TheCommonwealthBankofAustralia – strategizingfromoutsourcingtothecloud part1:perennialchallengesamidst turbulenttechnology LeslieWillcocks 1 ,PeterReynolds 2 1 LondonSchoolofEconomicsandPoliticalScience,London,UK; 2 CentreforInformationSystemsResearch,MIT,Boston,USA Correspondence: LWillcocks,DepartmentofManagement,LondonSchoolofEconomicsandpoliticalScience,HoughtonStreet,London WC2A2AEUnitedKingdom. Tel:+02079556045; Fax:+02079556046; E-mail:[email protected] Abstract ThisteachingcaseexaminesthechallengesofusingInformationTechnology(IT)out- sourcing,adoptingnewtechnologies,undertakingbusinesstransformation,andevolving theITfunction’sstructure,governancearrangementsandcapabilities – allinadynamic businesscontext.TheCommonwealthBankAustraliahasoverthelast20yearsexperi- encedsimilarITmanagementdilemmasascountlessorganizationsacrosstheglobe.The caseforegroundssixperennialissuesinITmanagement.First,whatformofoutsourcingis suitableatdifferentstagesofanorganization’sdevelopment,andhowcanthatoutsourcing bemanaged?Thecaseherecoversthechallengesofsingleandmulti-supplieroutsourcing. Part2willfocusonsourcingissueswithcloudcomputing.Second,whatarethekeyIT capabilitiesthatmustberetainedwithinalargecorporation?Part2willaskwhetherthese capabilitieschangewithcloudcomputing.Third,whatarethemechanismsfordeveloping, nurturing,maintaining,andevolvingretainedcapabilities?Fourth,howshouldITbe governedinthefaceofchangingbusinessneeds,newtechnologies,andchanging organizationstructures?Fifth,Parts1and2ofthecasequestiontherolesoftheCEO, CIO,andbusinessmanagersinleveragingITperformanceforbusinessvalue,thebuildingof projectandprogrammanagementcapabilities,andhowtoorganizeITtosupporta businesstransformationprogram.Finally,thecaseraisesthechallengeforstudentsofhow anorganizationwithitshistoryandlegacyintechnologyandsourcingpartnerscanthen moveintoevennewertechnologies – inthisscenariocloudcomputing – theprimaryfocusof Part2ofthecase.Overall,thetwocasesraisethefundamentalchallenge – whatperennial managementpracticesareeffective,overtime,indealingwiththechallengesraisedby changingtechnologies,andwhatnewpracticesmayberequired,incontemporarydynamic businesscontexts. (2014) 4, 86–98.doi:10.1057/jittc.2014.6 Keywords: outsourcing;multi-sourcing;informationtechnologygovernance;strategy;change projects;coreITcapabilities;roleoftheCIO;business-ITalignment;digitalenterprise Introduction hiscaselooksatthehistoryandprogressatamajorbank ofapplyingmajornewtechnologiestoachievingbusiness effectivenessandcompetitiveadvantage.Suchahistory, andthechallengesfaced,willbeveryfamiliartomostmajor corporations,andnotjustthoseinthe financialsector.Asa studentofthemanagementofInformationTechnology(IT), JournalofInformationTechnologyTeachingCases(2014)4, 86–98 © 2014JITTCPalgraveMacmillanAllrightsreserved2043-8869/14youareasked – whatlessonscanbelearnedfromlookingat the15yearhistoryofITinsuchanorganization,andhow doesunderstandingtheselessonsandhistorysupportthenext phaseofdevelopment – inthiscasethestrategicstepinto cloudcomputingthatbeganatCommonwealthBankAustra- lia(CBA)from2006(seeFigure1).Thecloudcomputing challengefrom2006to2015willbepickedupinmuchmore detailinPart2ofthecase. InPart1,wefocusyourattentionontheyears1996–2011 andthemajoreventsandchallenges.Lookingatthishistory, perennialchallengesandmanagementlessonsemergeforCIOs, andallthosechargedwithmanagingadvanced,everchanging, informationandcommunicationstechnologies(ICTs).Whyis thisimportant?BecausesuchICTsintheperiod1996–2015 becamecentralandcriticaltooperationsandcompetitive positioningofcontemporaryorganizationsworldwide. Whataretheperennialchallengesanddecisionsthatface CIOs?InPart1weseethattheoverarchingchallengeisto arriveatandupdateanITstrategy,technologyplatformand applicationsthatservetheeverchangingneedsofthebusiness. ThisconcernoccursallthewaythroughParts1and2of thecase.Asecondchallengeistodecideonandmanagea sourcingstrategy – whethersingleormulti-supplier – that leveragestheexternalservicesmarketwhilesupportingbusi- nessdirection.Thisconcernisparticularlyprevalentinthe 1996–2011period,butarisessubsequently,particularlyinthe contextofadoptingcloudcomputing(seeCasePart2).A thirdchallengeistobuildtheretainedcapabilitiesneededto deliveronthebusiness,ITandsourcingstrategies.TheCIO BobMcKinnonbeginstotacklethisissuefrom2001to2006, anditisconstantlyrevisitedinPart1ofthecase,andby MichaelHartefrom2006to11intotheadoptionofcloud computing.AfourthchallengeisITgovernanceandstructure. BothCIOshavetomakenewITgovernancearrangements, andalsorestructuretheirITfunctionsasaresultofchanging businessdemandsontheITfunction. A fifthchallengeisIT’sroleinbusinesstransformation projects.CBAhadtoplay ‘catch-up’ againsttheircompetitors andlaunchseveralmajorprojectsthroughoutthe2000sand eventuallygainedareputationby2011–2014ofleadingthe wayinthebankingsector,includingintotheuseofcloud, internetanddigitaltechnologies.HowdidCBAdealwiththis challenge?CarefulanalysisofCasesPart1and2yieldsthe secretsofthecompany’ssuccessonallthesechallenges,and willprovidemultiplelessonsforhowtomanageITstrategi- callyforcompetitiveadvantageindynamiccontemporary businesscontexts. Background – commonwealthbankAustralia(CBA) TheCBAwasestablishedin1911,anduntil1959alsoserved asthecountry’sReserveBank.TheBankcompleteditsprivati- zationprocessin1996.Thebackgroundtothiscaseisaperiod ofbusinesschangesthatsawamerger,severalchangesin organizationalstructureandnumbersofbusinessunits,and twobusinesstransformationsstrategieslaunched(2001,anda largeonein2003).Throughoutmostoftheperiod,untilhe retiredin2005,theCEOwasDavidMurraybytrainingan accountant.By1996,heandmanyBoardmembershadbecome skepticalaboutinternalITperformanceandbegansupporting outsourcingasamajorsolution.Theysoughtimprovementsin ITcostcontrol,performance,andinnovation.However,asa businessCBAwasrelativelysuccessful,andthiscontinuedright throughto2006.By2006,CBAwasoneofthetop five companiesinAustraliaandwasratedasoneofthetop25 banksintheworldbymarketcapitalization, 1 totallingUS $36billion.Itprovided(andasatforthcomingstillprovided)a fullrangeofbankingservicestomorethanninemillionclients with33,000employeesacrossfourmajorbusinessunitsto servicetheneedsofretail,commercial,corporateandinstitu- tionalsectors.Thebankoperatesthelargest financialservices distributionnetworkinAustraliaserviced,evenin2006,by morethan1000branches,3800agencies,3200ATMs,more than135,000EFTPOSterminalsandinternetbankingservices tomorethat2.5millioncustomers. OnIT,muchhadbeenachievedupto2006.Overthe previous10years,CBAhadre-builtitsITcapabilitiessinceits initialsingle-sourceoutsourcingofallofITin1997,and managedtheirdevelopmentinresponsetosubsequentbusi- nessandITchangesincludingalargemerger,internal restructuring,amovetomulti-sourcingandamajorIT-based businesstransformation.WefollowthestoryoftheBank’s CIO,BobMcKinnon,whotookoverinmid-2000following thelarge-scalesinglesourcesupplierofIToutsourcingin1997 (Source: Thorogood, Schlagwein and Willcocks, Case Part 2) TimelineofITsourcingmodesandmajorIT-relatedeventsat CBA. Source :Thorogood,SchlagweinandWillcocks,casepart2 Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 87andsubsequent2-yeartransition.Atthistimeinternalcapabil- itiesweredepletedandweexaminehowheconsciouslyadopted acoreITcapabilitiesframeworkandstartedtobuildinternalIT capabilitiesinthecentralITteam,andthenacrossthegroup between2001and2002.In2003anduntil2005,whenthe majorIT-basedbusinesstransformationwasunderway,wesee howthisplacednewdemandsontheITgroup,inparticular fromthebusinessunits,todeliverthebusinesschange.Bythe timeMcKinnonlefttheBankattheendof2005toeventually takeaCEOroleintheindustry,thereweresignificant capabilitiesbuiltacrosstheBank,providingthearrivingCIO withfreshchallengesonhowtoorganizeandleverageenhanced capabilitiestodeliverfocusedexecutiontothebusiness. ThenewCIOMichaelHartetookoverinApril2006.He identifiedseveralexistingchallengeswithinhisinheritance. Between2006and2011healsoranintonewchallenges.He foundthetechnologygrouprunseparatelyfromthebanking operationsgroup,anddemotivatedbytheduplicationof effort,highincidenceoferrorsandlackofcommunication. Therewasnoportfolioapproachtoprojects.AleanerIT organization,programcoordinationandprojectmanagement disciplineswererequired,technicaldeliveryneededtobe improvedonspeedandquality,servicetothebusinessneeded tobeimproved,costsneededtobecontained,whilemajor projectshadtobedelivered.Theprojectsincludedacore bankingsystemreplacementusingSAP,andastrategiclong- termevolutiontocloudcomputinganddigitizationthrough aninternalcloud,anOracleplatformandtheuseofexternal serviceproviders(seeFigure1).UnderHarte’sleadership from2006,andrespondingtobusinessdemand,thebankalso hadtosuccessfullylaunchCommSee,anewcustomerinter- facesystematthebranchandcallcenter;Netbank,anonline andmobilebankingsolutionwitharound6millionregistered users;CommBiz,asecureonlinebusinessbankingsolution; andFirstChoice,real-timesystemforsuperannuationand retirementinvestmenttransactions.Bigchallengesindeed. InPart1ofthecasewelookatboththeearlierperiodfrom 1996to2006,andalsothisintensiveperiodofactivityfrom 2006to2011,andexaminethemajormanagementchallenges faced,andpracticesadopted,bythetechnologyleadershipand seniorbusinessexecutives.Wedividethehistoryinto five mainPhases,andwillaskyoutoanalyseandcommentonthe learningforeachPhase. Phase1:large-scalesinglesupplierIToutsourcing1997–2000 OnOctober101997,CBAenteredintoa10-yearAus$5 billionsingle-sourcejointventuredealwithEDSforallIT services,thelargest financialserviceoutsourcingdealinthe worldforitstime.Tosecurethestrategicnatureofthe outsourcingrelationship,CBApurchasedathirdsharein EDSAustralia’sequityholdings.EDShadbeeneagertogeta prestigiousclientbasedinSydney,itsonlyothermajor AustralianclientatthetimebeingSouthAustraliaGovern- ment.Ithadagreedtoslimprofitmargins,believingthat moneycouldbemadeonadditionalservicesCBAwouldneed duringthecourseofa10-yearcontract.CBA’snewlyestab- lishedinternalITfunction,GroupTechnology(GT),wasled byHowardMorris,anITprofessional,formerIBMservice managerandCIOoftheAustralianStockExchange.He reportedtotheheadofTechnology,Operations,andProcure- ment(TOP) – initiallyJohnMulcahy,thearchitectoftheIT outsourcingdeal,andlaterRussellScrimshaw.IntheCBAIT operatingmodel(seeFigure2for1997–2000)TOPactedasa PM CBA IT Operating Modeland CIO Direct Reports CEO TOP supplier Outsourced: Centralised Corporate Service GTlocated within one of the divisions CM SD TM FIN TS RM VA Value Add Transition Mgmt Service Delivery Contract Mgmt Tech Strat Finance Mgmt CIO 1997-2000: Group Technology Relation- ship Mgmt SD VM FIN AP Value Mgmt CEO RBS IIS TOP IBS Multiple suppliers (IT&T) Multi-sourced: Federal Corporate Service Minimal IT function (reliant on vendors) inherited (Colonial) IT built up internally GT located within one of the divisions Overall Responsible for IT Multiple internal IT functions 2001-2002 CIO IT Gov & Leadership Delivery of IT Services Design of IT Architecture Business Vision and Adoption Delivery Capability Reports to Group CIO Reports to Business Head Capabilities Arch itecture Planning - Service Delivery (Inc. CM, RM) CIO support functions: •Finance •Project Management Colonial First State (via merger) (new divisional IT function) Divisional IT IBTO CFS CS – (CommSee Subsidiary CBAoperatingmodelanddirectreports1997–2000and2001–2002. Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 88sharedserviceprovidertoitshostbusinessunit – Retail Banking – tootherbusinessunits – InstitutionalBankingand InternationalFinancialServices,andthelateracquiredColo- nialFirstStateInvestmentGroup. Oftheteamof35people,approximatelyhalfwereretained fromtheinternalfunction.ThisincludedtheheadsofService Delivery,TransitionManagementandRelationshipManage- ment.TheotherdirectreportsoftheCIOwerenew,including theFinancialManager,ContractManager,TechnologyStrat- egyManagerandValue-AddedManager.Thisprocessintro- ducednewexperienceandcapabilitiesintoCBA.Forexample, theFinanceManagerbroughtauditexperiencefromamajor accounting firm. TheinitialfocusofGTwasonmanagingthe2-year transitiontothenewserviceprovider’sprocesses.Thisfocus wascloselyfollowedbyensuringtherequirementsweremet forYear2000(Y2K)andtheintroductionofthecountry’s GoodsandServicesTax(GST)inJuly2000.Byearly2000, goodprogresshadbeenmadeontheoutsourcingobjectivesof controllingcostsandimprovingITservicelevels.CBA declaredtransitionsuccessfulandthatIToutsourcingwas providingbenefits.CBAachieveditsobjectivesinrelationto ITcostreduction,decreasedasaproportionofnon-interest expensefrom16.3%in1998to15.5%. 2 Totalserviceoutages werereducedbyoverathird,andthecritical ‘Severity1errors’ reducedbyafactormorethandoubleofthis. Bymid-2000,however,theinternalITstaffhaddwindled – almosthalfoftheinternalstaffhadleftorretired, includingtheCIO.Atthesametime,thebusinesswas undergoingsignificantchangesfollowingtheAus$10bil- lion3 mergerwithColonialBank.Therewasalsointernal restructuringaroundcustomersegments(Figure2)andthe firststepstomulti-sourcingwiththeselectionofaspecia- lizedtelecommunicationspartner – NZTelecom – in additiontoEDS. Thinkpoint: 1.Canyousee flawsinthesetupandmanagementofthelong- termsinglesupplierarrangementfrom1997to2000?Could CBAhavedonethingsdifferently? Phase2:themovetoacorecapabilitiesmodel:2001 InJune2000,BobMcKinnonwasappointedGroupCIO.A businessexecutive,hewasformerlyCEOofStateStreet’s Australianoperationandhada financebackgroundincluding asCFOofMutualLifeCorporation(MLC)/LendLease.As thenewGroupCIO,hewasfacedwithmajorchallenges including: ● integrationofCBAandColonialIT; ● realignmentoftheBank’sITstrategytoitsnewbusiness mix; ● transitioningfromasinglesuppliertotwosuppliersforIT andtelecommunications; ● extracting ‘value-added’ services 4 fromthesuppliers; ● maintainingservicelevelsandreducingcosts. McKinnonconductedaninitialsetofdiscussionswiththe businesstounderstandtheirbusinessandITchallenges.Itwas clearthat,despitethecostandserviceimprovements,there weresignificantrelationshipproblemsbetweenthebusiness units,ITfunctionandvendors.Inaddition,therewasalso tensionwithinthesegroups.Therewaspoorcoordination betweenbusinessunitsoftheirITneeds,resultinginalossof scaleandintegration.TherewaslackofITgovernanceacross thecentralITteam.Moreover,newbusinessunitITfunctions hadevolvedorwereacquiredthroughthemergerwith ColonialFirstStateBank.Finally,therewastensionbetween thevendors,withboundaryanddemarcationdisputes.The benefitsfromIToutsourcing,andofITtothebusiness,were underthreat.AsdescribedbyCBA’sservicedeliverymanager: BeingdistractedbyY2Kandotherbankintegrations,we basicallyhadnocapabilitytomanageserviceperformance ortheperformanceoftheserviceproviders,intermsoftheir obligations,aswehadestablishedthem. By2001–2002thereweremultipleinternalITfunctions,and severalITsuppliers,inadditiontothemajorEDScontract(see Figure2).RecognizingtheneedtostrengthenGroupTechnol- ogy,McKinnonlookedforbestpracticemodelsformanaging large-scaleIToutsourcingdeals.Thisledtoaconscious adoptionofacoreITcapabilitiesmodelwhichsuggestedthe retentionofninecoreITcapabilities(Table1). AninitialassessmentagainstthemodelinJuly2001showed thatthestrongestinternalITcapabilitiessatwithintheContract Managementfunction.Therelationshipwasbeingdrivenfrom acontractualstandpointwithoutthenecessaryContractFacil- itationorInformedBuyingcapabilities.Thiswasdamagingto anyVendorDevelopmentcapability.Whilearelationship Table1 CoreITCapabilitiesModeladoptedbyCBA CapabilityCodeDescription Leadership(L)IntegratestheITeffortwithbusinesspurposeandactivity. InformedBuying(IB)ManagestheITsourcingstrategytomeettheneedsofthebusiness. BusinessSystemsThinking(BST)EnsuresthatITcapabilitiesareenvisionedineverybusinessprocess. RelationshipBuilding(RB)GetsthebusinessconstructivelyengagedinoperationalITissues. ContractFacilitation(CF)EnsuresthesuccessofexistingcontractsforexternalITservices. ArchitecturePlanningand Design (AP)Createsthecoherentblueprintforatechnicalplatformthatrespondstopresentand futureneeds. VendorDevelopment(VD)IdentifiesthepotentialaddedvaluefromITservicesuppliers. ContractMonitoring(CM)Protectsthebusiness’scontractualpositionpresentandfuture. MakingTechnologyWork(MTW)Rapidlytrouble-shootsproblemswhicharebeingdisownedbyothersacrossthetechnical supplychain. Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 89managementteamwasinplacetobuildtherelationship betweenGTandthebusiness,theirfocuswasbeingdragged intocontractualdisputes,creatingavoidinRelationship BuildingandBusinessSystems’ Thinking.Thelimitednumber ofretainedstaffwhounderstoodthecomplexityoftheexisting systems,combinedwiththesmallnumberoftechnicalarchi- tects,leftthebankwithadeficitofMakingTechnologyWork andArchitecturePlanningcapabilities.Leadership,however, wasseenasstrong,withanewsenseofurgencydrivingthe re-buildingoftheBank’sinternalcapabilities. TheBankalsohadpocketsofprojectdeliverycapabilitythat alsohadtointerfacewithEDSinthelaterintegrationphases ofprojects.Buttherewerenoformalengagementormanage- mentprotocolstogetpredictable(oratleastpositive)delivery results(seeFigure3). InSeptember2001,thecorecapabilitiesmodelwasusedas thebasisforMcKinnon’s firstrestructureofGroupTechnol- ogy.ThisnewstructureintroducedastrongerArchitecture functiontosupportanenterprise-wideapproachacrossthe groupbusinessunitsandbalancetheContractMonitoring andVendorDevelopmentcapabilities.Theteamwasorga- nizedaroundtwomainfunctionalgroups,ArchitecturePlan- ningandServiceDelivery,withsmallerfunctionalgroupsfor ValueManagement(correspondingtoInformedBuyingand VendorDevelopment),andFinanceandProgramManage- ment(supportfunctionsfortheCIO).BusinessSystems’ Thinkingcapabilitywasseenasbeingneededtobebuilt withinthebusinessunits(seeFigure4). RecognizingthatahighperformanceITfunctionresults fromspecificindividualsplacedinrolesaswellastheirabilityto worktogetherasateam,BobMcKinnonespousedthechar- acteristicsrequiredforahighperformanceteam.Thisincluded, beingasmallteamofhighcalibrepeople,becomingacentreof ITexcellenceandleadership,andattractingandretainingthe rightpeople.Thiswassetouttobeachievedthrough: ● anopen, flexibleworkplace; ● challengingcareeropportunities; ● afocusonpersonaldevelopment; ● competitive(abovemedian)remuneration; ● clearroles,responsibilities,andaccountabilities; ● goodpeopleattractinggoodpeople. BUSINESS and BUSINESS and IT VISION IT VISION DESIGN of IT DESIGN of IT ARCHITECTURE ARCHITECTURE DELIVERY of DELIVERY of IT SERVICES IT SERVICES Business Systems Thinking Relationship Building Contract Facilitation Leadership Informed Buying Making Technology Work Architecture Planning Vendor Development Contract Monitoring BST= 0 RB= -/0 L= + CF= 0 CM= +/+ IB= 0 VD= -/- AP= - MTW= - CBAJanuary2001 – initialassessment. Source:LeslieWillcocks,CBAanalysis,2001 General Manager BobMcKinnon General Manager General Manager BobMcKinnon General Manager Arch. Planning Peter Reynolds Arch. Planning Arch. Planning Peter Reynolds Arch. Planning TBA Demand mgt ProjectMgt. Chris Stevens ProjectMgt. ProjectMgt. Chris Stevens Project Mgt. Finance TBA Finance Finance TBA Finance ValueMgt. PaulHartigan ValueMgt. ValueMgt. PaulHartigan Value Mgt. mgt Service delivery mgt Personnel assistant Personnel assistant Manage architectures Facilitate IT&T strategy Manage compliance Business/IT systems planning Business systems thinking Design technical architecture Business/vendor relationship mgt Joint business/ vendor Innovation Strategic sourcing Support IT&T capability delivery Financial mgt Contract facilitation Contract monitoring Vendor service mgt Vendor contract administration Informed buying of IT services Making technology work Vendor development Business/IT Relationship building IT governance and leadership Contract monitoring CIO Direct Report GT Functional Roles GT Capabilities BSU Capabilities (interaction with GT) BuildingcapabilitiesatCBA2001/2002. Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 90Toleadthetwomajorfunctionalgroups,theformerCIOof ColonialwasappointedintotheServiceDeliverygroup. Althoughitwasrecognizedthathewouldnottakeonthis rolepermanently,thisprovidedsufficienttimeto findhis replacement,whowasappointedinOctober2001froma majortelecommunicationscompanyandwithbankingexperi- ence.TheexistingheadofTechnologyManagementwas appointedasActingChiefTechnologyOfficer(CTO)and laterconfirmedintherole,whiletheexistingheadofTransi- tionwasmaderesponsiblefor ‘Value-add’,includingVendor Development.Additionalpeoplewerebroughtintorun FinanceandProgramManagement. Definingrolesandresponsibilities Inadditiontotherightpeople,CBArecognizedtheneedto formallydefinetheirrolesandresponsibilities.Towardthe endof2001,newrolesandresponsibilitiesacrossGTwere defined.ITgovernanceandleadershipskillswereseento berequiredbyallmanagers.BusinessSystems’ Thinking remainedasafunctionthatwasseentobetheprimary responsibilityofthebusinessunits,liaisingwiththeArchitec- turePlanningandRelationshipManagementteams.The resultingstructureisshowninFigure4. Thinkpoint: 2.Doyouseethisbuildingofinternalskillsandcapabilitiesas anadequateresponsetothechallenges? 3.CommenthowtheITfunctionisstructuredby2001–2002. Doyouanticipateproblems? Phase3a:buildingcoreITcapabilities – 2002–2003 WithMcKinnon’snewstructureinplaceandtheintroduction ofservicedelivery,informedbuying,andarchitecturalplan- ning,thefocusmovednexttostrengtheningeachcapability withinGroupTechnology,aswellasdevelopingalonger-term strategyformanagingITacrossthegroup. Servicedelivery ThenewheadofServiceDelivery,appointedinNovember 2001,implementedatwo-stepprocessforbuildinginternal capability.The firststepwasaroundoperationalservice performance – day-to-daycertaintyofserviceperformance. Hequicklyrecognizedtheneedtoworkwiththeservice providereverydaytohaveoversightandinputtofundamental ITManagementareas: Soourfocuswasonoperations.Iemployedthreeorfour reallycapableandexperiencedoperationsmanagement “thugs” andIputthemon-sitewiththeserviceprovideron thebasisthatifIwasgoingtobeaccountableforthe outcomeinsomeway,Ineededtohavesomeoversightof theinput,butdothatinawaythatdidnotcompromisethe serviceprovider – JimStabback,ITExecutive. Steptwowasmorecommerciallyfocusedonthreeareas: creatingacapabilitytounderstandwhatCBAwasbuying, puttinginprocessestoensurethatthebankwasgettingthe servicesasprescribedbythecontract,andassessingvalue formoneyfornewservices.Thesortofpeoplerecruited intotheseroleshadadepthofcommercialandtech- nologyexperiencethatallowedthemtounderstandsome ofthebehaviouralimplicationsofthecommercialcontracts putinplace.A ‘towermanager’ wasappointedtomanage eachservicedeliveryarea,suchascentralprocessing, telecommunications,anddesktopservices.Thesemanagers providedaninternalcapabilitytounderstandthelong- termdesignimplicationsofwhatwasbeingdone,the commercialconsequencesof thetechnologiesthatwere beingdeployed,andtorunbenchmarkingtogiveanunder- standingofvalue. AnewdirectreporttotheCIOwasappointed,anex- partnerfromaTopFiveconsultancy firm,toheadRelation- shipManagementandbuildDemandManagementcapability. Thisrolewasinternallyfocused,workingwiththebusiness unitstohelpthemarticulatewhattheywanted,understand whatelsewasbeingdone,andhowtogetbestbusinessvalue fromIT: SobeforeItookover,no-oneactuallymanagedthedemand andlookingforconsolidation,prioritization,efficiency,all thosetypeofthings.Itwasallaboutanorder-takingpointof view … Ihadtochangewhattheyweredoing,Ihadtotake themupthefoodchaintobegenuinelyrelationship managing,ratherthanjustbeingthepersonyoucallwhen youwantanewPC;theneedwastotakeanholisticview – DavidCurran,ITexecutive. Architectureplanning TheHeadofArchitecturePlanning/CTObuilthisteamupto aroundadozenpeoplemostlyfromexternalrecruits,includ- ingachiefarchitectrecruitedfromacompetitorBankwho latertookontheCTOrole.AnexceptionwastheheadofIT Security,whowasrecruitedfromtheinternalauditteam.The teamwasorganizedintoEnterpriseArchitecture,Business SystemsPlanning,andSecurity. ThefocusremainedarounddevelopingtheITStrategic planinalignmentwiththebusinessstrategy.Duringeachof theBank’sbusinessplanningcycles,anextensivealignment processwasconductedwithallbusinessunitstocoordinate proposedITinvestments,removeduplication,andfundIT infrastructure.MonthlyupdateswereprovidedtotheETC, highlightingprogressandindividualprojectcontributionto thefutureIT&Tblueprint.Asetofpoliciesandstandards weredefinedinsupportoftheIT&TBlueprint.Overtime,the ITGovernancerolewasmovedfromtheArchitecturePlan- ninggrouptoanewgroupunderan ‘OfficeoftheCIO’ incorporatingtheFinanceandProjectManagementfunctions, aswellasresponsibilityforthefurtherdevelopmentoftheIT managementmodel. ATechnologyRiskAssessment(TRA)processwasputin placetoassessthetechnologyriskofnewprojectsinbusiness terms.Thebusinesssponsoranddivisionaloperationalrisk coordinatorsignedtheseoff.Itemsaffectingmultiplebusiness unitsalsorequiredGroupCIOsign-off. Extracting ‘value-add’ Thevalue-addandstrategicsourcingfunctionshadbeen repositionedundertheHeadofServiceDelivery.ByAugust 2003,aprojectplanfortheimplementationofthesourcing Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 91strategyhadbeenapprovedandwasbeingdevelopedto provideasystematicplanofactionofwhatIT&Tservicesto buy,howtheseservicesweretobebought,andwhotheywere tobepurchasedfrom.However,capabilitiesinthisareawere graduallyabsorbedintodevelopingthenewsourcingstrategy. Inthisprocess ‘value-added’ opportunitieswereessentially forgoneasthepriorityfellondevelopinganewcontractwith improvedincentivesandalignmenttobankgoals.Atthis stage,relationshipswiththesupplierswererunninginto problemsovertheirperformance.Amulti-sourcingstrategy wasbeingtalkedaboutforwhentheoutsourcingcontracts cameupforrenewalin2005/2006. Projectmanagement ThenewroleofHeadofProjectManagementwas filledby anexternalpersonwithstrongprojectmanagementback- groundandtraining,includingaPh.D.relatedtoproject management.HerecognizedthattheBankreliedonthe supplierformuchofitsprojectdeliveryresourcesand management,withonlyasupra-levelsupervisionfromthe bank.Thesupplierhadaccesstomanydeliverymethodolo- gies – mosttoocomplicatedforthebank’sneeds.Aprogram – ZIP – wassetupasan ‘acrossBank-EDSengagement processforprojects.’ Byengagingallinterestedpartiesithadtheadvantagethat thebankanditssuppliershadacommonframeworktorun projectswithagoodgovernance,highpredictabilitytoget betterrepeatableandconsistentresultswithalowerdegree ofriskoffailure – HeadofProjectManagement. However,whiletheneedforprojectmanagementcapabilityin theGroupITfunctionhadbeenaddressed,thiswastoprove inadequateinthelightofonlypatchyprojectmanagement capabilityspreadthroughthebusinesses.Worsestill,inlate 2003,theCEO,DavidMurrayannouncedaseriesofbusiness transformationinitiativesthatwerehighlydependentonIT fortheirsuccess. Thinkpoint: 4.HadCBAdoneenoughtobuildupitsinternalITskillsand capabilitiesby2003?Whatmorecouldhavebeendone?Orwas itmorethanaskillsandcapabilitiesproblem? Phase3b:extendingcapabilitiesformanagingITacrossthe group – 2003 WhilebuildingGTinternalITcapabilitiestoperformits accountabilitiesofmanagingtheoutsourcingcontractsand maintainingcontrolofITstrategy,McKinnonrecognizedthat GThadtoplayastrongerroleacrossthegroup.Businessunits hadstartedtoestablishtheirownITfunctions,inheritedfrom theColonialmergerorgrownviasubsidiaries,orsimplyto fill capabilitygaps. A firstactionwastoestablishamonthlyExecutiveTech- nologyCommittee(ETC),chairedbytheCEOandattended byeachgroupexecutiveandtheCIO.TheETCrolewasto agreeIT&Tstrategy,trackprogress,andresolvecross-organi- zationstrategicIT&Tissues.Oneofthe firstagreementsofthe ETCwasasetofITprinciplesthatprovidedguidelinesforthe wayITshouldbemanagedintheCBA(Figure5).TheETC wassupportedbytwoothercommittees:theITArchitecture Group(ITAG)andtheSystemsandServiceDeliveryGroup (SSDG). Threestrategies UnderthesponsorshipoftheETC,threecornerstonestrate- giesweredevelopedtoaddressthecapabilitiesrequiredby CBAtoenableitscorporatebusinessstrategy.Eachofthe strategieswasorientedaroundspecificcompetencies.The IT&TStrategywasfacilitatedacrossthebusinessheadsto developaconsistentviewofcustomerrequirementsin3–5 yearsanddefineanIT&TBlueprinttoworktoward.The IT&TBlueprintformedthebasisforenterprisearchitecture andgovernanceacrossthegroupwithsupportingpolicies, processes,andstandardsguidingIT&Tdecisionmaking acrossthebank. TheIT&TSourcingStrategyintegratedmuchlearningfrom the first3yearsofmanagingtheIT&Tagreementsincluding: Service •Vendors managed to: •Mitigate risks and align services to business goals •Achieve competitive differentiation Policy •Consistent enterprise-wide IT governance •Business driven IT strategy with common architectures and standards managed centrally •Transparent decision making Investment •Enterprise level IT decisions aligned to IT strategy •Buy rather than build •Process re-engineering and change management to support IT changes •Minimise duplication •Full lifecycle management of IT asset portfolios IT Governance Principles Group-wideITprinciplescriticaltofocuschange. Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 921.Notonlydidaccountabilityhavetoberetainedforcertain functions,butcapabilitiesneededtoberetainedformana- gingandexecutingresponsibilitiesrelatedtothese functions. 2.Donotstretchvendorsbeyondtheircompetency.Inan environmentoftryingtomaintainasinglepointof accountability,oftentheexistingvendorwasbeingdriven todothingsoutsidetheircorecompetencies. 3.Vendormustbemanagedtodeliversolutionsthatpreserve thearchitecturalintegrityofthebank,technologyplatform, whileoptimizingfor flexibilityandcost. Asourcingstrategywasdefinedbyearly2003,whichincluded astagedplanofactivitiesinpreparationfor2005/2006 contractrenewal.TheIT&TManagementmodelprovideda frameworkfordecisionmakingandmanagingIT&Tacross theBanktoachieveoptimumvaluefromitstechnology investmentsthroughclarifyingtheend-to-endrolesand accountabilitiesforthegovernanceandmanagementof technology,andtointroduceefficientandeffectiverepeatable managementpractices.Atthetoplevel,theETC(orits delegateasappropriate)wasmaderesponsiblefordecisions onStrategy,Architecture,andPolicyaswellasforrecommen- dationsrelatedtoallserviceelementsforCoreInfrastructure. GroupITbecameresponsiblefordecisionsrelatedtocon- solidatedinfrastructurevendorselectionanddeliverymanage- ment.Businessunitsweremaderesponsibleforconsolidating theirbusinesssystemsfunctionalityrequirements,implemen- tationplanning,design,vendorselection,anddelivery management. Aseatatthetoptable ManagingITacrossthegroupfromwithinoneofthebusiness unitshaditschallenges.Withanimprovedmanagementof supplier,aclearbusiness/ITvision,andnewgovernance processestobettercontrolITinthegroup,thevalueproposi- tionofferedbyastrongerITmanagementfunctionwas clearer.Followingtheorganizationalrestructuringin2001 (seeFigure2),theCEOsplitTOPDivision,movingOpera- tionstothecustomersegmentalignedbusinessunitsand procurementintothecentral financefunction.GTremainedas anewcenterfunction,renamedTechnologyServices(TS), withMcKinnonreportingdirectlytotheCEO.Thiswas followedinmid-2003byBobMcKinnon’sappointmentas partofthebank’sExecutiveCommittee,whichalsodissolved theneedforaseparateExecutiveTechnologyCommittee.The newstructurereportingtoMcKinnonisshowninFigure7. Thinkpoint: 5.WhydidtheCIOneedtogetcontrolofITacrosstheGroup? Doyouthinktheresponsewassufficienttodealwiththe challengesfaced?Whatmorecouldhavebeendone? Phase4:afocusondelivery – 2004–2006 InSeptember2003,theCEO,DavidMurray,announcedthe Aus$1.48billion ‘WhichnewBank’ (WnB)culturaltransfor- mationprogramfocusedonexcellingincustomerservice throughengagedpeoplewhoaresupportedbysimplepro- cesses(Figure6).NotethatFigure6showsawholebank transformation,though,ofcourseITwouldhavetoplaya significantrole,ifthetransformationwastobesuccessful. Acoordinatedsetofprojectswasassembledtoachievea positivereturnover3years,comprisedof50%costsavings and50%revenuegrowth.Thedeliveryofthebusiness transformationrequiredsignificantITinvestmenttoacceler- atethedeliveryoftheIT&Tblueprint,totallingoverAus$700 million.UndertheITmanagementmodel,businesssystems (thebulkoftheinvestment)weretobeimplementedbythe businessunits(inconjunctionwiththeITsuppliers),whileIT infrastructurewastobeimplementedbyTechnologyServices (alsoinconjunctionwithITsuppliers). InsupportofsuchamajorinvestmentinIT,Technology ServiceswasalsorequiredtocontributetotheWnBcost- savingstargetstoachievecostsavingsofAus$80–100million perannumby2006.Thesewouldbeachievedthrough • Service and Sales effectiveness • Distribution Efficiency • Branch Refurbishment Supported by Through “To Excel in Customer Service” • Leadership • Performance Management • People Development • Six sigma/ lean manufacturing • Process Redesign / simplification • Support Function Redesign Via Service Excellence Everyday (CommSee) Front-end service and sales customer management platform Customer service that is responsive, convenient and reliable Engaged people who are empowered, accountable, motivated and skilled to deliver Simple processes that are fast, accurate and efficient WnBtransformation. Source :WnBupdate,CEO,24May2005 Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 93efficienciesgainedfromtheimprovedIT&Tmanagement model,improvedITdemandmanagement,andbetterIT sourcing. Coordinatingwhichnewbankprojects – buildingprogram managementcapabilities TechnologyServicesmovedtostrengthenitsgovernancerole aroundITprojectdelivery.ThisincludedITportfolio,pro- gram,andprojectmanagement.Portfoliomanagementlooked atalltheassetclassesofIT,tryingnotonlytounderstandhow collectivelytheyaddvaluetotheorganizationbutalsoto understandtheindividualcapabilityofthoseassetclasses tocontribute.TheprogramofficecoordinatedITprojects acrossthegrouptodefineappropriateprojectstandards. Thedefinitionofgroup-wideprojectmanagementpro- cessesunderthe ‘Zip’ projectwasrolledintotheITmanage- mentmodelwhentheITProjectmanagementfunctionwas rolledintotheITgovernancefunction: Wecreatedaprojectofficeingrouptechnology … Sowe havetodefineendtoendhowanyprojectwithanIT&T componentshouldbemanagedintheBankandhowthat mustinterfacewithwhatwedofromanenterpriseperspec- tivewhenitcomestoprojectmanagement – ITmanager. However,thisstruggledtogettraction,withdozensofprojects scramblingtostartasWnBtookoff. Atthesametime,TechnologyServiceshadtobuilditsown projectmanagementcapabilityfordeliveringonitsresponsi- bilityforallITinfrastructureprojectsacrossthebank(desktop services,telecommunications,andsoon.)andthecommonIT systemsthatnowfellunderthemanagementof ‘Enterprise Services’ inTechnologyServices.Thisincludedmanagement oftheBankstraditionalinfrastructureaswellasshared informationsystemssuchasthecoreCustomerrepositoryor CustomerInformationFacility,andgroupdatawarehouse. Newdeliverycapability – CommSee ThecornerstoneoftheWnBprogramwasanewplatformfor front-endsalesandservicestaff(Aus$250million)to integratecustomerdetails,contactrecords,leadsandreferrals, trackingofrequests,andaccesstocustomerdocuments.It wouldprovidethesameresultstoallcustomer-facingstaffin anylocationtoenablestafftomeetacustomer’sexpectations to ‘knowme,’‘givemewhatIwant,’ and ‘doitreliably.’ Thisprojectrepresentedasignificanttechnicalchallenge. Similartomost financialservicesorganizations,theBank’s systemshadevolvedseparatelyfordifferentproducts,chan- nels(e.g.branch,callcenter,andInternet),andbusinessunits. Inaddition,theprojectfacedmanymanagementchallenges. Thedevelopmentteamwasrequiredtoworkacrossall businessunitstogatherandagreerequirements,adjust processes,decommissionexistingsystems,andcapturebene- fits.Accordingly,inadditiontothetechnologystakeholders, theprojecthadnumerousbusinessstakeholderswhosesup- portwasnecessaryforasuccessfuloutcome. Facedwithanambitioustimetableandalengthyrequire- mentsgatheringandproductevaluationprocess,theCEO madethedecisiontoleverageanexistinginternalsystem, renamedCommSee,developedbytheinnovativeon-line stockbrockingsubsidiary,andalreadyusedinthehigh-value clientareaoftheBank.Thisdecisionsavedtimespent evaluatingalternativesystems.Italsoreducedriskbyusinga systemthatwasalreadyintegratedwiththeBank’sback-end systems,hadaprovenuserinterface,andwassupportedbyan establishedhighcalibreinternalteam,capableofextending thesystem. Perhapsnotsurprisingly,theotherbusinessunitmanagers andcentralITgroupwereconcernedastowhetherthisteam, itsapproach,andexistingapplication,couldbesuccessfulwith largemission-criticalsystems.Specifically,couldthenovel approachbeappliedtodevelopingsystemswithmany requirements,acrossmultiplebusinessunits,andcouldthe teamoperateinthisnewenvironmentwithoutnegatingits effectiveness?Furtherconcernswereraisedwhetherthisplat- formcouldthenbereasonablymaintainedandsupportedwith thesamelevelofsuppliersupportandcontractualbackupas thearrangementswithexternalsuppliers. Nevertheless,withthebackingoftheCEO,theCommSee teamsetaboutrapidlydemonstratingcapabilityinapilotin TasmaniabyFebruary2004.Theteamrapidlygrewfromthe initial60orsopeopleinCommSeetoformthecoreofwhat wouldlaterbecomeanenterprise-widedevelopmentand deliveryteam. ProjectgovernancewasestablishedwithintheITmanage- mentframeworkwithanExecutiveSteeringGroup(ESG)that metweeklyandwasattendedbymostGroupExecutives 5 and theirkeystaff.Criticaldesigndecisions,suchasthescope oflendingprocessreengineeringandintegrationwiththe internetplatform,NetBank,wereagreedattheExecutive Committee. Bymid-2004,theBank’sinternaldevelopmentstaffhad growntoapproximately500ITstaff,culminatinginnearly 800ITstaffbytheendoftheproject. CreationofbusinessunitCIOs InMay2004,McKinnonmade firstmovestowardcentralizing allofITtobestsupporttheimplementationoftheIT managementmodelandITsourcingstrategy.Aspartofthe bank’soverallpushtoreducehead-officesupportstaff, McKinnonwasgivenresponsibilityforredesigningtheIT organization.Thisprocessresultedinthenominationof ‘businessunitCIO’ positionsfortheretailandpremium businesspartsofbusinesstoreporttothegroupCIO: We’reactuallydecentralizing[theCIOrole]fromaphysical pointofview.Thesepeoplesitwiththebusinessunits,so they’reanintegralpartofthebusinessfunction,butthey reporttoBobaspartoftheITgroup.Andthenwe’re,I guess,providingastrongercentralmanagementroleon infrastructureandthethingsthatweshouldbeableto leveragemoreeffectively – SeniorITexecutive. However,anargumentwasaccepted – basedinpartonthe focusonWnBdeliveryandlackofcapabilitiestomanage deliveryinthegroupITfunction – thatthekeydelivery functionswithinIIS(mergedfromColonial),andCommSee (builtfromCommSec)wouldremainreportingtothebusiness unitGroupExecutives.Thisformedanuneasytrucearound ITaccountabilitiesbetweenthebusinessunit-ownedinternal Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 94deliverycapabilityandthecentralIT-ownedgovernanceand managementITacrossthegroup. WorkcontinuedonthesourcingstrategyandtheIT managementmodeltoidentifyafuturemodelthatwould provideclarityontheextentofneedforinternaldevelop- mentcapabilities,andtheappropriateITorganizational model.TheoutsourcingcontractsendedforNZTand telecommunicationsin2005andfroEDSandcentralproces- singin2006.RelianceonEDSforapplicationsdevelopment serviceshadcontinuedtofall,witheachsignificantproject beingdeliveredinternallyortenderedtothemarket.Togain momentumaroundsourcing,theheadofservicedelivery, whomanagedthesourcingstrategy,handedoverallday-to- dayservicedeliveryresponsibilities,andfocusedsolelyon thesourcingtask.Theresultingstructurecanbeseenin Figure7. ByJanuary2005,muchprogresshadbeenmadeonthe massivedualtaskofmanagingAus$1.2billionperannumIT expenditureandanadditionalAus$700millionbusiness transformationspendonITovertwoandahalfyears: Thebankoverthelastyearhashadalevelofavailabilityof itssystemsthatit’sneverenjoyedbefore.Inadditiontothat, thepricingofserviceshasbeendrivendownandthevolume ofusagehasgoneup.Therearenow150peopledoing servicedevelopment,servicemanagementportfolioman- agement,infrastructuremanagementanddelivery.…Ifyou lineup[alloftheprioritiesoftheexecutivecommittee]with what’sactuallyhappening,youmakethishugecorrelation betweentheprioritiesoftheITstrategyof18monthsago andwhat’sactuallyhappening – businessexecutive. ByAugust2005,DavidMurraywasabletoannounce thattheWnBprogramwasmakingsignificantprogress. Thenetbenefitsin2005totalledAus$724millionandthe forecastwasthattheprogramwasontracktodelivertotal annualnetbenefitsofatleastAus$900millionfrom 2006andbeyondtoachievetheprojectedcosttoincome ratiotargets: ThecontinuingsuccessofWhichnewBankhasallowedus toextractadditionalbenefitsabovethoseoriginallyantici- pated.Overthepastfourmonths,CommSee,theBank’s newcustomerservicesystemwhichallowsustohavea singleviewofourcustomer,hasbeenimplementedforover 50percentofcustomerfacingstaff – DavidMurray,CEO. Thinkpoint 6.Phase4isaverybusyperiodinCBA’sbusinessandIT history.EvaluatethemanydecisionsmadeonhowITand sourcingismanaged.Explainthelogicofthedecisions.Doyou agreethattheseweretheoptimaldecisions? Phase5:unificationanddevelopment2006–2011 AnewCEOandCIO WitheffectfromSeptember222005,DavidMurrayretired andanewCEO,RalphNorris,tookover.Norrisalreadyhad experiencewithinthebank,astheformerCIOandthenCEO ofthebank’sNewZealandsubsidiaryAucklandSavingsBank. CBA IT Operating Modeland CIO Direct Reports ES IB Informed Buying/ Sourcing Strategy Enterprise Systems •Governance •Finance & •Project mgmt CIO 2002-2005: Technology Services Multi-sourced: Federal Corporate Service IT Gov & Leadership Delivery of IT Services Design of IT Architecture Business Vision and Adoption Delivery Capability Reports to Group CIO Reports to Business Head Capabilities Gov AP SD PBS CIO CFS CS CEO RBS PFS IIS IBS Multiple suppliers (IT&T) CIO Reports to CEO Multiple internal IT functions 2006: Enterprise Services Combined 18 May 2004 to form Premium Business Services (PBS) Business Unit CIOs •PBS •RBS Divisional IT (Focused on WnB projects) Multi-sourced Internal Bureau CEO RBS PBS IIS Multiple suppliers (IT&T) ITE EO IT Execution (change Management) Enterprise Solutions RBS CIO PBS CIO WM CIO Enterprise Operations ES CIO Gov BU CIO New BU CIOs: •Enterprise •International CBA – Fromtechnologyservicestoenterprise(IT)services(2006). Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 95Hewaswellregardedbymarketanalysts,onecommentinga yearlater: Norrishasstucktohisbroadpriorities:customerservice; businessbanking;technologyandoperationalexcellence; andtrustandteamspirit.Thesearethetargetareashe expectstobemeasuredagainst – AustralianFinancialReview,10August2006. SoonaftertheNorrisappointment,McKinnonannouncedhis departurewitheffectfromNovember282005.AnewCIO, MichaelHarte,wasannouncedonFebruary222006,witha careerasanITprofessional,andformerlyCIOofPNC FinancialservicesintheUSA.MichaelHartecommencedhis appointmentinApril2006,andaswithhispredecessor,spent timemeetingpeopleacrossthetechnologyteam,hisbusiness peers,andserviceproviders.Hehighlightedthatthetechnol- ogyteamshadagreatdealtobeproudof,andhisbeliefthat theBankwasoneofafew financialservicesorganizations globallythathadseriouslyinvestedintechnologyandalso proventheircapabilitytodeliver. However,itwasclearthattherewasasignificantgulfthat splitthecentralITgroup,divisionalITgroupsandthe Commseeteam.HartefoundtheITstaffdemotivatedbythe duplicationofeffort,highincidenceoferrorsandlackof communication.Tointegratetheteams,Norrisannounceda newbusinessunit-ledstructure(seeFigure7)withallIT functionsreportingtothecentralITgroup,renamed, EnterpriseServices,withMichaelHarteinchargeasthe CIO. ThisstructurefocusedonITalignmenttobusinessunits, withtheprimaryfocusoneachofthebusinessunitCIOs,and businesssystemsthinkingcapabilities.Anewsetofchallenges werepresentedtoHarteashefocusedon ‘gettingthebestvalue fromtechnologyinvestmentsbyleveragingthecapabilitiesand standardisingourtechnologyofferings.’ ForHarte,thatnewset ofchallengesinitiallyseemedtoinclude: ● providingagroup-wideleadershipmodelofIT; ● leveragingITcapabilitiesandexpertisetorevitalizesystems; ● implementingsmartersourcing;and ● continuingtodevelopleanandefficientprocesses. Butthenheuncoveredotherproblemswhichneededtobe fixedifthestrategicdirectionhewasbeginningtomapout couldbefollowed.Therewasnoportfolioapproachto projects.LeanerITorganization,programcoordinationand projectmanagementdisciplineswererequired,technical deliveryneededtobeimprovedonspeedandquality,service tothebusinessneededtobeimproved,costsneededtobe contained,whilemajorprojectshadtobedelivered.Oneof these – thecorebankingsystemreplacement – wasparticu- larlydifficultandchallenging,and,thereforehadbeenpost- ponedforaslongaspossible.Harterealisedthiscouldnotbe postponedanyfurther.Meanwhilehecouldseethatthe businessneedednewcustomerinterfacesystems,andthe abilitytoharnessthepowerofonlineandmobilebanking andinvestmentsystems.Atthesametime,theITarchitecture andITinfrastructureneededmodernizationandintegration throughaseriesofcoordinatedprojects.Morefundamentally, Harteenvisionedmorelongtermthattherehadtobea strategicevolutiontocloudcomputinganddigitization throughaninternalcloud,anOracleplatform,andtheuseof externalserviceproviders(seeFigure1). Developments2006–2011:capabilities,architectureandcore banking In2006,MichaelHartestartedbyinitiatinga ‘CreatingThe Finest’ programtobuildatechnologybaseandprofessionalize IT.The firstyearsawITcostsreducedbyAus$200million.In ensuingyearsHartecontinuedtocentralisetheITstaffandlift theirlevelofcapabilityinthefaceofthenewtechnicaland businesschallengestheyfaced.Onstructure,eventuallythe importanceofITtothebankbecamerecognisedwiththe mergingofIT(EnterpriseServices – seeFigure7)with bankingoperationstoformanewmuchbiggerEnterprise Services.MichaelHartewasmadeHeadofthenewlyformed EnterpriseServicesinOctober2008. Between2006and2011CBAwasonatechnologyand operationsjourneythatbeganwiththeformationofEnter- priseServicesITin2006.AtthatdateHartewasseeking technologyandoperationalexcellencethroughaGroup-wide approachtoIT,buildingfurthertheITcapability,introducing smartersourcing,usingmultiplesuppliers,andmakingpro- cessesmoreefficient.Themantraherewasbetter,cheaperand faster.Withstrongertechnologyandoperationalcapabilities inplaceHartethenplannedtomovetoaPlan,BuildandRun model.Here,Planningwasachievedwiththebusinessunits andEnterpriseServices,businesssolutionswereBuiltbyCBA andselectedserviceproviders,andontheRunsideservice delivery,operationalriskandITsecurityandInfrastructure andOperationsweremanagedbyCBAandrelevantservice suppliers. Sourcingstrategywasanissue.Harteinheritedasingle supplierservicecontractwithEDSformostITservices.He alsoinheritedatelecomscontractwithNZTelecom.Butatthe sametimethebankhad: ● continuedtobuilditsinternalcapabilitiesinbusiness analysis,projectmanagement,servicemanagementand otherareas(over800people); ● continuedtobuildupitsdatawarehousecapability(initially excluded); ● builtupitsowndeliverycapabilityforCommSee(about 1000peoplereportingtoMikeKatz); ● haditsowndeliverycapabilityinpartsoftheacquired businessfromColonial; ● hadarangeofotherspecialistsuppliersthathadbeen broughtinovertimetoaddressspecificneeds. TheNZtelecom’scontractwasrolledoverforanother5years (itwasthenlettoTelstrain2010).InJuly2007,Hartechoseto re-tendertheapplicationsmaintenanceanddevelopment (ADM)partoftheEDScontract,(whileEDScontinuedto runthedatacentre,desktopandsoon.)TherewasaboutAus $200millioninapplicationsmaintenanceandAus$100mil- lionperannumindevelopment.TheRequestForProposalfor ADMservicessoughtmultipleprovidersforapplications ADMservices.Thecontractswouldbefor3years,plustwo optionaladditional1yearextensions.TheRFPcovered400 plusnamedapplicationsin11segments.Maintenancewould beona fixedpricebasiswithenhancementsanddevelopment ona ‘rack’ rateforlong-andshort-termengagements. Developmentwastobebidforseparately,butmaybecovered Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 96bythecommercialtermsagreedintheprocess.TheBank’s objectivesincludedefficiency,improvedservicelevels,simpli- fication,transparency,reducedriskandalowercost. Thearchitecturejourneyhadtobecontinued.Thelong- termissueherewasintegrationofthearchitecturewhile buildingforincreaseddigitizationandtheharnessingofcloud computing.Thiswouldbeajourneythatwouldcontinueto, andbeyond,whenMichaelHarteendedhisworkatCBAin 2014.From1993to2004CBAwasdependentonalegacy mainframesystemforeachtypeofproduct.Systemswere siloed,therewasnosingleviewofthecustomerandcomplex productscouldnotbeoffered. From2004to2008,thisimprovedwiththeCommseefront- endproject.Thesegavesignificantimprovementsincustomer serviceandgavechannelintegrationthatcompensatedfor backendcoresystemsshortcomings.ButafterCommseehad replacedthefrontendarchitecturally,andwithbusiness applications,thebackendcorebankingsystemsalsohadto bereplaced. In2008,aspartofamassivecorebankingmodernization program,Harteaddressedthefactthatthebank’sexistingIT infrastructurespendwasnotdeliveringenoughbusinessvalue – halfofthemoneyspentwenttobasicinfrastructure maintenanceandprovidednomeasurablestrategicadvantage. Partoftheproblemwasthatexistingarrangementswithits largeoutsourcingvendorsweremonolithicandinflexible.The bankhadalsoseenitsinternalITworkforceshrinkandwas runningoutofdatacenterspaceandfacingtheneedtospend nearlyAus$300milliontobuildanewone. Beginningin2008,bymid-2012CBAweremakingthe final stepsinthetransformationofitscorebankingsystemtothe newSAPbankingservicesplatform.Originallyplannedto take4yearsandcostAus$580million,in2009,CBAdecided tointegratesubsidiariesAucklandSavingsBankandBankwest intotheproject.Eventuallytheprojecttook5years,costAus $1.1billionandsawover10millionaccountsandoverfour milliononlinecustomerstransferred.Thecorebankingsys- temgaveCBAaccesstomultiplenewbusinessfunctions,and underpinnedthebankscomprehensivemodernizationand digitizationprogramme.By2011corebankingtransformation wasgivingCBAalevelofproductagilityithadnever experiencedbefore.Forthebusinessitprovidedcustomer centricproductpricingandoffers,realtimebankingandthe abilitytolaunchnewproductsquickly.Behindthescenes productsystemswerenowawareofcustomerrelationships, andproductandpricingruleswereexternalised. Movingtodigitalservicesandthecloud UnderHarte’sleadershipfrom2006,andrespondingto businessdemand,thebankalsohad,andwasable,tolaunch asuccessionofdigitalservices.ItalreadyhadCommsecasthe marketleadingonlineretailbrokingplatform.Thiswas developedstillfurther.Itwasgivenincreasedresilience,and, by2010,offeredaportfolioviewacrossbroking,marginand retaildeposits.ByJuly2008CBAhadalsodevelopedand launchedAustralia’s firsttradingplatformfortheiPhone. OtherCommsecimprovementsfollowed.CommSee,anew customerinterfacesystematthebranchandcallcentre, eventuallygaveasingleviewofthecustomer,andby2011 wasintegratedwiththecorebankingsystemtoprovidereal- timetransactionsforallpersonalaccounts.Netbankbecamea marketleadingonlineandmobilebankingsolutionwith around6millionregisteredusers.Thiswasalsointegrated withthecorebankingsystemby2011.CommBizcametooffer secureonlinebusinessandcorporatebanking,includinga moreresponsiveandsimplifiedapproachtocredit.First- Choicewasdevelopedasareal-timesystemforsuperannua- tionandretirementinvestmenttransactions.Itprovided customerswithreal-timeaccesstosecureSuperandInvest- mentportfolioinformationandtransactingcapabilities.By 2011CBAhadalsodevelopedaninnovativePropertyGuide iPhoneapplication,andwasactivelydevelopingmoremobile applicationsandcapabilities. Inpractice,HartewasbasinghisnewvisionforITinfra- structureonthecoreprinciplesofcloudcomputing.IT resourcesmovingforwardwouldallbedeliveredasstandar- dizedservicestohisbusinesscustomers.ITwouldnolonger seeitselfasaproductproviderbutasatrueservicesprovider. Andsuccesswouldbemeasurednotsolelyoncostreduction butonthemeasurablebusinessvaluedeliveredbyeachIT serviceinvestment.ITwouldatlastbecomebusinesstechnol- ogy;processandinformationwerekey;thefuturewasdigital. InPart2ofthiscase,weexamineinmuchmoredetail,and to2015,howCBAmovedintocloudcomputinganddigital services,onitsself-declaredjourneytobecomingadigitally enabledbusiness. Thinkpoint Canyouseeatrajectoryinplans,eventsandinitiativesinthe 2006–2011period?Howwouldyoudescribeit,andwhatIT managementprinciplesdoyouthinkMichaelHartewas applying?Wouldyouhaveapplieddifferentones? Conclusion By2012CBArevenueswereAus$47.9billionwithanetprofit marginof32.1%.CBAhadbythenover11millioncustomers, withover4.6millionofthemonlineinto2013.In2006,about 50%oftheITexpenditurewasoninfrastructure.By2012that expenditurewas26%with74%nowbeingspentonbusiness services.Systemsreliabilityhadhugelyimprovedoverthe 2006–2011periodashadexternalandinternalcustomerand internalstaffsatisfactionwithCBAandEnterpriseServices. Aftertherelativelyquietperiodoflarge-scalesinglesupplier outsourcingfrom1996to2001,whennothingmuchhap- penedwithIT,CBAbecameveryactivewithitsITagenda. LeveragingoutsourcingandgettingbackcontrolofIT morphedintohowtodelivermajorbusinesstransformation forwhichITwasacriticalenabler.MajorITprojectswere deliveredinthemid-2000stoenableCBAtocatchupwith somemajorcompetitors.UnderMichaelHartetheintegration ofarchitectureandfurtherdevelopmentofinfrastructurehad toproceedapacetomatchbusinessdemandandchange. ProfessionalisingITstaff,centralisingITandintegratingIT withbankoperationswerealsocriticalrequirements.The sourcingstrategyhadtobedevelopedfurthertoensureservice providerswerecompetitiveinquality,priceandservice.Atthe sametime,by2008,itwasclearthatthefuturewasgoingtobe increasinglydigitalandinternet/cloudbased.Howcould Hartefurtherplace,andtakeCBAonitsjourneytothisdigital future? Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 97Notes 1CWBAustraliaAnnualReports1997–2006.All figuresfor2006. 2Source:RussellScrimshaw,CBAHeadofTechnology,Operations &Procurement, ‘StrategicConsiderationsforIToutsourcing,’ SalomonSmithBarney,The2002AustralianBankingConference, March62002. 3Aus$1.00isapproximatelyUS$0.80. 4 ‘Value-added’ servicesrefertopartneringopportunitiespresented bythesupplierworkingwiththeBank.Theseincludedjointgo-to- marketstrategiesandleveragingsuppliers’ IntellectualProperty. 5AGroupExecutivereportstotheCEO. Abouttheauthors LeslieWillcocks isProfessorinTechnologyWorkand GlobalizationandDirectoroftheOutsourcingUnitatLondon SchoolofEconomicsandPoliticalScience.HeisEditor-in- Chiefofthe JournalofInformationTechnology.Hehasa globalreputationforhisworkinoutsourcing,global strategy,organizationalchangeandmanagingdigitalbusi- ness.Hehasresearched,educatedandadvisedmajor corporationsandgovernmentsgloballyontheseissuesfor 25years,andisco-authorof43booksandover230refereed journalpapersonthesesubjects.Hehasrecentlypublished Outsourcing – AllYouNeedToKnow (WhitePlume). Forthcomingbooksinclude NineKeystoWorldClassBPO (Bloomsbury,forthcoming)and SouthAfrica’sBPOService Advantage:BecomingStrategicintheGlobalMarketplace (Palgrave,forthcoming). PeterReynolds isResearchAffiliateattheCenterforInfor- mationSystemsResearch(CISR)SloanSchoolofManage- ment,MITandExecutiveDirectoratoneoftheUnited Kingdom’snewelitetechnologycentres,theFutureCities Catapult.Beforehiscurrentappointments,hespent4yearsas afull-timeresearchscientistwithMIT,focusedondigital strategyandinnovation,customer-centricdesign,andIT- basedtransformation.HeholdsaPh.D.inStrategyand EntrepreneurshipandanhonoraryprofessorshipattheUni- versityofWollongong.From1998to2006,Peterwasasenior executiveattheCommonwealthBankofAustralia(CBA),the first5yearsastheheadtechnologystrategyandChief TechnologyOfficer. Perennialchallengesamidstturbulenttechnology LWillcocksandPReynolds 98