Changing of the guard: Westpac

Get an insider's look at the recent history and potential imminent future of the technology operation of Westpac Banking Corporation and its subsidiary St George in the last of our Changing of the guards series examining generational change in the nation's big four banks.

Westpac's mouth is so full of St George that it couldn't fit in a core banking rip and replace right now if it wanted to. Instead, it's carefully shoving the best bits of its acquisition down its gullet and hoping it will reap the benefits of the integration so it can later spend its way to upgraded core systems.

Sarv Girn (Credit: Westpac)

The month the bank nominated last year to start its integration — September — has now closed. Westpac's chief technology officer Sarv Girn tells ZDNet.com.au that the bank has started to execute the IT strategy which the new Westpac/St George team has developed. He adds, however, that the strategy is still a work in process, the results of which will be announced when "analysis and commercial negotiations are complete".

It seems a long time since Westpac first said it would buy St George, and some might wonder why the technology integration is only just getting underway. The time has not been spent idly, though, with the bank's technology leadership dealing not only with strategy, but also the structure of the IT team.

Shortly after the merger, the banks announced a major management revamp, bringing in former Commonwealth Bank IT executives Bob McKinnon and Sarv Girn as group executive technology and CTO. Brad Cooper, taken from his position as chief executive of Westpac's New Zealand outfit, was named as chief transformation officer. The old guard was hosed out — the last bastion being Westpac CTO David Backley — and the IT organisation reorganised.

"We now have a core IT group focused on design, build and run elements and business unit CIO roles (including at St George) who report into both Bob and the respective group executive in their business based on clear, delineated accountabilities," Girn says. Governance has also been tightened at the board, executive and technology management level.

With McKinnon sitting at the centre of the new web, it's meant a more central focus, enabling the bank to look to shared services. A source working with the bank said that the reorganisation, which forced the CIOs from the different business groups to work together, made much more sense than how the bank had previously functioned: "It started ringing instead of clunking," they said.

McKinnon can be chummy with the board — he spent time being the joint managing director of building giant Multiplex — or he can roll up his sleeves and dig in, according to a source. Yet his real, self-professed passion is team building. He likes to surround himself with talented underlings, such as Girn, who has been described as his "general".

Accordingly, the new team was a "tight ship", a source said, with simplification and transformation on everyone's lips as they follow Westpac CEO Gail Kelly's mandate to be focused on the customer. This mandate goes head to head with Commonwealth Bank's desire to "delight" its own users. In fact, Girn himself has also used the words "delighting customers".

He will need to. Westpac has to show St George customers they haven't been bought by the evil empire — if they're not at least grudgingly accepting, they'll take their business elsewhere.

That's why the IT strategy is starting at the user end, putting aside core banking considerations until front-line systems can be revamped and integrated. "Success here will enable Westpac to offer more innovation to its customers in self-service channels (for example, internet [banking] where our business needs will be met through innovative functionality in modern, best of breed internet packages) and will simplify assisted service points (eg, branches and call centres)," Girn says.

Some work certainly seems necessary. Kelly last year called technology a "low light" for the group. One analyst fingered the bank's teller system as something requiring special attention. "Westpac's existing client facing teller system is cumbersome, and slow. The long queues in some offices today are not a good advertisement," Intelligent Business Research Services advisor Alan Hansell says.

Westpac has flagged that it will likely go for the cheap option and use the teller platform St George already has, called "Spider", saying that if it didn't it would have to buy a new one. It also wants to move to St George's HR and CRM systems, HR express and Firefly. Meanwhile, St George will be moved to Westpac's finance and treasury systems. Along with these changes, the bank will also be investing in an upgraded online banking platform and looking to upgrade Westpac's ledger platform and systems for transactions and deposit products. The latter upgrades will be important for real-time transactions for time-sensitive products such as debit.

"A wise move, as this creates stakeholder perception of the merger being a success. It means management can tackle dysfunction in the less visible core banking systems area at a later date," Hansell says. "I suspect Westpac's management is 'gun shy'. Its initiative aimed at redesigning its core banking systems through CS90 (Core Systems 90) failed in some areas but succeeded in others. Unfortunately, it is the failures — not the successes — people remember."

However, whatever the bank's reason has been for transforming the customer-based systems first, using existing systems might not achieve the best result possible, according to Cyrus Daruwala, Asia-Pacific managing director for IDC subsidiary Financial Insights.

"It may be a short-term fix, it's not a long-term strategy," he says, adding that he thought it wasn't likely the teller system could scale easily to the millions of customers that St George and Westpac have together. He also doesn't think much of Firefly. Despite this, using a system the banks already own makes sense in a monetary sense, according to Daruwala, which in tough economic times is paramount.

"You have a depreciated asset, for example, a teller system or a core or a hardware or a box or a server or an app, something fully paid for and you've fully benefited from a depreciation model," he says. The alternative — something new — will spike costs in times where growth is uncertain. "Do you seriously think the board would sit and have a chat and say what's the best? No they don't," he says.

Daruwala believes Westpac is looking for quick integration wins and using existing systems would buy it time to show growth, which would allow it to later invest in systems for its long-term strategy — including the planned core upgrade. "They're taking the best possible denomination and enhancing it to serve their purpose, 'for now'," he says.

Bob McKinnon
(Credit: Westpac)

The analyst likens it to buying a brand new house. "It's wiped our accounts dry," he says. "There is every intention to decorate, beautify it, put some bells and whistles, but not now. We're not saying 'no we won't do it'. But let's fix our kitchen sink first, can we? But can we fix our oven first? Let's slap on paint first. Then we'll look at the beautiful leather couch and some Monet paintings."

So while Westpac/St George is tinkering with the kitchen sink, who is going to get the contracts for the painting and who is going to sell it the Monet?

Girn says he is currently examining the suppliers needed to enable the bank's strategy. "This includes a review of our current application supplier relationships, especially around application development and maintenance, so that we deepen our relationship with a smaller number of suppliers who are skilled to supplement our own internal capabilities as required, or can meet backfill opportunities as our staff work on the business transformation investments," he says. Westpac is negotiating with IBM, which does its core processing, to work out what will happen when its contract runs out in December next year.

It will be interesting to see how much business IBM receives. "One of the merged entity's major challenges — which is presumably covered in the model — will be integrating the IT managed services provided by IBM Global Services for Australia New Zealand and affiliates with processing done internally by St George," IBRS' Hansell says.

Daruwala thinks the banks should do more outsourcing, not less. He says St George had been "developing large solutions that need armies of people going down to the kernel and changing code for every business functional need", which he thought was "completely out of whack".

The banks shouldn't be doing all that work, he says: "There is no need for you to be a champion in developing and monitoring. That is someone else's forté."

If IBM is successful in the negotiations, its partners will also likely benefit. "IBM is also leveraging its large global partners to ensure we have the very best skills and capabilities on our account," Girn says. In core banking terms, IBM partners with Temenos, Fidelity, Oracle and CSC.

St George is already on CSC's Hogan platform, which would make it an easy choice, especially if Westpac is feeling "gun shy", as Hansell put it, and many people in the industry say that Westpac is serious about doing so, adding that it would be a low risk option which would allow the bank to upgrade sections as needed. Yet the bank refuses to specify which system it intends to use as yet. Girn says there have been no decisions made as yet as to which vendors it would partner with in the execution of its strategy.

Daruwala isn't surprised the bank hasn't chosen a vendor to go with for its core upgrade yet. He believes it is very difficult for vendors to offer the same functionality that banks possess, as the financial institutions were highly customised. "No one player can claim they service the breadth," he says. "That's why the Accenture and SAP core banking deal: we'll wait and judge it when it's going live to see how really effective and how on time, on budget it really was." Oracle isn't a consideration either, he believes. He says he would pick a consortium headed by IBM and an international player such as Fiserv or Infosys.

Whichever platform the bank chooses, it has a long road of integration before it to even reach the stage where it could tinker with its deepest systems. McKinnon and Sarv certainly possess good IT experience from Commonwealth Bank days — but in the end it may be McKinnon's team building skills that save the day.

"It is naïve to think success in large and complex application systems replacement projects, as planned at Westpac, is due solely to the performance of senior IT managers such as CIOs and CTOs," Hansell says. "Whilst the role of senior managers is important, they are only as good as the IT professionals acting as the application systems architects and, to a lesser extent, the project managers they appoint to lead the initiatives."

Indeed, Westpac and St George might find that the IT integration hinges very much on the IT people working on it, all the way down to the bottom. This makes Kelly's announcement to freeze offshoring into a masterstroke if it was planned to get the team on side. Yet more importantly it will likely be the way both St George and Westpac march to the tune of their new executives.

Having been headhunted from other organisations, McKinnon and Girn won't know the team as well as others who have been there longer. They'll have had to learn quickly to build camaraderie. Yet the combination of the St George and Westpac IT teams, which saw some St George employees take good positions, such as former St George CIO Paul Newham becoming Westpac's chief operating officer, has been "embraced", according to Girn. And if what's said about Girn and McKinnon is true — the former's IT genius and the latter's team feel — getting everyone to work together on the IT strategy shouldn't be a problem, especially since Mr Transformation, Brad Cooper, is said to have oodles of charisma to cheer on the mob.

Kelly had better hope so. Because if they don't succeed in motivating the masses, the integration could go awry. In the poker game of bank IT, the standard flush thrown down by Commonwealth Bank last April when it announced its core refresh would become a royal flush, beating Westpac's full house of St George.

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