If you do this both parties can plan better.
Today I was with Tony Weeresinghe, who heads up the trading software company, MillenniumIT which the London Stock Exchange acquired a couple of years ago. Basically MillenniumIT is a supplier of trading systems and support and the LSE acquired it for £18m to replace its ailing .Net based trading system, known as Tradelect, that was supported by Accenture for £20m a year. Good business it would appear.
My first ever post on this blog was about the deal. See it here.
Amongst other things we talked about how the LSE, through MillenniumIT, now has the fastest core trading system in the world. One of its platforms can complete a trade from start to finish in 103 microseconds, while the main LSE platform can do it in 115 microseconds.
The LSE's old trading system took 3 milliseconds to do it. Pretty quick but a long time if you are trading via computers and algorithmic trading software. A millisecond could cost you a lot of money.
But the moral to this blog post is that Weeresinghe says that being close to the business has helped MillenniumIT shave microseconds off trading times. This is because it now understands how the LSEs clients trade and can fine tune the software.
You could say this is an argument against outsourcing in that an outsourcer can never understand the business as well as internal teams. But it could also be an argument for large companies to not just buy best of breed technology but the actual companies that make it.
But it could also be an argument to open up to service providers and let them see what makes you and your customers tick.
This deep understanding of the business will also help MillenniumIT create systems that enable different types of trading. Weeresinghe says that speed is becoming less of a differentiator as everyone gets faster. But because MillenniumIT is so close to the business it can provide the technology required if the LSE wants to introduce new trading services to differentaite.