When Bob McKinnon's appointment as Westpac's new technology tsar was announced back in July 2008, the shock waves could be felt throughout the senior ranks of Australia's entire IT industry — not just among those who have fortune and fortitude enough to call themselves banking technologists.
Bob McKinnon (Credit: Westpac)
After all, it's not as though McKinnon was unknown. The executive, for more than half a decade, ruled the IT operation of Westpac arch-rival the Commonwealth Bank of Australia, one of the nation's largest IT shops. The title of Commonwealth Bank CIO is not held or given up lightly, and McKinnon made his mark on the industry with the implementation of the CommSee platform as part of the "Which New Bank" program.
Today, it's McKinnon's successor at the Commonwealth Bank, Michael Harte, who is known for pushing vendors to the utmost of their ability and trying to drive change in the industry. But as the public sector outsourcing boom of the late 1990s faded in the early years of the Noughties it was McKinnon's hand and the Commonwealth Bank's purse that many of the Australia's largest technology suppliers paid the most attention to.
McKinnon came to Westpac at a fascinating time. The bank's long-time chief information officer Simon McNamara had been almost invisible for some time, with one of his sole high-profile outings being the introduction of a massive Cisco IP telephony overhaul.
In August 2006 it was then-Westpac chief security officer David Backley (later the bank's chief technology officer) who would publicly tell of the bank's "battle" with outsourcing partner IBM over security governance.
Diane Sias, a former McKinsey consultant, joined Westpac in September 2007. She replaced outgoing group executive of business technology solutions and services Michael Coomer, who left to join outsourcer EDS. Another prominent executive at the time was Alison Bichsel, the CIO of Westpac's Corporate Centre, covering finance, HR and group risk. Bichsel's position was one of about five divisional CIO roles to report to McNamara.
But all this was set to change when St George CEO Gail Kelly won the right to lead Westpac in August 2007. Kelly's appointment would spur the bank's acquisition of St George, and the time was marked by several high level departures of Westpac IT executives (as well as the departure of well-regarded St George CIO John Loebenstein, who retired).
In a wide-ranging briefing with journalists held in Sydney this week, one of his first and most open events since taking the role several years ago, McKinnon made it clear that the former occupants of Westpac's IT department had left the place in a mess, although he wouldn't say elaborate on how it got that way.
The CIO told stories of branch staff who had to wait 45 minutes for their desktop PCs to log in for them to start work. Even when they could log in, PCs would often freeze.
"The greatest challenge that we had is the stability of our technology," he said, noting that back in 2007, Westpac had been going through about thirty Severity 1 IT outages per month. In banking land, Severity 1 is the worst type of outage, one for which there there is generally not an immediate fix, and the bank's ability to conduct its business is affected.
The problems spilled over into Kelly's lap, with the CEO calling the performance of Westpac's IT division a "low light" at the bank's annual earnings announcement in late 2008. "It's clear they need work to enhance reliability and to equip us to support our customers in the way we'd like. And we have certainly identified this issue, we are strengthening our team and I believe we have it in hand," said Kelly at the time.
This week, McKinnon acknowledged the depth of the shake-up that took place in Westpac's IT ranks upon his arrival, which resulted in most of the department's top executives being replaced and hundreds of workers made redundant.
"There are probably only two people in the organisation at a general manager level still in their roles," he said. "We started in August just after Gail split the technology and operations teams, [and] rebuilt from the top down." McKinnon said that his first priority when he stepped on board at Westpac was building what he calls an "A-team".
Clearly McKinnon's prize hire was Sarv Girn, the bank's chief technology officer who had worked with McKinnon at Commonwealth Bank in the past. Industry observers often highlight Girn's technical savvy as one of the critical factors in helping McKinnon navigate the complicated waters of modern banking IT architecture.
This week Girn described himself as having been "made in India, assembled in the UK, and since 1994 operational in Sydney". The executive can claim a quarter of a century in banking IT, with a decade in the UK working for names like Citibank and Reuters.
Other McKinnon hires include Clive Whincup, the bank's general manager of service delivery applications, and Bernadette Inglis, the general manager of the bank's Strategic Investment Priorities program, who stepped on board in May this year.
The bank picked up Gary Sim as its new general manager of service delivery infrastructure, and, in a swap for Coomer, nicked EDS' Asia-Pacific chief information officer Randy Fennel to be its new general manager of engineering and sustainability technology.
"Randy is the rocket scientist. He started work in Boeing," said McKinnon. Fennel's former titles include, according to his LinkedIn profile, the role of senior manager at Boeing's Joint Strike Fighter Program in Seattle.
If getting the right staff on board was one piece of solving the puzzle of Westpac's technology headaches, another part was building a substantial remediation program, which McKinnon has driven within the bank over the past several years.
The executive says the online banking area was delivering "its fair share" of Severity 1 incidents. So Westpac spent $30 million in 12 months to clean up the infrastructure. Whincup says the bank's IT infrastructure had a lack of "currency", which is a measurement of how it has continued to upgrade and maintain systems over the years.
When you factor into the equation McKinnon's admission that Westpac's ability to introduce change into its business had become weak, and then add in the complexity of its IT systems, the bank's resiliency was suffering a triple hit.
So McKinnon's teams set about replacing not only old technology — including some 12,000 desktop PCs, but also back-end infrastructure, entering into a two-year program with IBM that has seen the bank's storage area network remediated. The bank needed to work with key suppliers IBM and Telstra on the problem.
Another 12-month project saw the bank go through and rationalise all of its IP addresses: there were incredible amounts of duplicates. "We had gazillions of them. They all had to be cleaned up," says McKinnon.
And, according to the executive, the change has been noticeable.
The bank gradually reduced the monthly average Severity 1 quota to fifteen, then seven. In the last quarter it had an average of three per month. So far in October there have been only two, both reportedly small. (One was a circuit-breaker switch being tripped in a call centre.) Whincup says McKinnon has a "zero tolerance" attitude towards problems: realistically, there will always be problems, but it's about the having the right mindset.
And Kelly has noticed. "Extraordinary what Bob has achieved in two years," she said at an investor briefing last week. "Technology is an area of strategic focus. We have an advantage over our peers."
If the remediation project has been a big focus for Westpac, another of its major targets for work has been the integration of St George's systems with its own.
Former St George CIO Loebenstein was highly regarded for his work at the bank over the years, and CTO Girn says much of the smaller bank's systems had been designed in a tiered structure, utilising approach service-oriented architecture to make sure that they were scalable and flexible enough to be re-used.
It's normal in an M&A for the systems of the firm being acquired to be migrated to those of the larger company, not the other way around. but McKinnon says "a lot of good technology gets trashed" that way.
Kelly, Girn says, gave the bank's IT team the latitude to use the best system, rather than just the Westpac one. So some of St George's systems — its teller platform, HR and CRM systems, for example — are coming across to Westpac. On the other side of the fence, Westpac's treasury systems were better, as well as its general ledger platform, so those are being implemented at St George. And of course the basic email, telephony and collaboration systems had to be integrated internally. There is also a widespread datacentre consolidation project currently under way.
Sarv Girn (Credit: Westpac)
It's all about what Westpac calls its multi-brand strategy. "If you walked into a St George branch today you wouldn't know they were owned by Westpac," says McKinnon. "We were given a mandate to focus on the best platform," says Girn.
Of course, the most sensitive part of the St George integration is Westpac's plans to adopt the smaller bank's core banking system, CSC's Hogan. Westpac last week delayed the timing of the shift until 2014 while it focused on a raft of what it calls "Strategic Investment Priorities", which are described as being focused around customers rather than IT for IT's sake.
Any move by Westpac in the area cannot help but be seen in the context of CommBank's own migration, largely complete, to SAP's banking platform, with the help of Accenture. The program of work, costing some $730 million, has grabbed the attention of an industry that loves to focus on big bang projects.
During his own briefing, McKinnon didn't mention the Commonwealth by name, but he notes a number of people in Girn's team worked on SAP at "a different place".
Harte has made much in public of the shift to "real-time banking" that CommBank's move has allowed. But McKinnon points out that St George already has real-time courtesy of its Hogan platform, and notes that Westpac in general needs to solve a different set of problems than its competitors. "That business case may have worked for them, but that business case doesn't work for us," he says.
In addition, most banks around the world are spending more money on front-end systems such as internet banking, McKinnon says. Transactional systems are also soaking up cash. And core banking investment is coming third. In the Asia-Pacific region, he says, those numbers are different, because a couple of players are bucking the averages.
When Westpac does shift its core, McKinnon wants the bank to be ready for it. He says there is still a great deal of Hogan expertise within the ranks courtesy of earlier BankSA and St George migrations. This is one of the reasons the move to adopt St George's platform makes sense.
One final aspect of Westpac's IT strategy which McKinnon has overhauled is the company's relationships with its partners.
There has been constant speculation over the past several years whether the bank will renew its 10-year comprehensive IT outsourcing contract with IBM, which had an initial value of $2.3 billion when it was first signed. Given the expanded scale of Westpac's operations now, one can't help but feel that value might be a bit larger if it gets renewed.
The bank has had its troubles with IBM over the years, McKinnon acknowledged last week. "We set out two years ago with a view to working out whether we could rebuild the IBM relationship," he says.
Reports are that things are looking good, although a decision has not yet been made. IBM has stepped up to the plate over that time, McKinnon says, with IBM having been "very proactive" particularly in the way the outsourcer has helped Westpac work through its Severity 1 headaches.
Other major partners include Telstra, Microsoft, Optus and Oracle, as well as companies like VMWare, EMC and Cisco, with whose help Westpac has constructed its own private cloud infrastructure over the past several years.
And Westpac has also rationalised its list of service offshore partners down to four in India: Infosys, TCS, Wipro and IBM. Westpac has been steadily ramping up the size of its IT resources, both onshore and offshore, to deal with the volume of integration and applications development work it is doing.
For example, in May the bank revealed it had hired 304 additional technology staff over the past year, and this week McKinnon said the figure was 1200, with much of the resources being located in India through its partners, or working in Australia on a temporary basis. "For us, the relationship with the panel suppliers is much more important," says McKinnon when asked if he's tempted to poach some of the staff permanently. "We need the skills for a period of time."
Complex, but satisfying
When you look at Westpac's approach to technology under McKinnon, there's a sense from several members of his team that many of the problems they're dealing with, they've seen before at other banks.
The bank still has its challenges such as the ongoing Severity 1 incidents, a number of disparate systems across the various brands that need to be integrated, and of course the core banking conundrum. But what shines through is the enthusiasm that McKinnon's senior team has for the vision that Kelly is leading right from the top of the bank.
Whincup says he's worked in IT in banks for more than 25 years, including in the UK and continental Europe. "I don't get invited to many parties," he jokes. He says one of the things he gets asked a lot, even by his kids, is why he's in Australia, and why with Westpac.
His answer is that he's been in the middle of banking mergers before and that from an IT side it was usually a case of "lift and insert" the larger bank's systems into the smaller bank, destroying much customer value along the way. Westpac's different, he says.
"My belief is, the way the Westpac story is articulated, putting the customer at the centre of everything we do drives a focus on the long-term," Whincup says. It's a message that all of McKinnon's senior team and the CIO himself broadly echoed this week when speaking to journalists — a confidence that Kelly's leadership and Westpac's multi-brand strategy means they can focus on doing the right job with technology rather than taking the short cut.
The bank's technology focus on smaller projects — what it calls Strategic Investment Projects — instead of the much-hyped core banking revamp reflects this customer focus.
And of course, despite the complex strategic projects he is grappling with, McKinnon himself hasn't lost his enthusiasm for the basic building blocks of IT. He's still a geek. iPads, for example, have been rolled out to Westpac's senior leadership team. They use them in high-level strategy meetings. And McKinnon himself could be interested in one of Microsoft's new Windows Phone 7 devices, noting he had a chance to play with one of the handsets recently in the US.
"Have you seen them yet? They're really cool," he says.