Technology Horizons in Financial Services

ANZ’s path to IT effectiveness

Presentation to INSTO eScape Technology Conference22 October 2002

Peter DaltonChief Technologist, Consumer & Business Technologies

Australia and New Zealand Banking Group Limited

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Agenda

• Technology is changing its focus

• ANZ’s strategies

• Outsource or Excellence?

• ANZ’s current focus - improving our IT efficiency

• Outcomes to date

• The next wave of IT productivity improvements

• Conclusion

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Technology is changing its focus

• IT in general has had a number of years of high investment and big projects.

• Focus has been on Customer Relationship Management, new systems and new infrastructure.

• Different companies took different paths in achieving their outcomes - outsource or in-house with a focus on operational excellence.

• The world has now changed - IT is being asked to contain or even reduce spend. Project money is harder and harder to come by – return on investment is key.

• The new word is: efficiency. How well can you reduce costs and not lose quality outcomes? What kind of productivity improvements can you get?

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ANZ’s Strategy

Specialise• Building a portfolio of stand-out businesses with

distinctive business leadership and a sustainable top 3 position that work as one ANZ

eTransform• Embracing technology to drive radical change, boost

productivity, accelerate innovation and dramatically improve service and value

Perform • Ensuring “best in class” performance for shareholders, customers, staff and the community

Grow• Demonstrating strong growth momentum in core

businesses and positioning ourselves in attractive new high growth categories

Breakout• Being bold and different, a high performance culture

with a human face, technological leadership and a strong domestic and regional strategic position

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ANZ’s Technology Focus

Putting technology to work to:

• Provide our customers with a personalised, consistent experience

• Empower our customers and our people with real time information access and online applications via web-based technology, anywhere and anytime

• Ensure our technology is robust, flexible and cost effective

• Aggressively reduce costs, improving productivity, increasing ‘straight-through’ processing, simplifying and automating administrative functions

• Provide low-risk, high-efficiency & state-of-the-art payment capabilities

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Four years ago, we established the

foundations for technology and IT excellence

Starting in 1998 we made and delivered some key commitments involving People, Customers, Process and Infrastructure

• People: Alignment, collaboration & team work. Environment where individuals can excel. Retain critical individuals.

• Customers: Customer feedback processes & accountability, meaningful service levels, align with BU, implement TQM.

• Process: Consistent project management standards, strict criteria for new investment in applications, rationalise & standardise operational processes.

• Infrastructure: Reduce costs, rationalise, consolidate & automate networks & platforms. Position for the future. Reposition ‘back-end’ product functions behind integrated service ‘front-end’.

1998: Low satisfaction, inward focused, weak process, complex infrastructure (compared with best practice)

1998: Low satisfaction, inward focused, weak process, complex infrastructure (compared with best practice)

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People: Skilled & committed

pcs@home: heavily subsidised packages for staff to acquire PC’s

Online training courses

Management tertiary qualifications policy

Half yearly staff survey with action teams to address issues raised

Breakout cultural transformation workshop

Casual dress policy instituted

Fixed pay increases no longer the main strategy

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Customers: Commitment to focus technology on business unit objectives

Electronic timesheet capture for IT project tracking, reporting & billing

Detailed billing to Business Units for IT services

Customer survey/ feedback process on 6 monthly basis. Linked to individuals’ performance measures.

Service level agreements in place for each Business Unit

Average SLA for major systems

Average - 1999 Average - 2000 Average - 2001

Partnership model between Technology & Business Units

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Capability Maturity Model

• Significant productivity & quality improvements

• CMM level 2 certification – 1st Australian Bank

• Bangalore, India - level 4 certification

Project in a Box• ‘Best of breed’ project

management tools

• Central repository for all project reporting

• Open access to all users

Process – Commitment to improve execution capability

Project management training• Generic training courses tailored with

ANZ specific content & latest Project in a Box tools

Reengineering in a Box

• Standard tools, templates & process for re-design of business processes

Continuous improvement programme

• Driving real culture change• Series of workshops for all staff

• Resulted in $53m benefits

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Infrastructure: Commitment to rationalisation & standardisation

1998:

6 major systems

MVS

UNIXW2K

CBSHogan

2001

1998:

8+ major platforms

Core Systems

Platforms2002 1998 2002

- Provide all staff with best tools possible

- Low cost of ownership through standard solution

OS/2

Win 3.1Win NT

DOS

Servers & Desktops

1998

Multiple data networks

2000IP network

- Single IP Network provides universal connectivity

- Greater ability to leverage new technologies

- Lower hardware, software licence fees & support costs

- Simpler systems & platforms reduce cycle times

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Outsourcing

An important consideration in achieving IT effectiveness

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Core & context* has been suggested as a basis for outsourcing decisions

COREAny process that contributes directly to competitive advantage in target markets

CONTEXTAll other processes required to fulfill commitments made to one or more stakeholders in the enterprise

• Extend or create competitive advantage

– Existing markets– New opportunities

• Minimise disadvantage

– Find someone else to do it for you

• Look to create new opportunities & advantages

– Make a context process core

• Internal– In-house– Strategic

joint venture

• External – Outsource – New venture

Objectives Execution Control

*Source: Geoffrey Moore, The Chasm Group

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• Are there impacts on alignment with BU customers ?

• Will collaboration & teamwork improve?

• Will service levels decline or improve?

Three other considerations when making an outsourcing decision

Cost: Innovation:

IllustrativeIllustrative

Outsource provider’s

cost to serve

Cost of outsourced IT

Sales & Marketing

5-8%

Return on Investment

15-20%

GST 10%

Teamwork, collaboration & service levels:

• How will outsourcing achieve competitive advantage?

• What will be the impact on the ability to create innovative IT solutions?

• How will open architectures & new technologies be funded & deployed?

• Can you achieve at or near world class best practice?

• Can you achieve efficient & reliable services?

• Are you willing to pay away a margin to an outsource vendor?

Margin you pay away

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Our outsourcing experience

What we have we outsourced • Property management• Components of procurement• Components of telecommunications• Desktop support/help services • Training & development support• Components of legal services

Majority of functions are not outsourced, but are under periodic review:

• Major operations• Data centres and IT operations• IT development • Cheque processing• Cards back office

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Outsource or excellence?

• To date, no compelling opportunities have been identified for outsourcing a significant amount of our technology functions

• But, we continue to actively benchmark our operations to best practice to ensure continued IT effectiveness & review potential selective outsourcing opportunities

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Agenda

• Technology is changing its focus

• ANZ’s strategies

• Outsource or Excellence?

• ANZ’s current focus - improving our IT efficiency

• Outcomes to date

• The next wave of IT productivity improvements

• Conclusion

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Improving our IT efficiency

• Current environment is very efficient by Industry Standards

• ANZ staff efficiency (staff numbers compared with number of servers) is very good to excellent in MVS, Unix and Wintel

• Server utilisation is very high in mainframe and at, or above, industry levels in Unix and Wintel

* Study conducted by IBM

Findings from a recent independent benchmarking study* on our server environments:

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Improving our IT efficiency

• Attained CMM level 4 certification from the Software EngineeringInstitute (USA) for our India Software Development centre – placing it in the top 1% of software organisations in the world

• First Australian Bank to attain CMM level 2 certification – this was achieved by the International Systems Teamin Melbourne, placing it in the top quartile of softwareorganisations worldwide

• To achieve this, we displayed a very high standard of processdiscipline in all areas of software development, includingthe rigorous use of metrics for tracking of quality of outcomesat all stages

Capability Maturity Model

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Improving our IT efficiency – some examples

from our continuous improvement program

• Bar-coding at Output Services – Increased productivity and cost savings, and reduction in operating costs.

• Renegotiation of Optus inbound costs – cost saving.

• ANZ Common Disk Platform Review – reduction on total cost of ownership.

• Decommission the ANZPAC Service in Australia – cost saving.

• Mortgage Origination System (MOS) Navigator Support Tool – One-off and ongoing savings.

• Efficient, cost effective processing of Telstra 2 Instalments

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Outcomes to date

• Focusing on people, customers, process & infrastructure, we achieved:

– Better IT outcomes for our Business Unit customers

– High IT staff satisfaction rate

– High quality, more productive staff

– Simpler infrastructure - robust processes supported by a continuous improvement focus

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Outcomes to date - business improvements Total Mainframe Unit Cost

94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02

$ /

MIP

S

0

500

1000

1500

2000

2500

3000

3500

4000

4500

MIP

S

Number of MIPS at Year End Total Cost/MIPS

$/MIPS

inc GST

97.0%

100.0%

Average - 1999 Average - 2000 Average - 2001 Average – 200 (YTD)

Average SLA for major systems

Cost savings

Improved systemrobustness

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Outcomes to date - business improvements

Operations, Technology & Shared Services staff satisfaction

50%

55%

60%

65%

70%

75%

1999 2000 2001 2002

80%

85%

Staff satisfaction

Customersatisfaction

Internal Customer Satisfaction (out of possible 10)

6

8

4Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02

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Next Steps: Cost leadership provides capacity to reinvest in growth

• Continuous improvement

• Componentisation and reuse of Technology

• Straight Through Processing – through reengineering and simplification

Cost leadership… next wave productivity improvements:

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Next wave productivity improvements:CONTINUOUS IMPROVEMENT

• Develop ANZ group-wide & continuous improvement mindset

• Rewards based on outcomes not ideas

• Standard set of quality measures

• Large number of small wins

COMPONENTISATION & REUSE

• Similar processes across Business Units can use same infrastructure & software components

• Components assembled rather than built

• Shortened delivery time at lower overall cost

• Flexible customer-centric solutions

STRAIGHT THROUGH

PROCESSING

• Improve customer experience by automating manual processes

• Standardise processes across Business Units – such as product origination

• Leverage “best class” processes through organisational learning

• Technology driven solutions to eliminate re-entry of information

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Conclusion

• Good progress to date on improving our IT efficiency through innovation, renegotiation, cost savings and new tools

• Successfully rationalised and simplified infrastructure

• Strong improvement in staff satisfaction

• Improved and more consistent customer service

• Increased robustness in systems

• Lower costs

• Now focusing on next wave of productivity improvements for technology

– Continuous improvement

– Technology componentisation and reuse

– Re-engineering and straight through processing

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Copy of presentation available on

www.anz.com

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The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary

form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment

objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is

appropriate.

For further information visit

www.anz.com

or contact

Philip GentryHead of Investor Relations

ph: (613) 9273 4185 fax: (613) 9273 4091 e-mail: gentryp@anz.com