International Management Student ID: 14036997

Operationa Strategy of JP Morgan Chase & Co.

Introduction
JPMorgan Chase & Co. is a largest American multinational institutions with 200 years
history of operating in financial service and banking industry. The firms provides products
and services in five segments: consumber & community Banking; corporate & investment
Bank; Commercial Banking; Asset Management and Corporate/Private Equity (JPMorgan
Chase & Co., 2014:2).
Diversification is the key factor to bring effective operation to multinational organisations
However, the objective to balance the organisational governance and value creation is such
a big challenge. Appropriate corporate strategy and key competences needs to be
considered to ensure the firms competitive ability. This assignment aims to address and
critically analyse the succeed of JPMorgan Chase in term of those issues, together with
identifying the reaction of JPMorgan Chase in a modern global competitive market.
The study aims to:

Describe JPMorgan Chase organisational structure, core competencies and portfolio

strategy

Critical analyze five product & service segments of JPMorgan by applying different
matrix.

To evaluate the corporate strategy of JPMC towards value creation and profit
earning.

To recommend changes in firms strategy.

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International Management Student ID: 14036997

JPMorgan Chase & Co. Portfolio Strategy
a. JPMorgan Chase & Co. Business Portfolio

Figure 1 JPMorgan Chase & Co. Multidivisional Form

JPMorgan Chase & Co. (JPMC) owns two principal bank subsidiaries in the U.S., together
with national and overseas branches, subsidiaries, representative officesin more than 50
countries. Their operational activities are diversified into five major business segments as
shown in above chart. The diversification is based on products, services or customer types,
in which each business line has its own managing system and financing statistic (JPMorgan
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Annual Report, 2014:64). This diversified organisational structure is called multidivisional
structure (M-form), which was describes the diversification of firm across products,
industries and markets, when each product line has its own production and division
(Chandler, 1962).Chandler (1962) stated the nature of this form was setting business
structure toward growth management through product, industry or geography diversity in
globally operations. Williamson (1975) stated that the application of M-form is the most
effective strategy in term of maximizing profit. On the other hand, there is an advantage of
power delegation, while independence of units enhance short term operating decisions.
b. Porters Three Tests
The demand for diversifying in business has been analysed in the previous part. However,
the question of precise diversification should be concerned, especially in term of
multinational firms with large-scale investment like JPMorgan Chase. Entering a new
market or industry is equal to possible challenges and risk for organisations to overcome
besides long-term growth opportunities. Three essential tests of Porter need to be applied
for risk of entry minimizing, and assuring profitability operation, especially creating
shareholder value (Porter, 1987). Several cases of JPMC during the history of multidiversification will be evaluated.

Attractiveness Test:

Hax & Majluf (1983) identified several indicators of industry attractiveness measurement
including market size, market growth rate, etc. Supporting this idea, Porter (1987) added
the industry structure as tool for industry attractiveness measurement.
In the case of Canada power industry, both forecasting indicators and industry structure
seem to reflect a potential investing opportunity. The unique difference in Canada market is
a chance of power companies to directly sell their product to end-users (Marketline,
2014). On the other hand, the forecasting indicators of market value also showed positive
clues for stable development in the next five years.

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International Management Student ID: 14036997

Figure 2 Canada power industry value forecast

Cost of Entry

Porter (1987) identified two issues of multinational firms when investing into a new
market in term of cost of entry: the challenge to make profit higher than cost of entry;
overcome entry barriers.
An example of JPMC acquisition was the case of buying Bear Stearns in 2007. Because of
the support from the Government, JPMC met no trouble in the barrier of regulations.
However, the amount of $6.95 billion spent thence led to even bigger loss of JPMC in
operation, since they had to dealt with the problems in the financial operation of Bear
Stearn (Craig et al, 2008).

Better-off Test

The diversification by merging & acquisitions aims to mutually share business advantages
among different business units. Better-off test is about identifying whether the acquire firm
add value to the organisation system or vice versa (Allen & Gorgeon, 2002). The value
added by a new unit should be assessed to identify its short term or long term benefit. If the
value given is short-term, the acquisition would be considered the fail decision.
Take for example of the case JPMC to purchase Collegiate Funding Services, JPMC has
seen the long-term potential profit of the firm, as stated by Connor B., in term of
marketing, origination and servicing capabilities (JPMorgan Chase & Co., 2005:). The
target customers of Collegiate are students, those would help JPMC to approach this
customer segment. Indirectly, the student loan services, those are given to both students
and parents, will give JPMC a chance to broader their market size.

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c. JPMorgan Chase & Co. Key Competences
While the three tests specify the conditions for creating value, the key competence reflects
the long-term competitive ability of organisation. Further discussion has been given by
Prahalad & Hamel (1990) that the beginning competitive factor of product, which is cost
and quality, is less important as time goes by. Instead, the competitive abilities of firms
derives from core competencies play a key role, especially the managements ability.
Several core competences have been demonstrated by critically analysing from JPMC
annual report (2014):

Product and service diversification in Banking & Finance industry and non-banking
industry

A wide range of product lines and servies derive from four major business segments as
mentioned above in the M-form. The product development of JPMC includes bank and
non-bank products and services, thus create value of convenience for customers. Along
with product diversification towards different objectives, JPMC can basically satisfy all
demand of customer all around the world and make them unique(Mascarenhas, 1998).

Multidivision and combined strength

JPMC Strategic Business Units

Retail Branches (United States)
Wholesale Offices Abroad
Chase Private Client locations
Commercial Banking expansion cities
Commercial Banking bankers
Small business bankers

Number
448
28
2,498
20
350
205

Figure 3 Number of JPMC SBU invested in 5 years (2009 2014)

Source: JPMC Annual report, 2014

The multidivisional structure of JPMC includes thoudsands brands, representative offices

all around the world approach the global range of customers. Moreover, the comprehensive
internal abilities such as long-standing client

relationships, technology and product

capabilities derives from mix of businesses of JPMC. In accordance to Dimon, J.

Chairman of JPMC, the combination of various products and services, along with mixture
of supportive activities from all business units create a mix of businesses that works well
for each of client segments.

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d. JPMG Corporate Strategy
Prahalad & Hamel (1990) proposed that business portfolios should be build based on core
competencies of business, and should enhance these core competencies. JPMC corporate
strategies is build toward effectively take advantage of the firms core competencies.
Before discussing the strategy of JPMC, its parenting style needs to be identified.

JPM
C

Figure 4 JPMC Control Influences Mapping

With the core strategy to simultaneously focus on three key areas: customers, controls and
profitability, the parenting style of JPMC is the strategic control, in which managers
attempts to exploite the advantage of linking different business units together (Goold &
Campbell, 1987).

Portfolio Management

The research study of Porter (1987) suggested that Portfolio Management did not
emphasize on diversification among products in same industry but limted the range of
businesses. JPMC, which has the diversification through acquisition (Porter, 1987),
applies this portfolio management. The structure of the company is diversified into four
seperate bank product segments, adding the corporate segment. Each of them runs business
independently, with different managers and financial report given each fiscal year. In
JPMC, each segments management is responsible for their financial performance for the
purpose of internal control and effective measurement of performance. This structure is
organized for management reporting purposes (JPMC Annual report, 2014).

Synergy Sharing Activities

Synergy refers to the combined strength of a multinational company, in which

interrelationships between businesses is a fundamental power of a company (Goold,
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1993). Further discussion given by Porter (1987), the ability to share activities between
different SBU is important in term of creating competitive advantage by providing a wide
range of products and services as well as enhancing qualities.
A board of manager of JPMC emphasizes that the company is not a conglomerate of
seperate, unrelated business (JPMC Annual report, 2014). The customer caring and
satisfaction is to be guaranted by a mix of business works together. This structure of JPMC
means each SBU can make up supplement for others in particular cases, thus they can not
only share value but also improve the reputation of JPMC.
e. JPMC Portfolio Matrix Model
Campbell et al (1995) stated that Parenting-fit Matrix identified the relationship between
parents characteristics and Core success factors, parents characteristics and parenting
opportunities. A parent corporate of JPMC can rely on this matrix to make changes for
improving fit with its businesses.

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Mental Maps

Structure - Systems - Process

Staff

departments

and

Characteristic of JPMC
Deep understanding in banking & finance industry (200 years of development history)
Good respond to risk management
Perception of stable and growth in business improvement
intergrity development in both economies and communities
Multidivisional in products, geography and types of customers
Huge system linkage closely (Two main subsidiaries with thoudsans brands, representative offices
globally)
Mix business with supporting links in both horizontal and vertical
central Large amount of staff because of big scale and wide range of product and service

resources
Decentralization contract

Improved liquidity and capital position

Balance between centralized and decentralized
Figure 5 Characteristics of JPMC Parenting

Segment

Critical Success
Factors

Parenting Opportunity Analysis

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Parenting
Attention

International Management Student ID: 14036997

Consumer & Community Banking
(CCB)

Corporate & Investment Bank (CIB)

Commercial Banking (CB)

Asset Management (AM)

Corporate

Able to create strong

relationship through
system of customer
caring,
since then expand range
of loyal customers
Unique capabilities to
large corporations,
large investors and
governments,
Ability to embrace
change and adapt
Outstanding quality
client and trustful
customer relations,
Industry - Leading
capabilities and
comprehensive service
Sustainable growth plan
Experience from 200
years history create
trustful reputation
Know-how to earn
customer trust
Social & sustainable
activities emphasized

Simplify the system, review branches,

improve technique

High

making incremental investments to enhance and expand;

Improve infrastructure, simplify the system
Participate in industry utilities

High

Medium

Continuously reinvest and improve business across market

cycles

Yet to be ascertained

Figure 6 JPMC Product CSF & Parenting Opportunity

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Medium

Low

International Management Student ID: 14036997

Figure 7 JPMC Parenting-fit Matrix

Heartland Businesses

Businesses in the heartland area refers to the businesses those have success factors fit with
parenting characteristics. These businesses, in accordance to Porter (1987) is able to
become key segments for managers toward the company success. In JPMC, in the last
three years, CCB & CIB always keep the leading role in business operation. With critical
knowledge and experience of the company, these two segments are also believed to be the
heartland businesses, the focus point of JPMC.

Edge of Heartland Businesses

In JPMC operation, the know-how experiences and trustful reputation of the company
throughout 200 years of history has always created value toward all business segments
include Asset Management and Consumer Banking. However, except those strength
derives from the nature of the company, the parent characteristic does not have factor that
can create valuation for the development of those segments. So AM and CB refers to Edge
of Heartland Businesses.

Ballast Business
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Although Corporate Segment records loss in the last two years, the segment plays a
specific role in bringing the social value to the company. The financial result is
understandable from the parent firm as well. However, the parent should figure out
opportunities to change the corporate segment refer to its CSF.

Unit: $ mil

Figure 8 JPMC Net Revenue from 2012 2014

f. JPMC Nine-box Matrix

Figure 9 JPMC Efficiency & Returns

The given statistic of efficiency and returns of four core product segments of JPMC
witnesses for the outstanding ability of these products and services in the market.

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Particularly, the corporate segment, as mentioned above, records loss for the last two years,
lies somewhere between the low and medium of competitive ability.
Finance & Banking industry, after the previous crisis, is considered to be in the midst of
restructuring & rehabilitate process. However, the market still remains its attractiveness
because of its profitable ability, and fundamental meaning in economic system (McDowell,
2015).
Until now, JPMC still keeps their shape on top of the competition. However, several
emerging competitve factors are occuring such as large banks outside of US, startups from
Silicon Valley and competitors from payment area. Responding to this situation, JPMC
critically analyze competitors to figure strategies accordingly. At the same time, existing
successful strategies are in progress with non-stop development.

Figure 10 JPMC Nine-box Matrix

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g. Market Activated Corporate strategy Framework

Figure 11 JPMC Nine-box Matrix

The IMACS of JPMC reflects the ability of the firm to deliver value to each segment, thus
specific strategy refers to each business segment would be identified (McKinsey, 2000).
Approaching this framework, several suggestions are given to KPMC:

The CCB & CIB those are in the value-creation potential should be maintained

Those have good value creation ability such as AM and CB require the company to
adapt new strategy for more value.

JPMC should think about divesting Corporate segment, or find a way to change the
current situation, together with looking for new business opportunities.

Conclusion
JPMorgan Chase has a good-design structure in its multinational operation. The
diversification is based on product segment, and the corporate strategy approached are
portfolio management and synergy. On the other hand, the study has identified the flexible
parenting style of JPMC that leads to successful achievement in business. Several portfolio
matrix model affirms the good result in each segment operation. Lastly, the relationship
between parenting strategy of JPMC and its strategic units has been identified and
recommendation has been given.
WORD COUNTS: 2159 Words

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Table of Figures
Figure 1 JPMorgan Chase & Co. Multidivisional Form........................................................2
Figure 2 Canada power industry value forecast.....................................................................4
Figure 3 Number of JPMC SBU invested in 5 years (2009 2014)......................................5
Figure 4 JPMC Control Influences Mapping.........................................................................6
Figure 5 Characteristics of JPMC Parenting..........................................................................8
Figure 6 JPMC Product CSF & Parenting Opportunity.........................................................9
Figure 7 JPMC Parenting-fit Matrix....................................................................................10
Figure 8 JPMC Net Revenue from 2012 2014..................................................................11
Figure 9 JPMC Efficiency & Returns..................................................................................11
Figure 10 JPMC Nine-box Matrix.......................................................................................12
Figure 11 JPMC Nine-box Matrix........................................................................................13

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10.

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