capstone chapters 1-5 final

J.P. MORGAN CHASE & CO: BANKING TECHNOLOGY 1

J.P Morgan Chase & Co: The Rise of Banking Technology

Christopher Danny

Palm Beach State College

Author Note

This Capstone paper was prepared for the Spring 2015 semester of the Capstone General Management course GEB 4935, taught by Dr. Roger Blair of Palm Beach State College.


Abstract

This research paper explores all materials required to reinforce the rapid change on the banking

infrastructure due to the increase of technology. Also, this paper discusses the real threat of the

changing environment of the business banking model due to the increase of mobile and digital

technology. And with these advancements, JP Morgan Chase & Co and their competitors may

have hard time adapting to the new landscape. The paper discusses the imminent closures of

banking locations due to increase usage of mobile banking apps. The purpose of this research

analysis will cover trends of banking technology affecting the industry. The paper also discusses

the internal and external factors that affect the company covering strengths, weaknesses,

opportunities, and threats. Including, a comprehensive look at the Porter’s Five Forces model to

understand how opportunities and threats affect the banking industry. Also, the research

significance will bring relevant facts to support the thesis and provide recommendations for JP

Morgan Chase & Co.

Keywords: banking infrastructure, mobile and digital, banking technology


Chapter 1: Research Proposal and Introduction

Introduction to the Organization

J.P. Morgan Chase & Co is one of the oldest prominent financial institutions residing in

the United States. With over $2.4 trillion in assets J.P. Morgan Chase is the leader in global

financial services with operations serving in over sixty countries and approximately 260,000

employees currently serving. J.P. Morgan Chase & Co is segmented into different financial

services for consumers, commercial and small business banking, investment banking, asset

management, and private equity. As one of leaders in the financial industry the company serves

millions of consumers, from small businesses to corporate giants, and government clients (J.P.

Morgan, 2015).

Founding date. With over 216 years of rich history dating back to 1799, J.P. Morgan

has become one of oldest and largest financial services company the world has ever seen

dominating corporate finance. John Pierpont Morgan the financier, philanthropist and founder

came from a family of bankers which he learned the banking industry from his father Junius

Spencer Morgan who laid the foundation for J.P. Morgan. In 1871, J.P. Morgan started his own

private banking company which was named J.P. Morgan & Co (J.P. Morgan , 2015).

Essential events. In 1893, the United States railroads was the primary source of

transportation for that time and J.P Morgan & Co became the primary financier for it.

Approximately eight years after, J.P. Morgan & Co becomes the world’s first billion dollar

company ever in economic history. J.P. Morgan was able to buy over industrialist and

philanthropist Andrew Carnegie’s steel producing plant and thereby combining thirty-three other

steel producing factories to create United States Steel Corporation making it the largest steel

factory in the United States in the late 1800’s. Also, J.P. Morgan was essential to the creation of


the corporate giants still existing in today’s corporate world, such as General Electric, ATT&T,

and U.S. Steel Corporation (J.P. Morgan, 2015).

Historical products. John Pierpont Morgan founded J.P. Morgan & Co with the

intention of providing top notch financial services for bank institutions, government, commercial

and small businesses, investment banking, and also private equity and asset management for

consumers from its initial founding. Today, J.P. Morgan Chase & Co has approximately $2.4

trillion in assets around the world, while also holding the title of having the largest bank holding

in the United States with over 5,630 branch locations respectively. Also, J.P. Morgan Chase &

Co is the nation’s primary leader in mortgage lending and the highest issuers of credit cards

among their financial rivalries with over $128 billion in credit card loans around the world

(Biesada, 2015).

Entry into new business lines. With regards to new business lines, technology is the

core business strategy where innovation and financial risk management are key roles that play

hand-in-hand with each other. Over the years, J.P. Morgan Chase & Co understands the

importance of the external technological effects on their financial service company. According to

the J.P. Morgan (2015) website the company was named “Best in Class: Mobile Banking” for

2011 for their mobile apps. Through their mobile banking apps technologists have developed

other means of financial services other than banking. Chase QuickPay offers customers person-

to-person transactions and Chase QuickDeposit which allows the customer to remotely deposit

checks through their mobile device. Also, J.P. Morgan “Apps Store” provides the customer with

internal mobile apps and online browser to easily access their mobile bank accounts through a

cellphone or tablet device (J.P. Morgan, 2015).


Industry competitors. In the financial services industry there are many competitors,

however J.P. Morgan is still the top leader and holds the competitive advantage in the financial

sector industry. According to Hoover’s (2015) company profile of J.P. Morgan Chase, they have

a total annual of sales of $106.28 billion. However, their competitive landscape consists of three

top competitors Bank of America with a close lead of $101.70 billion in annual sales, Citigroup

with $92.54 billion in annual sales, and Wells Fargo with $88.07 billion in annual sales.

Section II. Statement of the Problem

The son of J.P. Morgan, J.P. Morgan, Jr., was known for saying that his bank should be

known for “doing only first-class business, in a first-class way” and that statement still resonates

to this day (J.P. Morgan, 2015). J.P. Morgan Chase & Co has dominated the corporate finance

industry in providing high quality service for their clients beating their top competitors and

having the competitive advantage in the financial markets. With regards to online banking J.P.

Morgan has the technological advantage through their banking apps, but with the rise of online

scammers and fraud it comes at a cost to their competitive advantage and brand image. Also, the

increase of online banking such as digital money will only lower their financial services and

inflate the banking system overall. Customers using their smart phones and tablets for “self-

service” banking would in fact have a consequential negative impact for J.P. Morgan Chase

branches across the region. Overall, the real threat is the changing environment of the business

banking model due to the advancements of technology thereby changing how consumers and

banks do business. Corporate banks such has J.P. Morgan Chase and their banking competitors

may have a hard time adapting to the new landscape of banking technology.

In response to this problem, the research being conducted will provide different strategic

analyses which may bring positive or negative findings. Also, by conducting independent


research this will address the issues J.P. Morgan Chase & Co faces as technology changes the

landscape of the banking industry and if corporate banks can handle the threat of change.

Research Question

Given the rapid evolution of technology in today’s business market, is J.P. Morgan Chase

& Co able to handle the swift threat of change from technological advancements and the use of

digital money and mobile banking apps? Also, will this technological change impact the banking

infrastructure?

Hypothesis

As stated before, J.P. Morgan Chase & Co is facing new conditions of rising technology

in today’s markets, this will have a negative impact on the financial institutions and lower their

financial services sector. J.P. Morgan Chase will face difficulties in adapting to the new

landscape of technology this problem might harm their market share in the banking industry if

they don’t embrace the technological change.

Research Significance

The research being conducted is vital for J.P Morgan Chase & Co because it will bring an

awareness of external and internal factors such as technological change in the banking landscape

and the rise of digital money including mobile apps. Also, the banking business model will be

further addressed and analyzed to avoid negative impacts to the company’s profits and title as

leader of financial institutions.

Purpose

This research paper will demonstrate a thorough analysis that will assist J.P. Morgan

Chase & Co to understand the underlying trends of banking technology and how it may affect

their long term goals. Also, it will address a comprehensive SWOT analysis to further reinforce


the research proposal and identify key strengths, weaknesses, opportunities and trends. Also,

with these findings it will address positive or negative effects on J.P. Morgan Chase and if the

company can respond effectively to the new landscape of banking technology while still

maintaining a large market share in the finance industry.

Data Collection/Research Methods

The research proposal will comprise of qualitative research. The primary sources of

information conducted by the researcher will come from online databases such as Hoover’s

Premium, J.P. Morgan Chase company website and banking competitor company profiles. Also,

peer-reviewed journal articles, and financial reports to help further the research proposal. Finally,

terminology from the supplemental textbook “Strategic Management: An Integrated Approach,”

will be utilized to help further explain theories and concepts for the purpose of research.

Chapter Summary

The research proposal will examine and analyze J.P. Morgan Chase & Co. The overall

company history and founding leaders have been presented. Also, crucial events to the

foundation of J.P. Morgan and prominent status of the company have been addressed. The

statement problem addresses the overall change of banking technology threatening the banking

infrastructure which will impact all major financial institutions in the United States and affect

J.P. Morgan Chase market share. Also, the high usage of online banking and mobile apps would

have an impact on J.P. Morgan Chase branches and change the banking environment in how

customers and bankers conduct financial transactions and services. The data collection portion

addresses how the research paper will be conducted and research methods.


Chapter 2: Literature Search

Section I. Literature Search

Everyday financial transactions are being processed at this very moment. Financial

transactions aren’t just about numbers, but however information which is hard financial data to

be processed to information for customers to understand. With technology on the rise banks may

have to change their internal infrastructure. The threat of technology to the banking infrastructure

is not an immediate threat but a long term threat. Also, the lack of communication between top-

level executives can hinder the ability for potential profit.

External Threats. A threat is defined as elements in the external environment that can

harm the profitability and veracity of the company’s business (Hill, Jones, & Shilling, 2015, p.

45). The external threat to J.P. Morgan and its banking competitors is technological

advancements in mobile banking apps. The technological services being offered to consumers is

at the forefront with self-service options rather than customer to teller interaction. According to

Bessant (2015) technology will not eliminate bank branches and employees, but however it will

change how banks provide business services to consumers. However, bank closures are on the

increase due to the high usage of electronic devices, JPMorgan Chase lost approximately forty-

five branches in the Chicago area alone (Cox, 2014). With mobile banking it eliminates branch

locations and time consumption for the customer.

Lack of Communication. Another issue is the lack of communication between corporate

executives in the organization. Communication problems among separate functional hierarchies

or departments grow more separately from one another and communication becomes extremely

difficult because of differences in goal orientations of each functioning department (Hill, Jones,

& Shilling, 2015, p. 418). Corporate banks such as J.P. Morgan Chase and their executives need


to understand the importance of technology and that technologists are integral for solving

business problems and serve customers effectively (Bessant, 2015). Also, effective

communication between the Chief Information Officers and top executives is crucial in

providing business strategies to shrink the gap between the top and lower management levels.

Research on Changing Infrastructure on Banks. The way how consumers do banking

and also how employees provide services is changing. Face-to-face communication with bank

tellers have changed to video screens for certain major banks. And the traditional nine to five

work hours will be going away for some bank employees. This allows customers to have more

available time to take care of their financial transactions or banking needs at any time (McMillin,

2015). Banks need to realize that they’re dealing with a new generation of banking customers

than the previous generation. This could be a lack of research and identifying key components in

the changing nature of the banking industry. The rise of technology with today’s young,

technically savvy consumers are used to the availability of quick access from their mobile apps

on their smart phone and tablet devices rather than waiting in line at the bank (Waxman, 2015).

To reach this niche market large corporate banks, specifically J.P. Morgan Chase needs to keep

their image relevant to the younger generation by harnessing the advancements of technology.

The rapid revolution of technology such as cloud computing, mobile app payments, and big data

play a key role into acquiring new customers especially the younger generation into the financial

service market’s increasing profitability. Also, with the advancement of mobile technology it has

put pressure on the expansion of the banking infrastructure. This resulted in reducing the amount

of employees and branch locations needed making it cost effective for the banks (Searl, n.d.).

Research Strategies and Challenges of the CIO. The role of the Chief Information

Officer is to provide business insights and responsibility of information technology. The


advancements in technology has had an adverse effect on cyber threats on financial information.

Also, the use of social media outlets such as Facebook on mobile technology has put the role of

the Chief Information Officer to the forefront over the decades not only affecting J.P. Morgan

Chase but its competitors as well (Yurcan, 2011). However, with the position of the CIO there

are many challenges they face such as wide gaps in communications between the CIO and top

executives such as the CEO. For a tech savvy CIO it can be difficult to communicate business

insights with top executives when they don’t understand the terminology or language used by the

CIO (Ray, 2015). With an effective strategy in communication it is vital for both the CIO and top

executives to develop a strong working network. According to Linda Ray (2015) of the Houston

Chronicle she states that, through a strategic planning structure and communication strategy with

the CIO and top level executives, it can increase profits and reach company goals while reaching

a broader market share.

Comparative Company Analysis

Corporate banks need to understand that the increase of e-commerce banking will change

the banking infrastructure and affect the banking industry overall. Banking branch locations have

been on the decline since the financial crisis of 2008, and U.S. banks have been increasing

mobile and online services while closing down locations. J.P. Morgan Chase competitor, Bank of

America Corp. has had a nine percent increase of all checks deposited by customers using their

smartphone or tablet devices to snap a picture of their checks to deposit them in their accounts

(Chaudhuri, 2014). Bank of America noticed the increase in mobile banking customers and

invested approximately $500 million in its mobile app service. However, the adverse effects of

increased mobile transactions has led to more bank closures. In 2013, the number of Bank of

America locations went from 5,478 to 5,151 and could fall under 5,000 total banking branches in


2014 (Camhi, 2014). With the changing technological landscape competitors like Bank of

America have no choice but to adapt to the revolution of mobile apps and close branches.

Another major bank facing the same issue is PNC Bank where they plan to change their three

hundred branches to teller-less employees and remodel their banking infrastructure because of

the high demand of technology. Installations of “self-service” screens has lowered the

infrastructure costs for PNC Bank. Their strategy consists of changing the retail experience of

banking and invest into banking electronically. PNC Bank believes as a whole it will cut costs

and lower the amount of employees needed (Fleisher, 2014).

Chapter Summary

The literary search for Ch. 2 discusses the terminology of external threats and lack of

communication references which came from the “Strategic Management: Integrated Approach”

textbook. The literary search further explains how technology including mobile apps are forcing

bank closures and thereby changing the business banking infrastructure. Also, in the literary

search, the research findings concluded that there is lack of communication or language barrier

between the Chief Information Officer and top-level executives such as the Chief Executive

Officer. For example, the CEO and other top-level executives may not understand the

terminology used by the CIO, therefore they must work together as a network to solve this issue.

The comparative analysis of JP Morgan Chase competitors included Bank of America and PNC.

Both competitors are facing the same issue with regards to the rise of mobile technology and the

adverse effects of bank closures. However, only PNC is trying to maintain their branch locations

by changing their internal structure to a full electronically serviced bank with reduced

employees.


Chapter 3: Organizational Operations and Strategies

Current Company Operations

Financial Aspects

JP Morgan Chase & Co had accumulated $106.28 billion in sales from 2013 with a one

year sales growth of 1.76 percent. Also, the 2013 net income totaled to $17. 92 billion with a one

year net income growth of 15.79 percent. The return on assets for the company is 0.89 percent

and return on equity is 10.10 percent (Hoover's, 2015). There was also a decline in revenue and

net income after taxes in 2013. JP Morgan Chase & Co declining trend began since 2009 and has

been attributed to decreasing interest income and lower trading income. Also, legal and federal

issues which have lowered profitability overall.

Figure 1. JP Morgan Chase & Co Income Statement illustrates both annual revenues of $106.28

billion and net income after taxes from 2009 to 2013 on a billion dollar scale (Hoover's, 2015).


Total Assets ($, million) Dec 2013 Dec 2012 Dec 2011 Dec 2010 Dec 2009

Current Assets

Cash 355,822.00 175,537.00 144,881.00 49,240.00 89,436.00

Net Receivables -- -- -- -- --

Inventories Assets -- -- -- -- --

Other Current Assets -- -- -- -- --

Total Current Assets -- -- -- -- --

Net Fixed Assets 14,891.00 14,519.00 14,041.00 13,355.00 11,118.00

Other Noncurrent Assets -- -- -- -- --

Total Assets ($, million) 2,415,689.00 2,359,141.00 2,265,792.00 2,117,605.00 2,031,989.00

Liabilities Dec 2013 Dec 2012 Dec 2011 Dec 2010 Dec 2009

Current Liabilities

Accounts Payable -- -- -- -- --

Short-Term Debt -- -- -- -- --

Other Current Liabilities -- -- -- -- --

Total Current Liabilities -- -- -- -- --

Long-Term Debt -- -- -- -- --

Other Noncurrent Liabilities -- -- -- -- --

Total Liabilities 2,204,511.00 2,155,072.00 2,082,219.00 1,941,499.00 1,866,624.00

Shareholder's Equity Dec 2013 Dec 2012 Dec 2011 Dec 2010 Dec 2009

Preferred Stock Equity 11,158.00 9,058.00 7,800.00 7,800.00 8,152.00

Common Stock Equity 4,105.00 4,105.00 4,105.00 4,105.00 4,105.00

Total Equity 211,178.00 204,069.00 183,573.00 176,106.00 165,365.00

Shares Outstanding 3,756.11 3,803.95 3,772.69 3,910.29 3,941.96

Exchange: NYSE: JPM

Fiscal Year-End: December

All amounts in millions of US Dollars except per share amounts.

Hoover's

Annual Balance Sheet Statement

Return to Hoover's

JPMorgan Chase

D-U-N-S Number: 047675947

Primary Industry: Banks & Credit Unions

Figure. 2 JP Morgan Chase & Co Annual Balance sheet reveals total assets have increased from

December 2009 to December 2013. Total liabilities have increased from December 2009 to

December 2013. Numerical values in shareholder’s equity has increased from December 2009 to

December 2013 (Hoover's, 2015).


Competitors. Based on the competitive landscape, JP Morgan Chase & Co maintains the

title of top financial services provider among their competition. JP Morgan Chase surpassed

other corporate banks such as Bank of America with a close lead behind JP Morgan Chase. And

Citigroup and Wells Fargo trailing behind.

Figure. 3 The 2014 Annual Sales are illustrated and the 2014 Net Profit Margin for JP Morgan

Chase, Citigroup, Bank of America, and Wells Fargo (Hoover's, 2015).

Organizational Hierarchy & Structure

The company operates in five segments which include Corporate and Private Equity,

consumer & community banking, Asset management, commercial banking and corporate &

investment banking. Corporate and Private Equity consists of the Treasury and Chief Investment

Officer and other corporate officers to execute the firm’s capital structure plan. Consumer &

community banking consists of the financial services being provided through personal banking

services at branch locations and other services such as ATM’s, mobile and online banking. Also,

Asset management provides wealth and investment management to all clients (Reuters, 2015).

The Chairman of the Board, President, and Chief Executive Officer for J.P. Morgan

Chase & Co is James Dimon who has served as CEO since 2006. The other corporate officers


consists of Marianne Lake, the Chief Financial Officer and Matthew Zames as the Chief

Operating Officer. Also, Kristin Lemkau the Chief Marketing Officer and John Donnelly as

Head of Human Resources (Reuters, 2015).

Human Resources

JP Morgan Chase & Co believes that managing talent of its employees is critical to the

success of the financial services firm. The Human Resources team selects qualified personnel to

provide business support to assist in strategy & planning development, and project management

(J.P. Morgan, 2015). JP Morgan Chase has many complex products in all of their business units

and all employees are trained to interpret information for the customer. The high level skills

required in the finance industry comes with more than average compensation for the average US

worker (Hoover's, 2015).

Legal & Ethical Issues

The current legal issues that JP Morgan Chase & Co faces are the huge investigations and

lawsuits and a $6 billion trading loss. The financial firm was also accused of misconduct in how

it marketed mortgage backed securities which they sold these investments in the prelude of the

2008 financial crisis. The company would make mortgage loans then bundle them to sell them to

investors instead of keeping them on their books which was unethical (Rexrode & Gordon,

2013). Also, JP Morgan Chase & Co paid $2.6 billion to the U.S. government and Madoff

victims to resolve civil and criminal allegations in which the company failed to respond to

Bernard Madoff’s Ponzi scheme. Madoff’s money scheme was the largest Ponzi scheme in U.S.

history which inevitably was tied to the JP Morgan brand and other competing financial firms

(Henry & Flitter, 2014).

Technology and Information Systems


JP Morgan Chase & Co understands the importance of information technology. The

firm’s most innovative business technologies consists of JP Morgan Chase’s mobile and digital

services’. The technology used through the Chase mobile app allows the consumer to deposit

personal checks using their smartphone without the need to step foot into a bank. Also, the online

service referred to as Chase QuickPay allows the customer to send and receive money from

anyone, anywhere. JP Morgan Chase ranked in third place in the financial services industry

group and other large global financial services companies (JPMorgan Chase, 2011).

Industry Environment

The critical issues JP Morgan Chase and their competitors would face are the

vulnerabilities of economic slowdowns and dramatic market fluctuations. This would affect the

overall future of the competitive success of the financial industry (Hoover's, 2015). The finance

industry is vulnerable and susceptible to economic losses or slowdown which adds to an all –

time low in consumer confidence with the recent financial recession.

Corporate and Business Strategies

Mission and Goals

With over 200 years of hard work JP Morgan Chase has had the same mission statement,

“to be the best financial services company in the world” while emphasizing on its long lasting

heritage as a financial services company (JPMorgan Chase & Co , 2015). The goals JP Morgan

Chase would like to achieve is to develop a world-class franchise in every aspect of their

business. Also, they would like to create a powerful brand which is attributed with integrity,

quality and above all transparency.

Corporate Strategy


JP Morgan Chase business strategy is to use their reputation as a brand name and long

expanded history of the company. By carrying out these business strategies JP Morgan Chase

execution involves the employees by acting upon problems quickly for customers and follow-up

to meet commitments (JPMorgan Chase & Co , 2015).

Unrelated Diversification

The company is segmented into four major business segments including private equity

and corporate segments. Also, their nonbanking unit makes JP Morgan Chase a multifaceted

conglomerate because of their diverse operations in the financial industry. The corporate level

strategy used by JP Morgan Chase is based on a multi-business model from their banking to

nonbanking units to increase their overall performance and profitability (Hill, Jones, & Melissa,

2015). Overall, their goal is to strengthen their business model which increases the performance

of all business units and divisions for JP Morgan Chase by employing their organizational

competencies.

Competitive Strategies

JP Morgan Chase & Co has deep roots in the financial industry and throughout the years

they have merged with other financial firms such Chase Manhattan Corporation. Four years after

acquiring Chase Manhattan Corporation in 2004, with the combined company they acquired

Chicago-based Bank One. Also, in the midst of the financial crisis in 2008, JP Morgan Chase

purchased the failing company Bear Stearns and Washington Mutual adding well over 225,000

employees and tripled revenues to $105 billion in the recession (Wherry, 2011).

Investment Strategies

According to Hoover’s (2015) in March of 2014, JP Morgan Chase agreed to sell its

physical commodities business unit for $3.5 billion to Switzerland’s Mercuria Energy Group


Holding SA and also decided to stop selling student loans to simplify the structure of JP Morgan

Chase. Within the next year JP Morgan Chase decided to sell some of its portfolio investments to

One Equity Partners a private equity firm. Also, in addition to JP Morgan Chase investment

strategies’ they believe in integrating investment management teams to enhance its multi-

business solutions where the investment strategy is to invest in infrastructure and technology

(Comtois, 2015). The investment team is in charge of looking at the competition and making

sure they can outperform the competitors with the latest technology.

Chapter Summary

The organizational operations and strategies for Chapter 3 briefly discusses current

financial aspects of JP Morgan Chase including the income statement and balance sheet. Also,

the financial aspects covers JP Morgan Chase competitors in their financial industry such as

Bank of America, Citigroup, and Wells Fargo. The chapter discusses the organizational

hierarchy and structure covering all five segments of JP Morgan Chase’s business units. Also,

the top-level officers such as the CEO and CFO are addressed. The Human Resources aspects

and legal dilemmas of the company are discussed in which the company was accused of financial

misconduct of bundling mortgage loans. Also, the inappropriate ties with Bernard Madoff who

conducted the largest Ponzi scheme in the U.S. A summary of the technology and information

systems used by the company is discussed and the various digital and mobile services used by

consumers. The industry’s environment factors briefly covers the external factors affecting the

industry such as economic slowdowns and federal regulations.

The corporate and business strategies of Chapter 3 defines the company’s mission and

goals and briefly covers the corporate strategy. Also, the company’s strategy uses unrelated

diversification to increase overall value and profitability in all business units. Finally, the various


competitive and investment strategies are discussed which helps strengthen JP Morgan Chase

mission and goals as a financial services company.

Chapter 4: SWOT Analysis

Organizations who want to be successful must establish an effective business plan. In

order to do so they must create an SWOT analysis to identify potential strengths, weaknesses,

opportunities and threats to the company. The central purpose of the SWOT analysis is to

identify key strategic exploitations of external opportunities in the surrounding industry,

preferably the finance industry for JP Morgan Chase & Co. Also, with any successful

organization there are threats from either external and internal factors or competitors in the

industry. Furthermore, there can be internal and external weaknesses to the organization that

must be identified (Hill, Jones, & Schilling, 2015).

Internal Weaknesses and Strengths

Leading. JP Morgan Chase & Co has faced many struggles during the recent financial

crisis of 2008 and legal settlements. However, having survived the financial industry meltdown,

JP Morgan Chase & Co. CEO, Jamie Dimon has been praised for his leadership in steering the

company away from toxic securities and unethical business practices (Rouston, 2009).

Furthermore, the company adhered to JP Morgan Chase ethical code of conducts and

transparency of financial statements. Jamie Dimon was praised for his straight-talking

management style of leadership which guided the company while other competitors have failed

such as Lehman Brothers and Bear Stearns due to unethical business practices.

Traits, skills behaviors and effectiveness analyzed. Strong leadership in any business is

essential for any leader wanting to be successful. JP Morgan Chase & Co has faced many

difficult challenges, but with a great sense of company culture and excellent leadership while


fostering an open environment is key to a successful organization (Dimon, 2014). The traits and

skills required to be an effective leader is that it takes discipline, which means holding business

reviews, team meetings and constantly striving for innovative ideas with a strong sense of work

ethic. Also, many leaders lack the initiative to resolve matters swiftly. By acting with a fortified

sense of change, a leader can fight internal business politics and take responsibility and

ownership of the matters at hand (Dimon, 2014). While other financial competitors failed due to

the unethical business practices being conducted such Lehman Brothers, JP Morgan Chase & Co.

CEO Jamie Dimon has expressed the importance of the transparency of sharing information and

the importance of honesty in all business aspects to avoid another financial crisis (Dimon, 2014).

Motivational effectiveness analyzed. Jamie Dimon has explained that leaders should not

lose interest with their employees and as leaders must get out on the field regularly to touch base.

Also, the CEO of JP Morgan Chase & Co has explained that anyone in a meeting should feel free

to speak his or her mind without the fear of retaliation from higher management (Dimon, 2014).

Jamie Dimon further explains that the best leaders treat all people equally no matter of economic

status or origin with respect from clerks up to top-level management. The purpose of all

employees working at JP Morgan Chase & Co is that everyone needs to assist and help each

other at the company because the sole purpose of the company is to serve clients and others not

themselves (Dimon, 2014).

Evaluation of communication effectiveness. JP Morgan Chase & Co offers prominent

services for their customers through their extensive retail networks. Through their effective

communication throughout their retail financial services it helps meet the financial needs of their

consumers and small businesses. JP Morgan has the third largest branch network in the world


offering consumers the appropriate networks to meet their financial needs (JP Morgan Chase &

Co, 2015).

Controlling. To measure performance strategic control systems are developed to assess

the overall evaluation of the company. Top-level management and mangers at all levels must

develop measures to evaluate the integrity of the company (Hill, Jones, & Schilling, 2015). JP

Morgan Chase & Co understands the importance of their corporate governance policies which is

provided by their Board of Directors which is comprised of balanced and diverse group of

leaders and highly independent individuals. The Board of Directors duty is to govern on behalf

of the stockholders and investors with the main responsibility of the oversight of management

and the firm’s stockholders (JP Morgan Chase & Co, 2015).

Quality controls in effect. The primary responsibility of the management team at JP

Morgan Chase & Co is to ensure that there is an effective system of controls which is reasonably

designed to safeguard the assets and income of the corporation. Also, to ensure that all integrity

of the financial statements is transparent. Furthermore, it is the management’s responsibility to

maintain compliance with JP Morgan Chase corporate ethical standards, plans and procedures

that adhere to federal law and regulations (JP Morgan Chase & Co, 2015). Also, JP Morgan

Chase & Co has formed a group of one hundred fifty employees to help clients and stock traders

in making better financial decisions. This new team will track trades across asset classifications

and electronic trading platforms in which they will look for opportunities and identify threats to

the bank’s overall market share (Glazer, 2014).

Six-Sigma. The Six-Sigma methodology is a primary tool to increase the overall

reliability of a product and improvement the quality-control system. However, for JP Morgan

Chase & Co it is used to describe the unexpected events in high volatility of financial markets. A


financial assets volatility is measured as the standard deviation or sigma (JP Morgan Chase &

Co, 2015). Six-Sigma Productivity and Quality has become JP Morgan Chase & Co top strategic

initiatives since the early 2000’s. The focus on Six-Sigma was not only lowering expenses but

however, revenue maximization and overall customer satisfaction. Currently, Six-Sigma has

since evolved into lean design for Six-Sigma practices, Activity based costing, Kaizen and

Project management (Marx, 2015).

ISO 20022 Capabilities. The ISO 20022 XML standard is a rapidly growing way of how

large corporates integrate payable, treasury, and receivable applications with their suppliers,

buyers, and banking partners globally (JP Morgan Chase & Co, 2015). The ISO 20022 system is

supported by banks and financial application providers world-wide. Also, the ISO systems is a

standard used by a large volume of client payment systems which is used globally.

Organization’s Information Technology. JP Morgan Chase & Co is constantly

innovating to make important investments to their technology platform. Their technological

innovation such as mobile banking has been named “Best in Class: Mobile Banking” for 2011

(JP Morgan Chase & Co, 2015). Another form of information technology JP Morgan Chase

possess is their “SWIFT” technology. SWIFT provides communications infrastructure, products

and services to all clients and connects approximately 9,000 financial institutions, securities

establishments and corporate clients in over two-hundred countries. SWIFT is used a

communication channel by JP Morgan Chase extensively to communicate with its corporate and

non-corporate clients. Its purpose is to aide in organizational reliability, improved liquidity

management, risk reduction and cost efficiency (JP Morgan Chase & Co, 2015).

Planning. Formal planning systems for any business is vital to ensuring making better

strategic decisions for the future. For a strategic plan to work, it is vital that top-level


management should not only focus on the current competitive environment but the future of the

competitive environment in its respected industry (Hill, Jones, & Schilling, 2015). Top-level

management must forecast what the organization might look like in the future, also top-level

managers should plan for worst case scenarios or “what-if” scenarios. Not only should top-level

managers forecast the future of the company, but also involve operating managers in the

planning process to see if any input can be used for the future of the competitive environment of

the organization. However, for JP Morgan Chase & Co with the intent of strategic planning

comes at a cost with the rise of technology and the risk of employee layoffs adversely.

Current plans implemented. With the increase of technology JP Morgan Chase is

reducing the amount of transactional employees at their branches and investing more heavily into

digital and mobile banking technologies to accommodate customers with more self-service

options to cut down on costs. However, the overall focus of JP Morgan Chase & Co is to trim

current employment costs and downsize its retail branch network (Heschmeyer, 2015). JP

Morgan Chase has been cutting expenses aggressively and cut approximately 12,000 employee

positions with an overall loss of 32,000 employee layoff since 2012 across its consumer business

sector (Heschmeyer, 2015). Also, JP Morgan Chase’s current plans is to take advantage of the

U.S. households that are living within their two mile Chase branches. They plan on shifting the

image of the banking branches into financial advice centers from simple consumer transaction

centers.

Weakness in Planning. JP Morgan Chase & Co understands the importance of investing

in technology which can boost profitability and overall efficiency and effectiveness of the

organization. However, these positive effects can have negative implications on employee

layoffs and the increase of cyber threats with the integration of digital and mobile banking


technology. JP Morgan Chase has the vision of the “branch of the future” in which fewer

employees will operate under with less square footage and greater automation (Solomon, 2014).

The company is following self-service trends of their customers while utilizing technology for

routine banking transactions with fewer employees needed. As a result the company plans to

close 300 bank branches or five percent of the total by 2017 while customers move to digital and

mobile banking to reduce costs over time (Sweet, 2015).

Weakness in Planning cont. The rise of technology offers vast amounts of information

and financial data in large volumes to anyone who has access to a smartphone or computer.

These large quantities of data whether it be personal accounts or confidential corporate

information is vulnerable to hacking. JP Morgan Chase lacked the planning in constant

surveillance of their servers which gave easy entry for hackers to gain secure information. The

computer breach at JP Morgan Chase was the largest intrusion to any U.S. bank. And the

problem would have been bypassed if the bank had installed a simple security measure to an

overlooked data server in its large network (Goldstein, Perlroth, & Corkery, 2014). JP Morgan’s

security team neglected to upgrade one of its vast networks which lead to the theft of JP Morgan

employee login information.

Organizing. JP Morgan Chase & Co may have some drawbacks when it comes to

planning, however their organizational structure helps promotes overall profitability and market

share. All successful businesses organizations implement the use of organizational designs which

compromises of how a company should create and combine organizational structure, control

systems and company culture (Hill, Jones, & Schilling, 2015). JP Morgan Chase & Co

implements an organizational structure which integrates corporate, commercial, investment, and

private banking.


Figure 1. Analyzes JP Morgan Chase & Co organizational structure of six departmental

structures. Prepared by Hoover’s Premium company report.

Salary and stock and employee benefits. JP Morgan Chase & Co. offered Jamie Dimon

the Chief Executive Officer a seventy-four percent raised to $20 million back to its normal pay

scale before the 2008 financial recession. His compensation includes $18.5 million in restricted

stock, while board members decided to keep the CEO’s executive pay below the previous peak

levels after criminal and regulatory investigations (Moore & Son, 2014). The Chief Financial

Officer Marianne Lake received 80,346 shares of JP Morgan Chase & Co stock worth at $4.65

million and executive pay of $8,288,388.


External Opportunities and Threats

Figure 2. Michael E. Porter’s Five Forces Model framework evaluates the competitive

environment of an industry to identify opportunities and threats. Created by Chartered Global

Management Accountant, cgma.org.

Porter’s Five Forces examined. JP Morgan Chase & Co incorporates all five forces as a

competitive strategy in the finance industry. JP Morgan Chase has numerous competitors and it

would be assumed that their buyer power is high to keep up their competitive advantage over

their competitors such as Bank of America and Citigroup. Rivalry among their existing financial

competitors within the industry is used to gain a large portion of the market share by a means of

price, product design and incentives (Hill, Jones, & Schilling, 2015). Chase Bank offers “The

Chase Cash Back Advantage,” in which if the customer has their new mortgage payment

automatically deducted from a Chase checking account and get cash back up to $500 annually

for the life of the program. And the customer can either take the cash at the end of the year or


pay down towards the principal of the mortgage (Chase Bank, 2015). The threat of substitute

services is high among the financial industry, however JP Morgan Chase & Co is consistently

implementing new strategies to stay innovative and keep their competitive advantage. With

regards to barriers to entry, they are high for JP Morgan Chase with their differentiation of

business segments. Also, JP Morgan Chase & Co firm’s customers and suppliers have little to

any bargaining power, making the barriers to the industry extremely high and the overall

industry concentrated (Grosvenor, 2012).

Macro-environment Forces

The banking system is transforming quickly with government regulations such as the

U.S. Securities Exchange Commission, also the legislation of Dodd-Frank. Also, the

macroeconomic pressures such as the rapid revolution of technology and customer demand with

increased competition such as Bank of America and Citigroup are trailing behind. Changes in the

macro-environment has a direct effect on the Porter’s Five Forces thereby altering the strength as

well as the importance of the finance industry (Hill, Jones, & Schilling, 2015).

Global forces. Expansion of U.S. banks and financial brokers into foreign markets has

attracted more foreign investors to U.S. financial institutions and funds easier. The rise of

technology has made foreign investment securities exchanges more integral and accessible

allowing for more U.S. funds to have a more diversified portfolio in foreign investments. Also,

many foreign counterparts have more foreign investors in off shore accounts to avoid heavy U.S.

taxes (Hoover's, 2015).

Demographics forces. Banking customers are becoming more computer and

technologically savvy. In the banking industry, customers want the highest quality in technology

and a relationship with their banker for financial advice. Also, the significant demographic trend


in banking is the age demographics of their consumers and also shifts in wealth into younger

generations have been more predominant in overall trends (Kendler, 2006).

Political and legal forces. J.P Morgan Chase & Co including their competitive

counterparts have immense influence over the global economy. The Securities Exchange

Commission and other state and federal regulatory institutions have closely monitored with the

recent increase on regulation of financial firms from the financial crisis. Also, the U.S

government has increased the accountability of all financial firms that received an economic

bailout plan to avoid collapse (Hoover's, 2015). Such examples of federal regulation were Dodd-

Frank Wall Street Reform and the Consumer Protection Act. These regulatory bodies were

designed to provide greater transparency and increased oversight regarding financial practices in

the financial system. Also, incentives for individuals on a whistleblower program for unethical

business practices, and security law violations (U.S. Securities and Exchange Commission,

2015).

Technological forces. With the rapid evolution of technology it allows consumers to

engage in financial transactions without a broker needed with the advent of electronic trading

and “self-service” banking. The positive outlook of the internet allows firms to increase their

level of customer service by offering more access to products, services and information on any

digital format. Online information is more reliable with the integral use of internet networks used

to communicate with clients and employees with ease (Hoover's, 2015).

Evaluating the SWOT Analysis

JP Morgan Chase & Co faces many internal and external threats and opportunities in the

financial industry. Overall, the company has a strong brand image in the industry with strong

leadership, organizing and controlling. However, where they lack is internal and external factors


with regards to planning. The company has invested into technology with the emphasis of the

“branch of the future,” however they overlooked a simple security measure and financial

information was breached to due carelessness. The strategic planning internally for JP Morgan

Chase & Co needs to be focused on to keep the competitive advantage in the financial industry.

Chapter 5: Summary, Recommendations, and Conclusions

Summary

This research paper analyzed the internal and external factors that JP Morgan Chase &

Co has faced with the rapid revolution of technology and overall change of the banking

infrastructure and weaknesses in strategic planning with the rapid change of technology. JP

Morgan Chase & Co is not alone with large banking giants such has Wells Fargo, Bank of

America and Citigroup also face the same situation of the changing technological landscape in

the finance industry. The recent developments in technology have led to more layoffs of banking

employees with the increase usage of digital and mobile apps and less emphasis on the “brick

and mortar” style of banking. The research analysis of JP Morgan Chase & Co has concluded

that it lacks the planning required to keep ahead of the competitive landscape. While the brand

image and organizational culture of the company is affluent they lack planning with regards to

financial data in their servers and future of the employees with technology usage increasing.

Recommendations

Based on the research that was conducted the facts represented that advancements in

technology in the financial industry is here to stay and is changing the way how consumers are

conducting everyday banking transactions. Recent developments of mobile banking apps have

greatly reduced the need of a customer entering a bank and the number of transactions being

conducted in a “brick and mortar” bank. Technology provides the convenience on both ends for


the consumer and banking institutions such as JP Morgan Chase & Co. However, the company

needs to realize with the advancements in technology is changing the banking infrastructure with

banking closures across the country and less employees needed to operate them. With the change

of the banking infrastructure it is recommended that the company offer a personalized service

and offer a wide range of services such as tax preparation, accounting and legal services and this

change should occur in a short time frame to test the market. JP Morgan Chase & Co could then

help retain their employees and train them to expand on their skills to assist customers in the

financial services sector while halting banking location closures. Also, the company needs to

update their data servers with the increased volume of data which is vital to the company image

and security. It is recommended that JP Morgan Chase & Co invests more into technology to

reach a larger market share and change the branding image of banking locations to financial

advisement centers with the same need for banking tellers to operate them.

Conclusions

The methods of research used in this analysis to cover JP Morgan Chase & Co was the

company profile and financial records, online databases such as Hoover’s Premium, peer-

reviewed articles, journal articles, and government websites such as the United States Securities

Exchange Commission website. Also, financial reports such as Morningstar, Yahoo finance, and

NASDAQ were used in the process for the purpose of this research paper. Overall, JP Morgan

Chase & Co has a deep rich history in the financial industry and leads in the finance industry

over there competitors. JP Morgan Chase & Co has an affluent image in the finance industry

with a large market share over their competitors. The company knows the importance of

innovation and the rapid change of technology to further their expansion and profitability. With

regards to the company’s leadership, JP Morgan Chase & Co and other large banks have no


choice but to adopt to these recommendations over time to stay competitive in the rapidly

changing banking landscape. It’s no question of doubt that JP Morgan Chase & Co has to adapt

to the rapid revolution of technology forever changing how consumers conduct banking.

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capstone chapters 1-5 final

Documents

jp morgan chase

banking industry

banking infrastructure

investment banking

trends of banking technology

private banking company

john pierpont morgan

small business banking