JOHN D. LEONARD

Analyst Salomon Brothers New York

Efficiency ratios at most U.S. banks are not going down sufficiently, partly because technology has not delivered savings as large as one would expect.

Why hasn't technology delivered those savings? The focus hasn't been on what technology means to the customer and what it means to bank operations as opposed to more technical measures of efficiency.

There's the tendency to over-design. The systems are more sophisticated and more costly than they need to be. At Salomon Brothers we figure the initial expenditures on a project give you about half the cost savings you will receive. As you spend more money on a project, the cost savings are increasingly incremental.

Outsourcing has only really been big in credit cards. In other areas, there's been money spent on developing systems that are all essentially the same. U.S. banks face the kind of conditions that force you to get better at cost control sooner than banks in most other markets.

There are opportunities that technology opens up, and you can move real market share if you have an edge in it.

If the simple solution produces 99% of what the consumer sees, the return on investment isn't there for the more sophisticated system.

MICHAEL URKOWITZ

Executive vice president Chase Manhattan Bank New York

All banks have used technology to lower costs. Some have succeeded, and some have been disappointed -- they've just substituted technology infrastructure for other kinds of costs.

But the real story of the 1990s is the use of technology to grow revenues and enhance productivity in the front office -- not necessarily reducing the number of people, but increasing their capability to improve customer satisfaction and add value.

I'm in the middle of building our business plan for 1994. We're making a very substantial investment in technology. And although each year's technology is delivering tens of millions of dollars of efficiency savings, the principle driving the $70 million to $100 million annual investment we're making is to improve the availability of information for new products.

Investments in risk management, for example, have given Chase an outstanding capability in derivatives; they've enabled Chase to grow foreign exchange. These capabilities increase customer service quality and reduce risk.

Now, banks that are on the leading edge are investing to build value, to improve capability, to improve customer service. Efficiency is another outcome, but that's no longer the driver.

GREG SCHMERGEL

Consultant The Tower Group Boston

Over the past few years, banks have really attempted to maximize the efficiency from technology investments, and are going about them in a more focused way.

In the 1980s, banks made indiscriminate investments, leading to quickly rising expenses.

Now they're only applying advanced technology in their core businesses, and in businesses where they compete by being in the high end of the market.

There's been a reduction in large out-of-hand projects, a horror of projects that never end. A lot of executives just say, "Forget it," if they get a proposal for a five-year, $50 million project. Now technologists have to say, here are the benefits we'll get in three months, in six months.

The banks are instituting more controls over projects. They're building feedback loops to make sure projects are on track and schedules make sense.

Cost ratios continue to look mediocre, but a lot of it is due to regulatory burdens, nonperforming assets, factors not necessarily related to technology.

These problems arose independently of the operations side of the business. However, operational managers can now distinguish themselves in dealing with these problems.

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