At American Banker's first Chief Information Officer Roundtable, executives agreed that they are working in "exciting times." The chief force behind the excitement - the Internet - also has posed challenges in recruiting talent, prioritizing initiatives, and managing the organization. Participants are Martin Lippert of Royal Bank of Canada, Timothy Shack of PNC Financial, and Steven Sheinheit of Chase Manhattan Corp.

How are you managing the Internet from an organizational perspective?

MARTIN LIPPERT: As a lot of this gets hyped, people overlook the criticality of the infrastructure that goes into being able to support the kinds of businesses that we're putting onto the Internet. When the market experiences some of the peculiarities that it experiences, it creates spikes in volumes that take an enormous amount of focus from an architectural perspective. So we've got an infrastructure group that is responsible for making sure that those elements are being well managed.

As we look at more of the customer-facing components of this, we really break it into two elements. One is represented by extensions of the existing businesses. The extension of the consumer franchise is the banking site; the discount brokerage is a natural extension of the wealth management business. Plus we have a central group that provides guidance with respect to security, privacy, and a lot of the policy issues.

The third component of the structure is what we refer to more as the attacker element. This is the group that really looks at the types of plays that we need to make, which effectively end up cannibalizing the existing business force.

TIMOTHY SHACK: Technology is certainly important, but what we're really dealing with today is the whole issue of business models. We have embedded in each of [our seven] businesses the resources that they need to be able to effectively compete. And that's a certain amount of application expertise, marketing personnel, product people, sales people, etc. In addition to that, they do have e-commerce personnel. That structure really gets to trying to understand who can disintermediate you. How can you disintermediate them? This is all about new business models.

Now, having said that, we also have a centralized e-commerce group that reports into the technology organization. What we are charged with is facilitating strategy, staying close to the marketplace, providing consultative support to the businesses, providing technology platforms that can be leveraged across the businesses so that we can really optimize on behalf of the shareholder.

STEVEN SHEINHEIT: One facet of the Net is what investments we're making. Chase Capital Partners, one of the largest investment houses, has $15 billion invested in new technologies. Similarly, we've got the acquisition of Hambrecht & Quist that puts us right in the heart of Silicon Valley in terms of deal structures and what's happening. is our coordinating point in the company to bring things together. Its primary goal is to actually look for alliance deals that are important for us. Here, we're recognizing the fact that we can't do everything ourselves. We believe as a company that we bring the elements of content, customer, and brand. We're looking for other new ideas and product capabilities to integrate what we already provide.

The third element is the lines of business. And this is very, very key to our strategy. We put a mandate to each of the businesses to develop, along with the traditional strategy, an Internet strategy that determines the timing and the pace at which that business needs to change, and how the Internet will affect it. I think that's energized the whole company around the Internet. That is integrated with an Internet leadership council that brings together all the businesses and all the different facets of the company that deal with the Internet.

As CIOs of large banks, you must be inundated with ideas for Internet projects. How do you prioritize?

SHACK: We categorize most potential opportunities under a few different plays. One is: How do we continue to retain customers and expand our customer base through the Internet? And that's about expanding our content and our capabilities through the Web.

Secondly, there is an opportunity to acquire customers outside of areas where our brand might be recognized. What we've looked at there is a series of alliance programs. We have a relationship with iVillage to provide banking services. CollegeLink is another one.

The third way is the whole area of specialized manufacturing or processing businesses. We're a large provider of mutual funds processing for the mutual fund industry. We think that's an area where there is great opportunity. We're a large cash management player. We announced a joint venture where Perot Systems and PNC, in a 50% joint venture, will provide electronic bill presentment and payment services in the B-to-B space. I hope I sound excited about it because we think it's a great opportunity.

It's an area where we decided to make a focused bet, very consistent with our strategy. It's wrapped around cash management, where we're an industry leader. And it's one that works for us. There are other areas that don't work for us.

SHEINHEIT:When you think about priorities, clearly one of the issues that we all have is how do you focus, and how do you free up resources to focus in on the New Economy? We've already made some significant bets.

The things that we're looking at are things that play within the financial services arena that are going to fuel the space for sure. We believe that that is a huge, huge opportunity for the banks. Things like electronic bill payment, for example.

What's key to us in terms of prioritization is really having each business look at what their future is relative to the use of Internet technologies, and designing those investments, and if necessary cannibalizing different products.

One other goal within the firm is to Web-enable everything. We recognize the fact that if it's Web-enabled, the productivity of the firm keeps rising. And the ability to interconnect, to collaborate, to communicate, all continues to rise. That increases customer service. There are lots of ramifications to that capability.

LIPPERT: I think our approach is probably similar to the one that Steve outlined in that one priority is looking at the internal efficiencies of the organization. How can we deploy these technologies inside the company to affect productivity? How can we do end-to-end fulfillment and not only increase the productivity but significantly improve turnaround times? The more we can Web-enable the company, the more opportunity there is to extend it outside the company.

Another area of focus is customer acquisition. That's where a lot of the partnering and joint venture kinds of activities come into play. An example of that would be the equity position we took with AOL in Canada. Since we've put that in place, we've seen a relatively significant increase in the amount of online customers we have signing up for our services. We're now signing people up at a rate of about 14,000 a week.

Then, I think the third area of focus is looking at how we can use these technologies to extend the existing businesses and deliver a broader sense of value to that customer base. An example of that would be a small-business portal where we incorporate an electronic procurement component. We leverage some of our buying power to our small-business customers so that by coming to our site, they get immediate value through dollars in their pockets as a result of the discounts that we provide to them.

For as much hype as the Internet is getting, banks are still wedded to their branches. Some European banks, however, are talking about getting rid of branches and serving more customers over the Internet. How close do you think we are to getting to that stage in the United States?

SHEINHEIT: What we see is that the clicks alone don't do it. Especially for financial services you truly need, I believe, a trusted party, someone that can provide a broad set of services, and you know that they stand behind what gets done, especially on the consumer side.

We call it bricks, clicks, and mortar. The mortar is the people with the skills, knowledge, and the ability to serve customers. It's not just a physical presence, but it's really increasing the skill level throughout the company to be able to deal with both the technology and what that brings, and the sophistication that the customer can have.

LIPPERT: The number of branches that we have ends up on some respects being a segmentation issue. The ideal that we're all trying to achieve is the optimum number of branches for the different geographies that we serve.

There is some set of customers who will, in fact, operate with an Internet-only model, but this represents a relatively narrow band. There are also mobile banking representatives. These people are capable of setting up in the family room if that's where you want to talk to them. These mobile reps will cover another relatively large segment of the customer base.

So what's the remaining base? What do the demographics of that remaining base look like? What is the profitability associated with them, as you put the actual physical locations in place for them to visit? It's a complex question. I think it's still going to take us a number of years to figure out what the optimum solution is.

SHACK: The answer to the question ultimately will be driven by the customer. When you think about what's happening through technology now, it's a fundamental shift from businesses directing how the customer will do business, to the customers selecting how they will do business.

So it's about multiple channels. We provide capabilities that they can take advantage of, they can self-select. We do it as economically as we can.

What is the next biggest thing - besides the Internet - that you're concerned about?

LIPPERT: It's wireless, and being able to deliver capabilities through a cellular phone or PDAs [personal digital assistants]. We've got programs going on now where we're delivering Internet banking services through a Canadian-based wireless provider.

Wireless capabilities really take the self-serve customer-service side of this to the next level. Customers can set up alerts so that if the stock in their portfolios moves one way or another, they can go into the display on their cell phone and get real-time information about what's going on there. They can react by simply hitting commands on their phone to make changes to it.

SHACK: I think there's still a tremendous amount of room for us to be able to advance our businesses by being able to really think about the customer. I worry and think a lot about how can we better advance our business through some of the technological capabilities that are here right now. Why send people junk mail? It doesn't make sense, and as a result of it you see issues with privacy because people think they're being imposed upon. When somebody calls into a call center, why route them to somebody who maybe can't handle them?

SHEINHEIT: Financial services firms have a long way to go in terms of re-architecting our legacy systems and platform systems so that they operate well in this new way of providing services. It's a whole integration of information and data to another level so that the customer service is transparent because it is self-service. That's real important.

Does the job of CIO require you to be constantly paranoid about what other banks are doing? Or is there more of an internal focus on making sure systems are running?

SHACK: I would say it's actually an external focus. We've all been in the business long enough that the systems run at night, our Y2K preparedness is there, service levels are met, and costs are managed the way they need to be.

The real challenges for CIOs are to be able to create a collaborative environment with the businesses to be anticipatory and understand how the business models will change again. Why will a customer come to you, why will a customer leave you? It's about looking out and trying to understand and proactively add value.

SHEINHEIT: The first word that came to mind is "exciting." We're right now in the most exciting time in the history of business, in the history of financial services, and the history of technology. Technology has been elevated because of its importance as an enabler of business, which is a great feeling. Technology is embedded in the business. It's not separate any longer.

It's clearly internally and externally focused, and it's certainly business-focused as opposed to technology for technology's sake. Our job is to understand the scope of the possible and help the firm understand those things quicker and quicker, so that we move quicker and quicker, to be an enabler of the change that's occurring. It's exciting times.

Has the emergence of dot-com companies made it more difficult for you to recruit and retain employees?

SHACK: This whole issue of really trying to anticipate and realize that our people are our most valuable resource I think may be the largest issue we have to deal with in the next several years. Day in and day out we need to worry about how we attract people, how we develop those folks, how we create loyalty. The people side of this is becoming increasingly complex and something that requires more and more attention all the time.

LIPPERT: I would agree with that. I think one of the things that we can't lose sight of is the requirements on us to be very strong businesspeople. Understanding the businesses is critically important to whether we are successful or not.

We also can't lose sight of the fact that there is a huge technical requirement on us as well and that that requirement is even getting increasingly complex from a number of perspectives. You look at the statistics on IPOs that have been done over the last 10 years, and 87% of the wealth has been created by 5% of the companies. So that's a lot of companies that have failed. We're making bets on what companies are going to make it and which ones aren't. If we're investing dollars - and even more importantly than dollars, the time - to move forward a solution that at the end of the day isn't a solution, then we waste a lot of time and money going down a path that leads us to a dead end.

The other complicating factor of this is the fact that as we move into more of these Internet-related spaces and take on more partnerships and alliances, the integration issues become increasingly complex. We're not just integrating our own products and services, but we're oftentimes tying in to third parties and fourth and fifth and sixth and seventh parties to bring broad-based solutions to our customers. So ensuring that the people that you're partnering with have the capabilities to deliver at the service levels that your customers are accustomed to becomes an important element. Those service levels are the weakest link in the chain. So the space, though exhilarating and exciting, is more complex than is evident.

SHEINHEIT: This idea of skill shortages in the technology world I think really plays to the strength of established companies. Because we have such a robust capability and we have our training programs and our flexible work programs and our diverse opportunities, I think we end up in a better position than the smaller players that may not be able to attract the talent.

But we need to recognize - and I think that this is part of our challenge - that we have to recognize that we cannot necessarily do everything ourselves. Partnering and finding ways of getting resources from other parties in a more flexible and variable kind of way is a skill that we have to make sure that we know how to do.

LIPPERT: I think one of the things that really is coming into play is the whole work-and-family issue, and being able to provide some flexibility around those issues. I think we're starting to see a whole new set of employees recognizing that benefit.

You've got a lot of the work force in burnout mode, and having those kinds of programs to offer, particularly for younger families, goes a long way. Being open-minded to those kinds of approaches and leveraging the skills that are out there - however we can leverage them - is going to become an increasingly important element of how we manage the work force.

SHACK:When the day is done, we really need to make sure that we get our fair share of the kinds of people that are going to some of these [dot-com] ventures because they are the risk-takers. They are the people that are thinking dramatically outside of the box and they are the people that are redefining how business is conducted. I think we have a great shot at doing that, but we really have to draft these kinds of messages, and these kinds of benefit programs, and these kinds of career development opportunities, and technological opportunities because if we don't, somebody is going to out-think all of us.

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