JP Morgan cancels £2.8bn IBM outsourcing deal

Financial services firm JP Morgan Chase has cancelled a groundbreaking £2.8bn outsourcing deal with IBM which was intended to run...

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.

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