InformationWeek

November 27, 2000

Printer ready

Chiefs Of The Year:
Leaders Of The Net Era

continued...page 2 of 3

sidebar: Even On Sabbatical Spots, Schwab Execs Think Alike

Send Us Your Feedback

The glue that really binds the Pottruck-Lepore relationship is the shared desire to make corporate life much, much more than a job. That doesn't mean working 80-hour weeks; Schwab encourages balance among job, family, and other interests by offering sabbaticals (four weeks after five years of service), flexible work schedules (including one option to have summers off), and forthcoming on-site child care.

The "meaning" that inspires Schwab is, quite simply, to focus everything on the customer. "If we spend our time looking at everything our competitors do, that's not inspiring, that's daunting," Pottruck says. "We need to focus on our clients and what we want to do for them; to make a difference in their lives. As challenging as that can be, it's inspiring." As a customer-centric company, Schwab looks to model itself after blue-chip retailers such as Wal-Mart and Home Depot, rather than traditional financial firms.

Customer-centricity has also made Schwab a poster child in the last few years for the success of a click-and-mortar business model--it's a large, established company that's morphed into an E-business to prevent itself from "being Amazoned" by the likes of Ameritrade, Datek, E-Trade, and many others. "For the vast majority of stock transactions that are fairly straightforward, the Net is a perfect medium," Pottruck says. "But what if you want advice on the right allocation for your portfolio? Then you're dealing with people's trust, and a mouse-click isn't enough. We're in the business of selling trust, and you absolutely must put together people and technology to do that."

Schwab.com features include research from Credit Suisse First Boston and Hambrecht & Quist, an AdvisorSource referral service to independent financial planners, a round-the-clock call center, and directions to 350 brick-and-mortar branches. "Other online brokers are now realizing the importance of an offline presence, but Schwab has led the industry in integrating the two," says Matt Carrick, an analyst at Web-site ranking service Gomez Inc.

Schwab's E-business transformation hasn't been without fits and starts. The company launched its first online investing product back in 1985, a dial-up service dubbed "The Equalizer." It languished for many years with a DOS interface and a skeptical market. "But if we hadn't stumbled around with it for 10 years, we wouldn't have been in a position to see it take off with the Internet," Pottruck says. "That's my view of leadership. Managers get things done that are supposed to get done. Leaders get things done that aren't supposed to get done."

Another glitch was the 1996 launch of Schwab's first Web product, e.Schwab. Like other established companies, Schwab created a separate unit to run its online business, and it set online trading commissions at $29.95 per trade, higher than today's going discount-brokerage rate but lower at the time than Schwab's regular commissions. The e.Schwab business took off, but many of Schwab's regular brick-and-mortar offline customers resented the lower prices given to Web-only clients. Schwab customers could be only one or the other: online or offline.

Even worse, Schwab's call-center employees had to tell regular customers that they couldn't get the cut-rate commissions, and e.Schwab customers were only allowed one phone call (i.e., one human interaction) a month. Saying no to customers went against everything they'd been taught about Schwab culture. By 1998, e.Schwab was merged back into the mainstream business as Schwab.com, and all customers could trade on the Web for the same rate.

"Mistakes are very important," Pottruck says. "I learned a long time ago that losing represents a chance to do better. As a college wrestler I came in second a lot, and at first I thought the other guy was better. But he was only better that day. You have to set goals that are very high, and people will rise to meet them."

A recognition that technology drives the business goes back to Schwab's early days, Lepore says. Schwab's self-description as "a technology company that happens to be in the brokerage business" is ancient history, the stuff of corporate legend. Lepore delights in telling the story of founder Charles Schwab literally betting the company on an IT decision in the 1970s. He spent $500,000, the exact worth of the company at the time, on a turnkey back-office settlement system, becoming the first discount broker to bring processing in-house.

"People warned him he'd have all those weird technical people working for him," Lepore says. "But as the low-cost broker, he felt we had to have control of the technology."

When Lepore joined Schwab's IT department from former mainframe software vendor Informatics General Corp., she liked what she saw. The head of IT at the time already reported to the president, "and everywhere you went in the company people talked about technology," she says. "It's been true at Schwab for a long time, and it's one of the reasons I've stayed. Companies just now realizing that their CEO has to drive IT leadership have a long way to go."

Lepore's first job was running the "information center" at Schwab, with responsibility for executive decision-support applications and that new corporate tool called the PC. Pottruck joined the company eight months later, and the two worked together on a system to measure the effectiveness of Schwab ads. "It was pretty exciting that he knew enough about the technology to really appreciate it," Lepore recalls.

"I knew just enough about systems development to be dangerous," jokes Pottruck, who ran one of Citibank's data centers from 1979 to 1981. "Dawn has always liked that I operate at more than a superficial level [regarding IT]. I hear stories from colleagues at other companies who say the CIO doesn't want the CEO to know too much--it's easier to hold them hostage to their budget demands. We don't operate that way at all."