Outsourcing Case Study

At the height of the Internet boom and Y2K mania, JPMorgan's U.K. operation found that attracting and keeping technology talent was difficult and costly. While the concept of remote IT operations was controversial at the investment banking firm, a decision was made early in 1998 to establish a secondary center away from the hyper-competitive environs of London that could serve ongoing technology-development needs.

"All of our development, training, back office and middle offices were basically in London," says Paul Murphy, CEO of JPMorgan Scotland, now a subsidiary of JPMorgan Chase (New York, $759 billion total assets, 2002). "We were suffering a high attrition of staff and paying a lot of money."

Over the next year, the company considered about 20 European locations for the new center. Murphy explains, "We didn't want to come out of the London market, only to move into the same environment 400 miles away."

Eventually, executives settled on Glasgow, which offered a steady stream of computer science and engineering graduates from local universities. "There was a good pool year-on-year going out, but there were also a number of technology employers locally - such as Sun Microsystems, Motorola and Compaq - that we could attract job changers from," says Murphy.

JPMorgan's European Technology Centre (ETC) opened in Glasgow in October 1999 with a small management team. "The development of the group went on two fronts at first - one was hiring local employees, and the other was effectively garnering work from within the [JPMorgan] group," recalls Murphy. Though the ETC initially enjoyed central funding, he adds, "From day one it had to prove its existence by convincing enough people to give us work."

Among the ETC's first major projects was the migration of a fixed-income middle-office/back-office application from JPMorgan's Paris technology center. "We migrated it to Glasgow within nine months and reduced the workforce by 50 percent, with a per-head staff cost of 30 to 40 percent less," Murphy says.

Having established a reputation, the ETC had to start anew following the 2001 merger of JPMorgan and Chase Manhattan. In addition to losing work due to systems retirement, the ETC also faced the possibility of being folded into Chase's existing technology facility in Bournemouth, England. According to Murphy, "Thankfully, we had established enough credibility and executive sponsorship in the preceding 24 months to affirm our value proposition."

The ETC currently operates with a staff of about 430, providing software development and support to supplement program management, business analysis and requirements-gathering technology work in London. "We work on project assignments developing internal banking systems, be it for front-office trading systems, all the way to back-office enter, connection, settlement and confirmation systems," Murphy explains. While the facility's mandate was to cut project and engineering costs by 30 percent compared to London's operating costs, it has consistently produced more than a 40 percent cost saving, according to Murphy. The ETC is also the first group within JPMorgan to achieve CMM (capability maturity model) Level 3 certification. Its goal is to reach 500 employees during 2004.

The ETC's success as a remote IT shop spawned a similar facility in the United States in July 2002. "With the Glasgow/London model working so well, we created a sister establishment in Houston that serves the New York base," Murphy says.

The ETC has also led to the development of what JPMorgan calls a multi-location strategy, which looks beyond near-shore to offshore options. Now, projects are planned based on what kind of work needs to be done at primary, secondary and tertiary locations, corresponding to risk, cost and technology profile evaluations. Given the company's novel openness to offshoring, Glasgow's quality proposition is vital, in Murphy's view. "We have to be positioned a bit further up the value proposition chain," he asserts. Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio