Jp Morgan Chase and Company

In 2002, JP Morgan signed a s rase-year outsourcing arrangement with IBM, charge 5 cardinal dollars. This grow included entropy centres, help desks, distri stilled computing, and info and voice net influences. JP Morgan viewed this agreement with IBM as a competitive advantage that would be consume as a platform for efficacious growth and transformation. It was an attempt to further enhance the performance of the ships company, while reducing their court. However, two years later, JP Morgan announced the ill-timed ending of their father. JP Morgan stop the outsourcing turn to with IBM, claiming that it caused technological stagnation in their trading operations.Apparently, IBM refused to take on tasks without surplus charge, particularly required improvements to the system. This structure increase trustworthy procedures, and as result, projects sat idle and processes were stalled. A nonher primer coat back tooth the deal lay close tocellation was internal orga nizational changes. JP Morgan merged with Bank One, which has cancelled a similar deal with IBM a few years earlier. With the combined resources and applied science of the banks, steering reassessed its capability of managing its core out information systems, and realized that the IBM deal was no longer necessary.JP Morgan bevel and Co. wanted to leverage on the as amazes 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 bundle purchased through with(predicate) IBM, as the size of it of the radically merged bank would en adequate it to bring transfer better bargains with suppliers JP Morgan rut and Co. , after that time, emerged as the second largest financial manifold next to Citigroup. Analysts believed that the primary catalyst for the back sourcing was the change in leadership.Many of the separate officers of Bank One took all over JP Morgan Chase and Co. by hold ing the same(p) positions that they had in the former. Some of these were CEO James Dimon and CIO Adam Austin. As punctuate by Austin, the new counseling wanted to have greater inter-group communication in every aspect of their business, and IT is an important part of it. In fact, Dimon, macrocosm in the industry for years, had made a reputation of investing in internal strategies, which explains why experts were non really surprised by the premature death of the IBM contract. ANALYSIS AND CRITIQUEGiven the different scenarios that happened, it is necessary to focus on the come to of the outsourcing and backsourcing deals of the company, and deducing which arrangement is better for the company. The Impact of Outsourcing JP Morgan Chases contract with IBM is express to be one of the largest outsourcing deal on record. However, this 5 billion-worth of contract was solely in its second year when JP Morgan opted to end its supposed-to-be-7-years relationship with IBM. Apparently, the outsourcing deal commodiously affected the operations of the company.First of all, outsourcing had a disconfirming impact on the force on some line processes of the bank. Things that used to get done no longer got done. In nevertheless a short span of time, quite of improving the companys productivity, the outsourcing deal had caused so much delay. Among the projects not getting done were server migrations, data center upgrades, and network patches. Corollary to that, even in office supply procurement, thither were also delays. It even reached the slur where project managers had to go and buy their own reams of paper.Secondly, there were vague contract details in the agreement mingled with JP Morgan and IBM. As a result, whenever there is a need to start improvements and updates, IBM had to charge extra fees to the bank. Thus, every additional improvement in the system connoteed additional cost. Because of the banks electric resistance to pay for extra but often nec essary improvements, JP Morgans innovation and efficiency in its information technology was compromised. Thirdly, to implement the outsourcing deal, JP Morgan had to lay off 4000 employees, which lead to a drop in employee morale.With the loss of job security, employees doomed their trust in management. Employees refused to commit to any project, and started to slack off. As a result, a lot of work were not getting done, which led to a decrease in the productivity of the company. The Impact of Backsourcing In the light of the shortcomings of the outsourcing deal and the implications of the merger with Bank One, JP Morgan opted to backsource. Bringing their IT back in-house also had huge effectuate in the company. Firstly, employee morale remained upset. Many were resentful that the reasons why management outsourced- i. e. o gain competitive advantage, to improve efficiency, and to accelerate innovation- were also the reasons why they backsourced. As a result, they lost trust in th e honesty and soundness of managements judgment. Job security was still an issue, as much than layoffs occurred, not only because of the backsourcing arrangement, but also because of the merger of the two banks. Some employees reapplied for their jobs, but were paid with slight than 20% of their original salaries. With such a low morale, productivity in the company dropped, employees were reluctant to commit to projects, and more work piled up.Secondly, the company spent double the cost of reorganization that is, they had a huge capital outlay to support an outsourcing deal, then incurred another set of outlays to extirpate those actions and set up a backsourced environment. Outsourcing costs incurred by JP Morgan are primarily due to the huge consultation fees for process reengineering. They also invested in focal point and retention bonuses to retain the employees through the transition period. As JP Morgan backsourced IT, they incurred huge losings for prematurely ending t he contract.Moreover, the changes made in outsourcing were done all over again in reverse. With that, they had to spend twice for the costs of reorganization. They had to re leave all their systems, staffs, operating procedures, organizational structure, and corporate strategies. Fortunately, JP Morgan was able to capitalize on the $1 billion investment of BankOne in its own information system. Finally, in moving from an outsourcing deal to a backsourced environment, JP Morgan had to deal with organizational ruction. focusing had to reengineer their processes and make huge readjustments in their systems and operations.Organizational responsibilities were redefined, and management completely reversed how things were done. Outsourcing Vs Backsourcing When JP Morgan prematurely ended their contract with IBM, the CEO said, We believe managing our own technology infrastructure is scoop out for the long growth and success of our company, as well as our shareholders. Our new capabilit ies impart give us competitive advantages, accelerate innovation, and enable us to become more streamlined and efficient. However, these were the same reasons that management gave when they entered the outsourcing deal.So the question is which would furnish greater take ins for the company outsourced operations, or a backsourced environment? The main reason why companies outsource is to be able to focus on their core activities. Many businesses have generic functions such as phone reception and customer service. When these generic functions are outsourced, companies may focus on their key processes. Outsourcing would also lead to efficiency and cost savings, as overhead expenditure are compressd. Outsourcing can also endure operational confine as poorly managed functions are fork upd by companies identical IBM who are better in these areas.However, according to the studies of Deloitte Consulting, 70 percent of companies that outsource report significant negative experie nces with their outsourcing projects. Apparently, outsourcing has a number of limitations and weaknesses. The close common issue is the loss of control when the management of certain functions is turned over to another company. The outsourcing company may lose the ability to adapt to a rapidly changing environment. Additionally, the reference of the service provided may not tinge expectations, because the service provider is not driven by the same standards as its outsourcer.Service providers simply aim to meet the conditions of the contract, and not necessarily strive to provide the needs of the outsourcing company. Consequently, outsourcers incur more costs as they modify the scathe of the contract, or as they strengthen for an inadequate system. With the said problems of outsourcing, companies may resort to backsourcing their operations. Nonetheless, in the aforementioned athletic field by Deloitte Consulting, only 25 percent of the companies that had problems with outsourc ing brought IT back in-house.The difficulty in backsourcing can be traced to the high costs of reorganization and the organizational disruption during the transition period. However there are a numerous benefits of having an in-house system. Firstly, management would have complete control in their operations. This leads to greater flexibility, since changes in operations could be implemented more easily. Secondly, management could also control the note of the operational functions of the company, by setting their standards of performance in their workforce.Finally, they would be able to avoid the need for ongoing renegotiations and the high recurring costs of modifications. The last whether to outsource or insource should mainly depend on the processes of a company. Organizations may outsource processes that do not fall under their main competencies, or non-core processes that consumes much of their resources. This would save them time, effort, and manpower, while enabling managem ent to focus on the companys strengths and core operations. On the other hand, it may be more advantageous to insource specialized processes that are impractical to outsource exchangeable Research and Development.Moreover, as in the case of JP Morgan, it is better to insource because the company can actually provide better services at lower costs in-house, with the facilities of the acquired bank Bank One readily purchasable for JP Morgans use. Philippine SETTING A similar case in the Philippines is the agreement amidst Government Service Insurance body (GSIS) and International Business Machines (IBM). In 2004, GSIS began migrating to a new computerized system, with an IBM DB2 software designed to manage all data pertaining to members and pensioners accounts.GSIS claimed that it spent around P40 million for the DB2 software and IBM P-series servers. Unfortunately, in March and April 2009, the database software encountered a problem with the pension firms Integrated Loans, Mem bership, Acquired Assets and Accounts Management System (ILMAAAMS). The ILMAAAMS, which ran on IBMs DB2 database software, reportedly crashed because of the vast amount of proceeding made by GSIS members, composed of about(predicate) 1. 5 million presidential term employees and 200,000 pensioners. This translates to about 3 million records on file coming from 8,000 agencies nationwide, simultaneously.According to GSIS, about 90% of its operations were adversely affected by the crash, which resulted to approximately Php5 billion in actual damages. The company blamed IBM for the disruptions, accusing the last mentioned of supplying defective database software. GSIS filed a Php100 million level-headed case against IBM Philippines, who in turn filed a Php200 million libel suit against the GSIS for its series of negative advertisements against them, some(prenominal) in print and broadcast media. In November 2009, GSIS started migrating to the HP Oracle System and was able to compl ete the process in just six weeks.At present, the legal war between GSIS and IBM continues. Recommendations Outsourcing is a double edge sword. It could either benefit a company or it can also cost that company a lot. Thus, legion(predicate) things need to be considered in choosing between outsourcing and the more traditional in-sourcing. Therefore, the situation of JP Morgan Chase and Co. could have gone on a better way if they just prepared and improved on certain aspects as follows The negotiations with IBM should have contained certain terms which could possibly mitigate the risks conglomerate in their contract.First, the contract negotiations should have had clarified the terms and limitations of both parties. Having clearer terms and limitations will help both parties adjust to different situations and formulate the good solutions to the problems that may arise. There should also be better preparation, a set plan of action and a ready exit strategy. Also, JP Morgan Chase an d Co. should have asked for flexibility in the technology, the outsourcing partner uses. They should have specified that the process or technology should fit or, at the very least, work hand in hand with the businesss existing processes.There should also be a stipulation asking review points to allow the relationship to change or end. JP Morgan Chase and Co. should consider that contracts have shared elements of both risk and reward. Greater risks entail more rewards precisely why JP Morgan should strike a balance between these two. It should perform different analysis tools in order to study alternatives more accurately. This, in turn, will help the company decide what projects to perform and which deals to enter. For mannequin in the case of JP Morgan, short-term outsourcing contracts benefit the company better than long-run contracts.In some cases, it could be a good mix of short-term and long-term contracts as determined by the nature of the contract that will provide the be st rewards for the company. Essentially, it is a matter of being able to correctly appraise and weigh alternatives that will yield the best results. - Finally, the company should learn how to rank its most important asset, the people. It should have been more honest and open with the employees about matters affecting the situation and condition of the company.Being the most important asset of the company, forgiving capital or employees should have been more enquired in instances like this. As a summary, the following are the key points to be recommended from the JP Morgan and Chase experience 1. For financial intermediaries in particular, outsourcing is not recommended. Outsourcing was a trend for many industries, especially in late 80s until the early 90s. This provides organizations the chance to concentrate on their core competencies by having their IT functions off shored.Much of the stories with regard to this business trend were written on the earlier years of the deal, s tories on the implementation years however, remain scarce. A company has to consider how it will ultimately affect its operations before jumping in the outsourcing bandwagon. pecuniary intermediaries in particular would be better off without outsourcing as the latter adversely affects performance of the company, particularly its capability to innovate and be efficient which takes a toll on the totality of the organizations performance. 2.Backsourcing is not for everyone. In a company where the latest data are the most crucial, it is recommended for them to keep their IT functions in house, especially in the case of JPMC where they had all necessary infrastructures ready for their IT functions. Departmental functions once outsource will incur twice the expenses if brought back once again to the company. Backsourcing is not a one size fits all solution rather it depends on the companys available resources that determines its capability to bring in the IT functions again. 3. Negotiate shorter dealsShorter deals promote flexibility which proves to be the most important factor missing in the JPMC situation. Albeit more expensive, this provides companies less expensive solutions and exit strategies in case deals go awry. 4. Always remember the value of employees The outsourcing and insourcing juggle brought down the morale of many of the employees. What the company failed to visit was the fact that this constituted much of the intangible costs incurred. 5. Remember to weigh alternatives carefully. Organizations often overlook or ignore the relationship between cost and quality of service.The relationship is a simple one. If you want to differentiate your IT service, provide the highest quality service and the highest quality products, it generally costs more. If the decision is IT costs too much, it is relatively straightforward to reduce IT costs, but commensurately you also reduce service. (Hirschiem, 1998) Higher expectations, particularly in IT lead to higher costs. More than just following the current trends in the industry, determining what to do with departmental functions involve planning and weighing alternatives carefully.