Westpac's $340 million project to integrate St George's systems was on target, Westpac chief executive Gail Kelly said today, but the bank's financial report warned "unexpected costs relating to the integration of technology platforms" could smother expected benefits.
Westpac CEO Gail Kelly
Westpac has spent $30 million of the $340 million allocated to IT systems integration to date, the bank reported today at its six-month interim report to 30 March 2009. It has spent $183 million on the wider integration of St George in total to date.
Kelly said the "merger was progressing well", however, within the bank's report it also noted "improved momentum", suggesting a sluggish start to the program. Westpac is understood to have hired project management consultancy, PM Works, to assist steering the systems integration.
"We have a lot of heavy lifting work to align systems and processes ... across the brands," Kelly told analysts. The ultimate goal for the merger is to create a single operations and technology layer that supports St George and Westpac's retail and business banking groups, as well as wealth, institutional and Westpac's New Zealand business.
Technology appears to have moved off the critical "low light" path as Kelly had labelled it last October; however, she noted Westpac was still struggling with operational service, which in part was caused by the integration of systems.
"Redesigning operations process and reducing complexity is challenging and can be frustrating," said Kelly. "It is disappointing that we make it hard for customers to deal with us."
The upshot, though, was that Westpac's strategic roadmap for the merger had been completed, while it had improved systems reliability since commencing the project late last year and plans major investments in its online capabilities.
Key technology plans under the total integration of St George — expected to cost $700 million over five years, with half allocated to systems — include datacentre consolidation and upgrading Westpac's ledger platform. St George will migrate to the new platform following the upgrade.
The bank also intends to revamp its core banking systems for transactions and deposit products, which will underpin its two-headed St George-Westpac strategy. The overhaul will counter similar investments by its main rival Commonwealth Bank of Australia (CBA), which are expected to accelerate its banking product delivery cycle from months to days.
While the majority of St George's systems will transition to Westpac under the integration, Westpac noted that "use of St George technology has higher application than initially anticipated", but did not disclose what systems the comment applied to.
In the coming months both St George and Westpac will also move to a common teller system and online banking platform. Also in the pipeline are front-end changes to its online banking platform, expected to be unveiled in the coming weeks.
Despite the progress reported today, Westpac issued a caveat in its financial report: "There is no assurance that we will be able to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger with St George."
"Particular areas of risk are associated with unexpected costs relating to the integration of technology platforms, financial and accounting systems, and the risk and other management systems of the two organisations," the bank reported. It also noted risks consolidating head office and back office functions of the two entities.
Raw technology expenses reported today reveal Westpac's bills have fallen since September 2008. Westpac spent $32 million on technology, down from $42 million in September while software costs fell over the period from $124 million to $93 million. Combined, the two made up roughly 26 per cent of $463 million in total cash expenses. Additional costs included outsourced technology and information services that were $117 million, up from $103 million last September.The technology bench
Key figures contributing to what Westpac has called its "strengthened IT bench" include two former CBA executives: Westpac's chief information officer Bob McKinnon as well as one-time CBA chief technology officer Sarv Girn.
The pair have once again teamed up to tackle Westpac's ambitious technology plans. In March, Westpac also drew blood from St George's technology team, adding Group executive, technology and operations Paul Newham as its chief operating officer for products and operations.
Kelly credited McKinnon for introducing "analytics" and "rigour" to its technology group as well as improving the bank's "inherently complex" systems. She called the integration plan McKinnon is heading up "executable and pragmatic".
But while the top line bench was bolstered, Westpac noted significant reductions to its full-time employee (FTE) requirements over the past six months. Westpac had reduced its FTE count by 769 following the merger, which primarily affected support functions, such as technology, product and operations, as well as group business units. St George also reduced its support FTE count by 25 for its retail and business banking group.