'The Internet Is Going to Change Wall Street as We Know it.'

LabMorgan's Horizon, a self-assessment tool marketed with Ernst & Young that companies can use to determine their exposure to a wide array of operational risks, is traveling the same route. At an afternoon meeting, Miller and a group of LabMorgan technologists are discussing the advantages and the disadvantages of cutting Horizon loose and setting it up as an application-service provider (ASP) that would enable users to evaluate regularly the risks that they face -- such as shaky Web servers or uninsured buildings in hurricane zones. There is a section of the whiteboard that is marked "strengths," "weaknesses," "threats," and "opportunities." The group seems to be leaning toward a spin-off: "As an ASP, it would be easier and faster for people to try it and deploy it," Miller observes, summing up his team's comments. "And we wouldn't have to support eight different platforms, as we do now."

If a business is spun off, Morgan's IT and audit groups, which helped develop it, would have an opportunity to invest in it. Often, Morgan executives wind up running LabMorgan's offspring, which gives those executives an outlet for their entrepreneurial urges without requiring them to abandon the firm entirely.

Maillet and Miller explain that although LabMorgan doesn't have direct client contact and isn't responsible for managing a trading book, it will be subject to specific performance measures. The volume of ideas coming to LabMorgan is watched carefully, as is what might be termed LabMorgan's "selectivity ratio": how many business proposals it acts on. Like all venture investments, the companies in the LabMorgan portfolio will be expected to produce revenue, profits, and, eventually, a sale or an IPO. How LabMorgan's work with other divisions (on projects like Morgan Online, a portal for private-banking clients) helps to bring in more clients and, ideally, helps to reduce costs will also be watched.

But what the two Peters feel most responsible for is marrying dotcom-style speed, agility, and blue-sky thinking with a 163-year-old, 16,000-employee investment bank that traces its roots back to 19th-century London. They see LabMorgan as a clearinghouse for leading-edge ideas from both inside and outside the company, with all the tools to nudge those ideas along quickly. They and their colleagues are wary of having LabMorgan branded as the division that gets to do cool new stuff while the other three divisions are stuck with drudgery. Transforming Morgan into a preeminent e-finance firm can't happen without collaboration, aligned interests, and strong bonds with the rest of the company.

"We will have failed if we wind up as 100 or 200 people all doing their insulated thing," Maillet says. "LabMorgan isn't here to change LabMorgan. It exists to change J.P. Morgan."

Scott Kirsner (kirsner@worldnet.att.net) is a Fast Company contributing editor. Contact Peter Maillet or Peter Miller by email (inquiries@labmorgan.com). As this article went to press, J.P.Morgan and Chase Manhattan agreed to a consolidation transaction that would merge the two companies.

Sidebar: Who's Fast

When J.P. Morgan unified several of its Internet-related projects under the LabMorgan umbrella, the firm's 16,000 employees -- and its many high- powered competitors -- took note. "We needed to be smart about opportunities and threats around e-finance," says peter miller, the bank's former CIO and one of LabMorgan's founding fathers. "One way to do that is to learn more and learn faster than anybody else." Here is LabMorgan's secret formula.

Grow leaders everywhere. LabMorgan doesn't want its 100 employees to be the only ones keeping an eye on new technologies. So the Lab cultivates "in-business e-leaders" throughout Morgan's other divisions. They spend roughly half of their time working on Net-related projects. "Some of them were initially members of e-SWAT," says Peter Maillet, referring to a six-week-long brainstorming program at Morgan. "Others have just developed a strong interest in the topic." To help the in-business e-leaders keep tabs on what's happening at LabMorgan, the Lab runs an intranet site with updates on all of its ventures.

Stay on track. LabMorgan rigorously tracks how quickly it responds to incoming business plans, since the best ideas get funded fast. LabMorgan maintains a chart that tracks how many proposals it receives, how many of those proposals need attention, and the average time it takes to respond to each.

Mix it up. When LabMorgan launched, all of its 35 employees were J.P. Morgan veterans. Since March, LabMorgan has hired 70 new employees, about 40% of whom were from outside the company. "We don't need everyone here to understand derivatives pricing in detail," Maillet says. "It's good to have some people who understand the client interface better than we do."