Wednesday, February 02, 2005

Why JP Morgan Chase Really Dropped IBM - And Got Swallowed by BankOne

In August 2004 JP Morgan cancelled a $5 billion outsourcing contract with IBM after 21 months. Why? Because in the meatime they merged with Bank One, which had gained a reputation for consolidating data centers and eliminating thousands of computer applications.

The company's CIO, Austin Adams, said at the time: "We believe managing our own technology infrastructure is best for the long-term growth and success of our company ... to become more efficient." JP Morgan Chase would now switch from IBM to self-sufficiency to take advantage of BankOne's cost-cutting know-how.

But there's more behind it.

Here's some very interesting figures (MEDIAN VALUES, 1999-2003):

JP Morgan Case <-> Bank of America / Citicorp / Wachovia / Wells Fargo
I.T. spending per employee: $ 28.297 <-> $12.729
Compensation per employee: $110.702 <-> $55.057
Return on shareholder equity: 9.45% <-> 15.79%

JP Morgan Case simply paid way too high salaries to its employees, and in the consequence got swallowed by its competitor.