In the wake of John S. Reed's departure from Citigroup Inc., there are signs that the company is rethinking its approach to the Internet and technology, two subjects the former co-CEO had held dear.

Mr. Reed, whose last day at the company was April 18, had spent the last several years building a central structure for Citi's once-diffuse technology organization. The showpiece of this effort was e-Citi, a stand-alone division that supports Internet experiments and other new technologies.

But changes set in motion by Sanford Weill, the co-chief executive officer who took sole control of Citigroup after Mr. Reed left, have some observers speculating that the company may change direction. One of Mr. Weill's first moves was to create an Internet operating committee, whose mission seems to be to spread out what Mr. Reed had tried to gather together. Observers said that when Mr. Weill led Travelers Group, before it merged with the old Citicorp, he seemed to prefer a decentralized approach.

The committee, made up of senior representatives from every Citigroup business unit - including e-Citi - aims to "integrate with and not change" structures now in place, a Citigroup spokeswoman said.

The two-pronged strategy evolving at Citigroup highlights the organizational strain the Internet is putting on banking companies. Many are struggling to find the right structure to ensure that Internet opportunities are not overlooked.

A Citigroup memorandum said the Internet operating committee, led by vice chairman Deryck Maughan, will:

  • "Capitalize on new technologies and opportunities."
  • "Work with all Citigroup businesses to identify and structure strategic alliances and joint ventures between Citigroup and potential partners."
  • "Better integrate, coordinate, and promote all Internet activities across all our global businesses."

Each of Citigroup's businesses has its own activities and brands relating to the Internet, the memo said.Citigroup would not make an executive available to discuss the Internet committee or its role. It said only that a group that makes investments in Web and other technology companies is represented on the committee and that Mike Froman, chief of staff of Citigroup's office of the chairman, is the panel's chief of staff.
In an earnings announcement last week, Citigroup said that e-Citi had a net loss of $93 million, compared with a loss of $35 million the year earlier.

"We had a big increase in expenses" at e-Citi, Mr. Weill said in a conference call discussing the first-quarter results. He added: "We continue to make new investments in payments, business-to-business, and business-to-consumer commerce. We're writing down investments we've made but decided not to proceed with. Our bluff was having to think four times as fast, because a Web year occurs every three months."

Mr. Weill said he is "excited" about Citigroup's technology position. "The world is getting wired with DSL technology, broadband, and cellular phones," he said. Some of e-Citi's developments, such as online foreign exchange and cash management, will become staples within Citigroup, he said.

"We look at e-Citi as an incubator for different ideas for different businesses," Mr. Weill said. "We hope it will position us well on the Internet by using all channels to get us there." More activities will emanate from e-Citi's partnerships with companies such as Commerce One, 724 Solutions Inc., and Checkfree Corp., the CEO said.

Since its founding in October 1998, e-Citi has been an independent unit. Under the leadership of Edward Horowitz, who joined Citigroup in January 1997 from Viacom Inc. to head what was then called the advanced development group, e-Citi has engineered partnerships to bolster Citigroup's online presence. These include a co-marketing agreement with Virgin Group in the United Kingdom to offer customers Internet access, a prominent position on Netscape Communications Corp.'s Netcenter portal, and a project with (previously called the Mining Company) to develop communities of interest. And e-Citi spearheaded the soft launching last August of Citi f/i, Citigroup's Internet-only bank.

Chase Manhattan Corp. is another major banking company that has put its Internet initiatives in a separate unit,

But Citigroup is far from alone as it reviews how best to structure its technology businesses. Bank One Corp., under the leadership of former Citi executive James Dimon, also is doing a high-profile review of its electronic businesses, which include the online bank

Indeed, a backlash against isolating Internet units appears to be forming. Wells Fargo & Co., for example, recently named three executives to head major business units and told them to make all aspects of these businesses Internet-enabled.

Wachovia Corp. backtracked from its strategy last year of building a stand-alone Internet group in favor of spreading online responsibilities to all business units. "We think it's important for the whole company to take ownership for e-business," said Jason Ward, e-business director in Wachovia's retail bank. "A decentralized approach puts power back into the hands of people who understand the business."

Eric J. Rajendra, a vice president at A.T. Kearney Inc., said the complete separation of online projects is "a waste of time." Without involvement of the business-unit leaders, the initiatives of Internet-focused groups are extremely difficult to carry out and easily derailed by the business units, he said.

"It's incumbent on the line-unit heads to take initiative" in such endeavors, Mr. Rajendra said. "They should be in the driver's seat."

Cary Serif, Arthur Andersen's lead partner for e-business financial services in North America, said success in online business "boils down to what an organization's strategy is. Clearly Citigroup wants to get its business integrated into the Internet process."

Christopher Musto, director of financial services at Gomez Advisors Inc., said, "John Reed was the spiritual force behind the Internet and e-Citi." However, his departure does not detract from the importance Citi is giving the Internet, Mr. Musto said, and its establishment of the Internet operating committee reinforces this. "The committee is an indication that Citigroup wants to ensure that the people running the business units are coordinated," he said.

Ron Mandle, a banking analyst at Sanford C. Bernstein & Co., said the operating committee's purpose is "to make sure all the divisions become Internet-enabled so the company can realize the best opportunities on the Internet and make investments in the best possible way."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.