Domestic Outsourcing and Bimodal IT Converge | 1

DOMESTIC OUTSOURCING AND BIMODAL IT CONVERGE

Domestic Delivery Centers will enable bimodal capabilities in a rapidly tightening market for IT talent.

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TABLE OF CONTENTS

A QUESTION OF TALENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

THE NEW MAKE-BUY CALCULUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

BUY WHERE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A LITMUS TEST FOR BIMODAL READINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ABOUT THE AUTHOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Domestic Outsourcing and Bimodal IT Converge | 3

Sit down to talk shop with CIOs these days and you will likely find yourself discussing a pressing demand for bimodal IT.

Stemming largely from leading IT advisory firm Gartner, bimodal is a conceptual framework — a two-speeded approach — for organizing and operating contemporary corporate IT.

Mode 1, as Gartner defines it, is what most companies already have in place and represents approximately 80% of traditional IT operations . It’s lights on, industrialized, scalable, efficient, safe, and absolutely necessary . However, Mode 1 might be challenged by the business to support rapid growth and innovation initiatives that are less easily defined . Hence a growing need for a different operational paradigm that falls outside the sequential, process-bound routines that have traditionally governed IT organizations .

Mode 2, in Gartner’s view, is agile, innovative, nonlinear, iterative, fast, and unfettered by traditional constraints . Mode 2 represents most corporations’ needs and desires to run with the fast-paced digital revolution that has already disrupted virtually every industry — and it’s just getting started . From mobile, to Big Data, to the Internet of Things, companies failing to deliver new digital solutions to customers — or failing to exploit the vast array of business intelligence being generated by said solutions — are at risk of losing both market share and competitive advantage .

Not everyone in the IT world is drinking the bimodal Kool-Aid, though . Popular objections include:

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• Overly simplistic, missing a critical middle or bridge mode to ensure acceptance and industrialization of digital innovation .

• Advocates creation of new silos, rather than tearing down old ones, introducing organizational and delivery risk as well as internal team competition versus one-team mindsets .

Gartner acknowledges much of the above, predicting that, within the next two years, some 75% of IT organizations will attempt to add a bimodal capability and half of those will “make a mess .” Says Gartner:

“The risks to make a mess with bimodal IT are substantial . By which we mean creating organizational, architectural, and technical or process damage or dysfunction that will come with a high price to mitigate at some point in the future . Success is contingent upon a disciplined approach to project selection, funding, iterative development, deployment and leverage within the business . Bimodal IT requires more rigor, not less .”

Regardless of where one sits in the bimodal IT debate, the market underpinnings of the discussion are undeniable . The purpose of

this paper is threefold: consider implications of bimodal in context of the escalating global war for IT talent; explore potential for U .S . domestic IT Delivery Centers to play meaningful roles in enabling bimodal IT success; and suggest key additional areas for consideration by CIOs who might be contemplating bimodal paths .

A QUESTION OF TALENT

Over the past 18 months, we have written extensively on our Talent Management blog* about demographic, economic, social, political, and regulatory factors contributing to a current global war for IT talent . We have also looked at why the war for talent is expected to endure and escalate over at least the next decade . Making matters worse, the Great Recession was devastating for corporate HR organizations, which saw budgets gutted for recruiting, internships, training, and mentoring initiatives . A groundswell of CIOs rushing into bimodal IT over the next 24 months or so has the potential to dramatically exacerbate an already challenging environment for sourcing specialized IT talent . Gartner admits: “The necessary skills to use iterative methods are in short supply, let alone the capabilities to synchronize the two modes .”

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Skills and competencies required for agile, iterative IT are very different from those needed for traditional IT . Gartner notes, however, that many of its clients do not believe they can reskill their existing IT workforces for Mode 2 capabilities, noting that: “This is quite often because many IT organizations lack a systematic way to assess their IT staff on what they can or can’t do . CIOs and IT executives must be willing and open to upskill and reskill their existing staff .”

We have already been recommending that corporations sharpen their focus on IT capabilities planning and risk management . This includes assessing, documenting, and forecasting not only definable hard skills, but also soft skills, competencies, and latent

WWW.GENESIS10.COM/BLOGSFor more on the subject of talent strategy, check out some of our

most poplular blog posts, including: Welcome to the Talent Paradox,

Talent Risk Management, and Five Action Items to Address the

Talent Paradox.

potential within their existing employee bases . They also need to be identifying critical skills and competency gaps (both current and anticipated); forecasting talent supply and demand down to local levels of granularity; and either developing and executing detailed long-term talent strategies or outsourcing to expert service providers in these areas . There is an interdependent relationship between business strategy, technology roadmaps, and talent strategy . And there is growing focus on talent strategy not

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only from workforce perspectives, but also from HR and sourcing perspectives as well . While it is beyond the scope of this paper to discuss these interrelationships in detail here, we plan to address in a future white paper .

THE NEW MAKE-BUY CALCULUS

Bimodal also alters the traditional make-buy calculus for IT and demands dramatic changes in key processes for supplier discovery, sourcing, contracting, relationship governance, and ongoing performance management . In translating bimodal to a sourcing perspective, Gartner divides IT into three layers: run, differentiate (mainly involving process transformation and automation), and innovate . Mode 1, in the Gartner worldview, corresponds most strongly to the run layer, Mode 2 to the innovation layer, with the differentiation layer taking up the middle ground . With sourcing of talent from external service providers expected for all three layers, Gartner contends that sourcing decision-making criteria and practices must be differentiated substantially, depending on the layer .

CIOs considering how to execute bimodal approaches might begin with these questions:

• Does the new imperative for bimodal require us to revisit earlier make/buy decision making?

• What are the right competencies and skill sets to support the new mode of IT delivery?

• Can outsourcing to Delivery Centers aid us in addressing talent capacity and capability constraints? For example, might it free up top resident talent to focus on revenue and growth initiatives versus run or lights-on initiatives?

• Might we utilize domestic Delivery Centers to host discrete innovation labs that would benefit from physical separation from daily demands and distractions of our business and operations?

• Might outsourcing work to Delivery Centers – which creates a physical and organizational separation – help us to mitigate risks of creating internal competition that could threaten both the success of our innovation initiatives as well as our brand as an employer of choice in IT?

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BUY WHERE?

It is a good bet that advent of bimodal IT will result in more outsourcing – especially of lights-on type activities . This begs the question of where to outsource? Independent of the bimodal imperative, many corporate IT organizations had already begun to rethink the question of where work is done, rebalancing their portfolios to emphasize greater near-shore, onshore and on-site resources .

One reason is simply a growing availability of cost-accessible domestic Delivery Center capacity . Eric Simonson, Everest Group Managing Partner, Research observes that: “Set-ups of domestic delivery centers have accelerated in the past five years to a rate 40% higher than the previous five years . Every service provider wishing to serve the U .S . market must invest in a robust, onshore talent model .”

The broader shift to agile (vs . waterfall) development approaches, increasing compliance and regulatory pressure on supplier and service provider relationships, and growing needs for proximity to

business stakeholders are other key drivers for establishing U .S .-based Delivery Center capabilities . As Gartner recently observed:

• “The pendulum is swinging in IT services from a low-cost/off-shore centric mindset to one that positions a globally balanced and relevant talent pool able to support business buyer demands for proximity, impact business interaction, speed and agility . An onshore delivery capability has become a critical option to meet changing IT strategies and models .”

Where domestic Delivery Centers come into play will largely be determined by considering:

• Complexity/potential value of requirements .• Risk and risk tolerances .• Abilities to define tasks, roles, and projects .• Levels of direct interaction required not only with business

functional partners — marketing, operations and so forth — but also potentially with customers, suppliers and other service providers .

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The sweet spot for domestic Delivery Centers will be where complexity, risk, and business interactivity requirements are all relatively high, yet tasks, roles, and projects can still be clearly defined and measured for delivery performance .

Returning, once again, to our contemplation of bimodal IT, relevant questions for CIOs as well as CPOs, and IT sourcing managers include:

• What is the capacity of our outsourcing partners to flex and deliver; will they be able to scale with our rising demands for agility, flexibility, and greater levels of interaction with business partners?

• As the war for IT talent escalates — especially for unique Mode 2 competencies, which require fundamentally different mindsets and capabilities than traditional IT — might we utilize domestic Delivery Centers as: (1) extensions of our talent recruitment and incubation capabilities and/or, (2) as potential destinations for redirecting run initiatives that have historically been retained within our four walls in order to free key personnel to shift to supporting strategic growth initiatives?

A LITMUS TEST FOR BIMODAL READINESS

While the idea of transforming to or adding agile/DevOps-style teams might be attractive to CIOs, companies pursuing bimodal paths will need to dramatically raise their levels of rigor in terms of how they:

• Select and prioritize initiatives that should be ear-marked for agile, iterative treatment .

• Valuate delivery and risk .• Determine when to sunset growth initiatives that are not

yielding expected incremental expansions to product suites .• Manage change from organizational, delivery, and

governance perspectives .

“Independent of the bimodal imperative, many corporate IT organizations had already begun to rethink the question of where work is done.”

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The bigger, more complex the company, the more difficult this will be as personalities, internal politics, communications gaps, and so forth will not just disappear miraculously . CIOs must assume there will always be disruptive and complicating internal forces ready to derail agile initiatives, and that lights-on and agile IT may never operate on purely parallel pathways . Eventually, the two must converge via tollgate reviews and deliberate change governance and management

There are strong parallels here to Delivery Center outsourcing, which, in essence, is already a bimodal form of organizing and operating IT . By nature and design, mature Delivery Center operators are well versed in processes, activities, and metrics to achieve alignment and synchronization between organizations operating at varying speeds and with different objectives .

Likewise, IT organizations with mature outsourcing capabilities already have in place high levels of rigor in testing, evaluation, integration, and change governance . What is more, they are already mature at working in virtual/digital environments and at executing and driving consequent organizational changes . Such

capacities may assist CIOs in structuring bimodal organizations as well as mitigating the substantial associated risks . Key questions to consider include:

• How experienced are we at working in outsourced capacities? Do we have strong organizational constructs for segmenting IT work to determine where it should take place and who should do it? And, do we have sufficient capacities for evaluating delivery or detecting when initiatives are beginning to fail?

• Do we have Delivery Center partners that already possess knowledge, mature processes, and capabilities that we might study and adapt to ensure greatest possible rigor in aligning, synchronizing, and integrating our two modes?

• How good are we at organizational change management and do we have the capacity and influence to drive required consequent changes in other parts of our organization? For example, how will we cope with procurement’s objectives for demand aggregation and supply-base rationalization when our new IT delivery approach (Mode 2) dictates that we work with more, smaller service providers?

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Bimodal IT is an exciting step in the IT Transformation Journey for CIOs . A number of IT organizations with whom we work closely are already succeeding with bimodal (though they may be calling it something different) . Others are clearly beginning to move in this direction . While risk cognizance and thoughtful approaches are needed to ensure success with bimodal IT, there is a need for speed, as the digital revolution will wait for no one . While we are not advocating shortcuts, we do believe there are opportunities to mitigate risks by:

1 . Assessing organizational readiness .2 . Outlining convergence of two different delivery approaches

into one tollgate risk/review; and3 . Identifying bimodal champions to inculcate needed changes

across both IT and corporate organizations .

REFERENCES

• Embed BiModal in Your IT Strategy to Achieve Sustainable Success,

Gartner, April 2015

• Using a Competency-Based Assessment and Interview Approach to

Ensure Talent Fit for Bimodal IT, Gartner, April 2015

• Don’t Ignore Onshore Capabilities in Your Global Delivery Strategy,

Gartner, February 2015

• Business Outcomes, Differentiation and Performance Drive Bimodal

Adaptive Sourcing Decisions, Gartner, February 2015

• IT Services Sourcing Reform Will Prepare the Organization for

Bimodal IT and Digital Business, Gartner, July 2014

• What Gartner’s Bimodal IT Model Means to Enterprise CIOs, Bernard

Golden, CIO/Opinion, January 2015

• Beware the Dangers of Bimodal IT, Jason Bloomberg, Intellyx.com,

October 2014

• Bimodal IT: The New Old Hotness, Simon Wardley, Bits or Pieces

Blog, November 2015“There are strong parallels here to Delivery Center outsourcing, which, in essence, is already a bimodal form of organizing and operating IT.”

ABOUT THE AUTHOR

Ami Sarnowski has nearly twenty years of experience in the IT Industry with twelve as a management consultant, specializing in enterprise business transformation, organizational change management and supply-chain management . Today, as Chief Innovation Officer, Sarnowski is responsible for the Genesis10 brand and capabilities and retains responsibility for the Domestic Outsourcing practice area .

Sarnowski led strategic design and development of Genesis10’s Domestic Outsourcing capability, which has established six domestic delivery centers across the U .S . In 2013, she launched a Talent Management Solutions Blog to raise awareness and explore the emerging U .S . domestic outsourcing business model and its implications for talent management and location strategy .

Prior to joining Genesis10, Sarnowski was a leader in Ernst & Young and Capgemini’s Supply Chain Management team . In addition to client-facing delivery responsibilities, Sarnowski led development of Capgemini’s market offer for online negotiation in its Strategic Sourcing practice and provided secretariat-level consulting and business-transformation advisory services to the U .S . Army .

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