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Homegrown.
IT outsourcing options sprout up across rural America.
March 28, 2005
Aelera Corp. CEO Dustin Crane traveled to China, India and Armenia in a quest to buy or start up an offshore IT services company. After six months of searching, he returned to the U.S. and set up operations in the coastal city of Savannah and the smaller town of Fitzgerald, Ga., population 8,758.
McKesson Corp. CIO Cheryl T. Smith estimates that the $8 billion pharmaceutical
distributor is saving $10 million annually in salary costs—a percentage of which is
reinvested in IT innovation—after relocating its primary data center and about 75 IT jobs
from San Francisco to Dubuque, Iowa.
Mattel Inc. CIO Joe Eckroth figures the cost of outsourcing certain Web-based software
development to IT professionals at Rural Sourcing Inc. (RSI) in Jonesboro, Ark., is about
a third of what he'd pay a comparable IT services firm in a major metropolitan area.
Welcome to the ever-so-nascent world of rural IT sourcing. Both large and small
companies are tapping into a highly skilled but often underemployed IT workforce in
lower-cost rural areas—frequently as an alternative to shipping work overseas.
"The IT professionals are coming out of some very good universities that just happen to
be in rural areas," says Gary Hart, vice president of global outsourcing at Irving, Texasbased Optimal Solutions Integration Inc., which, like Mattel, has contracted IT work to RSI.
The cost of living, and therefore the cost of salaries, is a fraction of those in San
Francisco, New York or Chicago, Hart says. Moreover, there are no significant time-zone
or cultural issues. "There's not much difference between my Texas accent and the one
you get in Arkansas," he adds. "On every level, it makes sense."
Staying Home
Kathy Brittain White certainly thinks so. White, former CIO at Baxter Healthcare Corp.
and Cardinal Health Inc., invested $2 million of her own money to launch RSI in
Jonesboro, home of her alma mater, Arkansas State University.
White says the idea for RSI came while she was still at Baxter, which had launched a
virtual IT internship program at ASU. University computer science students were given
network and systems access to work 12 hours a week on live IT projects at Baxter. "The
goal was when they graduated to move them to Chicago," she says.
But it didn't take White long to realize that most of the former interns didn't really want to
leave Jonesboro if they could find meaningful work there.
After retiring from Cardinal in 2003, she launched RSI, which now has facilities in
Magnolia and Monticello, Ark.; in Greenville, N.C., on the campus of East Carolina
University; and in Portales, N.M., on the campus of East New Mexico University.
Another facility is planned for Beckley, W.Va., which has 11 universities nearby.
"It's like coming full circle," says White, who grew up in the Arkansas town of Oxford,
which has a population of 642.
"We're going to hire talented people and sell IT services. The twist is we're doing it in
areas where others are not. We're going into areas where there's a strong university and
good quality of life, where many people would have stayed if they could find a job," she
says.
For IT services buyers, she says, the rural business model translates to lower costs.
In every location, RSI takes a salary survey and then finds the midpoint, she says. "We
are targeting a blended rate of $40 an hour for the work we're doing," White says. "There
are a lot of customers that feel that's very competitive, and in some cases, it's less than
what they can do the work for internally."
Other RSI customers include Sarnoff Corp. and Cardinal Health.
Mattel's Eckroth, whose company also uses offshore IT services, says there are certain
types of collaborative work where rural sourcing makes much more sense than sending
the jobs offshore. For example, Mattel had RSI work on some very complex software
applications involving marketing and content creation, and the project required close
communication because of dynamically changing requirements. "We were very
successful in that relationship," he says. "You can pick up the phone and get them
anytime."
Ken Behrandt, president of Eagle Creek Software Services in Deephaven, Minn., which
specializes in CRM software implementations, expects to create 200 to 300 IT jobs over
the next three to five years at Eagle Creek's new Siebel Project Center in Valley City,
N.D. Many of those jobs will go to graduates of Valley City State University (VCSU),
which has created a CRM track that includes an academic course in Siebel Systems Inc.'s
CRM software. Students can also complete a two-semester internship at Eagle Creek,
whose customers include Cadbury Schweppes PLC, Citibank NA and The Hartford
Financial Services Group Inc.
The academic program's recently recruited instructor, Sue Pfeifer, is a 10-year IT veteran.
She's taking a 33% cut in pay from her job as a lead software engineer in the St.
Paul/Minneapolis area to return to North Dakota, where she grew up and went to college.
"We've always watched for opportunities to go back to North Dakota," Pfeifer says. A
one-third pay cut is significant, she acknowledges, but she points out that housing and
day care cost at least a third less in Valley City than they do in Minnesota. Moreover, her
family is in North Dakota.
"Many North Dakotans want to stay, but they can't find the right job," says Behrandt.
"Our goal is to build a project center that supports that goal. People can stay in North
Dakota, or we'll move them" back, he says.
Salaries will range between $30,000 and $75,000, with the norm in the $45,000 range, he
adds. This compares with an average annual statewide salary of $22,000.
VCSU President Ellen Chaffee says the university intends to expand its IT curriculum
beyond Siebel skills. "We talk to corporations who are hiring in IT and ask what their
entry-level skills and experience requirements are so we can tailor our curriculum for our
graduates to have those skills," she says. "One of our stated goals is to keep jobs in North
Dakota."
Win-Win Scenario Creating IT jobs in Georgia, rather than following through on its
original plan to take them offshore, has afforded Aelera several business advantages,
including contracts with state agencies for the business process outsourcing services its
facility in Fitzgerald provides. "The play for us was to work with the state's economic
group to keep jobs within the borders of the state, and we've had a very warm reception,"
Crane says. The main reason: "For every dollar [in salary] you keep in Georgia, it turns
into $7" as it moves through the state economy, he notes. Keeping the work in rural areas
is also saving the state a bundle, Crane says, noting that "compared to the Atlanta market,
which is where our customers are, we can offer between 20% and 35% cost savings."
Users and service providers also emphasize that there is absolutely no shortage of skilled
IT personnel already living in rural areas or wanting to relocate for the right IT job.
Smith says she had no problem recruiting the IT skills McKesson needed for its data
center in the heartland. "The level of expertise McKesson was able to attract to our core
operations center in Iowa has been excellent. We received many hundreds of resumes for
the newly opened positions from all over the U.S.," she says. "We learned that it was
typically a quality-of-life issue for them and their families."
IDC analyst Barry Mason agrees that the skills and capabilities of IT personnel available
in rural areas match those of IT workers in major metropolitan areas. The drawback, he
says, is that for now, there just aren't enough of them.
"The companies doing rural sourcing right now are very small. They don't have the scale
to compete with offshore outsourcers like Wipro or a domestic outsourcer like IBM,"
Mason notes. "If they were to sign a large contract, I'm not sure they could sign the
number of employees needed in those [rural] geographies." But, he adds, "for something
like project-oriented work, it has more potential."
The bottom line: "At this point, rural sourcing is a very small market," says Mason. "But
we'll keep our eyes on it. It's a good idea in theory and might work on a small scale."
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