Information Systems and Technology - Case Study Example

This Assignment relates to the case study: JP Morgan Chase Shifts IT Outsourcing into Reverse Information Systems and Technology Student NO. S0507351/ 2 Name of University Abstract This case study gives an overview of JP Morgan Chase's move back from outsourcing. In this paper, we will discuss their information technology and information systems strategy in relation to their business requirements. We will also discuss the methods which might be used for developing new systems following the merger with Bank One based on our own knowledge of systems theory and systems development practice. The effectiveness of the information system for the organisation and its users is also considered. Background New York-based JP Morgan Chase & Co., formed during the 2000 merger of Chase Manhattan and JP Morgan & Company, offers banking and investment services to corporate clients and consumer mortgages credit cards and investment management services. In 2005 it recorded sales of $79.9 billion and employed 168,847 people. In December 2002, the financial services company J.P. Morgan Chase announced a seven-year, $5 billion deal to outsource much of its data processing to the technology giant IBM, both companies bragged that the contract the largest of its kind for IBM would reduce costs, create value and propel innovation at J.P. Morgan. According to JP Morgan Chase management, this agreement would create "significant value" for clients, shareholders, and employees by creating capacity for "efficient growth" while reducing costs and increasing quality. The deal also ranks as IBM's largest outsourcing agreement, eclipsing its seven-year, $4 billion outsourcing arrangement with American Express. Reason for outsourcing The motivations for outsourcing are growing from a focus on cost reduction to an emerging emphasis on improving business performance. The traditional rationale of vendor economies of scale and specialization is becoming less convincing. Companies such as Dupont, British Petroleum and J.P. Morgan, with well-run, innovative IS departments that are large enough to accrue the same scale and specialization benefits as a vendor, are nevertheless engaged in significant outsourcing deals. Furthermore, as the growing role and importance of information and communications technologies become widely recognized, companies frequently confront a wide disparity between the capabilities and skills necessary to realize the potential of these technologies and the reality of their own in-house technology capabilities and skills. IT outsourcing is playing an increasingly prominent role in strategies designed to fill the space. Also outsourcing some of the IT Portfolio remains a direction that the majority of companies will continue to invest in as part of their overall strategic sourcing strategy. Clearly the service and support function (Help Desk and Network Administration) of the IT Portfolio along with application development and network operations remain the most popular components to outsource. In the past year alone, almost 50% of the companies that were contracted for outsourcing services have prematurely ended their arrangement. For JP Morgan Chase there are several business requirements that information technology and information systems strategy in relation to. For example, performance of its products, the appeal of its products to customers, its ability to meet the objectives and needs of clients, its reputation, and its ability to attract and retain its personnel. Improving IT and IS in order to form the meaningful data. So that the company can create efficient growth, reducing cost and increasing quality, other reasons included: - Increasing the company's image by associate with IBM. - Create significant value for clients. - To enable them to establish themselves in the various markets that they were operating in. When JP Morgan Chase and Bank One merged operations, a central part strategic sourcing analysis was done. In looking at areas within IT in terms of cost, benefit, innovation and competitive advantage, a decision was made to exit the long-term outsourcing arrangement it had with IBM. The JP Morgan Chase's Exit for convenience from the IBM contract after its merger with Bank One is a learning experience for all companies no matter whether you are considering outsourcing or considering exiting from your current outsourcing contract. It highlights the importance of doing the internal cost analysis, aligning sourcing strategies with business objectives and making the right business decisions for the right reasons. Technology functions that IBM perform For IBM, the contract with JP Morgan Chase is among its first major outsourcing contracts that deploy new "on-demand" services, part of IBM's strategy of providing "pay as you go" computing services and IT infrastructure to corporate customers. IBM plans to take on a significant portion of the bank's data processing infrastructure, including hosting computer centers, help desks, distributing applications, and storage data and voice networks. It is also expected to help power and host mission-critical functions such as trading applications for the securities side of the banking giant's operations. From that point of view, the deal could end up becoming a benchmark that helps define a coming era of Web Services. For example, the contract calls for IBM's global services division and JP Morgan Chase to create a "virtual pool" of computing resources that will be accessed and deployed as needed or on demand. IBM Research calls the underlying technology Utility Management Infrastructure (U.M.I.). It is based on open architecture standards that underpin the process of knitting together disparate back-end systems such as different servers and storage devices. The idea is to avoid having to write new applications for each separate system. Such services represent how IBM has made on-demand computing services a cornerstone of its overall business strategy. Problem from outsourcing "Jamie Dimon has a history of not liking outsourcing," said Robert Maneri, who helps manage $47.5 billion, including shares of J.P. Morgan, at Cleveland-based Victory Capital Management. "It's no surprise that J.P. Morgan would lean this way once he had more control." - Loss of strategic control: JP Morgan Chase recently announced it would bring back in house major information technology activities it had outsourced to IBM. The bank feels it is critical to manage and control IT directly to gain competitive advantage. - A dip in confidence as a result of the reapplication process and salary reductions. Employees have no job security. - Fall in productivity caused by the distractions of coordinating the outsourcing to IBM. - The extra workload persisted: managers and staff had to devote time to documenting procedures, staffing levels, skill sets, budgets, day-to-day responsibilities, and work allocations while still performing their regular duties. - The outsourcing process incurs additional expenses from investments in consultants who assist in outsourcing strategy and re-engineering, in human resources efforts to assist employees in the process, and in retention bonuses to mollify employees during the arduous transition. The IT balanced scorecard changes the way the IT organization is managed. It reinforces accountability for results, changes behavior, and focuses attention on areas that drive value. The balanced scorecard is one tool for performance measurement and management. The Kaplan and Norton model provides a holistic approach to Performance Measurement by supplementing the traditional financial measures: Financial point of view: Is the company creating value for its shareholders Customer point of view: How is the company performing from the perspective of those who purchase the company's products or services Internal Business Process: How is the company managing its internal business processes to meet its client's expectations Is throughput improving Innovation and Learning point of view: Is the company improving its ability to innovate, improve, and learn There is something you can do in order to perform well in outsourcing: 1. In Control - The customer are much more aware, educated, prepared and demanding in terms of what they want and what they want to pay for it. 2. Don't Outsource a Mess -In order to outsource something successfully; you must know what you are outsourcing in terms of work, internal costs and best practices. Only when you have a measurably successful service can you negotiate the terms of the contract so that everyone goes into the relationship knowing expectations and capabilities. 3. Reduced Margins - The vendor is under a great deal of pressure from the customer to lower their prices given the lower cost options of off shoring. The financial pressure continues on IT services and all lower cost options must be investigated and considered. The ability customer knows the cost structure of the outsourcer and will continue to pressure the outsourcer to cut the price that in turn pressures the vendor to reduce operational costs to keep profit margins from falling further. 4. Higher Expectations - The vendor will continue to be challenged to keep improving service levels, customer service and quality, yet the resources are getting more expensive, turnover is a problem and the tools continue not to deliver on automating more of the manual tasks or deflecting the calls to the Service Desk. 5. Sourcing Strategy - Companies will continue to be more proactive regarding their Sourcing Strategy by updating it annually, involving key business peers and aligning it with the business goals and objectives. 6. Core Competencies - Quality, efficiency and unique business knowledge will remain the core reasons for companies being able to fight off the outsourcing demand. 7. Subcontractor Usage - Outsourcing companies will find resistance from customers over the use of subcontractors. One of the main reasons to outsource is to leverage competencies of the vendor that go beyond the customer's budget, desire or timeframe. These customers expect the vendor to invest in developing resources, best practices and technology to make their outsourcing investment in time and money worthwhile. Back sourcing: merger with Bank One The deal was scuttled because the company's merger with Bank One in January 2004 "created a new firm with significantly greater capacity to manage its own technology and infrastructure," J.P. Morgan Chase said. "The merged firm concluded it now has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure services organization." Bank One's approach to IT was based on consolidation, cutting cost, and self-sufficiency. "We believe managing our own technology infrastructure is best for the long-term growth and success of our company, as well as our shareholders," said Austin Adams, Bank One's CIO, in the statement. The reasons the company gave for ending the deal sounds unusually similar to its underlying principle for entering into the arrangement: accelerating innovation, reducing costs and providing career opportunities for employees. Bank One's commercial customer base included a greater number of smaller customers than that of JP Morgan Chase. "Because of the bank presence of 'heritage' Bank One, they had very big and deep middle-market and small-business relationships, which doesn't overlap at all with ('heritage' JP Morgan's) large corporate," says Haitema, senior vice president, Global ACH operations executive, JP Morgan Chase "When you get to the large corporate and financial institutions, even there, there's some overlap. But from a strategic point of view, we faced that head-on and started the dialogue with clients so that they could get a comfort level with our combined capability." For instance, Bank One brought its strengths in retail lockbox to the merger, which allows the bank to approach 'heritage' JP Morgan Chase customers with a service that had not been available previously, according to Haitema. James Dimon, the former CEO of Bank One, became CEO of JP Morgan Chase. With Dimon and Adams at the helm, the merged company was expected to maintain its reliance on in-house technology work. Role of Information Technology and Systems - In the 1980 and mid 199O's information technology and systems can be a support activity in the value chain even though it is sees as incorporated by Porter in later years. "GSM has no internet developments although it has sent two people on an Internet training course. It has been slow to progress. But Barry, CEO "has received 850,000 from the department for trade and industry. GSM expects not only to have a website but be engaged in e-commerce (Leen Valley, 1999)" Some support functions of the value chain exist because of poor linkages with other part of the organizations. Their existence a result of failure in another part of the organization - Information Technology and information systems can be used as a strategic tool and key operational activity. It can be used to change the management and organizational structure. The "global networked business model has enable Cisco to quadruple in size" in three years, and save $ 375 million in expenses (Ernst and Young, 1997). Yet, at the same time the role needs to suit a diversity of styles and rates of change throughout the organization. - Information systems can offer superior efficiency in functions without human involvement, such as electronic data exchange offer application-to-application data exchange "GSM interrogates Ford's parts requirements every day and decides what it will ship that evening and what will be made each day. Its trucking system arrives at the Breacon plant and the Ford requirements are loaded. It is all done through EDI without human involvement (Leen Valley Associates, 1999)" Critically the role has shifted "land" service to on-line self-service to reduce costs. - Information technology can be used to compete. Cost leadership can be exploited by information technology, by setting up communication architecture of technology that cuts maintenance, and retailing costs. In the long term the impact of IT in on continuously improving structure and working conditions. This in time leads to whole industry change such as the change to automatic teller machines used by banks. - Information systems are used to foster innovation, by encouraging a free flow of ideas in a large complex organization. Thus, information systems can offer support to the human "intellectual capital". "Cisco uses internet conferencing systems to discuss products and networking solutions. Individual stakeholders, both employees and customers can exchange ideas and drum up new business. It is done with the informality of electronic bulletin boards but is a rapid and value added service for mutual learning, marketing, troubleshooting and sales opportunities (Ernst and Young, 1997)" The benefit of information systems role as innovator is that it can lower costs and remove any negative drawbacks from the system, which detract from its differentiation. In conclusion, the roles of IT are to provide optimal awareness, opportunity and positioning within the market place and between value chains. The way systems are used is practically the same as to sustained competitive advantage not the systems and technology, on their own. Conclusion IT is central to business initiatives such as reengineering, knowledge management, and the creation of electronic channels of distribution, and the development of digital business strategies. Companies that want better performance from their core IS resources the hardware, software, networks, people, and processes involved in managing and operating the technology and supporting users have the strategic intent of IS improvement. Their objectives usually include cost reduction, service quality improvement, and acquisition of new technical skills and management competencies. Many IS organizations are struggling to develop the right mix of technical and business skills to exploit technology. As a result, many companies are looking to the IT outsourcing market for help, on the premise that outsourcing vendors' state-of-the-art skills, capabilities, and proficiency at recruiting and managing technologists make them better than internal IS organizations at using IT to improve business results. Success factors are understanding the operation, fitting IT to business needs, being able to manage change projects, and having the right balance of management expertise and technical know-how. Pricing provisions should tie vendor compensation to value received by the client. Payments and incentives should be determined by measures of business process performance (such as the cost, quality, and productivity of processes) as well as by measures of results (like contribution to top-line revenue growth, bottom-line profit increases, or shareholder value gains). In the end, strategic services outsourcing is all about adding value through direction setting, intelligent analysis, committed management, innovation, and measurement. Developing and then following a robust framework for partner selection and management, as outlined above, can provide the best assurance that strategic outsourcing is a rewarding venture for both outsourcing companies and their partners. References and Bibliography -Ernst and Young (1997) Creating value through global networked businesses. USA: Ernst and Young. Lynch, R (2003) Corporate Strategy. Third Edition. Harlow: Prentice Hall -Leen Valley Associates (1999) The GSM group contained in Finlay, P 2000.Strategic Management. Harlow: FT Prentice Hall -Thomas, K (2003) Supplier relationship management- Business benefits on both sides of the fence. Understanding supply chain execution. London: Financial Times. -Ward and Griffiths (1985) Strategic Planning for Information Systems. 2nd Edition Harlow: FT Prentice Hall http://www.icmr.icfai.org/casestudies/catalogue/IT%20and%20Systems/ITSY047.htm http://banktech.com/news/showArticle.jhtmlarticleID=161502332 http://www.coopamerica.org/programs/rs/profile.cfmid=248 http://www.bizjournals.com/houston/stories/2004/01/26/story4.html Read More