JP Morgan Chase recently dropped a big, multi-year IT outsourcing deal they had with IBM. IBM's performance wasn't the issue, but financially it had stopped making sense. Baseline Magazine has a detailed story about the development.

The company's CIO, Austin Adams, said at the time: "We believe managing our own technology infrastructure is best for the long-term growth and success of our company ... to become more efficient."

What really changed things was the July 2004 merger of JP Morgan Chase with Bank One, which had gained a reputation for consolidating data centers and eliminating thousands of computer applications. JP Morgan Chase would now switch from IBM to self-sufficiency to take advantage of BankOne's cost-cutting know-how.

Bank One has to date delivered a remarkable performance. The bank reduced head count 12% from 2000 to 2003, while raising revenue 17% to $16.2 billion. By contrast, JP Morgan Chase reduced its head count only 6% in the same period while revenues grew just 1%, to $33.3 billion from $32.9 billion.

From Why JP Morgan Chase Really Dropped IBM
Referenced Tue Feb 01 2005 13:47:25 GMT-0700

So, after the merger, Bank One showed JP Morgan Chase how to do it themselves better and cheaper.

I spoke to one CIO recently who's company had a five-year deal with EDS. His conclusion was that the deal tied his hands to the point that he could no longer add value to the company. I don' t think this means that outsourcing is a bad idea, but I do think that you need to be careful what you outsource.

The one area that you can outsource without much impact on your business is service delivery functions like networks and desktops. Should you? That's a financial decision and for some companies it makes sense. On the other hand, if you have the capacity to make changes, cut costs and build operational excellence in-house, you're probably better off keeping it. Those are tall orders, however and many companies don't have the discipline to make it work.

A good compromise is in-sourcing. Making in-sourcing work requires some discipline as well, but its more manageable. To do it, you build a shared services organization within your company and create an economy to drive performance and cost in the right directions. One of the best books I've read on this subject is Shared Services: Mining for Corporate Gold by Barbara Quinn, Robert Cooke, and Andrew Kris.