JP Morgan Chase Shifts IT Outsourcing into Reverse essay

The modern economy is characterized by the wide implementation of new technologies which are growing more and more complicated. In actuality, companies spend a substantial part of their financial resources on the development of effective IS and implementation of new IT in order to keep pace with the rapidly changing world. At the same time, nowadays, the implementation of new technologies is of a paramount importance because they can provide a serious competitive advantage compared to major competitors.

The necessity of the development of effective IS and implementation of new IT is particularly significant for large companies such as JP Morgan Chase. On the other hand, it is necessary to point out that IS and IT often turn to be extremely costly for companies, especially such large ones as JP Morgan Chase. In such a situation, they refer to outsourcing as the plausible way out in order to save costs and benefit from the services and products of the high quality provided by companies supplying the target companies with respective services and products. Nevertheless, the effectiveness of such outsourcing does not always meet the needs of a company.

IT and IS of JP Morgan Chase and business environment

On analyzing the situation in JP Morgan Chase, it is primarily necessary to say that the company obviously needed changes in its information infrastructure because gradually its IS became a real burden for the company’s development since the expenditures grew, while the effectiveness of its IS and IT used by JP Morgan Chase was quite low. At the same time, the development of IT is rapid and, consequently, in order to develop its own IT and IS the company needs to constantly invest in its IT unit in order to maintain its high efficiency and provide it with an opportunity to progress.

Naturally, the business environment of JP Morgan Chase stimulated the constant improvement of its IT and IS and it was not only the pressure of major competitors but also the demand of customers. To put it more precisely, major competitors of JP Morgan implemented new IT and developed new IS either on their own or due to the assistance of some IT companies that could supply them with essential products and services. In such a way, the effectiveness of the functioning of major competitors of JP Morgan Chase increased along with the improvement of their IT and IS which positively influenced their performance.

As for JP Morgan Chase, the company, in contrast to its major competitors, decreased the effectiveness of its IT and IS. To put it more precisely, in comparison with other banks, JP Morgan Chase was spending more than twice on technology per employee that constituted about $28,000 compared to $13,000 that its competitors spent for the same purposes. Obviously, the necessity of changes was obvious but additional investments in the development of its own IS and IT seemed to be illogical judging from the current inefficiency of the company’s information infrastructure in the context of enormous investments compared to its competitors.

Consequently, the choice of the IBM as its partner in the sphere of IT and IS was quite logical. In fact, IBM is one of the leading companies in the field of IS and IT and it supplies many leading companies with its newest products and services. Naturally, IBM had more advanced technologies and developments that could be implemented in JP Morgan Chase. The implementation of innovations was particularly important in the situation when customers needed better quality of services and opportunities to benefit from the use of new IT services they could use in other banks which were the major competitors of JP Morgan Chase.

At first glance, the outsourcing of IT and IS from IBM was quite beneficial for JP Morgan Chase. Firstly, JP Morgan Chase received an opportunity to reduce its expenditures due to the reduction of its staff as 4,000 employees were transferred from the company to IBM. Secondly, IBM was not just an experienced and leading company in the field of IT and IS, but it also had strategic plan to develop the services of supplying its services and products to other companies in terms of outsourcing and it was supposed that IBM would spend about $10 billion for the next ten years for these purposes. Thirdly, JP Morgan Chase was supposed to increase the efficiency of its IS and IT due to the implementation of new technologies supplied by IBM.

However, within a short period of time JP Morgan Chase had refused from the outsourcing of IS and IT from IBM and, instead focused on back-sourcing after the merger with Bank One. Obviously, such a radical changes in the company’s policy concerning its information infrastructure could not fail to affect the company’s performance, which would be analyzed further. Nevertheless, it should be said that such a step demonstrated the low efficiency of the cooperation of JP Morgan Chase and IBM. At the same time, the development of back-sourcing was also motivated by the current business requirements since it was quite natural that the company, on merging with Bank One could count for the implementation of new IT and IS that the latter possessed. Consequently, it could produce a positive impact on the performance of JP Morgan Chase’s IT unit and effectiveness of its work.

Methods for developing new systems following merger with Bank One

Nevertheless, the merger with Bank One did not necessarily mean that JP Morgan Chase would easily recover from the transition from outsourcing to back-sourcing and, naturally, there was no guarantee that the information infrastructure of the company would function more effectively after the merger with Bank One. In such a situation, it is necessary to underline that the merger with Bank One and the shift to back-sourcing rather indicated at the necessity to implement new systems in the functioning of the entire company than an immediate improvement of the situation.

Obviously, JP Morgan Chase needed to use effective methods to implement new technologies in its information infrastructure. In this respect, it should be said that, initially, it is possible to recommend JP Morgan Chase to carefully analyze the current situation in its information infrastructure and compare with that of Bank One. In fact, Bank One had better developed IT and IS as its information infrastructure was more efficient than that of JP Morgan Chase before the merger. Practically, this means that Bank One had more advanced IT and IS that could be implemented in JP Morgan Chase at large scale.

On the other hand, it is necessary to remember that the implementation of new technologies could not be absolutely effective since they could produce a different effect in JP Morgan Chase than in Bank One. It means that before implementing the new IT and IS it was necessary to find out the major differences between information infrastructure of both companies JP Morgan and Bank One. After that, it is necessary to assess the extent to which IT and IS implemented in Bank One are more efficient and whether they totally outweigh IT and IS of JP Morgan Chase.

In fact, it is hardly possible to presuppose that IT and IS of Bank One totally outweighs those of JP Morgan Chase.

Consequently, it is necessary to single out the advantages of both information infrastructures and, on their basis attempt to develop a new, more effective information infrastructure. This means that for the development of new IS and IT, it is necessary to reconstruct the existing information infrastructure in such a way that advantages of both existing systems are harmoniously combined in the new system.

Furthermore, the development of new systems should not be too fast, at least in relation to Bank One because its system functions well enough, at least compared to JP Morgan Chase. As for the latter, the radical changes in its information infrastructure should also be carefully implemented because the personnel of the company, namely people working in its IT unit need to recover after the shift from outsourcing to back-sourcing. Basically, they need to feel stability and the actions of the company should be predictable and understandable to employees. Otherwise, the back-sourcing and implementation of new systems would deepen the crisis within the company.

Finally, it is necessary to remember about the fact that the company also needs highly professional staff working in its IT unit. This is why it is possible to recommend employing some new IT specialists which could provide the implementation of new systems effectively. However, it does not mean that the current employees should be discharged or lose their position in the company. In stark contrast, they should preserve their positions but they also need to improve their work by acquiring new experience and knowledge from newly hired employees. In such a way, the employment of new experienced IT specialists could contribute to the effective implementation of the new system.

On the other hand, it is necessary to remember about the fact that JP Morgan Chase is a large company that operates in different countries of the world. This is why the instant implementation of new system in the entire company could be potentially dangerous in the case of its failure. In such a situation, it is possible to recommend to implement changes or new IS and IT in one particular unit of the company or in one country or region where the new system can be tested without a great risk to the normal functioning of the entire company. Only after the new system proves its effectiveness, it will be possible to implement it at larger scale in terms of the entire company.

Effectiveness of the IS for JP Morgan Chase and its users

Obviously, the effectiveness of the IS for the company as well as its users is of a paramount importance. In this respect, it should be said that the effectiveness of the company’s information infrastructure may be characterized as quite low. It has already mentioned above that despite high investments in its IT development, JP Morgan Chase was still characterized by the low effectiveness of its investments. This is actually why the company decided to outsource new IT and IS from IBM.

However, such a decision did not increase the effectiveness of the company’s IS performance. In stark contrast, the company transferred 4,000 employees to IBM where they were dissolved while some part of its employees simply lost their job. As a result, the company lost its professionals while the effectiveness of its IS did not increase substantially.

Naturally, the users of the company’s services could not fail to feel the negative impact of such changes since JP Morgan Chase’s IS still remained in a disadvantageous position compared with its major competitors. Naturally, clients of JP Morgan Chase would be more likely to change the bank if the situation kept deteriorating.

However, on realizing the ineffectiveness of outsourcing, JP Morgan Chase undertook another radical step and refused from outsourcing in favour of back-sourcing. In fact, such a decision may be viewed as effective since it provided the company with an opportunity to restart the development of its own IS and IT, regardless the supply from any external sources. On the other hand, it is necessary to underline that the shift to back-sourcing also needs time and, thus, it is hardly possible to expect the rapid increase of the effectiveness of JP Morgan Chase’s IS in the nearest future.

Moreover, such a shift from one extreme to another would rather undermine the stability within the company, especially within its IT unit, because employees felt insecure after the outsourcing and so they did after the back-sourcing. In other words, employees cannot work effectively in the situation of permanent changes. This is why, in a short-term perspective, the decision to shift to back-sourcing also does not look very optimistic, though, in a long-term perspective, it can be quite useful for the company, on the condition that new system would be implemented effectively and without redundancy of personnel.

Naturally, the internal instability, which rather resembles a sort of crisis within JP Morgan Chase, affected the users of its services dramatically since they could not fully benefit from the effectively functioning IS and, thus, they could not realize the potential of all modern services that the competitors of JP Morgan Chase offered to their customers.


Thus, taking into account all above mentioned, it is possible to conclude that JP Morgan Chase, being a very influential company in its segment of the market, faces a serious problem of the effective use of new IS and IT. In fact, this is a strategically important problem because, in the current situation, any backwardness in the field of IS and IT threatens to the future of the company and its present performance. At the moment, it is obvious that the existing information infrastructure of JP Morgan Chase is ineffective and radical shifts from outsourcing to back-sourcing cannot contribute to the instant improvement of the situation. Instead, they increase instability within the company and undermine the customers’ loyalty to JP Morgan Chase. Nevertheless, the recent merger with Bank One, which has an effective IS, opens new opportunities to JP Morgan Chase and the company only needs to implement new IS effectively and without negative impacts on the work of employees as well as the quality of services.

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