Westpac Banking's, IT-Business Alignment Yields New Product and System Development Process. A strategic plan to align IT with business proves to be a wealth-management winner for an Australian bank, producing an online product that adds value by saving and making money for the enterprise as a whole.
Introduction
Westpac Banking Corporation provides banking and financial services in markets, including retail, business, and institutional banking and wealth management services. The company operates in Australia and New Zealand.
Due to compulsory superannuation, Australia has the fourth largest pension fund pool in the world, creating a favourable environment for banks, asset management, financial planning and insurance companies.
Australia's favorable demographic trends indicate a continuous growth of the employee population for the foreseeable future. Net immigration also makes for an environment conducive to slow population aging.
Bank expansion
As with similar firms across the global financial sector, mergers and acquisitions (M&A) propelled Westpac through a high growth period to build up assets of $375 billion and employ 28,000 employees.
Westpac's expansion through the years had resulted in an inhomogeneous IT environment with compartmentalized patchwork systems driven by older, often proprietary or custom-written software tied to individual products and business lines that came with the M&As.
Super accounts
Private pension plans, referred to in Australia and New Zealand as Superannuation, or Super, is a key Westpac retail product, where employers contributed to employees' super accounts. Employees, in turn, could contribute on a tax-advantaged basis.
Super accounts are analogous to 401(k) plans and Individual Retirement Accounts (IRAs) in the United States, Self-Invested Personal Pensions (SIPPs) in the United Kingdom and Registered Pension Plans (RPPs) in Canada.
However, changes in laws and regulations, particularly pertaining to choice and portability issues in 2004 and 2005 that enabled employees to move super assets among financial firms, compelled the company, as well as other firms, to repeatedly revise IT applications handling these accounts.
In a market as rich and vast as Superannuation, demand is often related to the general state of the economy, which dictates the prospects of job security and tenure. The gradual evolution of the various aspects of Super, combined with emerging business and social factors, led BT and Westpac to project a wide expansion horizon. But what was true for BT Westpac also applied equally to its rivals, thus increasing the competition prospects.
Local and national competition
BT Westpac counts among Australia's so-called Big Four banks, along with National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ), and Commonwealth Bank of Australia (CBA).
Among these main competitors, Westpac is the more "localized" with its footprint most concentrated in Australia and New Zealand and the surrounding Pacific Islands.
NAB, of Melbourne, is one of Australia's largest financial institutions by market capitalisation and one of the world's top 30 financial services companies. It operates across 10 countries serving 10 million banking and wealth management customers offering access to international financial markets and a range of specialised funding, investment, asset services and risk management capabilities.
ANZ, also based in Melbourne, offers international banking and financial services to clients in Australia, Europe, the US, and throughout the Asia/Pacific region. It provides annuities through its subsidiaries, as well as insurance and investment management. The bank is also a leading credit card issuer in Australia, and its Private Banking division offers asset management and investment services to wealthy individuals.
Sydney-based Commonwealth Bank of Australia has more than 1,000 branch offices in Australia as well as operations that reach Asia, the UK, and the US. It offers retail and commercial banking, insurance, and investment services, including credit cards, home loans, deposit accounts, mutual funds, and retirement products.
Another local competitor, AMP Limited (AMP) is a wealth management company operating in Australia and New Zealand, with investment management activities in Asia, and banking business in Australia. Through its unit, Australian Contemporary Wealth Management (CWM), it links superannuation, retirement income and managed investment products.
International competition
Operating in the Australian market are multi-national companies with such names as (but not limted to) Citigroup, Deutsche, HSBC, ING, Jardine Lloyd Thompson, UBS, and Zurich.
When the economy grows or contracts, so does the momentum feeding into retirement funds. The market share in Supers is greatly influenced by effective marketing and and customer service. This is also where product and service differentiation plays a big role, thus fueling heightened competition, whether local, national or international in scope.
In spite of the keen competition, BT Westpac's market research foresaw strong demand for increased transparency and better online services, and was determined to be the first to market with an enhanced product called BT Super for Life. But such a big move required modernizing its software infrastructure.
Legacy business systems
Across its business units, BT was running five separate Super systems, four of which were considered in-house by pedigree, while the fifth was a heavily customized packaged application.
The shifting legislative changes also resulted in high compliance costs, largely because each mandatory revision had to be instituted across the disparate systems. The same applied to incremental system upgrades.
Some of these systems were built in legacy programing environments at a time when straight-through processing (STP) techniques were not yet in vogue for improving system responsiveness and transactional efficiencies.
The old systems also included manual processes that slowed transactions, especially at end-of-quarter periods when reports and statements must be produced. Because these were products of old technology, online self-service features were rudimentary at best.
Challenge and opportunity
BT's business side considered the challenges, and determined that these were, in reality, opportunities to take advantage of the changes in Super to launch a new product called BT Super for Life.
BT Super for Life was envisioned to be a purely online, self-service product that was designed to adapt nimbly to the shifting Australian market and offer customers the advantage of flexibility, portability and choice. If there was one product that ran entirely on software, this was it.
New thinking
This initiative to align high-level business and IT was a major component of the bank's strategic planning efforts.
Because of the new paradigms associated with the online product, it was also recognized that the product should have a key attribute: scalability, tightly bound to performance. This guided the decision of BT's business and IT units to build the new product using a different approach to product and system design.
This was to be a project that involved close collaboration between business and IT, to execute the application modernization track in a way that, ultimately, makes it easy for other Super products to be migrated, over time, to the new technology.
Thus, the approach that BT embraced was a novel one in terms of team composition, the methodology used for product and application development, as well as technology infrastructure.
Inclusive approach
This inclusive approach took all stakeholders, including end users, into consideration and laid down a playing field that was conducive to introducing radical changes in the product and organizational and process dynamics.
The key guideposts included:
* IT and business champions should be closely involved as stewards of the fundamental changes in the IT-business relationship.
* Consistent metrics should be applied for resource requirements and regular progress reporting throughout the project's life cycle.
* A clear, explicit understanding of the business issues from the perspective of both internal users and bank clients should prevail, so that the system can be optimized for customer satisfaction.
By opening channels of interaction at senior levels, key business unit officers came to understand why the multiple redundant legacy systems, while easy to hold on to because they did not require learning new things, actually bogged down the entire process because it could not adjust sufficiently to the evolutionary nature of the business. It simply got in the way of maintaining responsiveness.
Obsolescence
Because of outdated design, the older systems also did not have the scalability to provide for growth and expansion, thus retarding growth opportunities.
BT and Westpac top leadership recognized that the issue of system obsolescence would someday become an untenable reality, and so wanted to address it as soon as possible. The Super project, they decided, should no longer rely on legacy software which entailed large amounts of financial and human resources.
After due consideration of the technical issues involved, it was acknowledged that the new purely online product simply could not be developed by modifying the existing legacy systems.
Furthermore, IT's own strategic planning was already geared toward rationalizing the technological infrastructure enterprise-wide, aiming to minimize or eliminate manual processes and enhance STP, which was not going to sit well on the old systems.
Transition, modernization
At the same time, the bank's IT organization was being transitioned from traditionally playing a supportive role to a new culture that actively facilitates what's called "business enablement". The BT Super for Life project was an opportune platform for modernizing and pushing the company's IT toward these goals.
Here was a golden opportunity to introduce application technology specifically built to drive the modernization of business software. This was where IT could allow BT to take advantage of existing investments as a launch pad to update old systems in support of the business.
The project deployed new methodology in three key areas:
1. Customer centricity
2. System architecture
3. Application development
Customer centricity
Before external customers can be served satisfactorily, IT had to first meet the requirements of its own internal clients in the frontline as well as backroom units. The IT organization should make customer focus the first order of the day.
This project was a perfect casebook for developing a user-oriented system tuned to meet the needs of the Australian banking customers who will be setting up and managing their online Super accounts.
BT stressed this customer-centric design criterion all throughout the development life cycle and went to the extent of hiring a customer design consultant to coordinate with the project team.
The team put up user labs to observe customers going through the paperwork and other account activities in their normal way.
The insights gained from the user labs were taken into consideration for such system design components as functions and screen layout.
System architecture
BT Super for Life was constructed using service-oriented architecture (SOA), web services and IBM's portal technology.
The architecture of SOA makes it possible to deliver the capabilities of large applications as subsets of functionality to be worked on or modernized individually over time. It exposes just the business process layer, and insulates users from underlying technology.
These elements all stress the discipline of components and reuse, yielding nimble systems more amenable to change - the better to adapt quickly to market opportunities and react to competitive threats.
Web services, on the other hand, runs the e-business layer through modular, self-contained applications deployed online on the company portal, generally the World Wide Web. This is the great enabler, empowering the company to offer cutting edge functionality like business transactions over the Internet.
With web services, BT Super for Life doesn't have to be saddled by huge overheads of dedicated and expensive computing resources. Users (both internal as well as bank customers) simply log into the service endpoints to transact, regardless of where they are.
With the advent of so-called netbook computers and laptops, anyone on the Internet can perform tasks traditionally associated with on-site over-the-counter operations.
The portal was where it all comes together, in terms of look and feel, facing the users and customers on the console. Because connectivity to other banks' systems was essential, all of the customer accounts were integrated to other banking systems for such functions as viewing and fund transfers.
If the evolution of user needs or wealth management requirements necessitated screen changes, then the portal technology makes it easy to rearrange modular elements rather than doing a complete rebuild.
Standardization and reuse
The focus on standardization and reuse turned out to be a key factor in converting the older systems, making it easier to migrate other legacy components to the new system.
The modular nature of SOA meant that standard banking business functions like "create account" or "create customer" can be made available for reuse by other applications, even those outside the Super line of business.
Agile
Because of the fluid and shifting nature of the Super business, the BT Super for Life project used the Agile development process with the following features:
* Intimate involvement of the business team
* Flexible and non-restrictive task sequencing, where activities and processes can happen simultaneously
* Short developmental increments measured in days or weeks
* Measures of success reckoned in terms of benefit to the business
For this purpose, BT retained the consulting group ThoughtWorks to handhold the team in implementing the Agile development methods.
ThoughtWorks is a global IT consultancy whose forte is Agile software development. It introduced new sets of know-how that enabled the BT Westpac team to quickly adopt fresh methodologies or rethink conventional approaches to veer away from old unproductive ways of doing things.
The new, iterative nature of Agile, by looking at the system as being made up of modular building blocks, each with their own strengths and weaknesses, has the benefit of exposing risk early, allowing vulnerabilities to be addressed while keeping negative impacts low.
What's more, the Agile development approach yields results that scale more readily to larger, more complex projects such as BT Super for Life. This makes Agile appropriate for reducing risk and improving time-to-market.
The new style of delivering software in chunks but starting with the critical and difficult ones first, rather than making everybody wait for the whole package, helped shorten waiting times and ensure that those a-hah moments are minimized.
The Agile culture, revolving around sound and proven practices of iteration, feedback, collaboration, and transparency, enabled BT's IT organization to leapfrog into an entirely new class of software excellence and productivity.
Critical success factors
Looking back on the exercise, it is apparent that the new approach as well as conducive organizational dynamics within the company were critical to the successful rollout of BT Super for Life.
In terms of organization dynamics, the project came together outside of the core business lines. The general manager of marketing was pulled from regular duty be full time executive project sponsor. He and the Chief Information Officer, along with the design consultant, constituted the core audience of the twice-monthly showcases.
Project issues were quickly dealt with and resolved through negotiated agreement, thus helping to ensure that the project remained on track, and that the systems-in-progress would work as expected or could be repurposed without delay.
The regular showcase presentations enabled all parties involved to be on the same page as the project pushed forward. On top of that, a process was always available to address issues and concerns that cropped up, resulting in better communication.
The senior IT member of the project team praised the smooth coordination and teamwork, which complemented the motivational nature of the customer-centric process with great effectiveness.
Thoughtworks brought into the project its building tools that helped sub-teams work more efficiently, even if they were sometimes geographically dispersed, and, more importantly, to the same consistent standards.
Project showcases were held regularly (twice a month) to keep senior business and IT managers abreast of the project's progress or status.
An outside firm, HCL Technologies, was retained to conduct the testing processes.
Result
After some 18 months of development, BT Super for Life was introduced in October 2007 and promptly won the 2007/08 Best New Product category in SuperRatings' Fund of the Year Awards. Reviews cited the chief merits of the product, including ease of use, low cost, and being the first Super product to link directly to other bank accounts. Complete conversion of remaining Super products is expected to be achieved by 2012.
Resorting to agile development methods and focusing on customer needs is now a default strategy being expanded to other BT and Westpac products, as well, such as financial planning and wealth management.
Lessons Learned
1. Following the new way of attending to several enhancements at a time - to working style, design processes and products - the IT organization learned to multitask in response to the multiple challenges.
2. The team learned to understand the new culture of customer-centric design along with its smaller iterative aspects.
3. The business unit also learned to be flexible in order to adapt to the small-step incremental milestones.
And because the head of the Super business line was actively involved, there was no difficulty in securing cooperation for changes that had to be introduced, particularly to certain business processes, in the interest of keeping the project on track.
Furthermore, the use of consistent metrics helped everybody make compatible and rational choices, thus preventing work from straying from prescribed parameters.
4. Because the imperatives of aligning IT with business called for an expanded set of skills, like business acumen and good communication, the IT organization picked up lessons in cooperative and collaborative tasking in the business-IT paradigm.
The exercise in strategic planning led BT Westpac to the software modernization effort that launched a successful product, BT Super for Life, with tremendous competitive advantage in the online marketplace.
It introduced the company to new ways of thinking and doing, leveraging such concepts as customer-centricity, business-IT alignment, consistent methodologies and yardsticks, disciplined processes and all-hands-pulling-as-one that will continue to add value beyond the bounds of this initial project or product.
Westpac's strategy made it the first major Australian bank to offer a simple, inexpensive Super product linked to an online bank account.
The record speaks for itself. In the first year after launch, BT Super for Life attracted more than 80,000 new customers and $283M in funds under management.
