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Management Strategies

12:19 PM
Paul McDougall, InformationWeek
Paul McDougall, InformationWeek
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Chase Cancels IBM Outsourcing Deal, True To Its President’s Form

J.P. Morgan Chase president and chief operating officer Jamie Dimon believes technology is better done in-house.

Executives at IBM Global Services must have cringed earlier this year upon hearing that J.P. Morgan Chase had tapped Jamie Dimon as its president and chief operating officer. As CEO of Bank One Corp., Dimon scrapped a $2 billion IT outsourcing contract the bank had inked with IBM and AT&T in 1998 under a much-ballyhooed "Technology One" alliance. Dimon canceled that deal in 2002. Now, he appears to have done it to IBM again.

Industry watchers see Dimon's fingerprints on Chase's decision, announced Wednesday, to cancel the company's $5 billion, 10-year "business-transformation-outsourcing" contract it signed with IBM in late 2002. "After the Bank One experience, he's become a big believer in doing things in-house," an analyst says.

Indeed, Dimon publicly said in 2002 that Bank One's outsourcing experience "hadn't worked out" and that henceforth it needed to "control its own destiny." Dimon joined Chase as a result of its merger with Bank One, which was completed in July.

In a Chase press release issued Wednesday, a statement attributed to CIO Austin Adams uses language similar to Dimon's to explain why Chase nixed its outsourcing contract. "We believe that managing our own technology is best for the long-term growth and success of our company," Adams said in the statement.

Chase says it plans to reel in the 4,000 IT workers it dispatched to IBM under the defunct deal and take back a number of ongoing IT projects.

For its part, IBM is looking to put a positive spin on the news, noting that the contract required substantial up-front investments that would have placed a slight drag on its earnings this year. However, $5 billion in revenue isn't easy to make up. One Wall Street watcher says the loss of the contract should cost IBM about 2 cents per share in annual earnings over what would have been its remaining years. The analyst notes that IBM will enjoy some fees that Chase will be obliged to pay as a result of its decision to cancel the deal.

Article originally appeared in InformationWeek, Sept. 15, 2004.

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