Editor's Note: Mr.Vartanian is managing partner of the Washington office of the Fried, Frank, Harris, Shriver, & Jacobson law firm and co-author of "21st Century Money, Banking, and Commerce."

In the following article written in the form of a memorandum from the chief executive officer of large financial services provider to the senior management committee -- he considers how the Internet is reshaping the financial industry.

A year ago, I wrote to you and explained that the Internet was the fizzle on a technological fad that would never affect the way that our company conducts business.

While our revenues and net income continue to grow, I now believe that we can potentially attribute the lackluster performance of our stock in part, to that statement. I suggest that we implement a new business strategy to prevent further market-value deterioration and customer disintermediation.

I have spent the last several months reading and speaking to electronic commerce advisers, entrepreneurs, and gurus, and I have seen the illuminating light of cyberspace. Two events have occurred that should underpin our commitment to full exploitation of the Internet: Charles Schwab & Co.'s market capitalization surpassing that of Merrill Lynch; and our completion of the Y2K improvement project.

The first of these was a corporate wake-up call. The second frees up the money and resources that we need to build an Internet presence.

The simplicity of our plan should not be confused with the complexity of executing it. That complexity derives from the fact that we have $200 billion of assets profitably deployed in a physical business environment, which is disappearing seven times as fast as it took to develop. Thus, our strengths in the physical world are, to a degree, becoming our liabilities in cyberspace. But, I believe that the strength of our brand name and capital position means that the race for cyberspace is ours to lose.

There are 10 elements in my plan:

Our customers should be able to build our business in their minds and on their hard drives.

Technology has shifted the balance of power, and we must realize that with the infinite access to information our customers now have, we must provide them with a combination of products and services that will allow them to build the business they need. In short, we must add value to the technological options available to our customers by allowing them to use our products and services to construct the business they want us to be. That requires that we not view ourselves as a concise, static set of products and delivery systems that our customers must fit into. We must become a mosaic of product options that our customers will use, and view us as such. In this regard, technology will make us the customer's customer and allow us to use "customization" to withstand the adverse effects of technological "commoditization."

Eliminate physical and temporal boundaries to maximize customer accessibility.

Time, space, volume, velocity, and scale have new meanings and significance in the information revolution. Our business must always be accessible in a meaningful way to our customers, 24 hours a day. Geography, borders, time, and bricks and mortar must become as irrelevant to their accessibility and to the success of our business strategy as it is becoming to the business lives of our customers.

We must be able to move information, sell products, and provide services at the speed of light and create delivery systems that lessen the friction of moving information and value in the physical world. In so doing, we will maximize the range of potential customers and the hours in the day that they will access our products and services. But because all we do on the Internet is global in nature and has the capacity to reach every human being on the planet, that includes every regulator and law enforcement agent in every jurisdiction. Thus, the globalization of our business means that we must also understand a broad range of international laws and regulations.

Guarantee information security and customer privacy.

The success of our business relies in large part on the confidence and trust of our customers. It is how we create a brand and distinguish ourselves from the thousands of competitors, large and small, that consumers now have access to. The Internet creates a network of anonymity that has both positive and negative aspects. Small companies can look like large ones, and consumers can travel through cyberspace and feel like they are invisible. But the anonymity of cyberspace threatens the accountability and responsibility that business relationships need in order to survive in the long term.

Customers will not use systems or networks that they do not trust, especially in cyberspace, where the customary evidence of identity and integrity does not exist. While efficiency, convenience and value may offset the loss of the personal touch, even then customers will not transmit information about themselves through the unbounded world of the Internet unless they know that companies will protect and treat that information as carefully as they would.

Toward that end, we will spend what we must to build secure electronic systems and networks, and we will allow our customers to decide how we may collect information from them, analyze it, and communicate, share, or use it. Every vendor, supplier, processor, and partner of this company must agree to abide by these principles and practices in order to continue to do business with us.

Make paper extinct.

Companies that blindly bind themselves to the inefficiencies of paper will perform inefficiently and eventually lose the loyalty of the increasingly technology-proficient consumer. We must make paper an extinct commodity in this company, and in so doing increase our service to our customers and decrease our costs. Where the elimination of paper is hindered by a law, rule, or convention, we should seek to change it. Where computers are not found in every home, we should establish computer centers where, among other things, our customers can complete financial services transactions, send and receive e-mails, and attend computer training classes.

Co-venture the creation and distribution of products and services.

I have become, in the last several months, well enough informed to know that we cannot reach these goals and offer all of these products and services by ourselves. Building the various electronic Web sites, systems, networks, and products that we need will take too long and cost too much. We must add the expertise of technology providers and professionals to our core business expertise.

Indeed, I now believe that this technological revolution, which is rapidly making information the principal corporate asset, requires that we joint-venture with competitors. We will enter into agreements to develop and link sites, provide on-line services, co-market and co-brand products, and jointly develop "cyberspace real estate" projects.

At the same time, where appropriate and wise, we will invest in our technology partners so that our joint motivation and ability to succeed are inextricably linked.

Adjust costs and flat expectations.

We cannot expect lower general and administrative costs, nor increased revenues, in the short term. While we make the transition from a physical company to one that is part physical and part virtual, we must accept the fact that our enormous success in the physical world means that we will have to operate two separate companies simultaneously for some time. Indeed, the growth of our virtual company may come at the expense of our physical company. Such intracorporate cannibalism is counterintuitive to business success -- no retail business invests in a storefront presence and then hangs a sign outside saying, "Please don't do your business here." So our transition into a dominant virtual company will take time, cost money, and create a drag on earnings in the short run. But we cannot mortgage our future by short-cutting the critical steps needed to make this transition.

Change direction as often as the markets shift.

One calendar year is estimated to equal seven Internet years. So it should not be surprising that we may have to change course many times to reach our goals as markets shift and customer preferences are identified. Flexibility and nimbleness will be critical if we are to succeed. In that regard, we will restructure and slim down our management team so that we are able to make and implement decisions quickly and efficiently -- as do the technology start-ups with which we are being forced to compete.

Market eyeballs and maximize impressions.

Historically, our marketing and growth strategies have been built around physical branch locations, print and media advertising, and the geographic reach of our business. The general theory has been, the greater and more well-positioned our physical locations are, the greater the number of potential customers that we can reach and serve. The Internet has changed all of that. We must now redirect our strategies to maximize the "eyeballs" and "unique visits" that we can attract to our site and, through various on-line services, co-marketing and joint distribution networks, the number of "impressions" that can be presented to steer customers to us.

While fulfillment of many financial services may continue, for some time, to occur off-line, the education, attraction, enrollment, and maintenance of customers will increasingly become an on-line operation. Therefore, we must develop and share Web real estate, to which customers are channeled by portal partners. The sites that we create and use must be "sticky" (i.e., attract eyeballs, make it easy for visitors to spend significant time on the site, and make them eager to return). Toward that end, we must immediately hire, acquire and invest in the technology providers and advisors needed to make this transition.

Merge real-world branding and cyberspace strategies.

The stature of our brand in the physical world is an advantage that we capitalize on each day. While small companies have moved on to the Internet and do not bear the cost of supporting a vast physical presence, our physical presence has provided us a brand that makes the battle for Internet customers ours to lose. That brand and all that it stands for must be translated into the digital world. In effect, that means that the optimal Internet strategy is a careful blend of physical presence, electronic presentment and execution, and effective error- and dispute-resolution mechanisms in both the physical and virtual worlds.

Link business networks to business customers.

Cyberspace is not solely a retail or consumer domain. Corporate customers must be able to reach their customers as well as their suppliers and service providers. Business-to-business electronic commerce is flourishing, and we can play various roles in that space as facilitators, providers, and trusted third parties. We are able to provide access to the Internet to smaller business customers and electronic data interchange and authentication services to our larger corporate clients.

These services can further our role as a provider and transmitter of financial value and continue to control the payment channels that provide an important source of revenue.

Please develop a business plan for your division's implementation of these strategies and be prepared to present it at our next meeting. We will launch our new business strategy within 60 days thereafter.

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