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INFO3110 Management Meeting 1 Notes Morgan Stanley’s Return on System Noninvestment CASE STUDY
1. Why did Morgan Stanley underinvest in information technology? The CEO at Morgan Stanley clearly miscalculated the market. Purcell felt that the rebound of the economy would be slow following the stock market crash in 2001. In order to survive, he felt that the company needed to concentrate on maximizing profits instead of generating revenue. Given this strategy, he cut costs, jobs, and investments in areas such as information technology. It is also possible at the startup of the company in 1935 or thereafter there was not an importance given to IT development; this culture might have persisted or simply a refelection of management’s perspective as to the need of information technology.

2.

Why was the merger with Dean Witter disruptive for the company? Morgan Stanley operates in four segments: Industrial Securities, Asset Management, Retail Brokerage, and Discover (formerly Dean Witter). Despite the merger, the Retail Brokerage group was never accepted as an equal partner by the rest of Morgan Stanley. This was clearly an employee integration problem either because of the employees’ perception or their reality. This division was also not well-integrated with the rest of the company. Former Dean Witter employees claimed that they felt like disrespected outsiders after the merger. The unification of Morgan Stanley and Dean Witter created a digital, cultural, and philosophical divide. The feelings persisted and many retail brokers viewed their job security as tenuous at best. Coupled with the problems associated with the merger, Morgan Stanley also had its own share of problems in the inner sanctum. Possibly these problems could be summarized as the management of the actual merger. Philip Purcell’s (CEO) leadership was also a major factor in contributing to the company’s problems. A number of executives felt that Purcell had mismanaged the Discover and Retail Brokerage divisions. They felt that his actions had threatened the performance of the firm’s strength, investment banking. The result was that they wanted him removed from his position as CEO.

3.

Why was Dean Witter and Retail Brokerage a good place to increase spending on information systems? (Review the six strategic objectives of information systems discussed in section 1.1). The six strategic objectives of information systems are operational excellence; new products, services, and business models; customer and supplier intimacy; improved decision making; competitive advantage; and survival. Clearly, these two divisions were an ideal place to increase spending on information systems. There are a number of reasons that can be outlined to satisfy this answer.  Concerning improved decision making and the possibility of improved business models, the Retail Brokerage division was not well-integrated with the rest of the company. It ran on a different systems platform than the institutional brokerage side, and its employee systems 1

were not integrated. Retail Brokerage systems were also much more antiquated than those at other parts of the company. Employees in this division were forced to conduct their work without the benefit of an application that provided both real-time stock quotes and transaction histories.  With respect to enhancing of customer intimacy and the evelopment of new products and services, Morgan Stanley’s clients were also routinely frustrated with the customer Web site and sparsely detailed year-end tax reports they received.  In the area of survival and competitive advantage, competitors such as Merrill Lynch, had invested heavily in new systems for its brokers. As a result, they were way ahead of Morgan Stanley when the markets rebounded. Morgan Stanley was not positioned to compete in retail.  Certainly with relevance to operational excellence, improved decision making and competitive advantage, the unavailability of routine data needed for decision making and efficiency of performing one’s task provides a good mechanism for increased spending on information systems. It is good that the company has plans for system upgrade such that brokers will have access to all relevant client data at once, including transaction history, contact history, and portfolio performance.

4.

If you were James Gorman, the new head of Global Wealth Management, what information systems would you invest in? Why? Do you think Morgan Stanley’s plans for an integrated client information system are worthwhile? [Hint: Think of the services you would like to receive from your banker or stock broker.] Banking and investment services are widely offered throughout the marketplace. Clients can access this type of “commodity” from any of the industries competitors. As stated by Eileen Murray (Head of Global Operations and Technology) — “we expect to make substantial improvements” that “will ultimately help our financial advisors better serve our clients, while also helping our clients better manage their relationship with us.” John Mack, (President), states “we are committed to addressing underinvestment”, and “we’re going to upgrade our technology platforms and provide our financial advisors and investment representatives with a tool kit that is as competitive as that of our leading peers.” We can all relate to making a phone call to a company only to be told that it had to be rerouted to another person or division. From the brokers’ perspective they can better serve their clients when they have access to all relevant client data at once, including transaction history, contact history, and portfolio performance. In order to do that, client information needs to be integrated from all sources. This may be done with use of an enterprise system or the development of the website could provide additional functionality of an intranet but prefrably an extranet. James Gorman needs to quickly bring the company’s information systems up to the levels of those of its competitors. He has started this process by making new systems better integrated with backend systems so that brokers have a better view of client portfolios. Use of a suitable Transaction Processing System is recommended but there is also scope for employment of a Management Information System and possibly a Decision Support System. Companies today are relying on information systems to run their buisness and drive growth and profitability. Banking institutions and clients are increasingly using the Web as a way to 2

conducting financial matters. Customers expectations and demands have grown, and banking institutions must find ways to deliver these products and services to satisfy these requirements. As stated in the case, Morgan Stanley had previously focused on its wealthiest clients than on the rank-and-file small investors. They failed to realize that top clients actually want more hands-on control of their portfolios, and therefore want more tools and services available online. That being said, Gorman realizes that services such as these are readily available from their competitors. Whether the banking customers are small or large firms, customer loyalty to Morgan Stanley will not last if they cannot receive and access the services and products that they are seeking. In the banking industry, it is extremely easy for clients to switch to competitors. Todays environment is a pull market where consumers are looking for on-demand products and services no matter where they are. The banking industry has no choice but to change their business model. If they don’t they will risk loosing out to their competitors.

5.

Aside from new systems, what changes in management and organization are required to restore revenue and profit growth at the Global Wealth Management Group? The president (John Mack) and James Gorman (Head of Global Wealth Management Group) clearly have a vision of the future for this company. They strongly believe in its viability and have a strategy to achieve this objective. They are building strong leadership support and are working on addressing the issue of a “one-firm culture.” The firm is trying to stem the loss of productive brokers and build trust and working relationships with them that will help them realize that they are a valuable asset to the company. Morgan Stanley realizes that they need to provide employees with the proper tools to do their jobs, but also that they need to feel that they are an important and integral component of the firm. Top executives at Morgan Stanley realize that they need to change their old business model in favor of a new one. Management identified areas where they could use information systems to solve a number of challenges and to greatly improve business performance. However, the company also recognizes the fact that the most valuable asset in the company was its employees. Unhappy employees are not productive employees. To overcome these issues, Morgan Stanley needs to change its technology, management, and organizational processes.

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