Employee FATIGUE

On December 20, 2002, JPMorgan announced its seven-year outsourcing arrangement with IBM - including data centres, help desks, distributed computing, and data and voice networks - with great fanfare. "We view technology as a key competitive advantage," stated Thomas Ketchum, JPMorgan's vice chairman, in a company press release. "Our agreement with IBM will create capacity for efficient growth and accelerate our pace of innovation while reducing costs, increasing quality and providing exciting career opportunities for our employees."

The deal would help JPMorgan create "significant value" for its clients, shareholders and employees, Ketchum promised. Less than a year into the relationship, then-CIO John Schmidlin said at a Gartner outsourcing summit that his only regret was that they hadn't signed the deal with IBM sooner.

Fast-forward to September 15, 2004, when JPMorgan announced the premature end of the contract with IBM with equal flourish and similar promises. In another company press release, Austin Adams, the former CIO of Bank One who took over for Schmidlin as CIO for the $US1.1 trillion merged bank, said: "We believe managing our own technology infrastructure is best for the long-term growth and success of our company, as well as our shareholders. Our new capabilities will give us competitive advantages, accelerate innovation, and enable us to become more streamlined and efficient." (Adams, who also presided over the backsourcing of Bank One's deal with IBM a few years earlier, declined to be interviewed for this story. Schmidlin could not be reached for comment.)

The fact that JPMorgan officials gave basically the same reasons for the retreat from the mega-outsourcing deal that they had proffered for inking the deal in the first place left some employees confused and resentful. "Morale was not high," says one former consultant who managed server support at JPMorgan and was let go. He asked not to be named.

Some workers had been hit by the outsourcing where it hurt even more - in their paycheques. Though many employees (such as Rosario) saw only the company name on their paycheques change, others (typically consultants) took significant pay cuts by moving to IBM. "The five people in my group [all consultants] - which included network, systems and database administrators - were all told that they had to reapply for their jobs," says Scott Kirwin, who worked as an independent consultant for JPMorgan in New York from July 2002 until April 2003. "A lot of them did, but they were hired at salaries that were 20 percent less."

JPMorgan declined to comment on any salary reductions or retrenchments that may have occurred during the outsourcing and backsourcing. However, bank officials at the time said that approximately 4000 people, including employees and contractors, were transferred to IBM during the initial phase of the outsourcing. According to the bank's 2003 annual report, 2800 of these people were full-time employees. In a statement announcing it would bring IT back in-house, JPMorgan officials said that roughly 4000 workers would return to the bank. According to the bank's 2004 annual report, 3100 of those people were full-time employees and 800 were contractors. Some of the original contractors were either hired as employees by IBM at lower salaries or laid off, according to several current and former JPMorgan workers.

Meanwhile, productivity at JPMorgan took a hit, according to several former and current employees. "For more than a year, there were a lot of people not getting any work done. They didn't know where they were going to be, they didn't want to commit to projects, and they started slacking off," says a former consultant who used to manage server support for JPMorgan. (He has since secured another full-time IT position at a major company.) Among the projects not getting done were server migrations, data centre upgrades and network patches. "When people aren't productive, the company loses money," he says.

During the backsourcing, retrenchments also occurred. Some were merger-related. (When Bank One made its own backsourcing move in 2002, the company chose not to invite back some of the employees it had transferred to IBM, taking the opportunity to "upgrade talent where appropriate", says JPMorgan spokeswoman Gilbert-Biro.) While JPMorgan says more than 97 percent of the employees and contractors accepted their offer to return to the bank when the backsourcing initially took place, Rosario says many people are worried they will no longer be needed because of the merger with Bank One. And some have already lost their jobs. "I've seen several project managers and IT middle managers let go," he says. "And I've seen some people who have the option leave before they got [retrenched]. I had options here in the bank, and I exercised those."

Analysts confirm that there have been retrenchments during the backsourcing. These firings "don't get much attention because they aren't nearly the size of the 4000-person workforce involved in the megadeal at IBM, but [retrenchments] have been occurring," says Susan Cournoyer, vice president of research with Gartner Research.

JPMorgan has announced that the merger will result in a total of 12,000 retrenchments by 2007. The bank, however, insists that many of the merger-related job eliminations will not occur in IT. "The vast majority of job reductions are in call centres, operating centres and back-office support, and do not affect technology," says Gilbert-Biro.