IBM has claimed the largest outsourcing agreement of its kind in a new $5 billion seven year agreement with JP Morgan Chase & Co. As a result, around 4000 bank staff will be transferred to IBM in the New Year.
According to IBM, the agreement will enable JPMorgan Chase to transform its technology infrastructure through absolute cost savings, increased cost variability, access to the best research and innovation, and improved service levels. By moving from a traditional fixed-cost approach to one with increased capacity and cost variability, JPMorgan Chase will be able to respond more quickly to changing market conditions.
JPMorgan Chase will outsource a significant portion of its data processing technology infrastructure, including data centres, help desks, distributed computing, data networks and voice networks.
The agreement includes the transfer of approximately 4,000 JP Morgan Chase employees and contractors as well as selected resources and systems to IBM in the first half of 2003. Application delivery and development, desktop support and other core competencies will largely be retained inside JP Morgan Chase.
IBM Global Services and JP Morgan Chase are creating a virtual pool of computing resources that will be accessed and deployed as needed. The underlying technology, developed by IBM Research, is called Utility Management Infrastructure (U.M.I.). U.M.I. uses advanced software based on open standards to tie together disparate back-end systems, such as different hardware vendors servers and storage devices, without requiring new applications to be written for each separate system.
The new deal follows a run of recent high value outsourcing successes for IBM in the financial sector, these include Deutsche Bank ($2.6 billion), DBS Bank in Singapore ($679 million), Thai Farmer's Bank in Asia ($230 milllion), and American Express ($4 billion).
For anyone interested in 2003 trendspotting, it would seem the announcement - and the other major outsourcing deals announced at the dog end of 2002 - point to further pressure on cash strapped institutions to continue with substantial outsourcing deals in a bid to reduce their IT costs. This trend will in turn will probably place pressure on outsourcers to merge and/or acquire in order to achieve the scale essential to compete and win large contracts, and to derive critical economies in operation and support.
A more interesting potential trend to watch in the coming year could be a shift in the balance of power to the large outsourcers to determine the strategic technology options available to their clients.