segmented them into six groups – tier-1 through tier-5 plus rural. As indicated below, the city segments are characterized by differences in population size plus commercial and educational factors.

Location Definitions

Although only one dimension of a city’s potential for service delivery, it is easy and revealing to look at the differences in average population size of the city tiers. Each city tier is 20-40% of the population of the next larger city tier, which leads to a dramatic difference in the profile of cities that are 2-3 tiers different from each other.

Population of city tiers

It’s good to be a tier-3 city!

One of the most interesting findings from the research was the extent to which tier-3 cities dominate on almost every dimension. As shown in the exhibit below, they have the largest share of FTEs and delivery centers of all cities. Further, their centers are on average larger than any other city tier.

Distribution of FTEs and US delivery centers by city-tiers

Additionally, tier-3 cities have the largest portion of multi-function centers (some combination of IT, business process, and contact center) and are the centers which are expected to grow the most in coming years.

Given that tier-3 cities average one million in population, most are surprised that cities of this size are driving the growth of domestic outsourcing delivery – many would expect smaller cities to be the primary forces. So why are tier-3 cities favored?

In short, we believe this is due to three factors which work in combination with each other:

  • Sufficient cost savings: Relative to tier-1 cities, tier-3 cities offer 15-20% savings; moving to tier-4 cities may only offer 5% more savings and in many cases is either cost neutral or even higher cost than a tier-3 city.
  • Enough talent: With nearly one million in population, the installed base of experienced talent is sizeable. Further, most tier-3 cities have large colleges which produce fresh talent for the entry labor force. Combined with the life style benefits of a larger city (airport, entertainment, shopping, etc.), tier-3 cities have the ability to both keep talent and to attract talent from other cities – either smaller or larger cities. Not everyone would want to live in New York, NY; similarly, many people could not imagine living in a town of Midland, MI (a town of roughly 50,000). However, many people could be comfortable in a city of one million.
  • Accessible: Although the idea of a remote, small city may seem attractive in order to capture an isolated labor pool, this doesn’t hold up well when assessed in detail. First, even small communities have competition for talent plus limited talent pools – costs can quickly spiral up. Second, the practical logistics of transit to these small cities creates an inconvenience that most organizations wish to avoid (especially for IT service delivery, requiring more cross-center collaboration). Most tier-3 cities are connected by direct flights to other major business centers within two to three hours of flight time.

In other words, tier-3 cities have an attractive mix of cost savings and talent, while still being comparatively easy from an operational perspective. This is broadly true, but less true for pure contact center work which can more easily operate at scale in tier-4 cities and even some tier-5 cities due to the broad labor pool which can fill contact center roles.

So, would Mr. Mellencamp’s small town have been a viable service delivery location? He is from Seymour, Indiana, with a population of about 16,000 – clearly a rural community by our definition. Highly unlikely many organizations could operate an IT or business process center of 200 FTEs in Seymour, although a smaller contact center could be viable. So, yes, there might be jobs…but little opportunity…

Also check out my co-presenter Sakshi Garg’s top 10 takeways from RevAmerica.


Photo credit: Flickr

How can we engage?

Please let us know how we can help you on your journey.

Contact Us

"*" indicates required fields

Please review our Privacy Notice and check the box below to consent to the use of Personal Data that you provide.