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03:40 PM
Jerry Bartlett, Senior Vice President and CIO, TD Ameritrade Holding Corp.
Jerry Bartlett, Senior Vice President and CIO, TD Ameritrade Holding Corp.
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TD Ameritrade's CIO tightens vendor management in a consolidated environment.

In late January, Ameritrade -- the company I've been a part of since 1999 -- completed its acquisition of TD Waterhouse Group's U.S. retail-securities business for $1.7 billion. That's the eighth merger we've executed since 2001, but it probably won't be our last as consolidation in the online-brokerage market continues. The dwindling number of brokerage houses, coupled with the merged companies' economies of scale, is creating a buyer's market for enterprise IT infrastructure, solutions and services.

But even though the balance of power has shifted decidedly in favor of the buyer, the role of technology vendors -- especially those that rise to earn the status of technology partners -- remains vital.

At newly combined TD Ameritrade Holding Corp. (Omaha, Neb.; $15.8 billion in total assets), we consider ourselves a technology company in a financial-services wrapper. While we deliver financial services, our entire value proposition is rooted in offering an online-user experience that's intuitive, secure and dependable. Our clients -- with 6 million accounts totaling $256 billion in assets -- depend on us to deliver a technology platform that can justify their confidence in making major financial decisions with us on a regular basis.

This means that nearly all aspects of technology in our business come close to being mission-critical. Indeed, in our business, technology provides the basis for competitive differentiation in an otherwise commoditized market. This, in turn, makes vendors of the technologies that underpin our operations an extremely important element in our go-to-market plans. Therefore, how these vendors work through an acquisition process is critical to a company like ours.

The Ameritrade-TD Waterhouse merger is a good case in point. In preparation, we went through a four-month process of performing a transparent, fact-based comparative analysis of the legacy systems in place at both companies. We thoroughly evaluated and documented the functionality, scalability, capacity and total-cost-of-ownership variables associated with the major elements of the enterprise networks.

Follow the Money

Simply put, we followed the money. Focusing on systems with the largest total spend, we reviewed clearing systems, order routing/management, interactive voice response systems, Web platforms and infrastructure components. The goal was to identify the best price performance in specific operational environments that could be rolled out to the entire merged organization.

Our evaluation led us to standardize on Ameritrade's existing retail Web platform, which includes active-trader tools, order-management and routing systems, and back-office and trade-clearing systems. On the other hand, we plan to use the legacy TD Waterhouse long-term investor platform as well as its advisory platform, which customers highly regard because of its network of several thousand advisers.

These basic decisions have had a huge impact on our vendor strategy. From the beginning, I made it clear to all our vendors that our merged company would require far fewer of them to meet its support needs. I said I wanted to partner only with vendors that understood those needs and could help me cost-effectively deploy the most innovative and functionally rich enterprise systems to support our key objectives.

I realize that partnerships like these are hard to create because the relationships are built on trust -- and trust is a function of reliable performance over time. Our new, tougher approach toward vendors has had an immediate winnowing effect on the number of providers with which we're willing to do business. Not everyone can be a partner. And partners will be tapped to do as much of our work as possible.

Between our focus on partnerships and our identification of overlapping technology initiatives, we've already reduced our total vendors by roughly 50 percent over the past two years, and vendors with which we spend $500,000 or more annually by approximately 15 percent. We currently have a list of about 20 preferred vendors.

This consolidation is further abetted by a growing sense that more technology offerings are becoming commoditized. The commoditization of technology is working in our favor as we negotiate pricing with the remaining vendors.

As for vendor size, I generally stay away from big players, such as IBM and Oracle, which tend to be less flexible in their terms. Some of our best relationships come through smaller vendors and the local practices of large ones. I find these partnerships often work best because they know my business intimately and realize they won't survive unless they're fully committed to me -- the customer.

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