Lure of the Countryside

Rural outsourcing is on the rise, offering better intrateam communication than offshoring and better pricing than the huge firms.

For years, U.S. companies have been shipping development work and other IT tasks offshore to take advantage of low labor costs. Now a growing number of organizations are tapping lower costs closer to home, by hiring outsourcing providers with operations in rural areas of the U.S.

Hard numbers on the growth of rural outsourcing are difficult to come by because none of the leading IT and sourcing research firms breaks out data specifically on rural outsourcing. But Mary Lacity, professor of information systems at the University of Missouri-St. Louis College of Business Administration, who has been conducting extensive research on the market, says that in the past year or two, there has been huge demand for the services.

One indication of the growth in demand, Lacity says, is that the service providers are quickly expanding their staffs. "Suppliers are scrambling to get enough qualified people to make sure they can meet the surge in demand," she says. "So many clients I've heard from are interested in this model." Lacity estimates that there are about 20 rural outsourcing providers in the U.S. and, based on her analysis of the providers, the total market size is about $100 million.

Pros and Cons

Rural outsourcing provides the same basic benefits as other outsourcing arrangements: ready access to technology expertise and resources that the client lacks internally.

But the model offers both advantages and disadvantages when compared with other outsourcing options. On the plus side, rural outsourcing can provide the same or similar cost benefits as offshoring. Because the service providers operate in areas of the country where the cost of living is lower, they can pay lower salaries and thereby keep costs down. That's something that, in many cases, IT service providers operating in more metropolitan areas of the U.S. couldn't do.

And when U.S. companies do business with rural outsourcers, neither party has to grapple with the big time-zone gaps or language and cultural differences that can complicate offshoring relationships.

While it can take up to 18 months to work out all the issues related to offshoring, "with some of the rural outsourcing approaches we're seeing, the proximity to the client can mitigate these challenges," says Steven Hall, a partner and managing director at TPI, a Houston-based consultancy that helps clients handle a variety of sourcing issues. In other words, the advantage of working with a rural outsourcer isn't just that doing so can save time, but that it can help the client avoid the potential hassles of an overseas engagement.

Another big advantage is that hiring a U.S.-based firm may be more politically acceptable for many organizations, and it can be more compatible with an enterprise's mission statement or corporate values. Indeed, public sector agencies can be legally bound to do business with U.S. partners, unless there aren't any that provide the services they need.

On the negative side, rural outsourcing providers in general don't have the financial resources or the broad arrays of skills that big global IT service providers have. And they often don't have as many years of experience as their overseas counterparts.

"In general, the rural outsourcers haven't fully implemented the process maturity models, such as CMMI," says Hall, referring to the Capability Maturity Model Integration approach to process improvement. "That means oftentimes you're not going to get the higher levels of quality reviews or process improvements that we've seen" with bigger outsourcing firms, he adds.

Hall says most outsourcing engagements with rural service providers are relatively small initiatives; the total value of a contract is typically less than $5 million. Nevertheless, rural outsourcing is having an impact on companies' abilities to solve problems and meet immediate needs.

The Rawlings Group, a LaGrange, Ky., company that provides medical claims recovery services for healthcare clients, uses various application development systems, including .Net programming. It's working with Rural Sourcing Inc., which is based in Atlanta and has development centers in Jonesboro, Ark., and Durham, N.C. Rural Sourcing has provided developers to work on projects related to Rawlings' internal accounts-receivable processes.

Kevin Landgrave, senior vice president of IT at Rawlings, says the company opted to outsource because it lacks the internal resources to complete development work quickly, and it chose to work with a U.S. partner because it didn't want to deal with the time zone and communication problems often associated with offshoring.

Ramp-up Time: A Blessing and a Curse

While lower costs are among the advantages of rural outsourcing, saving money isn't always the biggest benefit, Landgrave says. For some companies, the real value of outsourcing comes from increased agility and speed of development.

"From a cost perspective, rural outsourced resources are roughly the same as the loaded cost of an internal resource but allow us to ramp up and down quickly," Landgrave says. "We are able to meet our deadlines because of the extra programming bandwidth."

But not everyone has experienced the same benefit. In some cases, rural ramp-up time just isn't fast enough to meet a company's needs.

Pedro Villalba, senior vice president and chief technology officer at Emblem Healthcare, a New York-based health insurance provider, has used IT services from CrossUSA in Burnsville, Minn., since 2004. Emblem has worked with CrossUSA on about 50 projects related to its mainframe applications.

"In the rural areas where the project centers are, they don't have tons of IT resources just waiting for work," Villalba says. "Cross must recruit and often relocate and train the resources for the work we need, hence the importance of holding on to the resources."

But Villalba says that's the only downside of rural outsourcing he has experienced. Emblem has been able to move rural teams from one project to the next. "We see a big improvement in the area of work quality and productivity, because CrossUSA understands our business, and the resources don't have to keep relearning to be effective," Villalba says.

For its part, Rawlings not only gains access to development resources by working with Rural Sourcing; it also benefits from the fact that Rural Sourcing staffers have flexible schedules and diverse programming skills, says Landgrave, adding that the outsourcer's employees have easily blended into Rawlings' existing teams and processes. "The primary plus of Rural Sourcing for us has been how seamlessly resources have integrated into our development life cycle," he says."

Another company that has benefited from rural outsourcing is FormShare LLC, a Miamisburg, Ohio, provider of paperless workflow applications for schools. In May 2010, FormShare began outsourcing application development work to Rural America OnShore Outsourcing Inc., which operates development facilities in Ohio, Kentucky and Wisconsin.

FormShare relies on Rural America to maintain its current applications and help create new features, says Matt Ross, president of FormShare.

Prior to hiring Rural America, FormShare primarily used in-house developers to maintain and enhance applications. "When we had [development] in-house, we found that the team was too small, and in a lot of cases there was a single point of failure, so if something happened to a single developer, we would lose a lot of knowledge with them," Ross says.

Savings Is Key

Rural America offers a subscription plan that gives clients the opportunity to sign up for short-term engagements -- even as short as a few months. Its services include application integration, Web site development, business analysis, support and maintenance of legacy applications, and testing. Thanks to the flexibility of Rural America's subscription plan, FormShare can bring on more resources during busy times and cut back when things slow down, Ross says.

In the past, FormShare had augmented its staff with outsourced services from larger providers, but those services cost more than Rural America's. Ross estimates that his company is saving 10% to 15% by going with a rural outsourcing option for its development projects.

Having worked with the rural outsourcer on a three-month deal and finding that it was a good fit, FormShare hired Rural America for a longer engagement. Ross declined to specify how long the new deal will last.

For his part, Villalba says that compared with the prices larger outsourcing providers would charge, rural outsourcing has saved Emblem Healthcare 40% to 50% on mainframe and legacy systems work.

Customers point out that another benefit of rural outsourcing is that the service providers generally boast high employee-retention rates. In the areas where they operate, the domestic outsourcers are typically considered employers of choice, and people with IT expertise tend to stay with them.

In the case of Rawlings' relationship with Rural Sourcing, the service provider's retention rate "is so high that we are able to use the same people over and over, which protects the investment we make in teaching them our environment and methodologies," says Landgrave. That's vastly different from Rawlings' experience with offshoring, he adds. In those arrangements, he says, "we've had offshored resources leave their company because the company down the street offered better chairs!"

Another Rural America client, Charleston Alexander Diamond Importers, began outsourcing mobile application development, Web development and other functions in 2009.

Rural America has been particularly effective in helping the Bethesda, Md.-based jewelry retailer revamp its Web site and e-commerce operations, says John Sabet, president of Charleston Alexander.

"When I looked into offshore businesses, I found there was no vision, creativity or a real understanding of the American market. And I found myself having to outline in great detail every little thing [that] needed to be done and manage every detail," he says. "With Rural America, I was basically presented with my finished product and only had to tweak a few things, not micromanage the building of a huge e-commerce site."

Violino is a freelance writer in Massapequa Park, N.Y. You can reach him at bviolino@optonline.net.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

Copyright © 2011 IDG Communications, Inc.

  
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