North Dakota: Is This Near-Shore Enough?

With the whirlwind of offshore outsourcing news coverage, it’s easy to forget that low-cost labor markets still exist within the U.S.—namely, in the vast expanse that stretches between its famous coasts. Indeed, some sparsely populated states are actively soliciting IT investment, citing their first-world infrastructure and inexpensive real estate as reasons to relocate. It was on just such a junket that I had the opportunity, in July 2003, to tour several high-tech companies on the Great Plains, courtesy of the North Dakota Department of Commerce.

While the most fruitful visit was with employees of NiSC (National Information Solutions Cooperative), an information technology company that provides software for energy and telecommunications co-ops, it certainly wasn’t the only interesting stop. In two days, I also visited one of Microsoft’s newest campuses and a Unisys call center—while taking side trips to learn about GPS systems at Navigation Technologies and donning a clean suit to watch floppy disk manufacturing at Imation.

First Stop: Unisys

It’s 1:30 a.m. as my flight begins its descent into Bismarck. For miles, lights sparkle sporadically, the brightest of which are the flames of five or six radio towers on the horizon. I can’t see any knot of urban life; in fact, the town appears to be a succession of widely spaced structures—no land shortage here.

I start off my tour breakfasting in Bismarck with a group of North Dakota VIPs, including Commerce Commissioner Lee Peterson, as they describe their efforts to bring jobs to the state. Then, I’m whisked to Unisys, a large IT company formed by the 1986 Burroughs-Sperry merger. Despite its previous reputation as a hardware vendor, the company’s single largest business has been services and solutions since 1994, and a large part of that business is IT and business process outsourcing. Unfortunately for my purposes, the Bismarck office turns out to be merely a “shared service center”—a call center that processes customer billing and expense reports. There isn’t a single developer in the building, I soon learn.

Since the Bismarck office opened in 1994 with the accounts payable department, the number of systems in use has been reduced dramatically, Robert Black, manager of human resources and public affairs, says. The current employee head count is a telling statistic of the call center’s increased efficiency—according to Manager Larry Zubke, Unisys was able to reduce its order/ billing and accounts payable staff by one-third. Another cost-saving measure was the elimination of first-line supervisors—the office operates on an essentially flat business structure. “Some people have a problem with the lack of structure, but for others, it’s a real morale booster,” Black states, praising what he describes as his employees’ “Midwestern” work ethic. “Our employees are really our secret to success.”

The Bismarck office typically doesn’t advertise job openings, he continues, and most of the applicants are overqualified for the available positions.

“Does that worry you?” I ask.

“No,” he answers, “because there are so few opportunities here. We’re betting on growth and employees transferring to other positions in the company.” To sweeten the pot, Unisys offers flextime and tuition reimbursement. Nearly a quarter of the employees in Bismarck are taking advantage of the latter initiative, pursuing degrees and certification.

When asked if he’s concerned about outsourcing, Black admits to economic pressures, but claims that when all costs are considered, the Bismarck operation is competitive with moving the operation offshore to India or Mexico. “The added issues [of moving operations to a foreign country],” he concludes, “sometimes outweigh the costs.”

As we leave, I wonder about the sales pitch I’ve just received. Are the denizens of Bismarck solely responsible for this call center’s success? Is North Dakota really a Promised Land of smart, self-reliant employees? It’s an argument I’ll hear time and again as I travel from Bismarck to Mandan, to Fargo, to Wahpeton and back again. But I didn’t come more than 2,000 miles to tour only service centers and other operations tangential to SD’s mission. Where are the developers? Where’s the real IT story?

The Customer Is King

I find it in Mandan at NiSC. Formed in 1966, NiSC develops hardware and software solutions for electric and telephone systems.

NiSC’s North Dakota operation sits at the top of rolling hills, the low, flat building surfing the ridge. I’m greeted by Vern Dosch, NiSC’s president and CEO, who leads me back to a large conference room in a new wing of the building. We sit near an Internet camera and monitor as Dosch launches into his introductory remarks. Dan Wilbanks, NiSC’s VP of Research, Development and Quality, settles at the opposite end of the huge table while the images of Software Innovation Manager Brent Roberts and Software Design Specialist Jeannine McConnell flicker on the television monitor. I’ve traveled all the way to North Dakota to embark on my first video conference, but it’s nearly an everyday occurrence for NiSC, as part of its development team is in Bismarck, another group is in St. Peters, Missouri, and several team members work from home. North Dakota is wired, I’m told—nearly 38,000 miles of fiber-optic cable were laid in the 1990s, and 90 percent of the state’s population centers have access to DSL.

In June 2003, NiSC released a beta version of its new integrated enterprise software suite, dubbed iVUE—a graphical navigation framework and repository that provides a unified look-and-feel to NiSC’s utility and telecom billing, accounting and engineering applications. IVUE’s development had begun in December 2001, but the project sprang from much older roots. The need for a new outage system three years earlier and a desire to move toward more mainstream technology was part of the impetus to create a fresh suite of applications.

“A year before we began to design iVUE,” remarks Roberts, “we set out to investigate how and what we’d use to build the new suite. We investigated benchmarks and tools. We asked ourselves, ‘Will we go with .NET, J2EE and so on?’” It was an exhaustive process, he continues, but in the end, they chose J2EE because, Roberts explains, “We wanted all the applications that we write to be vendor neutral. We wanted to be able to easily switch out technology and applications in the framework.” The team also saw the project as an opportunity to explore object-oriented development. To that end, they studied traditional and enterprise design patterns.

Though the team had several Java neophytes, Roberts says that language acquisition wasn’t a problem. “We had core team of maybe five [Java] developers, but developers are problem-solvers and generally like learning new things.”

“We’re a learning organization,” adds Dosch, asking if I’m familiar with Peter Senge’s tome The Fifth Discipline (MIT Press). Like Senge, he continues, NiSC believes that the “free exchange of knowledge is necessary to the success of each individual and our organization.”

Agile Converts

Despite its distributed development staff, NiSC is an agile-development convert. “We’re not interested in Waterfall development,” says Wilbanks.

When I query him about specific methodologies, Wilbanks replies, “We’ve embraced XP, but we’ve adapted it to fit our needs.” The development team doesn’t pair program, for example, and NiSC’s three different locations and 25 geographically dispersed employees prevent the development teams from being colocated. NiSC, however, does religiously follow many core XP values, including the all-important “Involve the customer early and often.”

NiSC’s development process begins with designers and industry experts who work with the developers to put their ideas into code. Ten to 13 future customers or users acted as an advisory board for the development of iVUE’s utility billing application, dubbed CIS.

According to Wilbanks, two beta sites are up—one in Bismarck and one in Indiana. “We want our customers to work with the software as it’s developed, so we don’t have to do eight-hour training sessions at the end.”

Following another agile principle, the NiSC team abolished “over the wall” testing. Instead, the QA team is involved from the beginning, sitting with the developers to ensure that the software is on track. “We want small-course corrections,” Wilbanks tells me, “instead of large corrections at a project’s end. Refactoring is crucial—it lets us get back to small corrections.”

“We have maybe 10 small fixes a week,” Roberts adds.

Controlling the Chaos

With stakeholders in 48 states and a distributed development team, I ask my hosts how NiSC deals with the communication glitches that can plague even a small, colocated team with internal customers.

“A little chaos is good for innovation,” Wilbanks replies with a smile.

“If we innovate, we don’t have to be afraid of change,” adds McConnell. “But I have to contradict Dan—it’s my job to make sure we have ‘controlled chaos.’ Bringing together people and processes can be like herding cats. Communication is key, whether you’re in the same room or six states away.”

The iVUE team uses technology to break down silos of information. Any communication about the project is stored in and passed on via their project management tool. “We needed to publicly display information; we needed something that allows team members to follow the dialogue [that goes along with fixes]. That’s where our use of Borland’s StarTeam comes in. New developers can log in and use the stored information to get up to speed,” McConnell explains.

“We have 30 to 40 Java developers in many locations,” she adds, “so code versioning is essential. WebEx [a video and Web conferencing technology] also helps us stay in touch with not only with our employees, but our customers across the nation.”

The iVUE launch is imminent. “It’s taken two years to get to this point,” says Wilbanks, “but it fits with our style.”

Next Stop: Fargo

I can’t help thinking about NiSC’s enthusiasm as I race to catch my charter flight to Microsoft’s Fargo location. Formerly Great Plains Software, the Microsoft Business Solutions division makes ERP software for small to midsize companies.

Microsoft Business Solutions’ campus is on the outskirts of Fargo—two large buildings set in a field of waving grass, speckled with the few trees that remain from its origin as a homestead. After a brief wait, I’m ushered into the “Eagle’s Nest,” an Arts & Crafts–inspired conference room with a soaring ceiling. Unfortunately, nearly all the upper management and technical leaders are in New Orleans for training that week, but Don Morton, Microsoft Business Solutions’ assistant to the president, is available for a conference call; he starts with a brief history.

Great Plains began life as a hardware company, selling Apple computers in 1981, Morton reports. But early on, the company switched its focus to software and began making and selling accounting software for Apple and then for Microsoft DOS. In 1994, it made the then “radical move” to write all of its programs for Windows. “In hindsight,” says Morton, “it was a pivotal moment.”

While it may have been an early step on the road that led to the company’s $1.1 billion acquisition by Microsoft, first came North Dakota native Doug Burgum’s decision to mortgage the family farm and become Great Plains’ first outside investor and an employee of the 15-member firm in 1983. At the time, Burgum phoned his friend and fellow Stanford MBA alum, Steve Ballmer, for advice, asking if Microsoft had any plans to enter the business application market. Microsoft had none in the 1980s, so Burgum led the buyout of the rest of Great Plains a year later, and the company went public in 1997.

Much has been made of the Burgum/Ballmer friendship. Burgum was a friendly witness for Microsoft in the government’s antitrust suit, and the companies have collaborated in the past—although the result, a business software package called Microsoft Profit, succumbed shortly after its 1993 release. According to Morton, Ballmer’s original conversation with Burgum cast the acquisition as “more of a merger.” The Fargo-based company is the first acquisition that Microsoft hasn’t rolled into its Redmond headquarters. “There was never a question of our moving,” says Morton. “We’re the second largest development center outside of Redmond.” In fact, Microsoft Business Solutions has continued to enjoy a great deal of autonomy, but that’s evolving. “Until last fall, we operated more as an end-to-end business, but we weren’t fully leveraging the Microsoft sales engine. Microsoft is now transforming,” Morton continues. “How can we present one face to customers?” Microsoft Business Solutions is now one of Microsoft’s seven business groups, and while it still retains P&L responsibility, the sales and marketing teams have been integrated into Microsoft’s global group.

Microsoft’s entrance into the mid-market business application space has been strengthened by its further acquisition of the Danish company Navision. “The acquisition gave us a greater global reach,” says Morton.

“What integration issues have you faced?” I ask.

“We continue to add functionality to four ERP products: Great Plains, Solomon, Navision and Axapta. Each has a strong customer base, but in different markets,” Morton answers. “There’s geographic and market diversity as our products scale into the upper end of the midmarket while enhancing our strength in small business and the traditional midmarket.”

Technical integration may prove to be more challenging than the cultural integration. According to Morton, a group of developers is currently working on bringing its business application products into the .NET fold, enabling the move to one code base for the next generation of business solutions, but there are currently multiple code bases.

I ask about a timeline. “It’s a huge project,” he demurs. “You’d have to talk to a technical expert.”

And with that, we’re back to North Dakota. “A big part of our success is the state,” crows Morton. “There’s about 40,000 college students within a 100-mile radius and 21,000 just in the Fargo metro area. They’re exceptionally strong in engineering—and we’ve always been able to attract talent.”

“How has the corporate culture changed since the acquisition?” I ask.

“We’re successful due to similar values and complementary cultures in Fargo, Redmond and Copenhagen,” Morton replies. “There’s a passion for technology.”

IT = Economic Silver Bullet?

On my flight home, I muse that despite Morton’s glowing comparison of Microsoft Business Solutions’ diverse locations, and North Dakota’s efforts to transform itself into an IT hotspot, the state still faces some serious challenges. According to high-tech trade association AeA’s “Cyberstates 2002” study, only 3 percent, or $21 million, of North Dakota’s total exports are high-tech related—a miniscule figure when compared with first-ranked state California and its $56 billion of high-tech exports. Fewer than 8,000 of North Dakota’s 642,400 residents are currently employed in high tech, and 21 percent of the state’s workforce is employed in declining industries such as agriculture or oil production. But more problematic is the state’s dwindling population: The U.S. Census Bureau reports that it fell by 1.2 percent from April 2000 to July 2001. Indeed, some counties have seen such a dramatic decline due to out-migration that in 2001 North Dakota Senator Byron L. Dorgan introduced legislation aimed at bringing foreign high-tech workers to the Great Plains. Had the “21st Century Homesteading Act” become law, the H-1B program could have been used to staff six demonstration projects meant to create high-tech employment in counties decimated by out-migration.

Still, the atmosphere of enthusiasm and optimism I’d found in North Dakota impressed me. The people I’d met were passionate about technology and the economic stability it might bring to the Great Plains, and are working hard toward that goal. Since I visited in July, two more IT companies have moved portions of their business to North Dakota: Denver-based software company Grizella is moving to Hebron, its founders’ hometown, and radio frequency identification tag manufacturer Alien Technology selected Fargo as the location for its new research and manufacturing site (after a three-year courtship by state officials). While North Dakota’s recent economic successes are small compared to those of more populous states, so are the costs of doing business. With its inexpensive energy and real estate, and an educated, underemployed workforce, perhaps the answer to offshore lies within our borders—and out on the Plains.