Industry Watch

Tech on the prairie

How Eagle Creek Software Services is seeing the benefits of providing IT consulting services closer to home

When you hear the word "ruraI," visions of cattle chewing on grass across the pastures likely come to mind. But in North and South Dakota, the cows have different company these days  software consultants. The latter come courtesy of Eagle Creek Software Services, an Eden Prairie–based IT consulting firm that combats outsourcing to India with "rural outsourcing" to the Dakotas.

The company operates IT project centers in the tiny towns of Pierre, S.D., and Valley City, N.D., and it recently broke ground on a $10 million center in Vermillion, S.D., home to the University of South Dakota. That center will open around May 2014 and employ a few hundred IT consultants, many hired straight from the university. The company calls its strategy "the Dakota model."

Its client list includes large manufacturing, health care, and financial services organizations. A few years ago, it helped St. Louis–based technology and engineering giant Emerson rapidly deploy Oracle's CRM On Demand across its various divisions and business units. Amway, InComm, and Independent Health have also "rural sourced" software work to Eagle Creek.

Clients often return with new projects, which is just the kind of relationship that president Ken Behrendt hoped for when he founded Eagle Creek in 1999. After spending years in software, he started to see the appeal of the industry's services side, which enjoys relative stability. "The service component was something you could control because it's people- and relationship-oriented," he says. "I thought it was a good ongoing model for business where you could carve out a niche and grow in that niche."

Eagle Creek recruits employees into its technology centers with the idea that each one will move through multiple projects, which can range in length from three months to three years. The hope is that employees will retain specific knowledge from past projects as they move on to new ones. "Our customers are looking for that retention of [specific industry] knowledge  that's what costs them the most money," Behrendt says.

Many of Eagle Creek's clients still maintain relationships with offshore companies. But they come to Eagle Creek for specific reasons, such as less risk, higher quality, and more rapid deployment. "We're seeing that U.S. companies want to get to the market faster," he says. "They want a technology deployed as fast as possible, and cost is an issue."

The idea of rural outsourcing is not unique to Eagle Creek; rather, it's a broader trend that's been gaining traction for years. Technology research firm Gartner recently published a report on the phenomenon. Last year, inquiries it received on the topics of "onshore," "rural," or "domestic" sourcing increased 61 percent over the previous year, and a similar pattern was evident in the first quarter of this year.

Gartner's report lists about a dozen rural outsourcing providers sprinkled around the nation, each with specialized niches. (Eagle Creek's are listed as software services for front office CRM, business intelligence, e-commerce, and Oracle expertise.)

The report additionally lists full-service U.S.- based providers, such as IBM and Accenture, and India-based competitors, including Wipro and Infosys, that in various ways also engage in rural outsourcing. U.S. buyers expect onshore options to complement their offshore sourcing, the study finds.

Allie Young, a Gartner analyst who worked on the report, sees rural outsourcing as becoming an alternative in the global delivery model. Some companies have a better comfort level being in the U.S. Some have had bad experiences going offshore. Others might simply prefer working with service providers in the same or nearby time zones.

"When we look at the low-cost, rural option, it gives organizations a lower labor cost than other metropolitan areas," she says. "And when they factor in productivity, timelines, and user satisfaction, suddenly this model becomes very effective."

Cooperative states

It was after years of working with offshore companies (and noticing pent-up demand for tech services offered within the United States) that Behrendt spotted an opportunity to create IT service centers in domestic rural areas. South and North Dakota seemed to make the most sense; indeed, partnering with their governments and university systems has proven to be a winning equation.

"We knew we would compete against India, and that it would be a long-term process," Behrendt says. "We needed relationships with the state government that were sustainable."

Eagle Creek recently partnered with the University of South Dakota to create the Information Technology Consultant Academy, which accepted its first full class this fall. The program helps prepare students for a career in IT services by providing them with a semester's worth of IT classes, which are paid for by the company. The academy also offers paid internships with the company that can lead to employment. The State of South Dakota is also working with the company on this initiative, hoping to see students stay in the area after graduation.

Recruiting about 90 percent of its employees straight out of college, the company is focusing its recruiting sights at the Gen Y talent pool (aged 21 to 30). In a symbiotic relationship, Eagle Creek helps develop a career for the recent graduates, who in turn help the company better compete against offshore technology centers. "Eagle Creek will be very effective in using its relationship with universities, and be able to methodically build its talent pool," predicts Gartner's Young.

There are, of course, many challenges for Eagle Creek to overcome. One of the most significant is scalability. "Our challenge is if a major company comes to us and loves our model, but wants to add 200 people for a technology," Behrendt explains. "The challenge is scaling the model and figuring out how to bring the resources and people into these communities and states."

Currently, Eagle Creek gets most of its business from major metro areas around the nation, and about 15 percent globally, with all the work performed remotely out of its North Dakota and South Dakota project centers. It employs about 300 now, but Behrendt plans on more than 1,000 within the next three to five years, with many employed at the technology center being built in Vermillion.

With such developments, Eagle Creek is proving itself to be a significant player in the rural outsourcing trend. "We're recognizing that the U.S. is wanting more local resources," Behrendt says. "We're pushing on and figuring out how to solve the problems of scaling."