Merrill’s New Man on the Mic

A technologist at heart, John McKinley jumped on board Merrill Lynch in 1998. The move didn't seem an odd fit because during the boom time of the late '90s, many hard-core techies were finding happy homes on Wall Street, where technology budgets seemed to have no limit.

But now, five years later, the entire landscape of the financial-services industry has changed and so has the technology that supports it, as firms are cutting costs and slimming down tech departments in a difficult economic climate.

With this evolution, technology leaders are seeing changes in the way they approach projects and the way departments are run. At Merrill Lynch, big changes are underway - the biggest of which came when McKinley announced his departure and the firm named John Cummings, previously COO of Global Technology and Services, to the new position of head of Merrill Lynch's Global Technology & Services group and chief information & services officer. While in the '90s it might have seemed off base to have an operations guru running the tech department, these days its considered a natural progression.

McKinley and Cummings represent two separate skill sets and backgrounds, signaling an interesting move on Merrill's behalf to mirror the changing financial-services climate. McKinley jumped into his CTO role feet first, determined to bring Merrill up to speed in the e-business, Internet-offering race that competitors such as Charles Schwab were clearly winning. And before Merrill, McKinley had served as chief information officer at GE Capital where he aggressively spearheaded electronic-commerce initiatives.

McKinley is often described as having a passion for technology and says that, after Merrill, he would like to move on to a technology-focused company. McKinley says of his tenure at Merrill, "Looking back at my years at Merrill, I think I accomplished a tremendous amount - the repositioning of the firm to get online and the retooling of the technology organization itself."

Cummings, on the other hand, rose up through the management ranks at Merrill, after joining the firm in 1981. He has served as head of Global Services for Merrill Lynch, as well as head of the firm's U.S. Private Client Services Group. Many industry observers describe Cummings as the "pragmatic, analytical type," that leverages his operational background and pays great attention to detail.

In general, Cummings describes the change saying, "We've gone through automating the back office during the '80s; and automating the front office - getting applications onto the Web and out to clients - during the '90s, and now the challenge is to integrate applications and platforms end to end."

In the past, Cummings says, Merrill needed to invest in a deep technology-talent pool to accomplish the front-end Web work. But the firm is now positioning itself to focus on integration across platforms and business lines in order to provide clients with a seamless, high-quality experience, which is where Cummings sees his expertise coming into play.

Larry Tabb, senior strategy adviser at TowerGroup, says that McKinley had a big impact on Merrill's technology strategy by moving it from a proprietary-development platform to more of a vendor-based approach with a reliance on offshore outsourcing. But Tabb doesn't foresee any major strategy changes resulting from the changeover to Cummings. "I think Cummings is going to focus on efficiently managing the operations and continuing the general strategy that has evolved over the past three years," says Tabb.

Tabb sees this focus on efficiency and cost cutting across the financial-services industry, and the reflection in CTO/CIO changes, as only appropriate. "Firms are cutting back their technology-development initiatives across the board," he says. "The CIO is no longer the wunderkind and now technology is being more defined by the business rather than the technologist."

In general, Tabb says that CIOs are becoming more business oriented. "You need to have someone with oversight and business knowledge running the show to make sure what is getting accomplished is really the priority of the firm, and they're not just building technology for technology sake," he adds.

Strategy Moving Forward

While his strategy will be detailed and defined as time goes by, Cummings says there are a couple of major technology themes that he plans to continue. These themes are focused mainly on private-client work, the wealth-management-technology platform and an enterprise-wide customer-relationship-management strategy.

"By providing a robust wealth-management platform with CRM for our sales and specialist groups, we can provide a client with the total Merrill strategy, anywhere they touch us we can move their preferences and their needs in a more seamless way," says Cummings. The wealth-management-platform project is a joint effort with Thomson Financial to develop and implement more than 25,000 workstations. Based on Thomson's Thomson One platform, the workstation brings together market data, news and other information, as well as CRM, portfolio management and online-collaboration tools. (See WS&T February 2003, "How Low Can You Go?")

In the global markets and investment-banking area, Cummings envisions technology focus in foreign exchange, prime-brokerage services and the retail-clearing business. "There will be significant, but targeted, investments made there," he says.

One area that McKinley clearly targeted was the adoption of Linux within the firm. In line with his pragmatic approach of investing in what will benefit the business most, Cummings says that while Linux is an important cost-reducing technology for Merrill going forward, it is undetermined where it will fit into the overall tech strategy. While slightly less gung-ho on Linux than McKinley was, Cummings says work will continue in the consolidation of global networks.

"We have consolidated all of our global-infrastructure networks under one organization for a complete view of data centers and the network, globally," says Cummings. "But a clear global data center, network and platform-convergence strategy will evolve over the next three to six months."

When it comes to the Web services push, which McKinley was also a big proponent of, Cummings says the idea is still very important to the firm. He says that Merrill has tremendous capabilities embedded in legacy applications, but the firm has had difficulty in terms of cost, time and expertise when it comes to finding ways to expose those capabilities, either internally or out to clients. Moving forward, Cummings says he expects to see the leveraging of those legacy applications, through technology such as Web services, bring competitive advantage to the firm.

Over the next two years, Cummings hopes to see the conversion to the wealth-management-technology platform and targeted investments for increasing value in the areas of prime brokerage, FX and retail clearing. In addition, Cummings says he would like to see the "commercialization" of technology - the view that technology can add real value to the business.

Changes at the Top

While the Cummings' strategy will guide Merrill into the next technology era, those familiar with the industry view McKinley's departure as more than just a sign of the times. They see it as a reflection of Merrill's recent upper-management changes.

This past July, the balance of power shifted when chairman and chief executive officer David Komansky officially handed over the CEO reigns to Stanley O'Neal. With these high-level shifts of power came changes at other levels across the firm, reflecting a natural trend in the industry, according to Deborah Williams, group vice president of capital markets and corporate banking at Financial Insights.

She explains that with the senior-management changes comes a new attitude across the firm. "I don't think any CTO or CIO gets very far without the support of the CEO and probably the CFO," says Williams. "McKinley was probably what senior management wanted at a certain time, when they were trying to recapture a position that was, in some ways, taken over by Schwab," she says.

Michon Schenk, chief operating officer at Financial Insights, agrees and calls the situation a "changing of the guard." One example of this trend is the appointment of Jon Beyman, who also had an operations background, as CIO at Lehman Brothers.

Neither McKinley nor Cummings would comment directly on the appointment as a reflection of O'Neal's taking over. When asked about it, McKinley simply says that his four-and-a-half years at Merrill was a great run as CTO given the fact that the average tenure is 18 months. Cummings simply responds, "I am excited about the opportunity to take over at this time, and I look forward to the possibilities going forward."

In general, Williams says that the Cummings appointment also signals a back-to-basics type of environment with an emphasis on execution and implementation rather than groundbreaking technology work. She adds that this back-to-basics environment will realign business demands with the technology strategies.

One industry insider says the change can be explained as "the end of an era" in some ways. "Most companies have a much more sober view of the impact of technology and that's not to say Merrill is not going to continue to make significant investment in technology," he says. "But it will be from a pragmatic, practical perspective. Cummings is far more grounded in pragmatics and that's a healthy thing in any economy and particularly in the economy we're in right now."

Changing of the Guard

The change over shouldn't have been a surprise to McKinley, Cummings or the technology department at Merrill, says one industry consultant. According to him, each of the business-unit-specific CTOs have been reporting into Cummings for at least six months prior to the announcement. Cummings still reported to McKinley but the two could be viewed as working together in ongoing preparation for the transition. "This isn't a major learning curve for Cummings," he says. "He's been very close to the technology guys for months now."

One Merrill insider agrees that it was obvious Cummings was preparing to take over the CTO helm. He explains that usually a change at the top comes with a change in the people underneath. But he also sees the technical direction remaining consistent, with no major changes in the technology group's strategy. "McKinley had lots of good ideas and I assume they're all still happening," he says.

Another industry insider and former Merrill employee is more critical of the move and says the decision to replace McKinley with Cummings was not the best option - that the technology department needs a technologist to run it. He says that technology is an important business enabler and business people "don't quite get that." In terms of technology work, he says financial firms need to ask themselves where they are moving, how technology will help them and where the competitive advantage will be. "To have an operations guy running technology is like two steps backwards," he adds.

But in these difficult economic times, the role of technology has obviously been affected and the mentality has changed. The industry insider sums up the CTO shift saying that Cummings has an appreciation for how automation can improve service levels and customer efficiency, but in a pragmatic way, not technology for technology's sake. "Sometimes 'pragmatic' means leaving good enough alone and concentrating on investment for returns," he says.