Getting to Know You

After the missteps with his first attempt at a co-sourcing alliance, Delman took some time to make sure he had his footing the second time around. As maintenance on his content management system grew more onerous, he once again sought out an outsourcer. His ultimate goal was to create a new, more flexible application to manage content, which approached 3GB in 2003. But he didn't jump into another development project with a vendor. Rather, he hired Cordiant to maintain the application that the previous outsourcer had developed. Cordiant, based in Kochi, India, spent more than a year doing maintenance on the system before even considering the development of a new system.

That's how Delman avoided the snags he had had with the previous co-sourced development project. "By doing maintenance, [Cordiant] learned what the system was about in terms of content, and they were able to see how it could be streamlined," he says. "The maintenance period also gave them time to smooth out potential problems. "It was a good way to find out what the communication levels were. You find out if when you say blue, they see the same blue. A lot of learning happened in that maintenance phase."

When it was time to start development on a new system in June 2004, both client and vendor were in agreement about what would work best for TMA. Cordiant began work on an open source content management system. Within seven months, Cordiant completed the system for $US300,000; Delman estimates it would have cost $US2 million to do in-house. But more importantly, the company delivered a system that met TMA's needs for a dynamic content management system in full. And that's saying a lot for Delman, who by his own admission is "a little obsessed about [the] applications" on which TMA's business model hinges. "If they don't work," he says, "we don't sell."

Delman expects to renew the contract with the outsourcer in 2007. "What I have with Cordiant is the relationship I would have with my own internal systems department," he says. "In fact, I view them as my own internal systems department."

TMA's second attempt at co-sourcing worked well because Delman chose the right partner and allowed time for the two companies to learn one another's capabilities and needs. Ross explains that "if you start small and take the time to learn how to do it, co-sourcing can be a natural to help CIOs access IT talent at lower offshore rates while making better use of their internal staff".

At State Street, the seeds of a successful co-sourcing alliance go back a quarter century. Jerry Cristoforo, State Street's CTO and executive VP of enterprise information and global markets technology services, formed a relationship with Zhijun He, the founder of the computer science program at China's Zhejiang University, way back in 1980. Fast-forward 25 years and State Street has developed a co-sourcing alliance with UniverseSoft Technology, an outsourcing company spun out of the university that is dedicated to application development and maintenance for the Boston-based financial services company. State Street owns 81 percent of the company, the university 19 percent.

Before the company was formed in 2003, State Street used the university's PhD candidates for R&D work. Although his relationship with He had been close for years, Cristoforo knew he had to take some time to develop the alliance between State Street's IT staff and business users and the student-developers in China. In 2001, three Zhejiang professors spent nine months in Boston working with State Street's development managers, getting to know the business and taking on several long-term technical projects as project managers. Development was done back in China.

Soon after, State Street ran into a problem with its trade-execution software. The company had acquired the system in 1997 in anticipation that the transition management business (which has to do with high-volume asset reallocation) would take off. It didn't, and the employees who knew the system's inner workings ultimately left the company. In 2002, transition management activity suddenly went through the roof, but the software supporting it was no longer current. It went from crashing once a year to several times an hour, and there was no one around with the knowledge to fix it.

Cristoforo realized he had a solution at hand: the developers at Zhejiang. There was no doubt they were talented. The only question was whether they could fix the problem fast enough, since they'd previously worked only in R&D mode. But the combination of the technical minds in China and the business knowledge in Boston, linked by the project managers in both locations, resulted in success. "In 10 months, we were in production with the new system," Cristoforo says.

Zhejiang was a great resource for State Street, but not a permanent one. "When we did that project, all of a sudden we had all this core development knowledge at the university," Cristoforo says. "But what happens when one of those wonderful students graduates?" So he worked with the university to establish a company that could offer long-term employment to Zhejiang graduates to work on State Street application development and maintenance. UniverseSoft Technology has gone on to help State Street deal with a whole host of legacy application issues - from high-end development to grunt work - in record time and at low costs.

Cristoforo refuses to call the relationship with Zhejiang "outsourcing". "When you're dealing with an outsourcing model, what you're doing tends to be more in the tactical interest of the company. When you're co-sourcing, it's more of a long-term relationship and it's in the strategic interest of a company," he says.