J.P. Morgan Chase Ponders Fate Of Pinnacle Alliance

Discussions are under way to determine the fate of the Pinnacle Alliance, a ground-breaking, seven-year, $2.1 billion IT outsourcing agreement formed nearly five years ago when J.P. Morgan & Co. Inc. signed Computer Sciences Corp., Andersen Consulting, Bell Atlantic Network Integration, and AT&T Solutions to manage roughly one-third of J.P. Morgan's annual technology budget.

But with the Jan. 2 merger of J.P. Morgan with Chase Manhattan Corp., the newly formed J.P. Morgan Chase must evaluate its options for merging the IT functions of a company with operations in more than 60 countries, stockholders' equity of more than $39 billion, assets in excess of $705 billion, and a market capitalization of approximately $83 billion. J.P. Morgan Chase must decide how the Alliance will fit into the new company's platform. "We see this as a great opportunity to work with our technology partners to take everything learned by both predecessor organizations and apply it to a bigger and better platform," says a company spokesman.

Whatever J.P. Morgan Chase decides, it will be a break-up or collaboration unprecedented in the IT outsourcing world. Formed in 1996 because J.P. Morgan couldn't find any single vendor to meet all of its IT outsourcing needs, the Alliance has helped J.P. Morgan realize $263 million in savings, slightly ahead of the Alliance's original 15% savings target. To put the significance of the Alliance in perspective, J.P. Morgan shaved about $28 million, or 8%, off of its IT budget, after the first year of the agreement. The firm's revenues for that year were $6.9 billion. One of the most significant modifications to the Alliance since its inception in 1996 is that J.P. Morgan now pays for servers based on the number of cycles consumed rather than the number of devices. This was done to increase cost variability so that J.P. Morgan would pay only for the capacity it needs, says the company spokesman.

There haven't been many multibillion dollar deals like the Pinnacle Alliance, says Gartner/Dataquest analyst Bruce Caldwell. "The Pinnacle Alliance was a landmark outsourcing deal in terms of size and scope and the fact that it was initiated by a company in the financial services industry." Deals like the Pinnacle Alliance are very difficult to pull together, which helps explain why there are virtually none that it can be compared with, says Tom Rodenhauser, lead analyst for Consulting Information Services LLC. These days, service providers are more likely to spin off separate companies-like Accenture and Microsoft did with Avanade and Deloitte Consulting and BroadVision Inc. did with Roundarch-to meet clients' demands.

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