VideoTake a new, young CFO, ensconce him in the downtown Seattle headquarters of a small but growing company with operations in eight western states, and you can be pretty sure that information technology will be an important aspect of his growth strategy.
So much for assumptions. Meet Brent Beardall, CFO of Washington Federal Savings, the bank that just says no—to IT. The $7.5 billion thrift, which specializes in fixed-rate residential mortgages and is consistently rated as among the safest of harbors for depositors' money, takes frugality to a completely different dimension. While other savings-and-loans spend 40 to 54 cents to earn $1 of revenue, in 2003 Washington Federal squeezed by on 16.5 cents. At the same time, it earned $145 million, a 2 percent return on assets, marking another record year for the regional thrift with 119 branches, 200,000 customers, and 750 employees.
"In a word, we're conservative," says Beardall. Employees at Washington Federal can forget about $100 anniversary lunches and similar perks; on the flip side, they don't have to sweat the budget, because there isn't one. Beardall signs each of the 1,000 paper invoices the bank generates each month, right down to the utility bills for every branch. "You know exactly where the money is going," he says, "and, more importantly, everyone knows you're watching."
Nowhere is the mantra of thrift more clear, however, than with IT. For the past 20 years, Washington Federal has relied on a homegrown general-ledger system and has eschewed all the technological underpinnings of modern banking—ATMs, online banking, voice mail, and call answering systems. Any pagers that beep or cell phones that ring are the personal property of employees.
Only one penny of every $1 in revenue is spent on technology, an extraordinarily low figure, according to industry analysts. Most banks spend 4 percent to 8 percent of revenues on IT; the larger ones spend up to 20 percent.
While analysts question how long Washington Federal can maintain its efficiency and growth without embracing IT more fully, the company rolls on, accumulating cash and planning new branches in Nevada, Oregon, and Washington State.
Laggards can be Choosers
Beardall came to Washington Federal in 2001 as controller, after working six years at Deloitte & Touche as the bank's CPA auditor. It's not that Beardall is totally down on IT, only that he sees no rush. "We recognize that technology has its benefits, but we wait until the technology is cost-effective," he explains.
When Beardall was an auditor at Washington Federal, he went to the CFO and argued for voice mail and "catching up with the times." His now-retired predecessor, Ronald Saper (who didn't use a computer), challenged him for proof. "I took that on: from my audit experience, I knew what voice mail cost, but I certainly couldn't prove that a voice-mail system, Internet access from each PC, or other systems would make us more efficient."
Beardall goes further: "The way we do things now makes us the most efficient financial institution I know of. We believe there is no more efficient way to handle communications than picking up your telephone." (Editor's note: the phones do have touch-tone dialing.)
To some degree, it's not that the bank said no to technology so much as it never got around to saying yes. Founded in 1917 to serve Seattle's largely Scandinavian fishing community, the bank's focus on passbook accounts and friendly tellers has endeared it to a client base that now includes lots of senior citizens. That raises flags for banking analyst Jerry Silva at TowerGroup in Needham, Massachusetts. "I'd question their prospects as their current clientele ages," says Silva. Referring to his 18-year-old sister-in-law, who is keen on mobile text/chat messaging, he says, "I tell bankers that those capabilities may not be important now, but they will be if they want to capture this audience in the future."
Silva says that as smaller banks approach a certain level—about $10 billion in assets under management—the personal touch becomes difficult to maintain. Customers rarely get the same teller, employee turnover tends to be higher, and suddenly IT starts to look like the answer. But that poses a problem, Silva says, because IT costs a lot of money to do well.
Even IT consultants who praise a frugal and prudent approach wonder about Washington Federal. "Based on its forward-looking indicators, Washington Federal is a little bit below [its peers] in terms of net income growth and net revenue growth," says Tom Pisello, CEO of Alinean, an Orlando-based ROI-strategies research firm. "They might be doing well in terms of generating cash, but long term they might not grow as quickly as their peers." In Pisello's analogy, a bank without a robust IT infrastructure is like a pharmaceuticals maker with no new drugs in the pipeline: they can do well for a while but may miss a market trend or shift.
Washington Federal executives are undeterred by comparisons or critiques. Some of their core strategies, such as accepting a high amount of interest-rate risk rather than attempting to minimize credit risk and a tendency to keep plenty of cash on hand, have nothing to do with IT. But other articles of faith indicate just where the company cuts its IT bills.
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