Underscoring its reinvention as a technology company, State Street Corp. has collected five awards in five months for its back-office prowess.
The latest, received last week, was the 1998 Excellence in Technology award from Gartner Group, which recognized Marshall N. Carter, State Street's chairman and chief executive officer.
The award is given to CEOs for outstanding leadership in applying information technology. Other recent winners include Charles R. Schwab, chairman and CEO of Charles Schwab Corp., and Richard D. Fairbank, chairman and CEO of Capital One Financial Corp.
The Boston-based company has also earned top rank for global custody services from Global Custodian magazine, seventh place in Information Week magazine's ranking of the 500 most innovative corporate users of information technology, and a Value Chain Excellence award from CIO magazine. Wired magazine named State Street one of the top 40 companies "shaping the new economy."
State Street's move to a technology orientation is nearly complete, with more than 90% of its revenues coming from processing and managing information related to securities transactions. Traditional commercial banking produces just 6% of revenues.
"We determined a few years ago that our business is based on technology, and is not a business that just uses technology," Mr. Carter said.
He said he focuses on three principles of technology architecture to support his company's products: global, scalable, and operating in real time. More than $200 billion flows through State Street's systems each day.
He said a technical background like his is an advantage for a technology-based organization. Mr. Carter, 58, studied civil engineering at the United States Military Academy at West Point and received a master of science degree in operations research and systems analysis from the Naval Postgraduate School in Monterey, Calif.
"It is no surprise that State Street has been recognized by independent groups" for its technology excellence, said Gerard S. Cassidy, senior vice president and banking analyst at Tucker Anthony Inc. "It has always been a leader. Its technology is cutting edge."
He said State Street's well-oiled capabilities enable it to charge a premium for services.
"From what we can gather, Bank of New York is a lower-cost provider of data processing and is very successful, but essentially it does it with a Chevrolet," Mr. Cassidy said. "With State Street, you're driving a Mercedes. It functions efficiently but comes at a higher cost."
Twenty-five percent of State Street's annual operating costs are related to information technology. Its research and development budget is about 7% of revenue.
The aggressive spending reflects State Street's belief that "the half- life of some software products that we develop is 18 to 24 months," Mr. Carter said.
New software is always in the works.
"Management at State Street has so many projects to choose from that it funds only 20% of projects that meet its hurdle rates," said Heather Bellini, an equity analyst at Lehman Brothers. "Its technology dominance should continue."
State Street is among the leaders of many of the businesses it is in, and these operations require extremely functional software. Its indexed money management operation is the third-largest behind those of Fidelity Investments and Merrill Lynch & Co. State Street holds $4.3 trillion of assets under custody and $422 billion under management in 26,000 portfolios in 51 currencies.
The bank's most profitable technology-based business, foreign exchange trading, executes transactions in real time through its Global Link system. Introduced at the end of 1997, Global Link aims to automate and unify all tasks related to foreign exchange trading, including conducting research, measuring risk, and executing trades. A number of the system's features were developed with input from the State Street/Windham Advisory Council, a group of independent industry experts that State Street relies on for strategic and technical counsel.
"Software is the deciding factor," Mr. Carter said.
But State Street also gives much credit to its global networked infrastructure, which links 11 mainframe computers in three data centers with 800 mid-range servers at sites in 22 countries.
"Generally, State Street has taken an aggressive approach from a global architecture point of view," said James M. MacDonald, chief information officer at State Street. "That architecture has a longer life span than products, which may come and go. It drives the ability to move fast from a product and service point of view, and that's what customers want."
Four years ago State Street developed proprietary software called Global Horizon Interchange to enable its mainframes to distribute information to all its remote locations. The system manages 150 million transactions a day, up from 10 million a day four years ago.
"We can turn our information from a proprietary data base to an open architecture, which is one of the drivers to our success with clients," Mr. MacDonald said.
Though State Street's architecture is global, decision-making is decentralized.
"Each of the major businesses has a chief information officer and reasonable autonomy," Mr. Carter said. "And we require that line units do their own acceptance testing and installation of systems."
Of 17,000 State Street employees worldwide, 6,400 are directly involved in information technology.
"Customers know we pay a lot of attention to investing in technology that helps them do their jobs," Mr. Carter said.
