Charles Schwab CIO: Giddeon Sasson

Dan Farber: Gideon thanks for joining me.

Gideon Sasson: Thank you.

Dan Farber: Now you've been at Schwab for about eleven years, and mostly in technology roles, although I do understand that you were head of the active trader department as president for about four years. Now you're the CIO again, and how do you see your role as CIO given all the experience you've had?

Gideon Sasson: Thank you. In fact being on the business side for a few years was probably the one thing that prepared me the most for the role. And when I came in as CIO, my desire was really to focus on people, business, and process, and a lot less on technology. And so actually I appointed a CTO that manages most of the technology decisions for the organization, delegated that down, and as a CIO my focus is really to continue to move the culture of the organization toward the business, supporting our business, and continuously improving our processes, and very much so talent development in the organization.

Dan Farber: Now you've taken on this role of CIO for the past few years, what's changed most since you've stepped back into it?

Gideon Sasson: Well you know when I took over as a CIO, this was in the middle of 2004, and the company was going through a major change. The CEO left, we were looking at significantly reducing our costs and becoming more productive. What we've done, what I did when I came in as CIO is restructure the organization. Move it much closer to the business, set an agenda that is incredibly business focused, increasing productivity significantly. I believe we are 30% more productive today on a cost basis, and we are producing about 25% more as overall functionality to the business.

Dan Farber: And when you say bringing it closer to the business, bringing IT closer to the business. How do you describe that?

Gideon Sasson: Fundamentally I believe that the IT organization is a support organization that is subordinated to the business, now I don't mean that we as a people are subordinate to the people who are running the business, but great companies serve clients and shareholders, and they know how to serve them together. They never compromise one to the other. And the place in which it happens is with the businesses, they create the client experience, they bring in the business, they create the revenue and the profit. We are here to work with them to serve the clients, and I think understand that hierarchy and creating an agenda that is focused on the business agenda not the IT agenda, is critical.

Dan Farber: Now you've mentioned being productive. You said you were 30% more productive since you took over. How do you quantify that -- in what areas are you being more productive in? And are you able to take the money you're saving, by being more productive on the IT side and invest more in innovation?

Gideon Sasson: Well we did, we invested back into the business. Much of it went in pricing for our clients, and creating new functionality for our clients. The way we became more productive is, we've done it everywhere. We took a couple of layers out of the organization, and created a much more efficient organization. We looked at all of our technology, consolidated our technology, and became more efficient both on our mainframe side, and our distributive side of the environment; ;ooked at the “ what was a humongous, a very big shirt service organization, took that function, connected it back to the organization that served the business and reduced it significantly.

Dan Farber: Now you have a brand to protect, and obviously IT is a very important part of that, I don't know, you must have seven or eight million accounts that you're holding, and billions of dollars in those accounts. What are the things that you're doing to ensure that your site doesn't go down like some of the sites went down during the holiday shopping season?

Gideon Sasson: Well as an IT organization we have five strategic objectives that have been with us for two and a half years, and will be with us for as long as I'm a CIO, at least. Productivity, simplification, business partner satisfaction, availability, employee engagement and development. We are focusing on those five, everything that we do in the organization link to one of those. Our environment “ we have been a company that's been incredibly innovative and very much focused on our clients. We have not focused on simplifying and building an environment that is flexible. We have a very, very complex environment. When I took over we had three trading systems for mutual funds. We're down to one. We have two broker/dealer systems running in our environment: --the legacy one that we bought 30 years ago, and the one we've been developing over the last ten years. We are coming very close to having a single broker/dealer system in our environment. We have WebSphere and WebLogic managing two different important websites for us, consolidating those. Simplifying and become more productive is critically important. Business partner satisfaction: how we serve our businesses. We rate ourselves with our businesses every year using a third party to measure us in 29 different attributes. Trying to understand the gaps in the organization. Where we need to invest and improve in serving our business. And the most important one is the employees. At the end of the day, everything we do, everything we create, the whole value of the firm, is in the hand of our employees.

Dan Farber: Speaking of your employees, it sounds like obviously you have to run very fast, you're in a very competitive, and even regulated, environment. How do you create that culture where innovation and collaboration really occur so that you can stay ahead of your competitors?

Gideon Sasson: By being incredibly focused as an organization. You know, Chuck Schwab created this firm 30 years ago with a very, very clear vision -- that every single employee at Schwab knows we want to be the most useful, we are the most useful and ethical financial services firm in the world. We have a set of values that we follow, we're incredibly clear on our clients. So, everything we do has to do with our client, our vision, and our values as an organization. It allows us to be incredibly close to the clients' needs. And that's where innovation happens. When you see a client's need, when you understand that, that's when you innovate.

Dan Farber: And how do you get those teams focused in that way? Not just by putting up something on the wall that says œhere are our values,? but to actually put it into practice. Do you have tools, technologies that you use for collaboration, especially given you must have three “ four hundred offices and people all over the world?

Gideon Sasson: Right. So you know, it's the way we organize. So, the business technology group sits with the business. They have great opportunities to listen to client calls, to be next to a financial consultant when they take calls from our clients. Watch how our clients and our financial consultants use our systems. So making sure they are part of the business every day, and then, for me as a leader, and my leadership, it's incredibly important, I mean every communication to the organization will link everything that we do to our vision, value, and our clients.

Dan Farber: So the engineers aren't necessarily dictating and specking out the products, as we've seen in some companies, and what happened really in the past?

Gideon Sasson: Well, we've moving away from that, right? I mean, a long time ago, innovation happened “ started with technology, and I think today it's a problem. I think innovation needs to start with the client, and not with the technology. Business analysts are still part of the IT organization. They will sit with the business subject matter experts, understand the requirement, and write down the specs.

Dan Farber: Well, going into 2007, what are your top priorities for Schwab?

Gideon Sasson: Well for an IT organization it's exactly the same five strategic priorities. For Schwab, we have always been a customer/client focused organization, but I have to say that in 2001, as the market took a turn, I think we lost some of that way.

Dan Farber: In fact, let me interrupt you just for a moment. During that time, you were running, as president, the retail active trader division. What was it like going through that downturn?

Gideon Sasson: Challenging, challenging. I came into that business with a client base that was the high-end of that business. Attrition rate was in the top 20 percent. We “ our cost structure was just incredibly high. Average ticket price was, or commission for my client, was in the 40 and 50 bucks, when the competitors were offering that same trade for $9.95. So it was incredibly challenging, and in fact what we did was brought technology to counter the price issue by creating a tremendous value through service and technology, to reduce that attrition down to single digits.

Dan Farber: What are some of the technologies at this point that you think are going to be very important to you now, or the coming years, to help reduce costs, to serve your customers better?

Gideon Sasson: Quite honestly I think where we focus on technology now is much more customer experience than cost. We have to continue to be very productive “

Dan Farber: Does that mean you're going to be very web 2.0 centric, and have all these great Ajax and JavaScript interfaces for customers, or is it something beyond that?

Gideon Sasson: You know, when you talk that way, in some ways your start innovation from the technology, and I think we're trying to stay away from that. I mean, yes, of course we're going to take advantage of those technologies, but the bigger challenge is really “ how do you help every client, and our financial consultants together, create a portfolio that can perform for our clients, and allow them to reach their desired goals? I have to say as an industry, we have not done a perfect job, actually we have not done a good job helping most investors. So it's all about managing your portfolio, showing how your portfolio is doing, so you can think about your goal, develop a plan, implement it, and then manage it.

Dan Farber: How do you precisely what customers want? What kind of feedback loop do you have “ are they able to directly contact you and say œthis doesn't work,? or œI'm interested in this sort of feature or service.?

Gideon Sasson: More and more. So if you go to our website today, every client has a direct connection to the individual that serves them, or to a team that serves them. In fact, we serve our clients, we reach out to clients that use the different channels that we have, and ask them to write to us and in fact we ask them a very simple question: œBased on your experience with Schwab, would you recommend us to a friend of colleague?? And they rate us from zero to ten. And if it's nine or ten, we call them promoters; if it's zero to six: detractors; and seven to eight are passive promoters. We call back “ we try to call back 100% of the clients who rated us zero to six, to try and understand why, learn from that, and then bring that back into the product and client experience, and continuously improve it. It's a net promoter score that we look at, which is the nine and ten at the top, minus the zero to six at the bottom.

Dan Farber: Let me ask you about a quote from Clayton Christensen, whose written a lot about innovation, and we says œby doing what they must do to keep their margins strong, and their stock price healthy, every company paves the way for its own destruction.? Do you think its an issue that Schwab has to deal with, in terms of just being a mature business, and having to keep your stock price up, and serve your shareholders that it keep pave the way for your own destruction, just like it did in many ways in 2001?

Gideon Sasson: It did, it did, it absolutely did. We paid attention to those things. And I said something earlier on, I think the greatest “ the great companies serve both clients and shareholders, and they never, never compromise one for the other. Never. We did, without a doubt, after 2001 we did, we compromised our clients for our shareholders, and he was right, we were down a path that was “œ destruction? was right. Turning back, and not allowing us to go back into that place, it's almost like, you know, some people say, œwell, how can you be, how can you focus on productivity, and client experience at the same time?? It's exactly the same thing. A more productive force provides a better client experience. A more productive system, produces a better client experience. I think the more you focus “ you need to focus on both, and you need to focus on both all the time.

Dan Farber: Well Gideon, thanks so much for speaking with me.

Gideon Sasson: Thank you.

Dan Farber: I've been speaking with Gideon Sasson, who is the executive vice president and CIO at Schwab. For CIO Sessions, I'm Dan Farber. Thanks for watching.