There's No ''IT'' in ''Thrift''

For example, the company does not believe in budgets. Several executives at Washington Federal note that having a budget means employees feel they have to spend it all by year-end and that they are entitled to the same amount, or more, the next year. "I've never seen a budget the same on the first day of the year as the last," says Beardall, "so the administration of the budget becomes a huge expense."

Dispensing with budgets—and the software that typically supports them—dovetails with Washington Federal's practice of making decisions without the help of decision-support technology. Almost all of Washington Federal decisions—and certainly those that involve more than $1,000—go from the branch through regional managers and ultimately to a five-member executive management committee, which meets every week.

Even the current pressure to launch a variety of initiatives for compliance with the Sarbanes-Oxley Act of 2002 leaves the S&L unfazed. Beardall says that Washington Federal's simplicity and streamlined systems make it easy to comply. "The biggest thing is producing materials to show the regulators that we're already doing what we were required to do," says senior vice president and information-systems manager Terry Permenter.

A strong do-it-yourself attitude prevails at the bank, which even eschews the mania for growth through acquisition, believing it is more economical to just open more branches. Last August, however, the company departed from that strategy, acquiring Seattle's small United Savings Bank (at a purchase price of 1.5 times earnings, it was just too good to pass up). But even then frugality reigned: no dealmakers were involved, employees handled the legal-document printing for $1,000 at Kinko's (after a $13,800 outside bid was deemed exorbitant), and, in order to exchange legal documents with its Washington, D.C., law firm, Beardall used his free Web-based E-mail account (the bank has only an internal system, with almost no Web access or external connectivity).

"Things aren't always top-of-the-line here," the CFO acknowledges, "but they don't always have to be." Case in point: tellers continued to use old "green screen" CP/M computers (a predecessor of the DOS operating system) into the late 1990s. Permenter bought old systems as scrap and refurbished them. Finally, in late 2001, new PCs and a branch automation system received the go-ahead. But economy was still the key: instead of shelling out for Microsoft Office applications such as Word, employees must make do with the WordPad and Notepad features in the Windows operating system. Obviously, no one will be writing the neighborhood newsletter on company time.

A handful of executives (including the CFO and CEO) have laptop PCs on their desks, and about 10 PCs are linked to the Internet (good news for the marketing vice president, who answers requests to the company's Website). All of which must mean that this is the worst IT job in the world, right?

"We say that true Washington Federal people bleed green, but I always say that I was like this before I came here," says Permenter. "I've been able to impact how things are done here, and pretty much my views have coincided with management's."

With Microsoft in its backyard and high-tech, fast-growing Washington Mutual, the nation's largest S&L, only blocks away, Washington Federal knows that its neighbors are incredulous about its business methods and low-tech stance. But Beardall points out that for the past 20 years, Washington Federal's annual equity return has been 21.09 percent, compared with Washington Mutual's 22.04 percent, a case in which finishing second may still permit bragging rights.

"The day may come when we have E-mail, voice mail, and ATMs," Beardall says. "But right now, there's no compelling motivation."

Connie Winkler writes about technology management from Seattle and is a former executive editor of PC Magazine.

So Much for Irrational Exuberance

If there is an IT spending race today, bet on the tortoise. "Right now, because of the economy, it tends to be the frugal and prudent companies that are achieving more—the ones that were able to scale back their expenditures," reports Tom Pisello, CEO of Alinean, an Orlando-based company that researches ROI strategies.

"How much companies spend on IT is not the best predictor of how well they'll fare in terms of productivity," he adds. "It's how the spending is applied and how well the spending is managed that counts." While there is no one characteristic that truly marks the most productive IT leaders, Alinean surveyed hundreds of public companies looking for links between IT investment and productivity and found that what matters most is the following:

• Market position: the right product, the right time, the right company. IT can help, but market position is still the strongest indicator of success.
• Frugal/prudent IT spending. Especially today, successful firms have been able to scale back operations to match the market, and they have applied IT to automate financial management and customer service or self-service.
• Diligent project management and measurement. Winners collaborate with business units, and they measure (by varying tools) to see if there is really a quick (less than 12 months, generally) payback. Fewer than 10 percent of companies measure project results after the fact, but those that do succeed because risk management becomes part of the culture.
• Focus on business improvement alignment versus costs. Reducing overall overhead—typically 25 to 30 percent of revenues—represents a much bigger opportunity than trying to squeeze that average 3.5 percent IT spending. "Successful CIOs and IT groups look inward for some savings, but also work externally with business units on process improvement and competitive position," says Pisello. Among the most successful in this regard, he says, are Rent-a-Center, Caremark RX, Apache, Golden West Financial, Viad, First Data, and Altria (formerly Philip Morris).
• Intelligent, strategic outsourcing. Winners fundamentally understand that some aspects of IT have become commodities and can be handled more cheaply by others. In turn, they focus resources on high-impact projects such as business-process improvements, business analytics, and CRM, among others. —C.W.

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