PNC CIO's drive for excellence serves the company well as it trims $40 million and adds custom services.
In the past two years, PNC Financial Services Group Inc.'s chairman and CEO, James Rohr, has placed a large chunk of the company's destiny in the hands of CIO Timothy Shack. He tapped Shack to head much of PNC's back-office processing businesses, including treasury management operations and subsidiaries that service mutual funds and commercial real estate loans. These businesses are a cornerstone of PNC's operations, contributing more than a fifth of its $5.1 billion in revenue last year.
Not bad for the son of a Pittsburgh steelworker. Tom Whitford, who has worked with Shack for 15 years and is PNC's chief risk officer, says one of Shack's strengths is his feel for the interplay between technology and business. Shack also has a drive for excellence, as surveys of internal and external customers show. "Tim holds himself accountable for the businesses he serves almost as much as the business heads themselves," Whitford says.
It's key to ensure that IT and business strategies are aligned, says PNC CIO Shack. That's probably a big part of why Rohr put Shack at the helm of the processing units and challenged him to reduce expenses of the mutual funds servicing business by $40 million and keep processing revenue flowing. Shack, who joined PNC in 1976 and became its CIO six years ago, appears well on his way to achieving those objectives.
As head of PFPC Worldwide Inc., the mutual-funds servicing unit, he cut operating expenses by 7 percent in the second quarter this year, enabling PFPC to post earnings of $15 million, up from $12 million the first quarter. Among the cost-saving moves are the consolidation of three data processing centers in Philadelphia and the sale of PFPC's underperforming retirement-services business to Wachovia Corp.
Many of the nation's largest mutual funds buy recordkeeping and accounting services spanning some 14 of PFPC's product lines. PFPC administers 48 million shareholder accounts and $1.5 trillion in assets, making it the largest provider of recordkeeping services and second-largest provider of accounting services.
The treasury management operations that Shack oversees include a polyglot of back office services such as cash management and accounts receivable processing, sold primarily to midsize regional companies in PNC's five-state footprint of Delaware, Kentucky, New Jersey, Ohio, and Pennsylvania. Revenue from them for the first half of this year was $175 million, compared with $170 million the first half of last year. Under Shack's watch PNC's A/R Advantage accounts receivable tool has been enhanced to let companies view remittance documents over the Internet. He's also tightly bound treasury management with PNC's other corporate banking activities.
Midland Loan Services, PNC's commercial real estate loan servicing subsidiary, also has flourished. By the end of June 2003, its portfolio had grown to $79 billion from $71 billion a year earlier, supported by initiatives such as a new backup data center and Web-based loan management and document imaging systems. All this has happened as PNC was hit last year with regulatory actions over questionable accounting practices. Earlier this year, PNC agreed to pay a $115 million settlement with the Department of Justice. Meanwhile, revenue has declined because of weak equity markets, reduced capital investments, and poor quality of credit.
Despite recent difficulties, PNC is the ninth-largest U.S. provider of treasury management services and one of the top two providers of mutual fund services. At PFPC, acquisitions have fueled growth capped by the 1998 purchase of First Data Investor Services Group for $1 billion. When the economy went south a year later, PFPC was stuck with excess capacity; pruning it is Shack's responsibility. He wields a scalpel rather than a hatchet, making reductions in some areas and building others that show promise for when the economy rights itself.
In a business where speed and efficiency are everything, PFPC is constantly reshaping its technology to let money managers monitor performance of financial products. This year, it introduced AdvisorPort, an account management system that lets investors allocate funds among different types of investments, and revamped its Impress Desktop recordkeeping system with XML and Java 2 Enterprise Edition components.
Praise From Customers
PFPC client Strong Financial Corp., which manages $40 billion for individual and institutional investors, has taken advantage of PFPC's imaging, workflow, and accounting systems. Strong also had the PNC unit automate its state-run college savings plan, saving it from developing a separate plan for each state, says Ane Ohm, VP at Strong's investor services division. And Shack was "instrumental in helping us leverage the best of what PFPC has to offer," Ohm says.
For Shack, who spends about a quarter of his time talking to customers, technology is the business. "We have no tangible product other than our informational and transactional capabilities," he says.
But PNC's processes, products and people matter as much as its technology, Shack says. "Technology is rarely the first reason customers want to do business with us." More important is the ability to create customized solutions, which could mean outsourcing the work or providing services via an ASP or business process outsourcing model.
Infrastructure Spending Down
PNC spends less on infrastructure today than it did several years ago. It uses software products that are commercially available wherever possible. For example, its retail banking division implemented customer relationship-management software from IBM and Siebel Systems Inc., among others, eschewing the all-Internet model in favor of a multichannel one that embraces branches, ATMs, telephones and electronic banking.
The processing businesses, which cater to companies, financial institutions and institutional investors, use proprietary and off-the-shelf systems to support customer needs. PFPC has added to its recordkeeping and accounting services as the mutual fund industry finds itself under pressure to deliver better returns. "I'm out there selling to the most sophisticated buyers," Shack says. "We have to be able to support not only [recordkeeping] but also the products of tomorrow."
At the enterprise level, Shack is credited with implementing electronic-purchasing technology; this year, the company has run more than one hundred reverse auctions for services as diverse as economic research, building maintenance, and annual report production, according to Shack. The company uses e-procurement for IT purchases as well. In acquiring a financial control system, Shack created three separate auctions: one for software, one for software plus integration services, and one for integration services alone. In the conventional purchasing model, PNC would have issued a written request for proposals to major enterprise resource planning vendors such as Oracle, PeopleSoft and SAP.
This sort of attention to detail is typical of Shack both in and out of work. He devotes five to 10 hours a week to the United Way of Allegheny County, which he serves as a member of the board and executive committee and as head of the technology committee. There, he's taken the art of fund raising to a new level with CRM techniques borrowed from PNC. He transformed the county's United Way's brochure-ware Web site into an electronic infomediary with links to businesses in the county so that employees can make donations online instead of filling out pledge cards. "Our success in information and technology has been Tim Shack and his leadership," says Bob Krasman, executive vice president at United Way of Allegheny County.
An organization can't be effective unless it has a clear vision of where it wants to be, Shack says. Part of his success at PNC has been in assembling a cadre of technology pros to work with the business units to ensure that IT and business strategies are aligned. Strategic plans are updated periodically, and performance is tracked internally and through benchmarking surveys.
Do The Right Thing
As he's risen in responsibility at PNC, Shack devotes less time to project management and more to strategic and customer issues. He defines management as creating frameworks that allow predictable execution, and leadership as making sure the right people are in the right jobs and giving them the tools they need. This is a formula that works, he says. "It's about having a team of people, who, without being told, want to do what's right."
EDITOR'S NOTE: This article originally appeared in InformationWeek, a sister publication of Bank Systems & Technology.