Banking on the Partnership

Even US CIO magazine's Web site had the story. Keynote speaker David Murray, managing director of the Commonwealth Bank of Australia (CBA), had told the World IT Congress that the US IT industry had "single-handedly wrecked the world economy". The banker had complained about the IT industry's habit of promising the world and delivering, well, a system that crashes, leaving customers high, dry and angry, the magazine reported.

"Murray had spared his particular disdain for Microsoft, challenging the company's marketing threat that those companies that failed to get down with IT would go down on the competitive corporate battlefield. But the biggest problem, the banker told the congress, the one that single-handedly wrecked the world economy, is that the IT industry didn't only mislead customers; it misled investors, who ended up making investments that ?'were entirely unrealistic'," US CIO recounted.

That in itself was sensational enough, but other reporters went further, drawing a long bow connecting Murray's expressed concerns to alleged dissatisfaction with the CBA's outsourcing partners. Wrong, wrong, wrong, says CBA group head, Technology Operations and Procurement, Russell Scrimshaw. Those journalists who had linked Murray's remarks to persistent industry gossip about the souring of the relationship between the CBA and EDS - to which it outsourced its entire IT function in 1997 - were guilty of a huge and faulty leap of logic.

For instance the Australian Financial Review claimed Murray's call for companies to avoid the temptation of making IT a strategy in itself was a thinly veiled jab at the bank's own service providers, EDS and Telecom NZ. The article based the claims on the reported service difficulties suffered by the bank's Internet and telecommunications platform in February, and problems with EDS in late January that left the bank's Internet platform and ATM network "severely disabled" for a few hours.

Likewise, Web journal iTnews reported Murray's remarks in the context of claimed strong and constant industry rumours that the relationship between the CBA and EDS had gone sour.

Nonsense, says Scrimshaw, whose job is to run common services including Technology and Technology Services on behalf of the whole group. In fact, the CBA's relationship with EDS has never been better, its satisfaction with the outsourcing arrangement never higher. Indeed it was precisely because the bank was so impressed with the way the IT outsourcing contract had worked for it that it decided 18 months before to outsource its telecommunications to Telecom New Zealand.

"It was a brave thing to do: to outsource our information technology to EDS," Scrimshaw says. "Everybody at the time said we were making a big mistake. But the reality is we are much better off than we used to be."

Yes, Scrimshaw says, there had been outages earlier in the year, which had been widely documented in the press. Yes, those were regrettable. But all systems have problems on occasion. It is just that when the CBA loses its network some 140,000 EFTPOS terminals, 4000 ATMs, 1100 branches, 600 Woolworths stores and several thousand post offices are affected. That makes even the smallest difficulties impossible to not notice.

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"The scale of such an outage with the Commonwealth Bank is greater than with just about any other organisation," Scrimshaw says. "So that means we have to redouble our efforts to get to so-called 99.999 repeating level of reliability . . . We've not had system outages for a long, long time before those two particular events; but because of the size of our reach into the community it's probably more noticeable when it happens to us. But no, the relationship [with EDS] has definitely not soured."

The plain reality, Scrimshaw says,is that at a macro level, at a business case level, the Commonwealth Bank is "way better off" technologically than it was four years ago - a fact universally acknowledged across the executive team of the organisation.

When CIO featured Scrimshaw in June 1998, the CBA was less than a year into the strategic partnership with EDS designed to secure its competitive technological edge while further reducing costs. The bank was well pleased with the results to date but Scrimshaw made it clear back then that the jury was still out on whether the arrangement would lead to the targeted 20 per cent annualised savings.

At his fourth annual report to the board on the 10-year contract last November, Scrimshaw was able to announce the targets in the original business case had been exceeded and service levels had materially improved (severity one and severity two system failures are down by 60 per cent). Six-monthly surveys showed internal satisfaction with IT had consistently improved across the group over the four years. And the job satisfaction of the 1500 or so former Commonwealth Bank IT staff who went to EDS had also improved over the same four-year period.

"On all of those fronts on a macro business level, you'd have to conclude that the outsourcing has been a significant success," Scrimshaw says.

"I would also add that we were so impressed by the way the IT outsourcing had worked for us that a year and a half ago we went and did exactly the same thing with telecommunications and that resulted in Telecom New Zealand gaining that business. So I had to report on the first anniversary of that outsourcing as well to our board, and it was a not dissimilar outcome. We're actually more significantly ahead of the business case with the Telecom New Zealand one than the EDS one, but admittedly only one year into it. And the service levels have also improved as well. So while it is early days on that one, we're on a similar track."

If the CBA is happy with EDS and Telecom New Zealand, the same cannot be said about its satisfaction with the IT vendor community in general. Scrimshaw says at the World IT Congress Murray was really making a plea to the vendor community on behalf of the bank to put more effort into considering the integration requirements of very large companies in their new technology products of the future.

Scrimshaw - who was at the conference - insists Murray fully recognised the benefits the CBA has gained from IT during his speech. Indeed, he claims the first 15 minutes of Murray's speech focused on the benefits the bank has achieved through its online services and how successful it has been with its NetBank (see "Banking on the Realtionship", CIO July 2001) virtual banking service, the CommSec online brokerage and other IT initiatives. He says Murray's complaint to vendors was that all the great ideas they put forward needed to be tempered by the fact that it was seldom as easy to interface them into legacy systems as they would have you believe.

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"[Murray] was really making a plea to the vendor community that whilst they may stand up on a pedestal and tell you how great their new Internet-this and workflow-enabled-that system is, they need to put more thought and effort into how they need to combine those capabilities into environments that are those of very large companies," Scrimshaw says. And they are sentiments with which Scrimshaw thoroughly agrees. Vendors do over-promise, he says, and CIOs like Bob McKinnon, who reports to him, have an important role to play when vendors are guilty of over-promising.

"There are two layers to this," Scrimshaw says. "One is that the business itself has got to keep driving hard for productivity and product simplification and if you don't need old ways of doing things or old products or old channels to market, to get them out of your business. Now if you manufacture a hard product, like a CD player for example, you just decide to stop production of that device. In the financial services industry you've got this legacy of older products that you can't kill off just like that, but big organisations need to aggressively re-engineer their processes and simplify their products on a regular basis, otherwise they keep adding new products and services and never get rid of the old. That's one thing. We owe it to ourselves to do that. But the technology industry also has an obligation to recognise that in certain businesses, like ours, it's an issue for new technologies to find easy interface ways into old technologies."

In that context Scrimshaw was particularly pleased to hear IBM GSA senior vice president Doug Elix say IBM is now aggressively embracing common standards across the industry. "I almost fell off my chair hearing him say that, because 10 years ago IBM's approach was you buy what we build and we're the only ones to set the standard, because it's a proprietary standard," says Scrimshaw. "Well now they've come full circle, which is good. The industry needs to be very robust and strong about adherence and focus on standards and building new products and services to interface to those standards," he says.

No stranger to outsourcing, Scrimshaw joined the bank at the end of January 1998 from Optus, where he had been director of marketing almost since the company's inception. His career began with a 17-year stint at IBM. He has also worked at Alcatel in Australia and at Amdahl Corporation, where he was vice president and general manager for the Western Area of the US, and where he had both CSC and EDS as customers.

Under the new arrangement, Scrimshaw has a broad area of responsibility. His Technology, Operations and Procurement Group combines [oversees] Group Technology - which manages the ITT services contract with EDS and Telecom New Zealand Australia. As well as ITT he has other responsibilities: 5000 back-office staff who process all products as a service to the customer-facing parts of the business; a shared services function including all the finance and HR processing for the group; procurement; and security and fraud.

"My observation would be that there's an increasing demand for services to be shared across an organisation: a) to get the benefits of scale of sharing those services, [and] b) [because there is] a recognition that many of our products and many of our channels to market do similar things to service or to sell to their customers, and it makes good sense to reuse the capabilities across the whole group," Scrimshaw says.

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"For example, when we take an application from a customer to open an account or to get a credit card or to apply for a loan or whatever, that's a very similar process no matter what the product is. It makes good sense that we ought to be able to move to a singular way of handling an application from a customer. There's no reason to design a separate process per product to handle an application. I think there's an increasing recognition in organisations that if a process is similar to another one, then the two should be combined, and the reality is you ought to be looking to reuse as much of your capability across the rest of the business as you can."

To help achieve this the CBA has a matrix management structure, making it easier for parties to recognise the gains to be had from sharing. For example, the Executive Technology Committee, which meets monthly, is chaired by David Murray and comprises the executive committee of the bank plus CIO Bob McKinnon.

"It meets monthly and it reviews all technology-based projects across the group and it reviews our blueprint for the future - in other words, what are our priorities around technology, which projects will receive priority over others - and it monitors progress in those projects," Scrimshaw says. "That's one forum where you will regularly see that someone is trying to develop something that someone else already has. And there are other forums like that for other areas of the business."

"My role is to continue to probe and question and try and get the most effective result for the shareholder and for our customers," he says. "I'm really very focused because I run a shared services group on greatly improving the productivity of the organisation. But in order to do that, one of the things we need to do is to reinvent our processes and in so doing we ought to be able to greatly improve customer service."

Likewise, Scrimshaw says, CIO Bob McKinnon, regularly sees discontinuities in the organisation, or opportunities for more efficiency in the organisation. A major part of his responsibilities is to give voice to such issues, to allow the senior levels of the organisation to recognise opportunities to improve productivity or customer service.

And McKinnon, while not having to manage the day-to-day responsibilities of IT, has many other important duties. These include managing the contract with EDS, requiring a prudent and focused understanding of the agreement that was put in place and the charging arrangements; responsibility for CBA's architecture; being keeper of the bank's intellectual property; and being owner of the appropriate policies and procedures around technology.

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6 digital transformation success stories