1. Vince Rubiera CIS 621 Schwab analysis What is the role that technology plays in Schwab's competitive space? Technological innovation has always been part Schwabs key principles. "What makes them so unusual is how they keep reinventing themselves in their existing roles," says Jan Hier-King, Schwab's senior VP of electronic brokerage technology, when describing Schwabs co-CEO Pottruck and CIO Lepore.3 Their goal was to empower the individual investor through innovation. Technology was the main tool they used to accomplish this. Using Porters 5 Forces model to analyze the competitive space Schwab was in; it is evident the industry was full of innovative competitors.2 After the government banned fixed rate commissions in 1975, the market was flooded with discount brokerage houses offering lower prices and online offerings. Schwab had to differentiate their services and create brand loyalty. They did this by: Using their location in Silicon Valley as a competitive advantage, since it was the technology center of the world. Redesigning their system to allow for immediate confirmation of trades in the 1970s. This reduced follow-up call costs and improved service time to their customers. This created a positive move in efficiency and information intensity, using the Information Intensity Matrix. It also added value and increased the competitiveness of their product.2 In-sourcing their IT functions in 1979, which gave them the control and flexibility over their own service offerings. This was a major move, costing the company their entire net-worth, but they were no longer tied to an outside company imposing IT limitations. This was also a differentiation move, since most of Schwabs competitors were still outsourcing. I also reduces supplier power.2 Creating Equalizer in 1985 as the first electronic trading and research software for the individual investor.1 This created a shift to the right on the Information Intensity Matrix, with the high level of information it provided their clients. It also redefined the industry, and became a substitute product creating competitive pressure on other brokerage houses. 2 Establishing Tele-broker in 1989, an automated brokerage phone service1 . This service provided the customers a 10% discount when they used it to conduct trades. After 1997, Tele-broker was upgraded to employ a proprietary voice recognition program. This service became popular with Schwabs clients. Within 2 years, Tele-broker accounted for 13% of Schwabs trading volume, and averaged 5.7 million calls monthly. This created another substitute product in the competitive space and differentiated Schwab from other brokerage houses. It also reduced costs and gave customers easier access to manage their accounts. Schwab advertised this service by stating you can use voice or touch-tone commands to get quotes, place trades and more.3 Saving transaction costs and increasing information flow, Tele-broker moves the indicators to the right and up again on the Information Intensity Matrix.2 Introducing Streetsmart as the windows sequel to the DOS-based Equilizer software. Having a lower price and more functionality then Equilizer, Streetsmart was a product that was sitting to the right of the Value Equivalency Line. It was highly valued by the customers and came with a 10% discount if it was used to place trades. It was also compatible with Quicken. This product was released to differentiate Schwab from its competitors, but it also increased costs by increasing call volume for software related questions. Battling increased pressure from online brokerages with e.Schwab; another online trading product. This product initially offered a price of $39.95 per share, but it was lowered to $29.95 as external competitive pressure increased. e.Schwab caused some confusion amongst the users, since it offered less customer service for a lower price, and customers were not used to that from Schwab. This also went against Schwabs business principles; consequently, e.Schwab became Schwab.com, and offered all of Schwabs full service products for $29.95 per trade. This was all made possible through redundant and robust IT architecture. Schwab had built a network that would consistently provide 99.2% uptime through clustering database technology, full diversity between its multiple mainframes, standardized back-end systems and enough capacity to handle their heaviest traffic during peak hours. They would also conduct maintenance and periodic testing of a disaster recovery plan that would permit Schwab to recommence essential computer operations if its central computer site were to become inaccessible.5 Schwabs IT infrastructure allowed them to differentiate themselves as reliable, service oriented and innovative, and contributed to their 1.3 million in client assets4 . Schwab now offers access to its services via telephone, wireless device, the Internet, and through more than 300 US offices.4 1. Charles Schwab Corporation A & B, 2001, HBS 2. Porters 5 Forces Model (Class Documents) 3. Leaders Of The Net Era, 2000, Information Week 4. Hoovers.com (http://cobrands.hoovers.com/global/cobrands/proquest/factsheet.xhtml?ID=10320) accessed 5/16/08 5. Schwab Charles Corp 10-K, 1995, (http://www.secinfo.com/d9W9a.98.htm ) accessed 5/16/08