The first time Farrell Delman outsourced application development to an IT services company in India, the relationship was far from the mutually beneficial partnership he had hoped for. As president and CIO of the Tobacco Merchants Association (TMA), an information aggregator and distributor for the tobacco industry, Delman needed an outsourcer to develop a content management system to handle the organization’s ever-growing library of electronic information. So in 2000, he signed a contract with a large IT services provider in India that said it could complete the project for just $256,000, instead of the $1.65 million it would cost TMA to do the work in-house.

Unfortunately, the outsourcer had little experience with content management systems, Delman says, and developers spent much of their time learning on the job on TMA’s dime. The outsourcer had underestimated the amount of work it would take to develop the application and, therefore, had underbid, he says. "A lot of what they considered their ’design’ of the application amounted to attempting to fit round pegs into square holes in order to save time and money," recalls Delman. The size of the vendor was also an issue. It had several big customers, but TMA wasn’t one of them. Despite frequent trips to India, Delman felt ignored. What attention was paid to TMA was focused solely on coding, he says. "The people assigned to the project were very skilled in IT, but they didn’t spend a lot of time getting to know our business model," says Delman. And given that TMA’s business depended on this content management system, that was a problem.

Ultimately, the project came in on budget. But that was the only bit of good news to be had. The project took seven months longer than expected to complete. The content management system was not aligned with the business needs of TMA and lacked the flexibility Delman was seeking, he says. And ongoing maintenance for the application proved difficult and expensive.

Delman’s experience is not unique. He was attempting to pull off what Jeanne W. Ross, principal research scientist at MIT’s Center for Information Systems Research (CISR), calls a "co-sourcing alliance," in which client and vendor jointly manage projects—usually application development or maintenance work that goes offshore. Unlike outsourcing deals in which a CIO hands off a discrete piece of commoditized or repeatable work to a vendor—what Ross terms a transaction relationship—co-sourcing alliances rely on a symbiotic relationship between client and vendor. (To learn how CIOs should approach transaction relationships, see Simple and Successful Outsourcing.)