Jp Morgan Chase and Company

SETTING THE STAGE

In 2002, JP Morgan signed a seven-year outsourcing arrangement with IBM, worth 5 billion dollars. This deal included data centres, help desks, distributed computing, and data and voice networks. JP Morgan viewed this agreement with IBM as a competitive advantage that would serve as a platform for efficient growth and innovation. It was an attempt to further enhance the performance of the company, while reducing their costs.

However, two years later, JP Morgan announced the premature ending of their contract. JP Morgan ended the outsourcing deal with IBM, claiming that it caused technological stagnation in their operations. Apparently, IBM refused to take on tasks without additional charge, particularly necessary improvements to the system. This structure lengthened certain procedures, and as result, projects sat idle and processes were stalled.

Another reason behind the deal cancellation was internal organizational changes. JP Morgan merged with Bank One, which has cancelled a similar deal with IBM a few years earlier. With the combined resources and technology of the banks, management reassessed its capability of managing its core information systems, and realized that the IBM deal was no longer necessary. JP Morgan Chase and Co. wanted to leverage on the assets it acquired from Bank One, including a $500 million investment in data centers. Also, ending the deal would mean saving the margins paid on hardware and software purchased through IBM, as the size of the newly merged bank would enable it to negotiate better bargains with suppliers – JP Morgan Chase and Co., after that time, emerged as the second largest financial conglomerate next to Citigroup.

Analysts believed that the primary catalyst for the back sourcing was the change in leadership. Many of the key officers of Bank One took over JP Morgan Chase and Co. by holding the same positions that they had in the former. Some of these were CEO James Dimon and CIO Adam Austin. As... [continues]

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