Conspiracy theorists question outsourcing deals

When JP Morgan Chase &Co announced in September that it is cancelling the world’s largest ever outsourcing deal, signed with IBM in 2002, the two companies put a positive spin on the news.

Publicly, at least, both parties say they are happy to end the $5.5 billion contract; JP Morgan has a glut of IT expertise to call on thanks to its merger with Bank One, and will also take back the 4,000 staff it transferred to IBM. For its part, IBM says the contract loss will actually boost this year’s revenues, as it was still investing in the technology for the deal.

But suspicions remain that the whole story is not being told. Some observers suggest that IBM’s revenues show that all was not well with the deal: it should have finished investing by now. In fact, some conspiracy theorists even think they see some fin-ancial engineering going on.

IBM certainly seems to have taken the decision remarkably well, not even admitting to mild disappointment. This is in spite of the fact that somewhere along the line it must surely have planned to make some big money from the biggest outsourcing deal ever. Moreover, IBM has lost a flagship out-sourcing customer: JP Morgan has been one of the main proponents of grid computing, a key area where IBM is keen to establish a clear lead. JP Morgan’s Compute BackBone is reputed to be one of the largest grid projects in the world.

Perhaps, then, the decision to bring the IT function back in-house was not a total surprise, and IBM has accordingly been well compensated. Observers have noted that JP Morgan’s new COO, Jamie Dimon, has form: at Bank One he nixed a $2 billion IT outsourcing deal, also with IBM, although that time alongside AT&T.

The conspiracy theorists also see something else going on. According to their thinking, big companies that want to make an acquisition can make themselves look lean by outsourcing large numbers of staff, and then, once a deal is complete, they can bring the staff back in house. JP Morgan’s acquisition of Bank One, and HBOS’ acquisition of Halifax, are two purported examples of this.

It’s a cunning plan, but one which stretches credulity. Even if the banks were to treat their employees in this way, the level of long term planning and risk would surely be beyond them.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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