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Charles Schwab: From a
Small Firm to the World's Leader
Charles Schwab pioneered seamless stock trading
on Internet in 1996. They went from a tiny firm to
the world's largest financial services company. On their journey, first,
they developed criteria –
Charles Schwab's Guiding Principles – for
making fast decisions.
Second, they realized that they should
own their competitive advantage
to be able to bring financial products to the market faster than their
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competitors. They did so, and proved their ability to innovate faster that
others. Finally, they managed to
institutionalize innovation.
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3 Strategies
of Market Leaders
By late 1994, Chuck Schwab, the firm's Founder
and Chairperson, and Dave Pottruck, President and co-CEO of the
company believed that online trading was going to become huge and created
the Project Hawk. Acting with lightning speed, Charles Schwab introduced
online trading service e.schwab to the market in May 1996 – within months of
conception. The company signed up 25,000 customers within two weeks – their
target for the full year. Being fast made paid off for Schwab. By the start
of 2000, Schwab had an average 25% market share, was handling one of four
stock trades in the United States, was receiving nearly 80 million hits on
pick days, had open up more than 3 million online accounts, and was doing
more than $10 billion weekly in e-commerce. In 1999, market capitalization
of Charles Schwab reached US$51 billion. On January 1, 2000 the market
capitalization of Charles Schwab surpassed that of Merrill Lynch, and Schwab
became the world's largest financial services company.1...
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Charles Schwab's
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Guiding Principles
Charles Schwab took his company from being a one-man
startup to the world’s largest financial services firm in record-setting
time.
How? He wanted to build a
fast company, one that
could respond to changes in the market before they even happened, and to
maintain its velocity throughout. He believed that by following a strict
process and adhering to strict requirements, he would be well-prepared ahead
of time in order to act with lightening speed. So, Schwab established
9 guiding principles for his company, and checked every
strategic move against them before proceeding. These guiding principles
allowed Charles Schwab and his
management team to
make quick decisions. Instead of having to go through a complex process
in order to determine his company’s next strategic step, he simply had to
ask one question: Does it fit our guiding principles?
Acting with lightning speed in accordance with
Charles Schwab's Guiding Principles – always own the core technology;
reinvent the business; and constantly improve what you do, – the company
made fast decisions and was able to introduce online trading service
e.schwab to the market within months of conception...
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10 Rules
for Building a Great Business
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The Tree of
Online
Success
Owning Competitive
Advantage
Initially Charles Schwab, a discounted stock
brokerage company, routinely outsourced, like other financial services
firms, their back office information technology to other companies. By 1979,
Chuck Schwab, the founder of the company, realized that if he was going to
quickly grow the company and gain a
competitive advantage,
he had to own the technology. So, in 1979 he acquired a back-office
computer Beta System for US$500,000 – a big bet as at the time, the net
worth of the entire Charles Schwab company was only US$500,000.
Given their in-house computing capabilities,
owning the technology – their competitive advantage – provided Schwab
the ability to:
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Push every known boundary and constantly ask
the "what if we could do this for our customers" question without regard
what can't be done
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Have the technology and other resources ready
by the time people knew they wanted it
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Be faster than
competitors in getting to market.
As a result, Schwab started unleashing
innovations on the market one after another
and became
the leader in the new market niches it created.
Differentiating Between
Noble Failure and Stupid Failure
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The Jazz of Innovation:
11 Practice Tips
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Freedom To Fail
David Pottruck, co-CEO of Charles
Schwab, says: "The idea that failure is okay is ridiculous. I am not going
to go around the company and reward someone for failing. But here at Schwab
we differentiate between noble failure and stupid failure."1
Charles Schwab has a set of
criteria for defining
noble failure...
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Asking Effective Questions
Dave Pottruck, former co-CEO of Charles Schwab, says
that most of Schwab's
huge
innovations have come from asking customers questions:
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