J.P. Morgan Mulls Outsourcing Some I.T. Functions; Computer Sciences Corp., EDS And IBM's ISSC Bid

J.P. Morgan & Co. has issued a request for proposal to outsource a trio of information technology functions -- desktop support, applications delivery and data centers. The RFP, which was sent out to six vendors this summer, covers four J.P. Morgan locations -- New York, Delaware, London and Paris. The firm, which does not expect to award its outsourcing contract until late in 1996, has already received initial responses from three different consortiums of vendors. The leaders of the respective consortiums are Computer Sciences Corp. (CSC), Electronic Data Systems Corp. (EDS) and IBM's Integrated Systems Solutions Corp (ISSC).

According to a source at J.P. Morgan, the firm is "exploring" the possibility of outsourcing some of its "technology services" as part of an attempt to reassess the technology areas on which its own staff should concentrate. Says this source: "We need to determine where our management needs to focus and where we're better off having somebody else take care of [our technology]. We can't do everything for all people internally."

What's more, the source says, J.P. Morgan feels that outsourcing may give the firm advantages in terms of "volume and global reach." The source says that the expertise outside firms have in handling certain technologies could help expand access to J.P. Morgan's offerings.

"It's not so much an issue of cost savings as a question of flexibility, management focus and access to the best possible [resources] anywhere and everywhere in the world.... We need to tap the widest possible range of resources," the source says.

However, the source cautions that J.P. Morgan is only in the initial stages of its outsourcing investigation and that no changes are imminent. "We are very much in the process of exploring, but we don't know if we're going to do anything. We could do an RFP that tells us the best thing we could do is to continue doing things the way we are," the source says. "We won't know whether we're heading in this direction until well into 1996."

Moreover, the source says that J.P. Morgan will likely not be outsourcing any systems or applications that it deems proprietary.

"There are certain things that we certainly do not want to consider as candidates for external work," the source says. "[For example], most of the trading applications are things that we consider part of [our] proprietary competitive edge."

The source says, however, that the firm may outsource "some of the software programming and maintenance work" for applications and "information databases" that are not considered to be "critical competitive issues." But the source declines to be more specific.

If J.P. Morgan does eventually decide to outsource some of its technology functions -- especially desktop support -- it could have an impact on big-name vendors in the firm's trading room. Among those vendors are Reuters' Teknekron Software Systems Inc. -- whose Teknekron Information Bus (TIB) digital data distribution software delivers market data to J.P. Morgan's traders -- and Sun Microsystems Inc. - - which provides the workstations and servers that TIB runs on.

But the source says that those vendors need not worry. "We're not keeping this as a deep, dark secret.... We've told our people and all our vendors about this," the source says. "The technologies in use are still going to be driven by the business units, not by the supplier or our methodology in supplying it.... So the fact that there may be a new party at the table has probably no direct impact on which technologies we're using."

The source says that even if J.P. Morgan decides to outsource certain functions, the firm's internal technology gurus will still have some responsibilities for managing those functions. If the firm does opt to outsource, says this source: "it will most likely be an extension of our capabilities using many of the same people we have now.... We are looking to build a partnership or an alliance where these partners would be in very close working relationships with our internal technology managers, as well as our internal businesses."

In fact, the source says, teamwork was one of the main themes of the RFP. "We asked the [vendors] to consider how they could provide these services, including partnering with other people in the marketplace." After receiving the RFP, the leaders and co-bidders of the respective consortiums -- CSC, EDS and IBM's ISSC -- formed alliances with other vendors.

If J.P. Morgan does decide to outsource, it would certainly not be the first time the firm has gone that route. According to the source, J.P. Morgan has signed a "number of technology outsourcing contracts in the last several years." One such deal, the source says, was an agreement J.P. Morgan signed with three companies -- AT&T, British Telecommunications PLC and MCI Communications Corp. -- for telecommunications support. The source says that since that deal was signed, roughly four years ago, the telecommunications outsourcing contracts have grown and expanded.

More recently, J.P. Morgan's Singapore office has been evaluating whether to bring in an outside party to handle its desktop support (Dealing & Investment Systems, Oct. 23). The Singapore evaluations came on the heels of a deal the firm's Tokyo office struck with IBM for desktop support.

Though the source says that the RFP sent out by the New York office is of "a slightly larger scale" than similar RFPs J.P. Morgan has issued in the past, he says that observers should not be misled by the outsourcing search. "This may not necessarily mean that we'll change our focus from Teknekron to developing other proprietary applications," the source says. "We're not looking to change things overnight and I doubt we're going to see any dramatic changes."

According to J.P. Morgan's most recent consolidated statement of income, the firm spent some $506 million on "technology and communications" in the nine months ended Sept. 30, 1995. That's up 16 percent, from the $436 million it spent during the same nine-month period last year.

According to the report, technology and communications represents Morgan's second largest operating expense category. The nine-month total for 1995 was about 27 percent of Morgan's total operating expenditure for that period.