Answer: Charles Shwab's company faced big competition from the big players like Meryll Lynch, Citigroup and others in investment advisory. To counter that problem, he turned to IT and primarily found 3 ways to gain a competitive edge.
1. Automation of the Trading Model: After using an automated trade clearence and settlement service in 1979, which dramatically reduce the time a customer would spend to make a trade using the traditional phone model, he then brought the whole automation system in house, creating self service softwares for investors. He could now address the customers who wanted to manage their own investments with little or no advice. He provided them online tools such as Equalizer PC, StreetSmart and similar others to do so. The online business model also enabled Schwab to successfully segment its customers, thereby providing them services which were specifically focussed on the requirements of its various customers. Once the customers were segmented into Self Directed, Validators and Delegators, Schwab could mould his offerings to address the specific needs of each category of customers. The full…show more content… Increased Operations Efficiency: From only 5% customers approaching Schwab online in the 1970s to 95% choosing the online mode to contact Schwab's in 1998, the online model that Schwab introduced while initially saw downfall in revenues and share value, it produced very fruitful results. Online trading went up to 83% in 2002 as compared to 28% in 1997. Also the use of internet ensured that new hiring was not needed and neither was there a need for new call centers to handle the increasing number of customers. Schwabb's employee efficiency was higher than any of its competitors. According to Analysts at Bear Sterns, Schwab's employees were generation more than twice the revenue as compared to other full line investment firms, and 40% more than the industry average. The sum of all these factors translated into a 29% jump in pretax profits in
