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Gideon Sasson of Charles Schwab Corp.: Streamlining Schwab

Schwab CIO Gideon Sasson is simplifying the discount brokerage's systems to help refocus on serving individual investors.

When Gideon Sasson was promoted in July 2004 to chief information officer at Charles Schwab Corp., his primary aim was to simplify the firm's technology operations. It had been a tough year for Schwab, and the elevation of Sasson to succeed the recently retired Geoff Penny, a 20-year veteran, was the first of many management changes. Later that month founder Charles Schwab replaced David Pottruck as CEO. Sasson's boss, Dawn Lepore, vice chairman of technology, operations and administration and a former CIO, left in October to become CEO of

Under new CEO Schwab the firm returned to its roots as a discount brokerage. In August the company announced plans to sell its institutional trading business to UBS for $265 million, only ten months after Schwab had added to its institutional effort by purchasing SoundView Technology Group for $340 million.

With the divestiture of its capital markets business, a trimmer Charles Schwab Corp. has returned to profitability. The company posted a $41 million loss in third-quarter 2004. In the first quarter of 2005, it reported net income of $145 million; excluding charges related to cost-cutting and the sale of the capital markets business, Schwab would have earned $164 million, up 3 percent from the first three months of 2004.

In line with the firm's renewed focus on discount brokerage, Sasson (who is also executive vice president of Schwab Technology) must hold down costs and improve client service while directing a much-needed streamlining of the company's technological infrastructure -- no modest undertaking, given the firm's more than 7 million client accounts. Today Schwab Technology has 1,600 full-time technology employees, compared with 2,500 a year ago.

"We are on track to achieve our projected savings and simplification for 2005," Sasson said in an e-mail, "and we expect that our efforts in this area will continue to realize results in 2006 and beyond."

A native of Israel, Sasson, 49, earned an electrical engineering degree from ORT Technologies (now part of Hebrew University of Jerusalem) and served five years in the Israeli army. Before joining Schwab in 1995 as senior vice president of electronic brokerage technology, he served as vice president of information systems at IBM Corp. and vice president of systems engineering for FYI Online, a joint venture of MCI Communications Corp. and Equifax. In April 2001, Sasson became president of Schwab's active-trader division, the company's online trading unit, with direct responsibility for CyberTrader, the electronic trading technology and brokerage firm business of CyBerCorp, which Schwab had acquired in 2000.

Sasson recently discussed his priorities in an e-mail exchange with Institutional Investor Contributor Suzanne Lorge.

Institutional Investor: What is your job description?

Sasson: I am executive vice president of Schwab Technology and chief information officer, with additional responsibility for the company's operations. As a major support organization for all of Schwab's businesses, we are accountable for driving the infrastructure and technology strategies that create maximum value for clients, our businesses and our shareholders.

How have your responsibilities changed since you became CIO?

What is new is an incredible focus on business metrics. In the past our mind-set was all about bringing technology to the business. Today we are working hard to bring business to technology -- to manage it better. We are much more concerned about productivity and efficiency. Since I took over, for example, we have eliminated two layers in the organization, moving technology closer to the businesses and to a self-governing model. That means we set technology standards centrally and continue to evolve them, but the business lines govern their own compliance.

Was heading the active-trader business, including the CyberTrader unit, good preparation for the CIO job?

In the active-trader group, I learned the discipline of making decisions with an eye on both the income statement and the client experience. It's a great perspective that has served me well as CIO.

Do any of CyberTrader's cutting-edge activities filter out to the broader business or to the customer base?

CyberTrader brings a lot of capability that our company didn't have before, including advanced trading technology and a better cost structure. Schwab benefits greatly from this expertise, and we continue to work with CyberTrader to expand our leverage of these innovations throughout the active-trader enterprise and all of Schwab.

How have the company's priorities changed from a year or two ago?

Our priorities have shifted because the business has shifted. We are focused on projects that will improve our cost structure and support our client-relationship-centric business model. We are much more data-driven today, beefing up our data warehouse capabilities and support systems to improve how we serve customers on the front lines.

What are your near-term investment and development priorities?

Let's start with simplification. We have legacy systems that are 30 years old. We have five different platforms, every programming language, most types of databases. So there is a huge effort to streamline and simplify.

Can you give some examples?

Revamping our data warehouse is a big initiative. And we are focused on developing analytical tools to improve the way our financial consultants build, manage and add value to their client relationships. With both operational and customer data stored in one central repository, the business can easily manage, access and analyze information for faster decision ma- king and improved customer service. In other words, frontline employees can have direct access to a single version of information for both analytics and decision support needs. In addition, consolidating data marts will help the company reduce IT complexity and improve customer service at lower cost.

Is the Linux operating system part of that standardization effort? If so, how pervasive is it?

Over the past two years, almost half of Schwab's installed Unix base has migrated onto Linux, and that proportion will continue to increase over the next two years. The benefits are significant: We realize at least tenfold savings by going to the open-source platform while standardizing and simplifying our environment on a single operating system.

What other trends are prominent on your radar screen these days?

I believe that we are seeing a transformation in technology as we move more and more applications onto standard platforms. That makes collaboration and compatibility among different vendors' solutions extremely important. I'm always looking for ways to ensure smooth integration and implementation in this environment. I'd love to make installation of a customer relationship management system as "plug-and-play" as a new laptop computer: Simply connect to the network, turn it on, do a bit of testing and voilà. I know that I am asking for a lot, but that is the direction that I see us moving in.

How big is your online customer base, and how is that changing?

Schwab was one of the pioneers in this space and continues to focus on making our online capabilities more and more enriching for clients. We have more than 7 million accounts, with virtually all of them having online access to a variety of products and services. Of course, people use our online services for a range of needs: research, advice and general money management, in various combinations. So usage is high. In fact, about 90 percent of our total daily revenue trades over the past year or so were executed online. When combined with our other service channels in the branches and over the phone, we see the Web as a great complement to building strong client relationships, both now and well into the future.

What is Schwab's technology budget -- in directional terms, at least?

We don't share our budget numbers, but from an investment point of view, we are maintaining our level of investment at a virtually constant level. Everyone in this business is under pressure to control costs. Schwab is no exception. The key is that we remain focused on productivity improvement and efficiency to get the most out of our technology spending.

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