InformationWeek

November 27, 2000

Printer ready

Chiefs Of The Year:
Leaders Of The Net Era

continued...page 3 of 3

sidebar: Even On Sabbatical Spots, Schwab Execs Think Alike

Send Us Your Feedback

Pottruck's technology knowledge and leadership afford him flexibility, a quality that's especially valued by Schwab's IT executives. "He understands how fast things change," says Fred Matteson, executive VP of Schwab technology services. "He'll never say, 'This is different from what you told me last year; what's up with that?' In my past jobs, I always wondered what it'd be like to have a CEO who really gets it. Well, be careful of what you wish for. Dave himself is the leader of a lot of our initiatives."

So, the CEO knows technology, and the CIO most definitely knows business. That goes without saying because, at Schwab, without technology there is no business. As a vice chairman, Lepore is a member of the executive committee that meets every Monday morning with Pottruck and chairman Charles Schwab (known to all as Chuck). Lepore and Pottruck also meet with each other officially once a month, but average one other interaction a week in or near their 30th-floor offices above San Francisco's financial district. "And there's a lot of E-mail, probably five or 10 messages a day between us," Lepore says.

Their partnership has paid off. By any conventional measure of the innovative and effective use of IT in business, Schwab ranks at or near the top. More than 80% of Schwab's total customer trades are initiated online, making Schwab by far the largest online broker. Its Web site has ranked No. 1 among brokerages in Gomez's influential user-friendliness rankings in both the summer and fall quarters, marking the first time Schwab has held the top spot, which it has traded with E-Trade, for two successive quarters.

Schwab's call-in services, using voice-recognition technology from Nuance Communications Inc., are considered among the best. This year, Schwab made its wireless PocketBroker services available on Palm Pilots, cellular phones, and Research In Motion's BlackBerry pagers. These services are also available in Hong Kong and Canada, with availability in Japan and the United Kingdom expected soon.

Financial results, meanwhile, speak for themselves. This year, Schwab passed its 2005 target of $1 trillion in assets under management--something that was considered an impossible "stretch goal" when Pottruck and Schwab set it in 1995. Meanwhile, 1999 was Schwab's best year ever, with 44% revenue growth to $3.94 billion and a 69% net income jump to $589 million. Profits are up 44% for the first nine months of this year, and revenue is up 39%.

But as Pottruck writes in Clicks And Mortar, quoting contemporary business guru Paul Hawken, "The bottom line is down where it belongs--at the bottom." Plenty of companies have had great financial success this year, and for many of them, the use of IT is a big reason why. It's on the so-called "softer" issues of corporate culture and company behavior that Pottruck and Lepore truly shine.

Not all of those issues are intangible and unquantifiable. The brokerage's employee turnover rate is less than 10% annually, a good score for any financial-services firm, but particularly impressive in San Francisco, where technology-savvy employees are constantly enticed by hundreds of Silicon Valley tech firms and stock-option-dangling Web startups.

With the goal of reducing turnover to 7% or 8%, Lepore applied IT to the employee-retention challenge earlier this year. Working with InMomentum Inc., Lepore and her team conducted an online Talent Magnetism survey of thousands of Schwab employees worldwide. The survey, which got a 75% response rate, queried employees' on choices of randomly generated hypothetical job offers to help determine what job qualities were most important to them.

"We wanted to do the same kind of market research on our employees as we do on customers," Lepore says. "We've learned that 'being part of an innovative company' and 'manager recognition' rate very high, but 'having a well-defined job' doesn't matter as much. We're building a wonderful database of how employees trade things off."

That will be an important IT weapon to battle what both Lepore and Pottruck say is Schwab's biggest challenge: maintaining its passionate, collaborative culture as the company grows beyond 20,000 employees. Until now, the company has done a good job of keeping the energy and spirit of a Web company, while rejecting negative aspects of the dot-com culture such as endless work hours and stock-price obsession. Last year, Pottruck ordered all Schwab pagers blocked from showing the company's stock price during an overheated run-up.

As Schwab moves into the heady territory of a trillion-dollar asset manager, its key goal for business and IT decisions will be the ability to prioritize. Pottruck likes to call it "the tension" of vying for available resources.

"Should we add more functionality to the Web site that touches customers, or build up bulletproof contingency and security infrastructure on the back end?" he says. "We always want to have more good ideas than we can fund. It shouldn't be conflict, but tension. A tightrope has to be tense in order to find your balance. Managing that tension is what great companies do."

And it's what drives successful partnerships. No CIO and CEO are ever exactly the same; it's the creative tension, the give and take, that make for corporate leadership in the E-business era. Schwab's Pottruck and Lepore are a model partnership, for their intelligence, their energy, and above all, their shared passion for Schwab and its customers--with or without the sunglasses.