Banking & Financial Services: Financial Firms Invest For GrowthBanking & Financial Services: Financial Firms Invest For Growth

While the objective of Washington Mutual's IT upgrade is a simplified, secure infrastructure that operates at lower costs, it's all being done with a higher goal in mind--creating an IT resource that better serves the needs of the business. Washington Mutual's 3,500-member IT department includes a CFO, a lawyer who specializes in contract negotiations, a human-resources manager, and a training specialist. It's all part of an ongoing effort to transform the IT department into "a business and consulting organization as opposed to a service bureau that accepts orders," Gross says.

Joe Gottron, executive VP and CIO with Huntington National Bank, knows all about the problems that can result when an IT department becomes too focused on tactical, day-to-day operations. When Gottron joined the regional bank two years ago, 1,200 work requests were queued up for the IT department, which had resources to do only about half the jobs. Gottron quickly realized the IT staff had to get better at aligning its priorities with those of the bank's divisions. He put a chargeback system in place to ensure that business-technology initiatives were getting the proper scrutiny before they were submitted for action.

That move is bearing fruit. Last year, Huntington National implemented 34 applications and other systems while identifying more than 100 areas where expenses could be trimmed, resulting in $9 million in savings. The "interlock" between business priorities and IT workload has continued into the current year. "We're much better aligned," Gottron says. "No longer is it just assumed you can keep piling higher."

Huntington National's IT budget is up 6% this year. "We're making up for lost time on some key initiatives," explains Gottron. Among the projects under way are a new sales system for employees who interact with customers, ATM enhancements, expansion of its online banking system to new business areas, and a new direct consumer-lending origination system.

Banking isn't the only hotbed of technology activity in the financial sector. Fannie Mae, which arranges financing so other firms can offer home loans, is in the midst of a multiyear project to transform legacy mainframe applications into flexible, software-based services. H&R Block Inc. just upgraded 10,000 branch offices with new servers. And Morgan Stanley has been busy cutting costs while supporting across-the-board increases in the volume of business at its major divisions (see story, New Ideas Pay Off In Long-Term Returns).

Fannie Mae is taking the somewhat unusual step of writing entirely new applications that, over the next two years, will replace the mainframe software that has served it so well for the past 20 years. "Most companies have surrounded their legacy core [with new functionality]. We've attacked it," says Julie St. John, Fannie Mae's executive VP and chief technology officer. The project is intended to give Fannie Mae more flexibility in the way it works with its mortgage-lending partners so they can offer people new ways of financing homes, as buyers increasingly look for alternatives to 30-year, fixed-rate mortgages. "In the future, probably 30% of our business will come from lender products that are more customized," St. John says.

Over the past three years, Fannie Mae has largely completed its goal of becoming, in St. John's words, "a fully enabled E-business." Now, by further investing in software infrastructure that supports product innovation, Fannie Mae continues shifting more of its IT resources toward innovation and less toward status-quo system maintenance. By some estimates, companies can spend 70% of their IT budgets simply keeping their old systems in good working order. "Our hope is to break out of the mold," St. John says.

H&R Block's business is very different, but some of the challenges are the same, such as delivering new services to consumers through integrated channels and using custom software to do it. The company is broadening its services beyond tax preparation and developing a multichannel strategy that supports customers regardless of whether they bought its tax software, visited its Web site, or walked into a local office. That's meant a lot of behind-the-scenes work developing middleware that ties H&R Block's various services together. "Combining the power of our multiple organizations to deliver more complete financial services to our client is a major technology challenge," says senior VP and CIO Jeff Brandmaier.

In addition to those strategic initiatives, there's been the sizable job of upgrading 10,000 offices with new computers and software. Last year, the company replaced old servers running Windows 95 with 10,000 machines from Hewlett-Packard loaded with Windows 2000. It's now swapping 20,000 Windows 95 PCs in those offices with Windows XP computers. The systems are configured uniformly--under a program H&R Block calls "office in a box"--for easy installation. The improved setup has already reduced field tech-support costs by 11% and help-desk calls by 21%.

As these examples show, financial firms among the information 500 haven't had a moment's rest during the prolonged economic stall. Yet, those business-technology efforts should pay off if confidence returns and the engines of commerce start humming again.

INDUSTRY LEADERS Rank Company Revenue in millions Income (loss)
in millions IT
employees 19 PNC Financial Services Group $5,407 $1,184 2,502 24 Equifax Inc. $1,109 $178 1,205 31 Countrywide Financial Corp. $4,519 $842 3,206 38 Mellon Financial Corp. $4,737 $682 2,625 40 J.P. Morgan Chase & Co. $29,614 $1,663 15,300 51 State Street Corp. $3,962 $719 2,850 64 Vanguard Group -- -- 2,820 83 E*Trade Group Inc. $1,910 ($186) 737 84 Regions Financial Corp. $3,796 $620 600 89 Northern Trust Corp. $2,775 $447 850 93 Washington Mutual $19,037 $3,896 3,250 111 CIT Group Inc. $5,275 ($6,699) 330 134 KeyCorp. $6,135 $976 1,503 139 Fannie Mae $52,901 $4,619 1,600 179 AXA Financial Inc. $7,525 $529 7,600 184 Morgan Stanley $32,415 $2,988 5,076 192 SLM Corp. $3,232 $792 950 206 The Huntington National Bank $2,131 $333 491 211 CUNA Mutual Group $2,284 -- 630 225 Capital One Financial Corp. $9,696 $900 3,000 252 Bank of America $46,362 $9,249 20,000 270 Deluxe Corp. $1,284 $214 175 282 UBS Financial Services Inc. $5,548 -- 1,500 295 Zions Bancorporation $1,833 $256 -- 305 Prudential Financial Inc. $26,675 $218 803 308 BB&T Corp. $6,126 $1,303 900 313 MassMutual Financial Group $16,253 $1,408 1,800 316 H&R Block Inc. $3,780 $580 1,140 317 Providian Financial Corp. $4,073 $218 803 318 Inovant Inc. -- -- 2,500 333 Bank One Corp. $16,831 $3,295 5,694 337 USAA $9,222 $500 2,689 349 First Tennessee National Corp. $2,580 $377 229 354 MetLife $34,055 $1,605 3,633 365 GATX Corp. $1,274 -- 124 375 Bank of New York $4,808 $902 4,128 376 Freddie Mac $36,773 $5,764 1,200 387 A.G. Edwards & Sons Inc. $2,194 $119 1,410 402 Citigroup Inc. $92,900 $15,300 -- 410 Synovus Financial Corp. $1,727 $365 170 434 AIG Inc. $67,482 -- 9,100 441 BDO Seidman LLP -- -- 62 447 Compass Bancshares Inc. -- -- 200 475 Safeguard Scientifics Inc. $1,686 ($151) 530 484 Household International Inc. -- -- -- 488 Wells Fargo $28,473 $5,434 -- 492 UnionBanCal Corp. $2,592 $528 -- Financial data is from public sources and company supplied.
Revenue is for latest fiscal year.
Employee data is from information 500 qualifying survey.

SNAPSHOT INSIDE COMPANIES Average portion of revenue spent on IT 9% Average percentage of industry applications and business
processes that have Web-based front ends 42% Companies with real-time business processes in place 84% HOW COMPANIES DIVIDE THEIR I.T. BUDGETS Hardware purchases 17% Services or outsourcing 14% Research and development 3% Salaries and benefits 33% Applications 22% Everything else 11% INDUSTRY FINANCIALS Average year-over-year revenue change 5% Average year-over-year net income change -96% DATA: information RESEARCH
See year-over-year shifts in business-technology practices for this industry. Compare and contrast this year's data with last year's.

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