analysis If you are a close follower of technology-related news in Australia’s banking and financial services sector, there is no doubt that for most of the past few years, you will have appended a question mark in your mind to the name ‘National Australia Bank’.
When it comes to the bank’s rivals, a great of information is available. The Commonwealth Bank of Australia has conducted a constant series of self-promoting activities when it comes to its $1.1 billion core banking systems replacement project and its claimed benefits. Westpac has been similarly up-front about its lack of such a project and focus on other areas (see a new interview with its new CIO in the AFR today), as has Suncorp, and ANZ, even if it hasn’t been saying much of substance, has at least been talking up its own internal IT projects.
In this context, NAB has for some time stood out as an organisation about which relatively little has been known about its technology operations.
Like CommBank and Suncorp, but unlike the other banks, the bank has reached a criticial inflexion point with respect to the legacy core banking systems which have been weighing down its operations for the past decade. Spurred by the efforts of its then-chief information officer, highly respected industry veteran Michelle Tredenick (formerly the CIO of MLC and Suncorp), the bank in mid-2008 announced that, like Suncorp did last year, it had selected Oracle as the key partner for its core banking systems refresh — a revamp it dubbed its Next Generation Platform.
The guinea pig for the project was to be NAB’s fledgling Star Direct business, which is perhaps better known for launching its online savings project UBank.
At the time, it was heady stuff. Finally another major bank had blinked in the ongoing staring contest with early adopter CBA with respect to the issue of core banking systems replacement. With NAB pursuing a similar project, much of the industry thinking went, it would only be a matter of time before Westpac and ANZ followed suit and the sector was awash with such projects, unlocking billions of dollars more of spend that seemed destined to pour into the willing hands of companies such as Oracle, SAP, Accenture, IBM, CSC and others. For a comprehensive overview of this period of history, see the following article: Changing of the Guard: National Australia Bank.
However, matters at NAB quickly took a different path.
Less than a year later, Tredenick had exited the bank courtesy of an executive reshuffle stimulated by the appointment of Cameron Clyne as NAB’s new chief executive, replaced by Adam Bennett, a comparatively lower profile IT executive who had served with Clyne at the Bank of New Zealand. But while Bennett remains NAB CIO on paper, in practice since that time it has been his boss, NAB group executive of Group Business Services Gavin Slater, who has become the public face of NAB’s IT transformation.
And from then on it became customary for the bank to talk down the NGP project.
Clyne regularly name-checked it at the bank’s annual results sessions, but neither Slater nor Bennett have appeared in public regularly to divulge details of its progress, and rumours began to spread throughout the industry about numerous delays, scope cuts, functionality delivered outside the core banking area, budget cutbacks and more.
The rumours weren’t hard to believe — after all, these were exactly the sort of outcomes which always stem from a business which ramps back its focus on major IT projects such as the Next Generation Platform project. And in October last year NAB formalised the delays with the confirmation that it had pushed back the delivery of its core overhaul to 2012, having focused on other aspects of the project in 2011, despite its pronouncement in May that 2011 was the year for key parts of its overhaul.
And in the meantime NAB’s technology support team had plenty of other worries on its plate — including an ongoing series of outages that were taking down its systems in the kind of ‘Severity 1′ incidents which are banks’ number one enemy, and a rolling series of outsourcing moves which had many of the bank’s employees up in arms as their roles were transferred directly to IBM.
Last week, for the first time in several years, the bank conducted a relatively open and transparent briefing on what’s really going on behind its closed doors, with Slater addressing a lunch held by the Trans-Tasman Business Circle, with a startlingly open view into its operations.
There are currently three major IT transformation programs running within NAB, according to Slater, in the areas of infrastructure and network transformation, systems re-platforming (the Next Generation Platform project) and lastly, customer process transformation.
With respect to its infrastructure, Slater said, NAB was conducting a project with the aim of hardening its operating environment and improving stability and performance, with key partners IBM and Telstra. In this area, the bank was “18 months” into a three year transformation of its infrastructure, with the effort affecting its datacentres and its voice and data networks (presumably, the implementation of unified communications).
With respect to its NGP project, Slater said that NAB was working with Oracle on its core banking, finance, risk and treasury systems and SAP on its general ledger replacement. The platform is already driving benefits for its UBank subsidiary, such as the ability for customers to open savings accounts online within a few minutes (also a key benefit of CommBank’s core systems replacement effort).
In terms of the bank’s wider operations, Slater didn’t go into specifics about precisely what technology had been put in place where yet — and as yet the changes which the bank has made to its core platform don’t appear to be showing up on the customer side.
However, he said, he was “very happy” to be able to report that “in the last few weeks we have successfully implemented a major foundational release that hardwires our new banking platform into the banks’ wider ecosystem”.
“It is this foundation that future releases will be built [on] without having to repeat this work,” Slater (pictured, right) added. “Clearly, change on this scale is progressive — not instant, which is why we have adopted a release-based approach as part of our risk mitigation strategy, with several major releases being delivered over the life of the program.” The executive added that the release itself was “a significant milestone for NAB”, as it was the culmination of almost two years’ work.
“Nothing of this magnitude or complexity has been implemented into our environment before,” he said.
The impact on customers, Slater said, would be substantial, with customers gaining access to greater customisation; a better choice in products and how they deal with NAB; faster fulfilment times; and greater levels of self-service.
The third piece of the NAB’s puzzle relates to what Slater described as ‘customer process transformation’, which the executive said had three key objectives: To improve the experience of staff and customers by removing many of the “system and process frustrations” that they faced; reducing risk and driving efficiency by replacing more than 100 “cumbersome legacy systems” with 10 integrated applications and migrate NAB to a new general ledger; and providing the flexibility, capability and capacity to allow NAB to “differentiate and drive innovation”. In these areas, Slater said, the bank had made “good progress to date” — in areas such as “mortgage transformation”, improved turnaround times, reduced turnovers and the ability to handle growth.
One tangible outcome from this project that Slater listed would be the ability to deliver customers a single view of the products and services which they bought from NAB — “from 20 systems/databases to a single customer view”.
A lot of this almost sound easy — and Slater made it sound in his speech as though NAB was making substantial progress on its strategy, despite the well-publicised delays in its core banking systems replacement project. However, it is obvious that modern banks operate some of the most complex IT infrastructure on the planet, and the executive also acknowledged this fact in his speech.
“The scale of our investment is clearly costly and complex,” he told the audience. “It requires careful planning and execution. A good way to describe it — if we were an airline — it would be a bit like converting a 747 to an A380 whilst in full flight. Some components are able to be built on the ground, whilst others need to be delivered while still being open for business.”
Slater noted that economic conditions continued to be uncertain — and it could be “tempting” for NAB to scale back on this level of IT investment. However, he said, the growth in usage of NAB’s digital banking platforms — the bank operates over 140 million ATM and EFTPOS transactions per month, and over 20 million Internet banking transactions — means it needs to continue to build for the future.
“Ultimately the economy will find its balance, and we don’t want to find ourselves behind the eight ball,” said Slater. One wonders what other banks such as ANZ and Westpac, which are not yet pursuing core banking transformation projects, would make of that comment.
“It is difficult to predict what the bank of tomorrow will look like in ten years and beyond,” said Slater, “but we do know that growth in the digital economy will continue at an exponential rate … large organisations the world over, regardless of industry, will have to, at some point, face into the strategic challenge of addressing complex, ageing and inflexible technology in a substantive way.”
“They will have to content with the growing chasm between old and new technology. Simply putting a new roof on an old house with weakened foundations will not be a sustainable solution.”
To download a full copy of Slater’s speech click here (PDF).