JP Morgan drops Pinnacle Alliance in favour of IBM

JP Morgan Chase will not renew a $2bn (£1.25bn) outsourcing contract with a consortium of suppliers including CSC and Accenture,...

JP Morgan Chase will not renew a $2bn (£1.25bn) outsourcing contract with a consortium of suppliers including CSC and Accenture, following a shake-up of its IT infrastructure.

The investment bank, which last week announced a $5bn, seven-year outsourcing deal with IBM, said it will not extend an existing outsourcing contract with the Pinnacle Alliance consortium when it comes up for renewal in July.

The Pinnacle deal was hailed as the largest outsourcing deal of its kind when it was signed in 1996. In an unusual arrangement for the time, the deal comprised four suppliers: CSC, Accenture (then Anderson Consulting), AT&T Solutions and Bell Atlantic. The consortium took responsibility for the bank's datacentres, desktops, networks and some corporate applications in the US and Europe.

Initially, JP Morgan said the deal would cut its projected IT spending by 15% during the contract. However, early user dissatisfaction with the performance of the outsourced service and rumours of large-scale defections among JP Morgan's senior London-based IT management raised doubts over the innovative deal.

Later this year hundreds of staff from the Pinnacle Alliance are likely to transfer to IBM, due to an overlap of roles between the two outsourcing contracts.

Under the IBM deal, the supplier will take over a large chunk of JP Morgan Chase's datacentres, helpdesks and voice networks. About 4,000 staff and contractors at JP Morgan Chase will transfer to IBM in the first half of this year.

JP Morgan Chase, formed by the merger of JP Morgan and Chase Manhattan in 2000, will retain responsibility for application development and other core services.

Michael Sztejnberg, managing director at JP Morgan Chase, said one of the main reasons for signing the outsourcing deal with IBM was to get "end-to-end service levels" from a single supplier.

He said JP Morgan Chase was satisfied with the performance of the Pinnacle Alliance consortium but declined to comment on whether the bank was on track to hit its target of reducing IT expenditure by 15%.

A number of banks have signed multibillion-pound outsourcing deals in recent months, despite the high-profile collapse of several "mega" outsourcing deals in the UK last year.

Sztejnberg insisted that JP Morgan Chase would be able to retain sufficient control of the mammoth outsourced service, due to an extensive internal review before signing the contract.

"We have done a lot of work on our internal operations model and supplier management. We have probably spent many months thinking about how to support the new operating model," he said.

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