Working with Offshore Partners Requires CIO Oversight

Co-sourcing, which draws on both the vendor’s specialized technical knowledge and the client’s deep business knowledge, succeeds only when both parties have strong capabilities and the relationship is set up so that those capabilities can mesh for the greater good.

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A major risk with co-sourcing alliances, according to Ross, is an imbalance of inputs between client and vendor. If a CIO relies too much on the outsourcer’s technical prowess, his staff may lack the knowledge to use the applications effectively. Conversely, if a vendor spends too much effort imparting its software development or project knowledge to the client, it could, in essence, share itself right out of a contract.

That Side’s Yours and This Side’s Mine

The mechanism for co-sourcing success—a true sense of partnership—can also be its downfall. Boundaries between the two sides can become blurred. It’s often difficult to tell exactly what the client is contributing and what the vendor is providing, says Ross, and that can lead to problems. CIOs who succeed at these relationships seek to define the separate contributions of client and vendor—even down to individual responsibilities—without detracting from the collaborative nature of co-sourcing.

Omgeo, a software provider for the securities trading industry, began co-sourcing with Indian company Patni last year. The arrangement has worked so well that Omgeo Managing Director Michael Agnew refers to Patni as "the development, QA and testing unit" of Omgeo. Yet he has been careful to specify who does what. "It’s part of our project charter process to set and write up all roles and responsibilities up front," says Agnew. "We understand what all the accountabilities are by function, by project and by individual." But simply saying who’s responsible for what isn’t enough. "The lesson I’ve learned with any partner is that being very formal in the communication process and setting expectations clearly up front is paramount to success," says Agnew. "All throughout the project lifecycle, it should be clear who’s handling what."

At the highest level, there’s an Omgeo global sourcing director who oversees all outsourcing and monitors all metrics from cost to performance to headcount. There are also Omgeo project managers who direct development teams and work with the vendor’s project manager. Three Omgeo managers are responsible for working with Patni’s quality assurance team in Mumbai. And most importantly, there’s the Omgeo program manager for Patni who deals directly with Patni’s equally important relationship manager for Omgeo.

Mary Lacity, professor of information systems at the University of Missouri, says having the right people in the relationship management roles is a make-or-break proposition for a co-sourcing alliance. "If you get the two primary point people right—the alliance managers for customer and supplier—you’ll be fine," she says. "It’s hard to find the right people. But if those two people can be completely frank, be completely honest about the people in their own organization rather than necessarily protect them, and even share financial information—’This is what my margins are, and this is what I can do’—then it works."

How to Measure Success and Sustain Value

Certainly, a successful co-sourcing project is one that comes in on time and on budget and works well. But evaluating a co-sourcing relationship goes deeper than that.

For State Street’s Cristoforo, project milestones are just the tip of the iceberg; a bigger issue is whether his co-sourcing arrangement can be sustained over the long haul. If specific issues arise during a project—say, problems with coding or processes—that’s a signal to Cristoforo that a deeper problem could be lying underneath. "It really doesn’t matter if you’re making deliverables if you don’t have sustainability," he says. For Cristoforo, success in this kind of partnership can be measured only over a long period of time: "We’ve been working with Zhejiang close to five years. We’ve been with them as they’ve grown from 15 people supporting us to 300 people. They’ve proven they can handle all kinds of work, from high fidelity to low fidelity. We have many different development communities at State Street, and Zhejiang is now integrated with most of them." These are all mounting signs of success for Cristoforo.

Back at TMA, Delman compares his co-sourcing alliance with Cordiant to another solid relationship he has. "I view it as a marriage. When something’s really wrong, it’s obvious. But when things are going well, you don’t usually notice it. Sure, some days it’s my birthday. And some days my daughter brings home a C to us. But normally things are pretty much like they were the day before," Delman says. "It’s the same way with my co-sourcing relationship. Sometimes I’m delightfully surprised. Sometimes I’m a little annoyed because I don’t understand why some things take so long when others happen faster. But there’s a certain rhythm to the relationship that I’m used to that tells me things are moving along."

Copyright © 2005 IDG Communications, Inc.

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