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Posted on June 8th, 2012, by

The development of information technologies forces many companies to change their traditional approaches to business and look for new opportunities to develop new more effective models of work. At the same time, one of the major problems many companies, including the leading ones, face in the modern world is the necessity of the development of effective information systems. In such a situation, often the efforts of one company can be insufficient to achieve a really positive result in this direction and, as an alternative to the traditional development of information system and application of the newest information technologies on the basis of the existing potential of a company, outsourcing is used. However, the recent examples demonstrate that outsourcing cannot be always effective and the case of JP Morgan Chase IT outsourcing proves this statement because, recently, the company has refused from its initial plans and started to seek new ways to improve its position in the market, focusing on the development of IT and IS.

The information technology and information strategy that in relation to JP Morgan Chase’s business requirements

Obviously, JP Morgan Chase has decided to start a new strategy in relation to its information technologies and information system because the company perfectly realized that it is quite difficult to remain competitive in the constantly progressing and developing world where new information technologies are regularly implemented that, naturally, demands constant improvement in the company information technologies and as well as strategy. Taken into consideration the size of the company, which takes the second place among the financial services company in the US with $56,9 billion in revenue and more than $160,000 employees. Also, it should be said that the company operates worldwide and is represented in 50 countries of the world that makes it very important to implement the newest technological achievements in possibly shorter period of time with minimal resources spent on the technological reconstruction and change.

At the same time, it is necessary to realize that any serious change that is accompanied by substantial investments in the implementation of new information technologies and systems. Moreover, as a rule, such technological changes and implementation of innovation may be quite expansive since they may need the additional training of the personnel of the company that, naturally, implies additional investments in the special training courses for the employees.

Taking into consideration the size of the company, it is quite logical to presuppose that the renovation and improvement of its current information technologies and systems would need new investments that could be quite costly in terms of the entire company which operates worldwide. It is also necessary to realize that the company is not specialized on information technologies and information systems which are quite secondary in relation to financial specialization of JP Morgan Chase.

Consequently, in such a situation, the decision of the company to deal with IBM to outsource a substantial part of its IT structure to the latter seemed to be quite logical. In fact, such a decision was motivated by purely commercial factors since JP Morgan Chase had to keep pace with the recent innovations in the sphere of IT and IS in order to remain competitive and avoid the loss of its leading position in the market. It should be said that the possible slow down in the development of new information technologies by JP Morgan Chase, which was quite probable in the case if the company attempted to cope alone with its problems, would have extremely negative results.

In this respect, it should be said that the slow down in the development of the company’s IT could result in the growing backwardness of the company compared to its major competitors because it would negatively affect the relationship of the customers to the company. To put it more precisely, customers naturally need the high quality of services. In the modern world the high quality of services may be provided only with the help of the constant improvement of information technologies the company uses. Consequently, any slow down in the development of information technologies naturally results in the decreasing of the quality of services of the company.

At the same time, the inability of a company to rapidly and effectively implement new information technologies may also negatively affect the relationship of the company with its business partners since, if the latter uses more advanced technologies than it will be quite difficult to develop an effective cooperation. It is not a secret that many companies that are business partners tend to the unification of their systems in order to make the cooperation more effective and faster, while the difference in the information technologies and information systems used may be crucial in this respect.

Also, it should be said that the lack of innovations in the company’s information technologies and information system may lead to the deterioration of its position in the market and even decreases its market value. Nowadays, information technologies and information systems are among the primary concerns of any company since they play an extremely important role in the technological and commercial progress of the company affecting its productivity and effectiveness. Naturally, the company that cannot manage to keep pace with its competitors in the field of information technologies and information systems is doomed to failure and JP Morgan Chase could hardly escape such a failure, regardless its large share in the market and its leading positions.

In such a way, the decision to deal with IMB seems to be quite logical and even essential solution of the problem of faster and more effective implementation of new information technologies and information systems and their management. The choice of IBM can be easily explain since this company is the computer giant and has a great experience in the field of information technologies and information systems as well as in their practical applications.

Moreover, such cooperation between JP Morgan Chase and IBM was also profitable for the latter company because it was an excellent opportunity to demonstrate its on-demand services. Obviously, the cooperation with such a large company as JP Morgan Chase could increase dramatically the popularity of the new services and provide an opportunity to attract a number of new customers and, what is particularly important, the larger companies could use the services offered by the IBM in the case if its cooperation with JP Morgan Chase was successful.

Furthermore, it should be pointed out that the cooperation of JP Morgan Chase with IBM was profitable for the former company too. In fact, such a cooperation meet the major goal of the company to increase the efficiency of its information technologies and information system due to the implementation of the newest technologies and using the experience of IBM, which is the company that is specialized on IT and IS. At the same time, the outsourcing would decrease the costs of information technologies and information system to JP Morgan Chase since, due to the outsourcing, this filed would become the prerogative of IBM. Moreover, the outsourcing also provided an excellent opportunity to reduce expenditures of the company due to certain redundancy of its personnel which used to work on the problems related to information technologies and information system.

In such a situation, it is obvious that the decision to outsource its information technologies infrastructure from IBM met the major needs of JP Morgan Chase and was essential to the further growth of the company, naturally, on the condition that the cooperation of two giants would be effective enough.

Methods for the developing new systems

However, the reality turned to be quite different from the initial expectations of the company since it cooperation with IBM turned to be not as effective as it was supposed to be. In fact, it is even possible to speak about the failure of the strategic decision to outsource JP Morgan Chase’s information infrastructure from IBM.

In actuality, the major effects of such a decision were rather negative than positive and, instead of an expected improvement, it had brought new problems. To put it more precisely, the cooperation of JP Morgan Chase with IBM turned to be ineffective because a variety of factors and it is even possible to speak about certain deterioration of the position of JP Morgan Chase.

It should be pointed out that IBM supposed that it could manage successfully the ”˜virtual pool’ which implied that the resources should be supplied by both companies and they were set up to be accessible on an as needed basis.

Practically, it was quite a good idea since such giants as JP Morgan Chase and IBM could closely cooperate in the field of information technologies and shared information and technologies they needed.

However, such a scheme did not really work because IBM turned to be unprepared to the work with such a company as JP Morgan. In fact, IBM developed quite effective schemes of cooperation with its potential business partners while offering new services in the market, but the problem was that the company was not ready to with such large companies of JP Morgan Chase’s scale. In fact, the company had to cooperate worldwide and, even though it was not new method of work for IBM, it turned to be unable to develop effective schemes and systems of such close cooperation with JP Morgan Chase.

In this respect, it is possible to say that this is rather a problem of IBM than the problem of JP Morgan Chase.

Nonetheless, it affected the latter dramatically because it could not fully profit from such outsourcing. Moreover, the company faced a number of other problems caused by its decision to outsource its information infrastructure from IBM. To put it more precisely, the company faced a serious problem when its employees working on the problems related to information technologies and information system had to get transferred to IBM. It is estimated that it was about 4,000 employees that had to transfer to IBM from JP Morgan Chase. At first glance, it would be logical to presuppose that these specialists could only gain from such a transfer because they changed their current workplace from the financial giant to the computing giant. However, in actuality, such a transfer could hardly be really beneficial for the employees mainly because it turned to be not a transfer since the procedure rather resembled a new employment than a simple transfer from one unit to another, for instance. As a result, some employees had not manage to transfer and simply lost their jobs, while some others, even being employed in IBM, had faced a real perspective of being dismissed in a short-period of time. Consequently, such cooperation of JP Morgan Chase turned to be quite harmful for many employees who were simply left outside the company and their interests remained unprotected after the transfer by JP Morgan Chase that made them susceptible to redundancy within IBM.

On the other hand, such a situation was extremely harmful not only to employees who lost their job but also to those who remained because they felt a constant pressure and were uncertain in their future. At the same time, the impact on JP Morgan Chase was also quite negative because the company’s employees did not feel secured and they could not forecast their own future in the company they worked at. Consequently, the internal ambiance within the company decreased dramatically that could not fail to affect the effectiveness of work of the company and its productivity.

As a result, the ”˜backsourcing’ was the only logical solution of the numerous problems JP Morgan Chase faced after the implementation of its strategy of outsourcing of its IT infrastructure from IBM. Moreover, such a decision to radically change its strategy was seriously motivated by the company’s merger with Bank One. This merger turned to be quite beneficial to the company because along with the larger opportunities in a purely financial sphere, JP Morgan Chase also got an excellent opportunity to increase its capacity to manage its technology infrastructure due to the use of the potential of Bank One. Obviously, this merger was a perfect alternative to the decision to outsource from IBM. However, it is obvious that such a decision was taken too late since the turbulence within the company caused by outsourcing had already started, while ”˜backsourcing’ only aggravated the situation. However, it is worthy of mention that the deterioration resulting from ”˜backsourcing’ may be viewed as a short-term since Bank One provided the company with new technological basis that could increase the effectiveness of the entire company, being applied successfully.

Nevertheless, the ”˜backsourcing’ also had a number of negative effects which were similar to the negative effects of outsourcing. To put it more precisely, the employees again turned to be the ”˜victims’ of such a strategic decision of the company as they needed to get transferred to JP Morgan Chase back. However, the major problem was that the employees simply did not full understand the reasons for such transfers to and fro. It is quite natural that they were puzzled by the decisions of the company which differed radically from one another. In such a way, the employees again did not feel secure as they did not know what the next decision of the company might be.

In the result of such methods applied by the company, the internal ambiance and stability within JP Morgan Chase was undermined and, what is more, IT professionals simply lost their jobs that was actually extremely harmful to the company itself because it was serious losses since well-qualified IT personnel was and still is an essential condition of successful development of information technologies and information system of any company, especially such a large one as JP Morgan Chase.

In such a situation, it is necessary to point out that the company made a strategic mistake by starting outsourcing without regard at its possible consequences that negatively affected the company’s performance. Obviously, before launching the outsourcing and transferring its employees, JP Morgan Chase should carefully analyze the perspectives and consequences of such a decision as well as the potential of IBM in order to find out whether this company could actually supply the essential information infrastructure to JP Morgan Chase.

Furthermore, it was necessary to guarantee its employees the transfer which should be deprived of any risk to their future employment. To put it more precisely, it was necessary to transfer all the employees without any risk of redundancy. On the other hand, the company, on realizing the failure of the outsourcing, should act wiser while launching ”˜backsourcing’. What is meant here is the fact that, at first, it was necessary to inform the employees about the strategic plans of the company so that they could perfectly realize that there was no threat to their future and their work within a company. It was important to represent the ”˜backsourcing’ as an attempt of the company to minimize the negative effects of outsourcing to employees and guarantee them the opportunities to preserve their work and keep progressing.


Conclusion: the effectiveness of the information system for the organization and its users

Taking into consideration all above mentioned, it is possible to conclude that the strategies chosen by JP Morgan Chase and its information system turned to be ineffective basically because of the unwise implementation of potentially successful strategies. In this respect, it should be said that the company should simply be more careful while realizing its strategy of outsourcing. At the same time, it should be said that, in a long-term perspective, the effectiveness of such outsourcing seems to be quite arguable because the company, even though it cooperates with IBM, which is a computing giant, still faces the risk of losing its independence and opportunity to develop really unique and original information technologies and information system, which actually become the product of IBM and not JP Morgan Chase. In short-term perspective its ineffectiveness also was proved. In such a situation, the development of its own information system and implementation of the newest information technologies after the ”˜backsourcing’ seems to be more perspective and effective since the company becomes really independent from any external sources and can develop an effective and productive team of IT specialists developing and implementing new technologies and improving the existing information system.

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