A Real Page Turner: IBM and JP Morgan

Today, JP Morgan cancelled a $5 billion outsourcing contract with IBM. (Oh, how I’d have enjoyed listening in on those meetings.) It’s an interesting tale of leadership changes mandating shifting priorities in a mega-merger culture. Here’s how ComputerWorld reported on it…

Back in the November 26, 2001 issue, the newsweekly published a story saying that Bank One Corp. had announced its largest IT employee hiring spree — boosting its tech staff from 4,000 to 4,600. Then-CIO Austin Adams said they were doing it to mitigate “customer disruption” while integrating half a dozen customer systems (maintained in outsourcing agreements) it had inherited when it purchased a bunch of smaller banks. Adams had only been on board since March of that year, following the appointment of Jamie Dimon as CEO.

Adams said that in spite of the new hiring his IT spending would remain flat through the savings it would accrue by getting out of outsourcing arrangements and back to in-house services. Apparently, every time the bank acquired a new system that had to be melted into the bank’s pot, another blip would appear on the outsourcing contract and the bank would have to pay extra to get the work done.

Tip one: Make sure to build flexibility into those contracts.

On another front, in the June 11, 2004 issue, ComputerWorld said JP Morgan Chase & Co. would be bringing many of its IT services back in-house as well — as part of its $58 billion acquisition of Bank One. Last year, JP Morgan had transferred 4,000 IT workers and contractors over to IBM in a highly publicized $5 billion outsourcing contract. At the time of the signing, the publication said, “The recent agreements are indicative of a larger trend during the past 12 months in which more than a dozen financial services firms have turned to outsourcing vendors.”

The broken deal was confirmed in today’s reporting, though not technically by JP Morgan or IBM officials. Here’s the deal: The newly merged entity will be led by JP Morgan’s current CEO, William Harrison Jr. But Harrison intends to relinquish the CEO job to none other than James Dimon in 2006. Adams, the CIO who’d brought operations back into Bank One, is still working with Dimon.

Yet JP Morgan also has its own CIO, John Schmidlin, presumably an expert by now in negotiating massive outsourcing deals. Nobody knows yet who’s going to win the CIO spot in the Morgan-BankOne behemoth, but “industry sources” are predicting Adams will get the job. The Dimon/Adams combination portends more in-sourcing.

Tip two: Study the practices and history of your new leadership as quickly as possible; that’ll tell you what management work will be expected of you in your future.

Whoo. A real IT outsourcing page-turner involving scads of money. Yet, on another level, it’s really a simple story of executives getting their way.

Say, if there’s a reader out there who has an inside perspective on any of this, would really appreciate your comments!