Interview with Dan Cass, CTO, San Francisco's 1st Financial Bank

Traditional outsourcing options are in flux these days, with some American companies opting to bring work back in-house or turn it over to various types of domestic in-sourcers. 1^st Financial Bank, a San Francisco-based bank that focuses on the college student credit card market, chose another outsourcing destination: China. 

Since 2002, 1FB has worked with Bleum, an American-owned and operated IT services provider with world headquarters in Shanghai. In an interview with FierceCIO, 1FB's CTO Dan Cass discusses the advantages he sees in working with a development shop in China, and the measures he considers essential to successfully managing this kind of outsourcing contract.

FierceCIO: Why did you decide to outsource some of your software development?

Dan Cass: We were looking to see if we could expand our delivery capacity to develop more software for the business. When we went out and bought a package, we didn't want to spend 90 percent of our money on tools we didn't use. 

It wasn't just about finding a way for us to save money and reduce expenses. Primarily it was about how to deliver more software, more functions for the business, and then it was about how to reduce expenses.

FCIO: Why was it so difficult for you to find software engineers here in the United States?

Cass: Our biggest problem is getting software engineers to understand our business. We can find a software engineer any day of the week, but we want to find one who has worked in banking and understands what a debit and credit is. We're a business, and we're trying to solve business problems with technology. In the United States, when we start talking about the business problem, we have found it's hard to find people who actually listen to the whole problem defined before they start going into solution mode. We want them to understand the problem first.

FCIO: How did you end up with an outsourcer based in China?

Cass: We spent 10 days in China interviewing different software companies, and we spent 10 days in India. We also interviewed a lot of mid-market software companies. We finally realized that we're not Google (NASDAQ: GOOG) or Microsoft (NASDAQ: MSFT), and we knew we were going to get the B or C development team because we are so small.  

We chose a vendor from India and we chose one in China. On the same day we sent an email to each with the requirements and then we pressed the stopwatch. Whoever did the best would get our business.

The company in India told us all the things we wanted to hear, but we never really got any questions from them. What we got from Bleum [in China] was an endless case of probing and insightful questions about our requirements. They were reading our requirements very carefully. The reason we chose Bleum was their candor and insightfulness.

Culturally, China is like the east coast--very straightforward, very thick skin. 

FCIO: What development work do you outsource?

Cass: All of our requirements and most of our design are done in the U.S. They develop software for our credit card and operations on the web. The one back-office system they do for us is a CRM system. Of those three major applications, two-thirds of the work is done by us, and one-third is done by them. They probably spend 30 percent of their time writing software for us, 30 percent on quality assurance, and 40 percent of their time understanding and listening.

FCIO: How do you ensure performance levels?

Cass: We ask them very difficult questions. We say, walk us through your understanding of this requirement. It's a terrifying prospect for many people. We want to accelerate the failure. If we're going to fail, we want to fail in the first two weeks of the project. At week 17, we can't fix it.  Most people just want to avoid the failure and do whatever they can to put the blinders on. We assume that everyone is human and has human frailties.

FCIO: What systems or structures do you have in place to manage the outsourcing contract?

Cass: We have very senior people managing the projects, the communication and the expectations. It's a very hands-on approach. We call it active management. We basically turn over the requirements and give them one week to give us a list of questions. If they ask a good question, sometimes we have to go back and redesign. Some people think that's very expensive, but we think it's very efficient because we get what we want in the end.

We spend a lot of time in Shanghai. We go over there at least once every six months. They have very good people who are very good listeners. We try to remove assumptions and implications from discussions. We try to work through the details.

FCIO: What advice would you offer other companies considering outsourcing?

Cass: The biggest area where I see people making mistakes, if you want to talk about sourcing in general, is in communications and expectations. There has to be very active management. We do it almost daily. We don't have any glorified secretaries just taking notes. 

Outsourcing can be very successful. We have an eight-year relationship with Bleum, and we've had a very good return on our investments. We've invested not just our money, but our time and energy. Any problem we've had with them in eight years has been about communication. 

The bugs that come from software are a direct result of misunderstanding. We want to confirm pro-actively that they understand the requirements. If you want to have a tag line, it's: Pro-active management works. 

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