Winner: Wall Street’s IT innovator

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Throughout 2002, John McKinley had to use every trick he had ever learned in the course of his IT career. As CTO of Merrill Lynch, McKinley devised an IT strategy that guided the financial behemoth through a rocky period of more than 15,000 layoffs and a shrinking IT budget.

McKinley met the challenge and positioned Merrill Lynch for growth in its key brokerage, mutual fund, insurance, annuity, and investment banking services.

“Last year was fascinating because the issue became how to keep innovation going in a period of austerity,” McKinley says.

The CTO responded by deploying cutting edge technologies that saved the company as much as $1 billion, increased efficiency, and services. In the process, Merrill Lynch became a proving ground for enterprisewide adoption of Linux-based machines, Web services application

implementation, and server consolidation, all of which streamlined much of the company’s infrastructure.

At the same time, McKinley marshaled resources to expand Merrill Lynch’s core competency of financial services. He oversaw the implementation of the company’s Wealth Management Technology Platform through a strategic partnership with Thomson Financial, among others. The platform delivers state-of-the-art financial information and services to its thousands of brokers.

“John McKinley changed the culture at Merrill Lynch,” says Larry Tabb, vice president of securities and investments at the Needham, Mass.-based consulting company, the TowerGroup.

“Outsourcing partnerships, Linux, and Web services were all used to save money to be able to make the technology go further,” Tabb says. Overall, McKinley was able to cut IT spending from $3 billion to $2 billion without undermining the level of service.

For those reasons, InfoWorld has named McKinley CTO of the Year.

Tough times

The path through a lean year wasn’t an easy one. Merrill Lynch saw a wealth of top managers leave the company at the end of the year, McKinley among them. The CTO left by mutual agreement with management at the end of February.

“It’s been a great run,” McKinley now says, declining to talk about the specifics of his departure. “I’m tremendously proud of the team and what we’ve been able to do at Merrill Lynch. We are much more efficient now on a cost basis.”

McKinley was forced to create an IT strategy in the face of three consecutive IT budget reductions, totaling $1 billion, he says. The plan he implemented focused on ROI, using co Windows Server 2003 a good performer, easy to manage, scales well mmodity technology to increase productivity and spending money to strengthen the company’s core products.

“The one thing we didn’t want to do was ‘appeasement portfolio management,’ where you say everybody feels the pain equally,” McKinley says. “In that case, you wind up overfunding mature businesses and underfunding emerging strategies. We focused on areas that matter for us and made sure they received people and funding.”

“We wanted to focus on next stages of growth for Merrill Lynch, and that was in our retail brokering initiative, our private brokerage market, and global foreign exchange business,” McKinley says. “These were the opportunities that represented the next stage of growth for Merrill Lynch.”

Circumstances forced McKinley to think as a business strategist as much as a technologist. “He was making business management decisions,” says John Jordan, principal in the office of the CTO at Cap Gemini Ernst & Young.

“[McKinley] asked himself what were the best products that were going to take him where he wanted top go. He opted out of the old technology, based on being the fastest or having the cost features,” Jordan says. “But instead he went for technology with the total cost of ownership to standardize on hardware where possible.”

Forty-five year-old McKinley may have developed the ability to use technology to further business strategies while at GE Capital. There he managed technology for 27 divisions of the company before leaving to join Merrill Lynch in 1998.

“John [McKinley] had to be smart enough and broad-thinking enough to understand all those businesses,” says Bill Krivoshik, CIO of global investment management at Citibank and a former colleague of McKinley’s at GE. “But he was also a good change agent, fashioning the technology needs to the business.”

Necessity, mother of invention

McKinley latched on to the promise of Linux and Web services to maintain Merrill Lynch’s technology infrastructure and to save resources for special projects.

“Linux and Web services are like blades in our Swiss Army Knife of technology for reorganizing infrastructure,” McKinley explains. He says he is “passionate about Linux because it’s a technology not owned by any one vendor. And I love it for its competitive dynamic.”

McKinley says Linux adoption fit naturally with his plans to migrate from proprietary hardware to Intel servers, because Linux is inexpensive and easily integrated. “We used Linux from front office trading systems all the way through to electronic statements and distributions in our 401K programs documents. It runs our capitol markets front office and the back office for statement generation and distribution.”

One of the advantages of Linux is its ability to scale up or down, McKinley says. “You can get a functional Linux system to run on less than 150K of memory. Yet at the same time you see Linux clusters handling over 136,000 transactions per minute,” McKinley says. “That’s powerful stuff. You can use Linux for electronic scanners or in high volume environments. It needs to be on everybody’s radar screen.”

McKinley also sent a strong signal at Merrill Lynch that Web services would be given priority consideration whenever possible when developing in-house programs.

“Last year we put in infrastructure that exposed our legacy mainframe environment as a platform of Web services to our developers. The productivity gains have been huge,” McKinley says. “One program that before implementation was estimated at $800,000 ultimately cost just $30,000 using Web services.”

That application set up an interface with a legacy mainframe in Merrill Lynch’s capital markets group. “It’s all about productivity,” McKinley says. “We’ve seen huge yields with each stage of Web services.”

Volumes of studies continue to be published about the promise of Linux, but McKinley unlocked its true value within his enterprise.

“I am taking students conversant in Visual Studio .Net and arming them with a library of Web services, and they are able to create applications without having to know about the underlying platforms,” McKinley says. “It’s having a huge impact on applications engineering. I think Web services will be as transformative as IP networks and HTML were in the ‘90s.”

In conjunction with these innovations, McKinley adopted modular servers from Dell, IBM, and HP that drastically cut the number of servers deployed while improving efficiency. He expects to use blade servers in 2004.

“We focused on server rationalization, getting us onto fewer, powerful server environments,” McKinley explains. “It was a great time for the organization to re-examine the data center strategy. It provided price and performance gains in the Intel server area, making it the platform of choice for the hardware people. We moved to a blade architecture with Dell, Hewlett-Packard, IBM, and Sun.”

McKinley proudly says the reconfigured data center will enable more efficient use of manpower and capacity. “We’ll see performance changes that will be in the range of $100 million in savings per year,” he says.

The CTO also overhauled storage and networking infrastructure. The strategy included SAN networking, which allowed McKinley to move “out of islands of storage and into pooled storage and network rationalization.” Partnering with AT&T Solutions, he reorganized the “networks to make them reliable and [redundant], using VPN technology and high-cost intelligent switches.”

Jordan, of Cap Gemini Ernst & Young, says McKinley pushed risk management by focusing on special financial services projects. “Financial services companies such as Merrill Lynch were leaders in technology adoption in the mid-1990s as they developed Internet-based services, but they were forced to cut back their IT budgets in the recent recession,” Jordan says. “It’s been a really stringent reality for them.”

But McKinley nonetheless found ways to advance Merrill Lynch’s IT strategy, says Jordan. “There will be lots of ways to innovate in ways to manage risk,” Jordan says.

Merrill Lynch went to great lengths to establish a sophisticated financial services platform for its brokers and advisors, which is key to its future growth. Called Wealth Management Technology Platform, it combines a suite of content and applications from Thomson Financial that integrates market data, news, and portfolio management tools with CRM capabilities.

“We pursued strategic partnerships like that with Thomson Financial to empower our 28,000 retail brokerages with an environment supported by custom, in-house technology,” McKinley says.

“We struck a deal with Thomson that takes cost base down and provides scores of best-in-class solutions from Thomson, Siebel, and other smaller operations,” McKinley says. “Ultimately, I’m not going to spend 100 cents on every dollar for a piece of technology. But we are sharing the cost by paying into a partnership that embraces commercial software, so I’m able to get more bang for the buck.”

Looking ahead, McKinley says he wants to oversee a technology company in the wireless, managed services, or integration space. “I want to get back to running a business,” he says.

Correction

In this article, two of John McKinley’s statements were originally incorrect. These statements have been corrected as follows: McKinley said a functional Linux system can run on 150K of memory, and he said he is using modular servers from Dell, IBM, and HP and expects to use blade servers in 2004.