The Decision Point: Balancing Service with Costs

When banking acquisitions go bad, no one ever points and says: "Aha! Poor IT governance". Instead, Tower Group's Kopp says, acquisitions usually stumble because customers see a decline in service. So here was another challenge. While the IT strategy at State Street focused on cost reduction, the business goal was to retain 90 percent of the Deutsche Bank revenue. To do this, the bank had to make sure not to let service slip.

It was a tense time, complicated by the fact that the competition was watching, trying to steal Deutsche Bank customers. "[The competition was] underbidding," says Antonellis, "because their intent was less on winning business and more on taking a competitor out of the marketplace."

The business side fought back (at least in one case) by matching the low bids. IT contributed by making strategic decisions about when to convert customers to State Street's platform, the better to keep them happy.

The bulk of the Deutsche Bank customers were in the United States, where conversions were simplest (for regulatory reasons). So the Integration Project Management Office (which had decision rights because it was the cross-functional team on the front lines of the conversions) decided to focus first on them. Once that decision was made, Donovan Hart's group had to hammer out specific "flights", or groups of portfolios, that would be moved over on a given weekend. "Instead of Client A just going on that weekend, our flight might consist of Clients A, B, C, D, E and F," she says. "It could have been half a dozen, or it could have been 120, based on the size of the portfolios we needed to convert."

When there were two similar customers with the same number of holdings, the regional business managers were called in to help prioritize. "We'd say, based upon the size, the revenue, the client's willingness, we need to make a decision," Donovan Hart says. Part of the decision took into account the fact that the clients were dividing into groups of their own - those who were going through with the conversion and those who were thinking about taking their business elsewhere.

One such customer was Vyvian Heath, manager of pension and investments for Kaiser Permanente. She put out an RFP, and one of the bids she received was considerably lower than any other. State Street agreed to match it, and she took it up on its offer largely because she wanted to continue working with her key contacts at Deutsche Bank, who had stayed on with State Street.

But it was State Street's IT systems that not only kept Heath a customer but also made her a happy one. She notes that now she can crunch numbers in better ways and receive more reports electronically than she could with Deutsche Bank. Plus, the conversion process has been painless because her points of contact didn't change.

That's exactly the kind of thing that State Street executives like to hear - and are, in fact, hearing. By the end of 2004, State Street had brought over so many clients that the company had increased the total number of portfolios it was servicing by 33 percent and its monthly transaction volumes by 47 percent. Eighty-five percent of client conversions were complete. All that, and State Street has kept 88 percent of the revenue.

For Antonellis, that was close enough.