The Hands-On ApproachThe Hands-On Approach

Vanguard Group CEO John Brennan was jogging the wooded roads around Valley Forge, Pa., when he ran past a large sign describing a building as one of the mutual-fund company's data centers. That flagged the fact that the site processed information related to several hundred billion dollars worth of investments.

That was long before the tragic events of Sept. 11, 2001, heightened awareness about terrorism. Still, Brennan's first thought was, "Who needs to come here who doesn't already know where this building is?"

The sign came down.

Brennan has always been the kind of CEO who sweats the details, especially when it comes to keeping the mutual-fund company ahead in its use of business technology. He's the type of CEO who wants to hear about the total-cost-of-ownership trade-offs of Intel-based versus Sun servers and the legacy-support implications behind them.

So what cutting-edge technologies is this hands-on, tech-savvy CEO excited about this year? How about the World Wide Web?

Brennan acknowledges it sounds odd, since we're well past the Web-changes-everything hysteria. But he believes we've barely tapped the Web's potential. "It looks like we're in year two of this rollout, not year 10," he says.

Vanguard might just be the world's largest virtual company. It manages nearly $600 billion in assets, yet does all its customer interaction by phone, mail, and the Web, which is now its dominant means of contact with investors. It grew through a philosophy of keeping costs down to deliver investors higher returns, along with educating investors better about risks and strategies.

So Brennan is pushing his Web strategists to provide expensive, high-value services such as financial-investment advice through increasingly sophisticated Web-based tools. "Advice today is a very high-cost proposition," he says. "And the only known going into that is higher-cost delivery means less return for shareholders."

That's the fun stuff. But scandal hung over the mutual-fund industry in 2003, including cases of market timing in which unethical brokers granted special favors to large investors, delivering better returns to them than to other shareholders.

Vanguard has been untouched by such problems. The company will continue investing in what Brennan describes as the unglamorous accounting and infrastructure-control systems that, by monitoring trading activity, seek to spot improprieties. But it isn't the systems that have kept Vanguard out of the headlines. "When you invest in that infrastructure, you're investing in the ability to feel confident in your control systems," Brennan says. "But in the end, none of it matters if you don't have the right people."

Another unglamorous area of business technology excites Brennan: lowering the costs of running technology. Given that business technology absorbed 37% of Vanguard's operating budget last year, it makes sense that Brennan pays a lot of attention to IT budgets--and holds business-unit managers accountable for the cost and performance of the technology that runs their operations.

Vanguard isn't looking to cut costs through outsourcing or by hiring lower-cost offshore workers. Brennan considers IT development too strategic for outsourcing and plans to keep technology development at just two locations: the Valley Forge main campus and a Charlotte, N.C., development center. "Physical proximity matters," he says. "It makes us more efficient."

Brennan remains a believer in the idea that how companies use technology will continue to differentiate them. He contends that the industry leaders in almost every sector of the economy--from Wal-Mart to Toyota--are also leaders in how effectively they use business technology, and that that will continue. People tell him it's odd for a CEO to be so hands-on with technology, such as chairing the governance committee that looks at issues such as IT budgets, security, and contingency planning. With so much at stake, says Brennan, "I can't imagine it any other way."