In what I hope is not too accurate an appraisal of my cultural inclinations, a member of my family gave me a book for Christmas. It's called "The Wit and Wisdom of Mae West" and it reports that once a man came up to Mae West and said "How do you do." She replied "How do you do what?" It's a good question and previous speakers have discussed with you what we are trying to do in the day-to-day mechanics of differential -- interest banking.

From listening to these talks as well as from my own limited experience, I am beginning to think -- perhaps a bit later than most of you -- that we are really faced with the problem of managing, not only a traditional bank, but what amounts to a financial conglomerate. Just where we sit along the curve of increasing conglomeration from, say, a General Electric at one end to a Textron at the other end is not quite certain. What is certain -- conglomerate or not -- is that we could not, as we are often told, "stick to banking" if we wanted to. Change in every aspect of our environment will not let us.

In the next few minutes, then, I would like to discuss with you what we are doing here at Citibank in the attempt to face the fact of a financial conglomerate. The other side of that coin is how we are trying to accommodate ourselves to the incredible rate of change in the world around us. Some of the resultant problems are industry-wide and some are probably peculiar to us.

To be sure, change has become one of those cliches that makes you want to reach for a gun. But I have a suspicion that it has become a cliche or a sort of protective excuse for those who are unable to handle what has become new. For many people, without thinking too much about what is involved, say that they welcome change when, as a matter of fact, most of us fear it. Eric Hoffer has seen this with his usually clear perception when he wrote recently that "We can never be really prepared for that which is wholly new. We have to adjust ourselves, and every radical adjustment is a crisis in self-esteem: we undergo a test, we have to prove ourselves. It needs inordinate self-confidence to face drastic change without inner trembling."

Nevertheless, the fact is that we do live in a changing society and that the rate of that change is accelerating. To the extent that we can measure these things, we say that man's knowledge has doubled in the last seven years and may double again in the next seven, although it took over one thousand years to achieve the same rate of change the first time around. We all adopt the current buzz words and appear to speak coherently, if not knowledgeably, about the third generation computers, the checkless society and the other catchwords of the day.

But what we in our ignorance call catchwords are the working vocabulary of the expert, who is the real child of change. His decisions and their consequences however are hardly childlike. How you integrate his expertise into the organization and make economic use of his knowledge is one of our most persistent problems.

The world has always had to contend with the expert in one field who often feels that his own brain power equips him to make judgments in other fields. This assumption may or may not be true and numerous examples are available. Henry Ford the elder, did as much as any one man: to invent the production line which became one of the foundations of our economy. But he was a child in politics when in one of the most futile gestures in history, he sent a peace ship to Europe to stop the First World War. All of you recall the sudden discovery of international law by atomic scientists after Hiroshima.

We are now all faced with a similar problem in that for the first time in the banking business it is difficult for us to grasp the techniques we are using. There was a time when I could post any record in our bank. We now have 1,200 programs for 25 computers, and therefore must rely increasingly on people who say they know what they are talking about. You and I can do our best to learn about the capabilities of computers, the difficulties of software and all the rest, but would have a hard time personally posting the records. This is the world of technology represented by our research and development efforts. But making intelligent, informed judgments about how much money is the right amount of money for you or us to spend on R & D is not that easy. The amount of money that can be spent to discover why the grass is green or the feasibility of using satellites to post our books in Africa is unlimited. We know that if we spend too much we will destroy today's earnings, but are equally aware of the fact that if we spend too little, we will destroy tomorrow's progress.

One of the lessons of technology in the Second World War was related to me only the other evening by one of our former commanding generals. He said that in many instances, it was almost impossible to get scientists to administer other scientists because of the matter of face and prestige involved. The men who worked out the most destructive bombing raid in history, the fire bomb raid on Tokyo, were led by a lawyer. As an administrator, he harnessed the frightful scientific knowledge of a diverse group of scientists. Because of pride or face they had been unable, before he came on the scene, to work for someone else who held a scientific degree. Those of you who have worked at hospitals are familiar with attempting to get doctors to yield to intelligent administrative procedures if these directives come from another doctor.

Moreover, the nature of the scientific and the technological effort is also pertinent. As C. P. Snow observed from the work of British scientific organizations and committees during World War II, a scientist generally concentrates on one thing at a time for a long time. An administrator has to think broadly about a lot of things and their interconnections. And for this reason as well as the record, Snow believed that the expert is not likely to be a very good administrator.

It may be, then, that one of the answers to coping with the R & D effort is to put an administrative officer in charge of this effort as a coordinator, as well as judge and jury of the cost effectiveness of the programs. At least, without that kind of administration we found that Citibank's R & D budget was becoming one of the largest controllable expenses after salary. Consequently, we completely reorganized the effort recently and cut back the costs very sharply.

For what it may be worth as a case study, we divided R & D into two sections. The first is pure research and development on the management sciences and we have gone to a user concept of costs. In other words, if a division wishes to have a mathematical model built for some particular use, R & D will build it for them on a contract basis with the user picking up the tab. The No. 1 project that this section is working on is an asset management model that will have the on-line capability of instantly computing alternate uses of our funds on a P & L basis. For us, at least, this is a rather fundamental program. It is almost impossible to think of any great company that does not rely on computer information to manage its inventory. We have been way behind industry in this regard.

We call the second area "Systems Operation and Research," and it has by far the largest budget. It concerns itself with designing the software for the new generation of computers and assuring us of an overall compatibility among the great operating areas of the bank. We have moved to a cost-effective basis here too, and unless we show a demonstrated pay-out on a projected budget basis, we lose interest. The ability to monitor the results of projected savings is as important as the projects themselves. Projected savings have a way of disappearing if not constantly checked and rechecked.

As you might suspect from what I have said so far, the second major problem that we face in attempting to intercept the future, is a managerial problem. We are thinking about our organization and asking ourselves a lot of basic questions. Banks grew like Topsy. Other than adding a few boxes on the same charts, we for one have not changed our basic structure for many years. For example, we all toss around the word "marketing" with great aplomb, but is only in rare instances that we have really had a marketing philosophy, a marketing plan and the intellectual horsepower to implement it.

We have applied marketing precepts to one area of our bank very successfully. That is traveler's check. This was relatively easy as we had an identifiable market, a single product and an organization dedicated completely to selling it. But we are asking ourselves whether we should apply the same philosophy to our other markets, whether they are wholesale or retail. We are wondering whether a senior officer should be put in a bankwide coordinating position. Many of the larger corporations do this by establishing the position of marketing vice-president reporting directly to the president or chairman. In these cases, the marketing vice-president acts as an in-house consultant and as a link between product activities and those officers with policy-making responsibilities.

Similarly, can a bank like ours or yours afford a branch system in which each manager is all things to all people? Conversely, how many people can we afford to have in the bank who are experts on leasing, or carve-out loans or finance companies or transportation or utilities? Will these functions follow operations along the path of centralization? Is the day coming when the line between wholesale and retail will be more sharply drawn, when the budgets that we struggle with will be on a product line basis and not reflect divisional results? Do we really know whether we are making or losing money on each specific service? In this bank we are moving at an accelerated pace toward standard costing, transfer pricing and work performance measurement through standard hours. It is an exciting prospect. We are not there yet, but the impetus is gaining and we are moving in that direction.

Indeed, here is the third area of concern that flows from banking's need to satisfy the demands that change makes of it; that is simply the accurate determination of profitability, which I'm certain has plagued each of us in one degree or another. Many of you I am sure are more advanced than we are in understanding costs and earnings. Unfortunately, we put in a whole second generation computer center without really cranking in any management information. Now, however, the basic fundamental in trying to manage the Citibank is to get timely management information where it can be useful and in a form that can be digested. We are proceeding along this road.

This year, we have devised a new MIS system applicable to all our profit centers based on the residual earning theory which is used in some great corporations. While we do not say that it is perfect, it represents an enormous advance over what we have had before. Without it, we are unable to concentrate increasingly scarce resources of men and money at the points that really ring the cash register. But I have to confess to you that when we raise the prime rate it is still somebody on overtime, using a pencil and writing on a piece of paper, who gives us an estimate sometime later of the effect on our earnings.

Perhaps we should not feel too badly, in view of the story that was told at M.I.T. before the on-line computer system was developed there. A professor devised a mathematical formula for weather prediction. To describe tomorrow's weather, he went into a room, worked his mathematical wizardry and came out with an accurate prediction of tomorrow's weather -- three months later. Still, at a time when they are sending back analyses of the organic composition of the moon, we must ask ourselves whether what is for us rapid progress is at all satisfactory.

We cannot do any of these things, however, without people. Indeed, this is still another category of concern that change has imposed upon us. And quite frankly, we worry about people -- where we are going to get them, how we are going to train them, motivate them, communicate with them, and keep them. One of the great experts in personnel recently made a survey of the largest corporations in the United States. He discovered that by the time the real stars in those companies were forty years old, they were making twice as much money as the average fellow who came into the corporation with them. And no wonder. Today's high-starting salaries have been rising for law, technical and business school graduates at the rate of between six and nine percent annually.

Contrast this kind of individual accomplishment with the state of financial advancement for those who have been with the corporation over a long period of time. The study I just mentioned also divided top executives in several large corporations into three groups: those in the bottom 10 percent, those in the top 10 percent and those in the middle 80 percent. This investigation found that between ages 32 and 65, the compensation of those at the 90th percentile level, had compounded at the rate of 2.3 percent. But those in that large middle group of 80 percent had advanced at the rate of 1.1 percent. In the banking business we have not always made these sharp distinctions. In fact, it is fair to say that keeping peace in the household by making Civil Service-type raises for everybody has been more the rule than the exception. My friend who assembled this data explained to me that the Citibank in particular, and the banks in general, were merely training officers for other corporations. If they didn't quickly face up to the fact that they had to make those sharp distinctions, they would lose their best men to other industries.

What is needed is more than a revamped compensation program. We need to develop realistic evaluation and performance appraisal systems. The business corporations are beginning to think in terms of the two-track pay systems that tie together pay and appraisal, and I suspect that we should be thinking along with them. At Citibank, we have quite a way to go before this lesson sinks in and takes hold, but it is on the top of our table and I commend it to your thought.

But the picture is not all gray, for we are making definite progress at the other end of the manning table. By changing our frame of reference completely, we have been able to mate our need for clerical personnel with the needs of the disadvantaged to obtain employment. As many of you have probably done, we have installed a number of different training programs in cooperation with various poverty agencies. But we have been especially successful in one particular area.

Here in New York, one of the great obstacles to employment has been an insistence on a high school degree which is achieved by a relatively small percentage of the underprivileged. Therefore, in a number of lower level positions, we have dropped the diploma requirement. Instead, we have devised a series of tests to match the ability of the applicant to the requirements of job. In some instances, we have even waived the tests because of language barriers or the lack of an ability to take tests and the results have been entirely satisfactory I am pleased to report.

But at every level of the organization, and especially among the large percentage of rank and file, employee's motivation and involvement are very much a function of information about fellow employees, about the bank and its objectives, in short, about the world of work. This, of course, has been a problem that the corporations have wrestled with for some time, and many banks are only just beginning to follow their leadership. Here at Citibank, we just issued the first copy of an employee newspaper that will come out every other week and supplement the monthly magazine that we have published for years. In this way, we hope to be able to provide news about the bank both as it happens and in depth.

Finally, we can organize to manage change and we can attract the people who will help us create change. But we are realizing more and more that our efforts will not be at all productive unless we understand that the most important single problem in the banking industry is regulation in an economically integrated world.

Everybody and his brother is going into our business on an unregulated basis. You and I taught great commercial companies how to set up their captive finance companies and then watched them take away our personal finance business. Every day you and I initial lines of credit that make it possible for our best customers to sell commercial paper in the open market at rates below our prime rate to our own customers who draw the money out of our banks to pay for it. You and I watch an insurance company go into the credit card business, the insurance companies go into the bridge loan business and a great independent finance company buys control of a commercial bank.

Yet every time the commercial bank seeks to extend its legitimate finance business it gets sued by some segment of industry. The economy seems to be reorganizing itself. The old concept of competition is being replaced by litigation where the consumer finds himself in the dock. But if we really believe the evidence that we use over and over again in our own speeches about rate of change, technological advance and the fantastic changes in our society within our lifetime, we in the commercial banking business must respond positively to these challenges and opportunities.

Altogether, then, these are some of the problems that have arisen at Citibank as we attempt to find our way through the jungle of accelerating change. In thinking through those problems, it seems to me that a warning is in order. Whether it is in the operating process or in securing better information, we need to understand the full meaning of automation, for it is too easy to be misled. It is too easy to see that what we used to do slowly, we now do quickly; what was once unreliable is now more reliable; what was once estimated is now calculated precisely. And it is too easy to be impressed and pleased. For what we could be seeing actually is the automation of human limitation.

But instead of automating what is there already, I wonder whether we shouldn't be automating what is not there at all; that is, a new control system for the bank at large. In no other way can we avoid adjusting our environment to the equipment instead of the other way around. That, after all, is what the cliche of change is all about. And fortunately, there is an element of certainty in all this. We are learning rapidly how very wrong Gertrude Stein was when she said in defining money that "money is always there but the pockets change; it is not in the same pockets after a change, and that is all there is to say about money."