white paper

INSHORE: A GLOBAL SERVICES REDESIGN INITIATIVE

Blueprint for the Most Efficient Domestic IT Services Model

Abstract
Sourcing of technology services has become truly global. American enterprises today have well over 2 million people,
around the world in low-cost geographies, providing IT and process support services. However, in spite of the progress
made in managing global services, market studies still show that only 8% of technology service organizations are
considered highly effective and aligned with their businesses.

This discrepancy exists because of a fundamental gap in integrating the service delivery value chain across industry,
business, function, technology and operations competencies, in a globally distributed environment. Bridging this gap is
either very expensive or, in many cases, not possible. The gap exists between business/functional requirements, and the
technical/operational competencies needed to support them. This will continue to increase with rapid changes in the
business and technology landscape.

Instead of throwing more investment dollars at bridging the gap, is it possible to eliminate it by building a more efficient,
integrated, domestic sourcing alternative? The authors strongly believe so, though it requires a re-thinking of common
sourcing assumptions, and a clean slate approach not burdened by incumbency.

The most efficient domestic services model can, in many cases, deliver better scalability, quality, and flexibility, at a more
competitive price point, than global sourcing. This “Inshore” domestic services model leverages global sourcing best
practices, eliminates inefficiencies inherent in large differences in time zones and culture, and accelerates “time to value”
by using new technology models of service delivery. Coupled with a readily available talent pool, and a public-private
partnership for workforce development, a globally competitive solution can be delivered in the United States even if the
cost of resources at the entry level is significantly higher than in low cost countries.

This position paper explores what the future sourcing models may look like in the context of a cost competitive,
scalable, integrated, domestic service alternative.

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The Context for a Global Services Redesign Initiative
The role, and value, of the IT department is changing dramatically among American businesses. These changes create a
significant challenge for CIOs and strategic sourcing managers in developing appropriate strategies for effective service
delivery to their business stakeholders. Enterprise sourcing strategies are accelerating towards ‘offshore’ services in a
quest for more cost-efficient service delivery. But greater offshore leverage increases the gap between the demands of
businesses (Figure 1), which need a more agile and business-savvy IT organization, and the reality of offshore sourcing,
which needs stability and standardization.

GLOB AL DELIVERY CHALLENGES

• Lack of process understanding
Industry • Loss of productivity
Functional
PM Skills • Communication issues
• Program management
The Value Gap • Lack of synchronous interaction
• Visibility and control of activities
Technical Competencies • Cost of governance
• IP protection
• Infrastructure capability/cost
Standardized Work • New processes and innovation
• Flexibility and agility

Enterprises have to make significant investments to bridge the “value gap” in the global delivery model, and
this will only increase in the future.

FIGURE 1: The Value Delivery Gap in Globally Distributed Service Models

The context for the re-design initiative stems from this dichotomy – IT organizations today need to contend with
greater integration because of the following 3 key issues. Their sourcing options, however, are creating a wider gap
between the business and its technology enablers.

1. Alignment of IT with Business Goals – This is perhaps one of the most critical challenges for IT operations,
in how they impact productivity and effectiveness of their businesses. A recent Accenture survey of 760 executives
found that “IT executives are now expected to enable business growth, drive
innovation and reduce the costs of doing business.” IT departments are no “Only 8% of IT organizations are considered
longer expected to just keep the lights on. They are a critical part of the team highly aligned and highly effective by their
that sets and executes complex business strategy, and enablers of technology business stakeholders.” –Bain Consulting
necessary in creating competitive advantage and differentiation in the
marketplace.

2. Disruptions in the Technology Landscape – Line of Business leaders demand faster leverage of technology
innovation to remain competitive and meet their business goals. These innovations could be deployment of on-
demand environments that lower cost of assets, or Enterprise 2.0 collaboration tools that improve efficiency and
effectiveness. New choices increase complexity of how the technology is supported, integrated, and managed. It also
increases the requirements of those managing technology to have a greater understanding of the business.

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3. Flexibility of IT Infrastructure – Businesses understand that even as the economy comes out of recession, it is
likely to remain volatile for some time to come. In order to respond appropriately to changing market conditions,
their IT organizations will need to be flexible as well.

These issues are playing out against a back-drop of increasing US unemployment, stagnant wages and continued pressure
on the US dollar, creating the need, and potential, for a redesign of the global sourcing landscape.

Sourcing strategies of US enterprises are built on an assumption that domestic IT resources at the ‘bottom of the
pyramid’ (shown above) are so much more expensive than their offshore counterparts, that whatever the cost of
harnessing these resources may be, it will still ultimately be more cost effective than any domestic alternative.

As this paper will discuss and show, that assumption is wrong.

Inshoring – The Most Efficient Domestic Service

Delivery Alternative
A domestic resource pool – appropriately trained, organized and managed – can be more productive than a globally
distributed team. Further, the cost of ‘bridging the value gap’ – with additional resources, greater governance, and
increasing levels of infrastructure spend – can be so expensive that it negates the expected savings from globalization.

What if sourcing managers had a choice – an alternative to the current models – that provided a scalable, flexible,
vertically integrated approach to service delivery at a price point that was competitive with any global sourcing option?
What would it take to build such a model, and how would that be different from the current models of domestic
service delivery?

The Inshore Services Model

Systems In Motion has detailed the operating mechanics of such a service delivery model, and created the Inshore
Services option. Inshore Service operations are built on 3 strategic pillars, as shown in Figure 2:

L E A N S E RV I C E FAC TO RY S E RVICE DELIVERY INNOVATION LABS

• Service factory in select
US college towns reduces
total cost (TCO), risk
• Service operations based on
QMS and “lean” principles
creates efficiency, quality
• Strong training platform
for scalability and strong
resource management
• Consulting and program
management skills to
drive business-IT
collaboration
• Engagement model to drive
customer experience,
agility and flexibility
• Investments in key
practices provide strong
local competencies
• Solution assets across
practice areas improve
productivity, consistency
• In-house PaaS and 3rd
party cloud solutions,
custom applications
development
• Future operating
models for sourcing,
technology, and functions

FIGURE 2: Three Pillars of the Inshore Services Model

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1. A Lean Service Factory that provides efficient service operations;

2. Service Delivery Frameworks that create integration and collaboration between business and IT; and

3. Innovation Labs that build tools and solutions to accelerate time-to-value of service operations

By combining the best practices and experience from the global services model, and implementing it in areas with high
availability of talented, entry level resources (e.g. Ann Arbor, MI), Systems In Motion’s Inshore Services operation creates
scalable, high quality, productive IT services delivery at a sustainably competitive price point.

Key Features of the Inshore Model

In order to deliver the promise of scalable, high quality, cost competitive
Systems In Motion’s Inshore Services operation
services, integrated with customers teams, the Inshore model implements
creates scalable, high quality, productive IT
some of the following core operating principles:
services delivery at a sustainably competitive
price point.
1. Recruiting the ‘bottom of the pyramid’ – One of the main features
of the service model is right sourcing talent, and developing a broad
pyramid structure for service delivery, thereby appropriately balancing tasks and skills. Establishing operations near
university and college towns, is therefore a key aspect of the model

2. Training operations – In conjunction with the recruitment engine that drives right sourcing of talent, is a training
engine that continuously runs ‘boot-camps’ appropriate to practices, customer environments and service delivery
requirements. This keeps the resource pipeline filled with capable resources

3. Quality Management Systems and Processes – In order to drive highly productive teams that can deliver
consistently high SLAs, the Inshore model invests heavily in implementing process quality and standards for service
delivery, such as ITIL and Lean Sigma

4. Technology Leverage – New technologies that either accelerate service delivery (e.g. pre-integrated process
frameworks, workflow engines), or fundamentally change service requirements (e.g. hosted applications, enterprise
2.0 tools) are critical to the long term productivity of businesses and key drivers of “time-to-value”.

5. In-house to Inshore integrated engagement model – One of the key features of the Inshore model is the
integration of the in-house and outsourced teams. The Inshore service center is developed as a customer-specific,
dedicated Center of Excellence designed to reflect the customers’ environment, whether the engagements are
project oriented, or long term managed service contracts.

6. Public-Private Partnership – A major component in achieving productivity and cost containment is the tight
partnership among Systems In Motion, the state and local government entities and the local educational institutions.
The partnership provides funds and resources to support recruitment, training, business development and
operations

Value Proposition of Inshore Services

It’s evident that the Inshore Services model described above can drive down the cost of delivery significantly, while
enhancing productivity, scalability and flexibility of any engagement. In fact, the overall impact on cost reduction of an IT
Outsourcing initiative can be in excess of 20% over comparable in-house/contract staffing engagements. However, the
Inshore model has broader implications in terms of value to US enterprises.

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 G L O B A L D E L I V E RY M O D E L INSHORE DELIVERY

2 1

Costs to “Bridge the Gap”: Higher % of operations can

• Program Management be optimized
• Resource Redundancy
• Governance
• Risk Management
• Travel, Immigration 2
Costs to
“Bridge the Gap” } • Communication Costs Much higher offsite leverage
can be applied
1

Lower % of the operation

costs optimized

FIGURE 3: Eliminating the Value Delivery Gap

1. Eliminating the Value ‘Gap’ – The first is the elimination of the value delivery gap, as explained in Figure 3. With
IT leadership, program management, functional expertise, technical competencies and operations management all
aligned in a seamless manner between the in-house and Inshore teams, there is much less investment needed in
redundant resources, infrastructure, knowledge transfer or risk management.

2. Optimizing the Sourcing ‘White Space’ – This is one of the most significant challenges for strategic sourcing
executives. The ‘white space’ between what is non-essential and standardized (which can be easily sourced from
the lowest cost supplier), and what is critical and complex (which is usually kept tightly controlled in-house) is
currently sub-optimally managed through a complex multi-sourcing strategy (see Figure 4). The strategy involves a
combination of contract staffing, boutique consulting firms and the
onshore resources of “offshore” vendors. Services that are complex to outsource, require greater alignment
and interaction with business stakeholders, or need more controlled risk management because of their business
criticality, can be greatly optimized by leveraging Inshore Services.

3. Value-centricity – Through greater alignment with business, more productive resources, and better balance of
cost, risk, and control, the Inshore model drives a focus on Value of Output rather than Cost of Input.

4. A Better Customer Experience – The value of any business strategy needs to be measured by metrics that
go beyond cost savings. In the long term, Inshoring drives significant additional value because of a better customer
experience.

5. Business Sustainability – While the US still leads in technology It is a fallacy to think that “high-level” technology
innovation (in particular software innovation) this might not be true in jobs can stay in the United States, while “low-level”
technology jobs leave.
the future. It is a fallacy to think that “high-level” technology jobs can
stay in the United States while “low-level” technology jobs leave. What’s
considered “low value” is an important training ground for the Architects and CIOs of tomorrow. It is therefore
important for long-term competitive value, that enterprises ensure sustainable practices in retaining knowledge.

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 HIGH

Supplemental Local Staffing

In-Source

Boutique Consultants
CRITICALITY

Inshore

Onshore Resources of
Offshore Offshore Firms

LOW
LOW HIGH
COMPLEXITY

FIGURE 4: Optimizing the Services Sourcing ‘White Space’

Sustainability of expertise should be a very important strategic goal for US businesses. Inshoring’s integrated engagement
approach provides risk mitigation from loss of competitive advantage, by ensuring sustainability of knowledge, as well as
ongoing internal organization development.

The Business Case for Inshoring

Inshore Services is as cost competitive as any global sourcing initiative, given the overhead costs associated with
actually delivering services to US enterprises. In fact, we carefully studied the true Cost of Global Sourcing in order to
understand what a strategically competitive price point would be, and how the Cost of Inshoring would compare.

A recent study by CLSA-Asia-Pacific Markets showed that the

average blended rate, across all services delivered, for a Tier 1 Systems In Motion drives competitive pricing with scale,
Indian provider was $47 per hour (in contrast to the $18-22/ quality and flexibility through careful management of
productivity, offsite resource leverage, utilization and
hour ‘offshore’ rates). The $22 rate quickly increases to $47 as
infrastructure costs.
one begins to take into consideration the onsite components of
offshore delivery, additional overheads of travel, onsite lodging,
communication, and infrastructure. This rate did not include any other “hidden costs” on the customer side, such as
transition and knowledge transfer costs, governance, PMO costs, legal, or risk management – costs which Gartner
Research estimates range from 4-11% of contract value for global sourcing engagements.

Inshore Services from Systems In Motion can offer charge rates that are comparable or better. By carefully managing a
number of operational parameters (as shown in Figure 5), Inshoring can deliver large-scale domestic service capabilities
at substantial cost savings over in-house IT, while retaining scalability, flexibility and mitigating enterprise risk.

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L E A N S E RV I C E FAC TO RY
TA R G E T P RO F I T
T H E TA R G E T C O S T
Employee Costs (E)
Sales & Marketing Costs
G&A Costs
Cost Innovations
OPERATING LEVER PROJECTED METRIC
Contracted Prices Benchmarked at tier-1 30/70 GDM with
25% productivity improvement, 20% lower
than local staffing
Direct & Indirect 10% lower thru government support
Employee Costs (E) for training, wage rebates, public-private
partnership, collaboration with universities
Offsite Leverage (E) 90% (with travel on as-needed basis)
Pyramid Ratio (E) 65% staff < 5 years
30% 5-10 years, 5% > 10 years
Utilization (E) 80% (post training period)
Productivity (E) 25% higher than GDM (#days, time-zone,
communication, technology, process), Local
staffing (attrition, team dynamic)
SG&A Costs 14% (similar to GDM majors, 18-20%+ for
global majors)

FIGURE 5: Inshore Operating Model drives sustainable competitive price points

Conclusions and Recommendation

The IT Services industry has changed significantly over the last decade. Back in 1999, the IT resource crunch created
by the Y2K challenge became an inflection point in the growth of offshore IT Services, and over the last decade the
offshore model has become an important tool for cost reduction of enterprise IT.

However, the requirement for business technology alignment, coupled with significant changes in the global socio-
economic environment, is beginning to bring the services industry a full-circle.

The Global Services Redesign Initiative was necessitated by an understanding that globally distributed service delivery
has limitations in enabling effective technology leverage; and that retaining technology leadership is a key part of any
business’ long term comparative advantage. Systems In Motion has designed a pioneering service delivery model that
addresses these challenges and creates a highly effective, scalable, flexible and cost-competitive business.

It is clear that while the globalization of services definitely has a role to play in creating efficiency and value, US
businesses will continue to need (and demand) a vibrant, world class, globally cost-competitive, domestic technology
services capability.

The Inshore Service Model provides that alternative.

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About the Authors:
Debashish Sinha is Systems In Motion’s Chief Marketing Officer. Before joining the founding team at Systems In
Motion, Debashish headed marketing at HCL America, a $3B Indian IT services company. Previously, Debashish was the
Principal Analyst for IT Services at Gartner Research, Managing Director for Sourcing Advisory at neoIT, and a Senior
Partner at Conscient Partners, a global services consulting firm.

Michael G. Parks is Chief Delivery Officer at Systems In Motion, responsible for all aspects of service delivery,
solutions and practice development. Before joining the start-up team at Systems In Motion, Mike was CIO at Virgin
Mobile USA and NorthPoint Communications, Executive VP at Wells Fargo Bank responsible for all IT and operations,
and an Senior VP at American Airlines.

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