Joseph G. Sponholz knows well the dangers that lurk in technology budgets.

"Technology spending is growing as a proportion of total bank spending," says the vice chairman of Chase Manhattan Corp. "So in the pit of everyone's stomach, we know that unless we find a way to control it, it will eat us alive."

Mr. Sponholz is in a good position to tame the beast. Under an organizational plan adopted in December, he oversees a collection of big technology-driven businesses-global custody, trust, and treasury services- and supports technology throughout Chase. That includes network management, data processing, risk management systems, check processing, and software development.

The dual focus on revenue generation and internal support, unusual for a bank technology chief, could offer clues about how the new breed of megabanks will tackle technology management. The $366 billion-asset company has been refining its own approach steadily since it was formed by the 1995 merger of Chemical Banking Corp. and Chase Manhattan Corp.

"A lot of banking companies spend the money on technology, and it's all directed internally," says Walter V. Shipley, Chase's chairman and chief executive. Chase's plan, by contrast, offers "the opportunity to leverage the technology through a business."

The philosophy is brought to life in Mr. Sponholz's Chase Technology Solutions, one of three main units that make up the new Chase. The other two are National Consumer Services, for retail banking, and the Global Bank, for wholesale banking.

Chase Technology Solutions brings order to the revenue-generating technology business and, through its information technology and operations group, reaches out to support the infrastructures of most other units of the company.

Fittingly, Mr. Sponholz brings to the job a strong background in both financial management and technology planning. He headed integration efforts for the Chase-Chemical merger and before that was chief financial officer at Chemical. He also put in stints as Chemical's first chief technology officer and as head of strategic planning.

Mr. Shipley, who brought Mr. Sponholz to Chemical 18 years ago from the New York consulting firm Booz, Allen & Hamilton, calls the latest assignment "a very natural thing for Joe."

"He's cerebral, strategic, and has a very strong knowledge base on the technology side," Mr. Shipley added. "He understands both the threats and opportunities that technology creates."

Chase spends about $2.5 billion annually on technology, and about half of that represents the expenses in Mr. Sponholz's group. The other half is spent by the retail and wholesale units, mostly on software development.

Offsetting that hefty price tag is the success of Mr. Sponholz's revenue generators, known as global services.

The group is the world's largest global custodian, with more than $4.3 trillion of custody assets. In the treasury market it leads in U.S. dollar clearings, and in automated clearing house, Chips, and Fed Wire transactions. And in the trust market, Chase is ranked No. 1 in five areas, including as a trustee of public tradable debt securities and as a provider of shareholder services.

As of the first quarter of 1998, the global services group accounted for 13% of the entire bank's earnings, and 16% of its shareholder value, Chase said. With revenues of $2.3 billion, global services earned a 37% return on equity last year, putting it far beyond the ROE realm of large banking companies-which averaged 18% in the first quarter-and into the leagues of pure technology companies.

George Bicher, bank analyst at BT Alex. Brown Inc., said the structure of Chase Technology Solutions "forces a level of discipline" found in few other institutions. "It forces the internal technology solution to be a world-class vendor to the bank's own business units. They should be able to get efficiencies from that."

Mr. Sponholz has put into place several mechanisms aimed at making Chase's technology expenditures even more productive.

One is the bank's technology governance board, also known as the virtual chief information officer. "I don't accept the notion of one all-knowing, all-seeing CIO for an organization like ours," Mr. Sponholz said.

Chase's virtual CIO is designed to make Chase act like a quick, entrepreneurial entity-without becoming a technology anarchy.

In the interest of speeding decision-making and providing thoughtful leadership, the governance board gathers 12 senior executives from the business and technology sides of the bank. Included on the board are three CIOs, one for each business unit.

"The power of the group is its practicality," Mr. Sponholz said. "There's tremendous complexity in technology. We close the gap with the board."

The three CIOs-Carl Morales for the National Consumer Services group, Rick Mangogna for the Global Bank, and Lorraine Hricik from the global services group-report both to the heads of their business lines and to Mr. Sponholz.

The board is clearly meeting its objectives, Mr. Sponholz said. For example, a decision to install the same type of computer software on all of Chase's desktops was reached within six weeks of the board's first meeting, with implementation beginning soon after.

"Under the old model, the solution would have been to first study all 78,000 desktops to see what type of software they were running," said Mr. Sponholz. "That's absolutely nuts."

The governance board also engineered an unusual response to one of the most pressing issues the heads of the business units said they faced: the question of allocating technology resources.

The board concluded that allocation was simply not a useful process. "We've saved ourselves years of debating," Mr. Sponholz said. "Technology resources are no more allocable than any other. This realization has saved us from tremendous inefficiencies."

He added: "We won't get out of the box by allocating technology more intelligently. We'll get out of the box by leveraging our cost stream- getting away from pure product businesses and into information-based businesses."

As the world's largest global custodian, for example, Chase is mining the information it has in its data bases. For investors, it can describe in detail the assets that fund managers are buying, holding, and selling.

"We're taking what is an otherwise prosaic processing environment and turning it into an information-based business," Mr. Sponholz said. "Over time, that's where leverage of technology spending lies."

The other "way to greatness" is economy of scale, Mr. Sponholz said. "Will we do another merger? I hope so, because we would drive tremendous benefit with processing scale."

Mr. Sponholz's views are filtering out to the industry at large through the Bank Information Technology Secretariat, a group of high-level executives with a common interest in technology issues. He is an advisory board member.

Mr. Sponholz was enlisted to help define banking's new architecture for supporting electronic commerce payments. The premise was that banks needed to respond to nonbanks, which were redefining and threatening banks' core franchise-the payment system.

"I reported to BITS that they can stop worrying," Mr. Sponholz said. "Nonbanks will never replicate the payment infrastructure of institutions, as it exists or as it evolves."

The battle with nonbanks instead should be directed at those points where customers interact with institutions, be they computer screens, televisions, or telephones. These are the points where nonbanks have the potential to disintermediate banks and are "exactly what BITS needs to worry about."

Meanwhile, Mr. Sponholz is concentrating on keeping Chase's own technology humming.

"The nexus between deep specialty and economy of scale has been unlocked only by a few large players," he said, "and we're one of them."

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