The Role of IT
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What bearing, if any, did the fact that Bank One and JPMorgan Chase had different IT philosophies have in the merger talks?
I would say next to none. I was a part of a small team of people from Bank One that met with our counterparts at JPMorgan Chase for several days to do due diligence in advance of the announcement. It was very typical of my experience in the past, and there was appropriate consideration of the technology implications, financial opportunities, time frames and all that.
But the merger was mostly financially driven. I think it was very appropriate that there wasn't any material discussion about philosophical differences or anything like that. It was just "if we put these organizations together, then what are the opportunities on the business side for revenue and on the support side for efficiencies?" We were just a part of that. But you have to remember that a lot of the technologythe joint technology capabilitiesultimately drives the financials.
How many mergers have you been through in your career?
I've been around so long, I won't burden you with my career prior to 1985. But in 1985 I was named the CIO of First Union, which later adopted the Wachovia name. For 17 years I had this job at Wachovia and literally was involved in 90-plus acquisitions.
Now I'll admit some of those deals were small. For example, we were the biggest acquirer of failed thrifts in the early 1990s and that kind of stuff. But mergers is how I spent my life.
Then, in late 2000, I was approached by a search firm about going to Bank One. Now Bank One had grown extraordinarily rapidly through acquisition from 1985 until 2000, but it never totally integrated many of their acquisitions. Jamie Dimon had come in in early 2000 to assume the CEO role there, and the CIO position was vacant, so I began discussions with him.
Dimon was really playing catch-up at Bank One.
Between 2000 and 2003, we converted and integrated systems from acquisitions that had been made in 1989, 1991 and 1995. By contrast, at First Union, it was never more than 11 months from announcement date until we had converted every system, closed all the data centers and changed the name of the institution. In other words, fully integrated the acquisition.
You guys were efficient.
Well, we were the fastest in the industry, not that we didn't stub our toes occasionally, but it was a 180-degree different model than the Bank One model.
What did you learn from all those acquisitions?
I have a list of ten commandments, but let me just give you some of my strongest beliefs.
First of all, it's all about the people; the technology issues are not the biggest issues. You treat people in the acquired institution with respect and dignity. Regardless of how small the organization was relative to us, one of the things we always did was go to the institution and meet their senior technology team rather than ask them to come to our headquarters. More important, we gave them the first day and a half to talk to us and brag about what they had done, just listening.
Also, very close to the top of the list in mergers is the importance of making timely and final decisions on systems. That's simply critical. For example, Jamie Dimon made the decision, just prior to my coming to Bank One, of choosing the First Chicago system over the Bank One system when those two merged in 1998. He asked me, "Did I make the right decision?" And I said, without looking at the systems, "Yes, because a bad decision is better than no decision." That's the important point. You choose either one, but realize that you have 14,000 developers, and on announcement day, the question in all those developers' minds is, "Do I stop my project?"
What is unique about the Bank OneJPMorgan Chase merger?
Fundamentally it's not unlike other mergers. It is more complex, with greater geographical scope, and the magnitude of dollars and technology spend is greater. The timeline is very similar to the Bank OneFirst Chicago merger, a two-to-three-year time frame from announcement date. We're about a year into that.
What is the most challenging aspect of this merger?
Our technology spend is roughly $7 billion, which you can put into four vertical buckets. The first vertical is business as usual: spending technology dollars just to keep systems up, develop new functionality, build a new foreign exchange system or a new customer relationship management system. The second vertical is all the merger activity with Bank One, the integration of wire systems, loan systems, all that. The third vertical is the opportunity we have to fix existing infrastructure. The fourth vertical is basic risk management and finance stuff.
That third vertical is quite challenging. If you look back at the 12 largest banks in the U.S. in 1990, five of those banks are part of JPMorgan Chase today. And because of that we have a more complex, expensive technology environment than we should have. We still have legacy systems from every one of those companies. Not that there hasn't been some work done, but we have somewhere north of 5,000 application systems.
For example, our No. 1 priority for this year, as it is every year, is improving our day-to-day operating environment, and we have 15 different incident reporting systems. So early every morning, when we're trying to assess what might be issues from the night before, in various lines of business and sub-lines of business, we literally have 15 different formats for reporting. We will get it down to one this year. But that's that third vertical. The question is: What is the appropriate spend for that third vertical? That is the biggest opportunity. You can't help but think how much more efficient we could be.
You are an advocate of tying IT compensation directly to business results. How does that work?
It's rooted in a fundamental belief that technology groups succeed or fail based on whether they're running the business agenda. I know that sounds terribly simplistic, but if you interview lots of CEOs and COOs, I would bet you they'd say the technology group is a bunch of geeks who don't understand the business. So this kind of pay structure assures that we're running the business agenda.
The second value of it is the dialogue it forces between the business and the infrastructure organization. Because I give up a portion of my right to the IT manager's bonus, and give it to the line-of-business CIO, who reports jointly to the line-of-business head and me, that results in a close collaboration between the business head and the line-of-business CIO.
This model has evolved over the years. I started out by saying I want to take some portion of my IT lieutenant's bonus and give it to the line-of-business CEO. But the truth is, after a few years of that, the CEO said, "Austin, I really appreciate your effort, but I don't know enough about this stuff, and I just give the evaluation based on what my CIO tells me." So I quit playing that game.
Generally it works great, other than me needing a bodyguard to get out of the building.
So it's a tough sell to the tech folks?
Well, it's a lot easier to sell it to the business side than to the technology side. What I keep trying to help people on the technology side to understand is that they ultimately succeed if the business believes they succeed. I've learned that technology performance is more subjective and more about perception than you'd like.
What is Jamie Dimon's attitude toward technology?
I don't want to brag on him here too much, but he's a very strong believer in technology, and I've never been around anybody who was so willing to invest in technology. How many CEOs would request three hours a month with the technology team?
If you look at the 300 most senior people in our organization, I would argue that every one of those individuals is more dependent on technology for the success of their group than they were a year ago, every one of them. And every one of them will be more dependent a year from today than they are now. And that doesn't have to do with Austin Adams. That's just today's world.