Since selling its banking business to Citizens Bank (Providence, R.I.) in 1999, State Street Corp. (Boston) has targeted the institutional investor community with a vengeance, becoming the world's largest investment manager of institutional assets with $10.7 trillion in assets under custody and $1.5 trillion in assets under management. According to EVP and CIO Joseph C. Antonellis, technology innovation has played a major role in driving that success.
BS&T: Are you a technologist or a business person?
Antonellis: I'm not a technologist by practice -- I'm more of a business person with a heavy bias toward technology. When I ran State Street's U.S. pensions business I learned not only how to use technology, but how vital technology is to our clients. As CIO, my job is to make sure that we continue to bridge the gap between business strategy and IT.
BS&T: Does your business background help?
Antonellis: Definitely. In addition to helping me appreciate how important technology is to our end users and our clients, it also allows me to understand the needs of my business colleagues and interpret those needs to my IT colleagues.
BS&T: As an institutional investment firm, what sort of technology challenges does State Street face?
Antonellis: Regulations such as Basel II and other compliance and business continuity issues have us spending more money today than ever on corporate administration functions. We probably have three or four major projects going on in that arena. This spend is not revenue-driven, although it is a value-add from a safety and soundness perspective and it helps keep us ahead of the curve of innovation.
People often think of innovation as some wild new technology, but it's really not. Innovation is about creating solutions to bring in new products.
BS&T: Can you offer an example of the type of innovation to which you refer?
Antonellis: We have three major lines of business: State Street Global Advisors, the largest institutional asset manager in the world; State Street Global Markets, which includes foreign exchange, fixed income, equity trading and independent research; and our core investment services business, which includes fund accounting, pensions and custody. Each line of business is in constant need of new and changing products, and we in IT need to keep building out those products. For example, about eight years ago we introduced the Global Link network, which connected fund managers with fixed-income/foreign exchange shops. What was revolutionary was that we rode the back of a network used by asset managers and provided an open platform for end-to-end foreign exchange trading. Global Link has spawned a whole slew of products that we keep bringing to the investment manager, and we also use it as a distribution point for our independent research.
BS&T: How is IT organized at State Street?
Antonellis: As CIO, my responsibilities include not only IT but the global security services that drive all our core settlement and cash services around the bank. So I wear two hats: technology and operations. We have about 20,000 employees and almost 7,000 of those employees report to me. I report to our chairman and CEO, Ronald E. Logue.
We have a centralized IT budget, but a federated arrangement with a senior technology executive reporting to each of the three business heads. These IT executives have a seat at the table at those business meetings, so they understand the business strategy and where the business is going. We also have a shared-services arrangement with a head of infrastructure services and a project management office that drives best practices in applications that span all the businesses.
BS&T: How do you ensure that IT and the business areas collaborate?
Antonellis: One way is to get these teams working closely with the technology product development teams so we can better collaborate around product needs and new innovations and ideas. Product development drives the demand management process; we get what we need from the businesses to understand their business desires and work with them to set priorities and agendas. For example, one of our businesses saw a need to share, manage and store documents with clients, so it worked with our technology group to create the business case and the requirements for our Online Document Manager. We sourced the project with our IT teams and built the capability into our online Web portal.
BS&T: Does State Street also have a CTO?
Antonellis: Yes. But we don't position the CTO as the head of infrastructure. We have a head of global infrastructure charged with running our data centers, networks and other services around the world. Our CTO takes a more architecture and standards perspective. For example, the chief security officer and office of architecture report to our CTO. We set IT standards for our hardware and software platforms about six years ago so we could create a global architecture and improve our reusability of components.
BS&T: You've noted that your IT budget is 20 percent to 25 percent of operating expenses. Do you expect that percentage to change over the next year or so?
Antonellis: We differentiate ourselves from our competitors in several ways: scalability, reliability and our ability to bring out new products -- and we need technology to do all that. More than 20 percent of operating expenses is a big number, but one we feel is necessary to carry out our mission. We've been in that range for the last 10 to 12 years and I don't see it changing.
BS&T: What will drive growth at State Street?
Antonellis: Our growth will come in a few ways. Today, 35 percent of our revenues come from non-U.S. domiciled clients and we expect that to increase to 50 percent, primarily through growth in Europe and secondarily in Asia-Pacific.
We follow investor needs around the world as they move from asset type to asset type. For example, as more and more institutional investors invested in hedge funds, hedge fund administration became a very big play for us. We had a product hole there so we bought a best-in-class fund administration company called International Fund Services (IFS; New York) two and a half years ago. It's all about being nimble and moving into the space our investors are moving into so we can provide services to them.
BS&T: What organizations are your competitors?
Antonellis: Analysts typically put us in a peer bank category with institutions such as Northern Trust [Chicago], Bank of New York [New York], JPMorgan Chase [New York] and Mellon [Pittsburgh].
BS&T: Does State Street have any retail or commercial business?
Antonellis: No. And what's happening is those companies I mentioned are starting to look more like us. For example, Mellon sold most of its commercial and retail bank business.
Competition for us is really by line of business. State Street Global Advisors competes with asset managers around the world. State Street Global Markets, because it is primarily foreign exchange and equity driven, competes with most of the money center banks in the foreign exchange arena.
BS&T: What has been your greatest career challenge?
Antonellis: Taking organizations that I have little knowledge of and quickly learning them so I can help take them to the next level. I had never run a technology shop, so when I was asked to take over as CIO at State Street I had to be adaptive and learn new things and reach out and listen to a lot of people.