Question: IT at Work
JP Morgan Chase Moves from Outsourcing to Insourcing
JP Morgan Chase is one of the world's largest financial institutions. In September 2004, Chase scrapped a seven-year, $5 billion IT outsourcing contract with IBM after its $58 billion acquisition of Bank One. The merger automatically voided the outsourcing contract. As a result, the company carefully evaluated its sourcing options over two to three months and decided to bring IT back in-house, a strategy known as insourcing. The acquisition created massive economies of scale, and such a large organization is able to attract and retain talented IT professionals. Furthermore, CIO Austin Adams achieved early career success by building on his ability to integrate bank mergers quickly and make the merged entity more competitive through its use of technology.
People who oppose offshoring declared the "end of outsourcing." As a matter of fact, Adams, who pushed for the scrapping, said that his move was greatly misunderstood by the media who pegged him as a patriot trying to keep IT jobs in the U.S. "I am clearly an advocate of offshoring." While in the case of such a large bank there was a reason for insourcing, mainly to get a better competitive advantage from IT, Adams believes that in smaller organizations, large-scale outsourcing is logical. Further, Adams JP Morgan Chase Moves from Outsourcing to Insourcing manages over 3,000 offshore employees in India, who work in the bank's call center and do basic operations and accounting functions. This offshoring is expected to grow rapidly. Adams was key in the decision to insource IT at JP Morgan Chase and offers his observations:
• The cancellation was driven mainly by the merger with Bank One, which made the combined bank very large.
• Outsourcing of major parts of mission-critical technologies is not a best solution for a large firm. Technology development should be in-house; support services can be outsourced.
• Four criteria were used to determine what and how much to outsource:
(1) the size of the company (should be large enough to attract good IS employees),
(2) cost of outsourcing vs. cost of insourcing,
(3) the interest level of top management to have and properly manage IT assets, and
(4) financial arrangements of the outsourcing.
• It may be difficult to align business and technology objectives when large-scale outsourcing exists.
• The insourcing includes data centers, help desks, data processing networks, and systems development.
• Buying technology directly from vendors saved the bank a considerable amount of money (10 to 15 percent).
Questions: 1. How can one determine when a company is large enough for insourcing?
2. How important is the financial consideration?
3. What other factors needs to be assessed in the decision?
IT and Data Management Decisions (see Link Library for links in this section)