hen J.P. Mor
gan & Co. awarded a seven-year, $2 billion outsourcing contract to the Pinnacle Alliance one year ago, the bank set up more aggressive and sophisticated performance measurements for the alliance's four service providers than it uses internally with its own IS organization. Now, as the Pinnacle Alliance begins its second year, it looks as if the measurements are paying off.
The alliance is responsible for J.P. Morgan's infrastructure and administrative systems and one-third of its $1 billion annual IS budget. The alliance has already cut costs by $28 million, or 8% of the amount under its control, putting it on target for its anticipated 15% savings. In addition, J.P. Morgan has seen the alliance deliver the skills the New York bank wants for future systems development; according to company officials, not only the productivity but the quality of application development is reaching an unprece- dented level of success.
That's because J.P. Morgan, unlike many companies that outsourc
e, is making sure that its expectations are met. Unrealistic expectations, or failure to adjust to changing economic or technology conditions, can mean restructuring as much as 70% of all outsourcing contracts, and terminating 15% to 20% of those, according to a recent survey by Gartner Group Inc., an IT advisory firm in Stamford, Conn. (see related story "
Measuring Outsourcing's ROI
").
J.P. Morgan is leaving little to chance. The Pinnacle Alliance, composed of J.P. Morgan, AT&T, Andersen Consulting, Bell Atlantic Network Integration, and Computer Sciences, operates in a sea of metrics. The bank's eight businesses each have established their own service-level agreements, with a total of 369 metrics, to watch over Pinnacle's performance. In addition, a "balanced scorecard" applies 18 metrics to evaluate application development performance against five objectives, weighted
by importance: service quality, productivity, budget, future value, and client satisfaction (see chart).
Monthly reviews using the scorecard help keep performance on target and can affect the alliance's compensation. Better-than-expected results can be rewarded with a bonus, while disappointing results can result in a debit against the alliance's baseline compensation that has to be made up, according to Tony Hutchings, head of global applications delivery quality at J.P. Morgan.
"The service-level agreements are fairly traditional," says Hutchings. "But the balanced scorecard was our effort to broaden the scope."
While service-level agreements address costs per unit, downtime, response time, and other standard measures, the scorecard raises the stakes with goals and metrics that exceed what J.P. Morgan does.
The future-value objective, for example, seeks to make sure the IS staff is correctly deployed for the mix and level of skills that will be needed. "That's something we don't do interna
lly" for J.P. Morgan's remaining IS staff of 1,100, Hutchings adds. Approximately 900 J.P. Morgan staff members and contract employees were transferred to the alliance partners.
In addition, the alliance is ahead of J.P. Morgan in the use of function points, a unit of measure for software size and productivity. The alliance is expected to reach the second of the five levels of the Capability Maturity Model for Software developed by the Software Engineering Institute in Pittsburgh and is on track to do so by year's end, Hutchings says.
"We have the most comprehensive set of metrics, and are measuring them with more quality, than with any other contract" that Computer Sciences has signed, according to Pete Boykin, lead executive of the Pinnacle Alliance and a 31-year employee of Computer Sciences. So far, says Boykin, the alliance has met all the expectations expressed by J.P. Morgan's metrics. No debits have been assessed, but no bonuses have been earned either.
The use of metrics didn't spring int
o existence with the establishment of the alliance. Several years ago, notes J.P. Morgan's Hutchings, Nolan, Norton & Co. carried out a study at the bank to help determine how measurement systems can be driven by business goals. In addition, J.P. Morgan has been using Compass America Inc., a Reston, Va., consulting firm, to compare the performance of its voice, network, and desktop-support operations against industry standards. That benchmarking service is now being expanded to include application development.
Projects being worked on by Pinnacle Alliance include the rollout of 20,000 Windows NT workstations by mid-1998, standardization on Lotus Notes across the company, installation of Computer Associates' Unicenter TNG for management and administration of the distributed environment, implementation of human resources and financial applications from PeopleSoft, and development of an integrated, global voice mail and E-mail system.
By careful measurement, J.P. Morgan is making sure those projects, and
more in the future, will be as effective as possible.
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hen J.P. Mor
gan & Co. awarded a seven-year, $2 billion outsourcing contract to the Pinnacle Alliance one year ago, the bank set up more aggressive and sophisticated performance measurements for the alliance's four service providers than it uses internally with its own IS organization. Now, as the Pinnacle Alliance begins its second year, it looks as if the measurements are paying off.
