Amidst the Gloom: Driving IT Infrastructure Innovation
Washington Mutual's failure last September marked a precipitous moment of this recession. But for J.P. Morgan Chase, it was an opportunity. And for Guy Chiarello, J.P. Morgan Chase's CIO, it was the right time to invest in the company's IT infrastructure, including adding millions of dollars in new mainframe computers.
By acquiring a chunk of WaMu's business, including its prized West Coast branches and its pile of bad home loans, for $1.9 billion, J.P. Morgan Chase already has boosted its revenue in retail banking and consumer lending. It upgraded to IBM's Z10 systems shortly after the acquisition, creating a mainframe infrastructure that can handle current volume and create capacity on demand so that the company could more quickly absorb WaMu's portfolio and customer data while preparing for when business picks up.
While some CIOs have put the brakes on IT infrastructure initiatives, Chiarello has been busy investing in hardware, refreshing and in some cases virtualizing desktops and servers throughout the company. Upper-hand negotiations with vendors are providing what he estimates are 25 percent savings, setting price points that will be hard for vendors to ratchet back up when the economy turns around.
Bad times? For Chiarello, these are good times to get work done, even with the "tremendous pressure" on his IT budget. Chiarello says he doesn't know how long the vendor price competition will last, but J.P. Morgan Chase is positioned "to make it last forever, because I won't pay a dollar more [than I paid] for the last thing I bought," he notes.
Call it IT infrastructure innovation, and it's surging along at many companies. Yes, these are tough times, with revenue shortfalls slamming IT budgets and forcing layoffs. Gartner predicts global spending on IT hardware will decline 16 percent this year and remain flat next year. It predicts IT services spending will decline 5.6 percent for the year, reflecting the lack of new projects in the pipeline. But underneath the gloom there's a flurry of activity, new thinking and even selective investments.
Some of the most clever and innovative thinking in IT today has nothing to do with software. Because infrastructure innovations are all about making IT work better and more cheaply, they can gain support from business leaders in this economic climate. At the same time, the top IT stars, previously focused on growth-oriented applications, are now available to help optimize the most expensive systems and software.
"When business is flourishing and demands are increasing, infrastructure has to serve the business in a progressive way," leaving less time in the portfolio to focus on infrastructure improvements, Chiarello says. "If you're in the CIO seat, the most exciting times for infrastructure are in down environments, and the most exciting times for application development are in the up times."
Among the infrastructure innovations gaining momentum: server and desktop virtualization; cloud computing; open source software alternatives; new and more energy-efficient data centers; lower-cost voice networks, including unified communications; expanded IT automation; and new processes and software for tracking IT system costs and usage.
In an April report Gartner cites IT cost reduction as the No. 2 strategy for CIOs in 2009, a leap from No. 12 in 2007. Delivering projects that enable business growth dropped from the No. 1 strategy in 2007 to No. 3 this year. No. 1 in 2009 is linking business and IT strategies and plans, up from No. 2 in 2007.
J.P. Morgan Chase, which posted a rising profit last quarter of $2.7 billion, is in a better position than many companies to invest in its IT infrastructure. But given the information-intensive nature of its global business, J.P. Morgan's infrastructure innovation is more complex than companies in other industries. Financial firms typically spend 8 percent to 12 percent of revenue on IT -- that would put the firm's IT spending at more than $7 billion this year. By comparison, retailers typically spend no more than a few percent of revenue on IT.
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