Financial services firm JP Morgan Chase has cancelled a
groundbreaking £2.8bn outsourcing deal with IBM which was intended
to run for seven years.
Outsourcing consultancy Morgan Chambers said the move showed there
are alternatives for user organisations that are not satisfied with
their outsourcing provider.
JP Morgan Chase said its merger with Bank One, announced earlier
this year, would give it greater capacity to manage its IT
infrastructure, and that it would bring its support staff
in-house.
JP Morgan Chase will wind down its existing contract with IBM this
year and will bring back 4,000 employees and contractors who
transferred to IBM when the deal was signed in 2002.
At the time, the seven-year outsourcing contract was described as
"the largest computer services deal in the financial services
sector ever," by Eric Ray, vice-president of financial markets for
IBM Global Services.
The original deal was for IBM Global Services to take over a range
of JP Morgan's IT functions, including datacentre operations,
helpdesk support and day-to-day operation of its distributed
computing resources, as well as voice and data networks.
This is not the first time JP Morgan Chase has switched
outsourcers. In January 2003 it dropped a £1.25bn outsourcing
contract with CSC, Accenture (then Anderson Consulting), AT&T
Solutions and Bell Atlantic in favour of IBM.
That deal was also hailed as the largest outsourcing deal of its
kind when it was signed in 1996. The consortium took responsibility
for datacentres, desktops, networks and some corporate applications
in the US and Europe.
Robert Morgan, founder director of Morgan Chambers, said, "A lot of
companies believe you cannot really change your supplier when you
have [an outsourcing project] as large and as cumbersome as JP
Morgan's, but this shows you can.
"This should give heart to clients that if you want to bring your
IT in-house, or run a proper competitive tendering process, you can
do it.
"It is also a big wake-up call to suppliers not to be complacent,
because clients will and do change suppliers," said Morgan.
He added that JP Morgan Chase will have to face the cost of buying
back 4,000 staff, but will have taken this into account.
"When you sign a contract, you really have to have a divorce
mentality in mind, so liabilities can be contained," said
Morgan.
Lessons learned
- In-house IT departments may offer competitive advantage
- User organisations can switch outsourcing supplier
- Outsourcing suppliers should not be complacent.