Interview with John Schmidlin, Managing Director & Technology Executive, J.P. Morgan Chase & Co.

WS&T: What did you spend your technology budget on this year?

J.P. Morgan Chase has a technology council, chaired by Schmidlin, and including CIOs from all major business lines, as well as engineering and architecture-board chairs.

The board has established three objectives: maximizing technology-business value, talent management and operation excellence. To the first point, Schmidlin says, "We want to work with (our businesses) around the governance, which is the foundational piece of understanding how and what we're spending, to get the classification and revenue and cost attribution down " making sure we have a good business case methodology and investment decisions around that, then deliver IT value. There is a quantitative aspect, and a qualitative aspect."

In respect to talent management, the firm has launched a career framework. The goal of the program is to develop and implement a comprehensive talent-management program for the technology community . "We know the market has been soft for the past couple of years," Schmidlin explains. "We want to ensure our talent understands what we have within the firm, and how one gets from the beginning to the end."

Service excellence is the third point. "We want to offer end-to-end excellence to business clients through linkage of application development, technology-services infrastructure, and risk management."

WS&T: What have been some of J.P. Morgan Chase's priorities this year?

In investment banking, the firm has pioneered a grid-computing project. "It puts an intelligent-software layer on top of a computing engine, and it's built around disposable hardware. It runs compute-intensive applications," Schmidlin says, citing examples including pricing financial instruments or portfolios. "It provides greater computer power to those businesses, and lowers total cost of ownership, which we're keen to get. It also reduces time to market for new applications and products. "More and more of those things are becoming electronic. The way we face off against the markets and clients has to be fast, sub-second response time. If you're off that, you have clients go away from you on pricing."

In the firm's retail business, Schmidlin describes a "contact center of excellence." The center uses speech recognition, as well as integrated routing and interactive services that can deliver calls to the best skilled, most appropriate agent that in the call center. Client information and preferences are also recorded, and integrated into the customer-relationship-management database. "So looking at across credit cards, home finance, and retail banking, this is a critical lynchpin that we have to deliver service and be very responsive to our clients."

The firm is also adding voice over Internet protocol from Cisco into retail branches, a project which began earlier this year.

WS&T: What are some of the processes within the bank that add to your success?

J.P. Morgan is participating in a program from Carnegie Mellon University's Software Engineering Institute called Capability Maturity Model (CMM). "We will have almost all businesses at level 2 at end of the first quarter of 2004," Schmidlin says. "It's very important because it reduces post-release defects considerably. We have a 30 percent reduction in post-release defects, almost 20 percent of reduction in our cost of development, and almost 25 percent reduction in cycle time.

"The ROI is quite significant. It gives us a proven methodology and it's a big selling aspect. It's also a very important development aspect for application developers.

WS&T: Do you plan to move beyond Level 2?

Level 3 will begin to roll out in 2004 at the firm. Schmidlin says that if the rollout is aggressive, the firm may finish by the end of the year, but more likely by the first quarter of 2005.

WS&T: Our studies indicate that securities and investment firms spend much of their budgets on staffing costs. Can you elaborate on your staff development projects?

Schmidlin says the firm uses the nomenclature of 'talent management,' to refer to various elements of staff development. These include: specific job descriptions, standardized requirements to move up levels, clarity and transparency around the types of roles offered in technology, how roles can evolve into a career, and where people are on their career paths.

"It also helps with mobility and helps us identify in evaluation process of individual in a team where they're doing well, where they're not and where we need training in place," he says.

"It also has the ability to develop leadership. We started implementing 'Leadership at Morgan Chase' on firm-wide basis about two years ago and its been a highly successful program. It's a component for leadership development on the technology side. It's not just about business, but about developing technology leaders as well."

WS&T: J.P. Morgan recently undertook a highly publicized outsourcing project for infrastructure. How did outsourcing affect the morale of your employees?

"The one thing that, in my view, helps manage morale is to be very open," Schmidlin begins. In 2001, he says, the firm indicated that they were exploring options for the technology infrastructure. "This eventually resulted in our decision to outsource to IBM. From day one, we were very candid with our people.

"One criteria in that evaluation of potentially outsourcing our infrastructure was career development. What we provided almost 3,000 full-time J.P. Morgan Chase employees a career path from working in the infrastructure here (at J.P. Morgan Chase) over to IBM. That is definitely a large career development for IT infrastructure people. We provided a broader, deeper and wider career development for those individuals."

Whether the firm looks at using staff auxiliary with outside consultants or other firms, it does that to supplement its own work force, Schmidlin says. "This is a core capability we have within J.P. Morgan Chase, on application development and infrastructure development. We're a global firm, and very candid with people in terms of what we're doing, and how we're developing them. We're looking at our global footprint on where we will put our people to develop the capabilities we need to support our business."

WS&T: Can you tell us a bit more about J.P. Morgan Chase's outsourcing project?

The project began in April, Schmidlin says. When evaluating a partner, the firm had used criteria such as career development, economics, risk management, and getting at the best research and development. The firm determined where it was at currently, as well as where developments could be seen going into the future. The process took over a year, and involved lines of business, application developers, and technology infrastructure. "It was a decision that we took to top of house. When we look at something like that, it's not just what is happening right now, but where do we see the evolution going. Where and how do we think that we can be best served in the future? It was very strict criteria. We reviewed what we had and where we were going, and where IBM was going. That's where we saw best fit."

WS&T: What is your project-prioritization process? How do you determine what projects to take on?

"We use a complete investment decision model (CID), designed to ensure an objective standard, and a consistent decision-making process for all of our initiatives," he says. J.P. Morgan uses a standard return-on-investment process, combining dollar and non-dollar benefits to provide an overall score and rating for projects. Schmidlin stresses the importance of these rigid processes for an innovative firm. "When you look at this voracious appetite to do new developments, we need to put in place a methodology to put discipline around that. It allows the business people to look at this with our CIOs and technology heads and make the appropriate decisions." Schmidlin adds that the processes assign a risk level to each investment and determine if the investment is mandatory or discretionary.

WS&T: What major IT projects are on the table for next year?

"2004 is about alignment with the business. We take a technology snapshot of what is active, but beyond that will be an alignment of the business," Schmidlin says.

WS&T: What are some emerging technologies that might get some play time in your firm in the next year?

On Web services: "It all depends on the development of that stack. There are many different definitions and capabilities being developed. We will go ahead and climb up that stack as it becomes appropriate."

Linux: "We have active projects underway in the investment bank and retail bank. We think that leverage is favorable to businesses and we see it as a significant advantage.

Wireless: Schmidlin says that the firm has undertaken a pilot this quarter with group of people, including himself, using wireless beyond blackberries, but in exploring hot spots, road use and secure access.

WS&T: How is being technologically innovative advantageous for a firm in this economy? Why not just follow the crowd? What disadvantage are firms at that are not technologically innovative?

Innovation is defined differently for each business. "Some businesses you need to be very innovative and ahead. Some of the things that we're doing on Web development, or eBusiness, that face off directly against the clients or the markets, we need to be very much ahead there. If you're not ahead you're going to fall behind, clients won't want to come to you, you will not get the efficiencies, and you will not generate the revenues."

"In other businesses, it's about managing the margins tightly. You need to be efficient in what you do, and you need to do it the best in class. That's also innovation. If you do it best in class, then you are, in all likelihood, the most innovative. You may not have fanciest mousetrap, but having the best margin, having the best returns and having the best results, makes you the best."