AFTER YEARS of hefty spending on technology, Chase Manhattan Corp. is trying to foster a culture that considers every technology investment an opportunity either to increase revenues or cut costs. The man charged with instilling that culture is Craig Goldman.
It's no small job. As head of technology for Chase, Mr. Goldman oversees one of the biggest computer budgets in the banking industry. Chase, the nation's sixth-largest bank, spent a whopping $700 million worldwide last year on computer systems and staff, according to industry estimates.
While systems expenditures at many banks seem to disappear into a black hole, with little tangible benefit to the bottom line, Mr. Goldman is trying to make sure that every dollar spent at Chase has a direct or indirect impact on profits.
Each technology project is analyzed by systems and business group executives for project costs and benefits before being give the green light. The analysis is reviewed periodically to ensure that spending is in line with the budget and that the project meets business needs.
Whether it's electronic mail or a customer service system in the credit card unit, technology projects must make money for the bank, said Mr. Goldman, who was appointed chief information officer at Chase earlier this year.
"Wherever we spend money, we're spending it smarter," he said.
Viewing technology investments as a means of increasing profits is a concept that has been evolving at Chase for several years. But when the bank hit the skids two years ago because of big credit-quality problems, management started paying much closer attention to Chase's huge technology budget and what benefit it was bringing the bank.
"There's much greater scrutiny now," said Mr. Goldman. "The linkage between technology spending and meeting business goals is much tighter."
Mr. Goldman points to a $1.8 million global information network that he designed when he was head of North American systems and operations. The network links corporate bankers in the United States, Europe, and the Far East, allowing "anywhere, anytime" access to people and up-to-the-minute information on products, customers, and markets. Several thousand Chase bankers are currently on the network; some 10,000 will be on-line by yearend.
More advanced than those at other banks, the network also gives corporate bankers access to a special "groupware" program that stores text and electronic copies at paper documents in files that can be shared among groups working on particular deals. In the past, paper files would sit on someone's desk or be passed back and forth.
The network increases revenues because it is a sales tool for dealmakers, said Mr. Goldman. He claims there have been a number of times when Chase bankers were able to identify a potential customer and put together a deal faster with the help of the network.
Although it is difficult to estimate how much the network contributes to the earning power of the corporate bank, Mr. Goldman is convinced that the benefits are substantial.
"It allows people to communicate who never did, and that's worth a lot of a global bank," said Mr. Goldman. "Can I tell you how much it's contributed to revenue? No, but there are now half a million messages a month of the network."
Another major technology investment for Chase is a project to install "intelligent" workstations in the credit card unit. Mr. Goldman said the workstations will greatly improve the productivity of operators handling customer service calls.
The bank has installed 60 workstations so far at credit card operations in Delaware and Tampa, Fla., and plans to have 200 workstations installed by the end of the year and a total of 500 in place by the end of next year. The total investment in the project will be $5 million to $7 million, said Chase executives.
The new system, run on personal computers, allows operators to freely access multiple files on account history and product information without repeatedly entering customer information.
Because operators spend less time logging on to various data bases, they are able to handle more calls per hour. Error rates for handling complex customer queries, such as disputes over charges, have been cut in half.
Another benefit is faster training. Operators can learn the new system in five weeks instead of six and are able to handle a full load of calls after four weeks on the system instead of two months with the old system.
"We estimated a 36-month payoff, and we're tracking below that now," said Mr. Goldman, who added that the main benefits come from increased productivity.
Improving efficiency in the credit card unit is especially critical for Chase. The bank is the second-largest issuer of credit cards after Citicorp. The credit card business contributed about half of Chase's retail banking profits and is probably the largest single contributor to the bank's overall profits, analysts estimate. Competitive pressures forced Chase to lower interest rates in August, which will squeeze profit margins.
Chase has several major technology investment projects in place on the retail side of the bank, including expanding ATM services and the toll-free customer service line and upgrading back-office and branch automation systems. Each project is expected to boost productivity, improve customer service, and increase cross-selling, said Mr. Goldman.
Analysts praise the integration of technology and business goals at Chase, saying that it helps the bank invest in projects that have real benefit and prevents the growth of disparate systems - something that Chase rivals like Citicorp are currently grappling with.
"All the technology functions are managed together, reporting jointly to both the head of operations and systems and the business managers," said Diane Glossman, an analyst at Salomon Brothers Inc., in a recent report on bank technology. "The company is rapidly moving toward greater horizontal integration of process and technology across businesses, which promoted a low fixed-cost base."
Ms. Glossman notes in her report that Chase's data centers were found to be more than 20% more efficient than the norm for data center operating costs and the most effectively run centers out of 300 large companies in a study by Nolan, Norton & Co.
Mr. Goldman said Chase ensures that technology dollars are well spent by aligning projects with business goals through a series of checks and balances over the fiscal year. The technology group reviews business plans from each of Chase's six business lines just before its budget planning session, conducted in August and September each year. This allows the technology group to re-prioritize projects according to the needs of the business unit.
This process takes place once a year, but "review is an ongoing activity," said Peter M. Lacovara, vice president in charge of information systems strategy, architecture, and standards. "There's a constant validation process to make sure investment is being made to meet business goals."
Avoiding "black hole" spending has been especially important to Chase over the past 18 months. Credit-quality problems, including a $7.8 billion portfolio of real estate loans, have been a drag on earnings. Chase's loan-loss provision was $595 million in the first half of this year.
Earnings were $293 million for the same period, up from $248 million in 1991.
The bank embarked on an aggressive cost-cutting program in 1990, slashing core operating expenses by more than $300 million. Noninterest expenses equaled 68% of operating revenue last year. The ratio had been 77% in 1990.
Chase's technology budget has been essentially flat since 1990, suggesting that, while the bank continues to invest heavily in systems, priorities have changed and cost cutting is near the top of the list. Chase's technology spending totaled an estimated $700 million last year.
Earlier this year, Chase recast its in-house technology apparatus, called corporate technology and information services, to run like a separate company that competes with outsiders for the bank's technology business. This move, along with consolidating data centers, is expected to drive down technology costs by 25% to 35% by 1995, according to Doug Williams, a senior vice president. Sources said Chase will eliminate a layer of several hundred managers during the consolidation.
Mr. Williams recently relocated to the United States from Chase's operation in Britain, where he led a successful program to consolidate the bank's European data centers to a central site in Bournemouth, England. That effort reduced overall technology spending in Bournemouth by one-third, said Mr. Williams. Data center consolidations in the United States, meanwhile, have brought annual savings of $30 million over the past five years.
Like most banks looking to cut technology costs, Chase considered handing some data processing tasks to an outside firm. But so far, the bank has concluded that its leaner and meaner internal technology group can do a better job of cutting costs than could an outsider.
In Mr. Goldman's estimation, Chase's bottom line will get a bigger boost from having an internal team run the bank's data centers.
"Why pay an outsourcer when we can do it better ourselves?" Mr. Goldman asked.
At a Glance
Chase Manhattan Corp. Headquarters: New York Assets: $99.7 billion(*) Employees: 35,000(*) Technology Spending(**):1989 $500 million1990 $700 million1991 $700 million
(*) As of June 30 (**) Industry estimates