When Bob McKinnon stepped into the CIO shoes at CommBank, he was stunned by the lack of maturity around management thinking and operating models for IT within organisations in general. McKinnon, who trained as an accountant, is on a mission to bring more accountability to IT&T.
On assuming the CIO Role at the Commonwealth Bank of Australia (CBA), Bob McKinnon was amazed to discover just how immature management thinking and operating models for information technology remain across most Australian organisations.
A chartered accountant by training, who has been involved in the financial services industry since the late 1980s, McKinnon says the years he spent in various business and finance executive positions had already fuelled his suspicions that IT fell well behind other areas of business in terms of rigour, discipline and accountability. But he was truly disappointed to discover just how dismal the situation was after turning to outside organisations for inspiration when he took on the CIO role two and a half years ago.
“I was always somewhat mystified about certain aspects of the way technology was managed,” he says. “But I must admit, coming to the CIO role from outside of technology, I was amazed at the lack of maturity around management thinking and operating models for technology within organisations. I’m not talking about the bank here; when we went out to look at how we could do it better, I was amazed at the dearth of information and the dearth of models that were available to help. And the more I talked to people the more I found they all faced similar problems.”
McKinnon has now made it his mission to inject unprecedented levels of rigour and discipline into all the CBA’s IT management, using a “building block” approach designed to ensure the CBA’s business strategy is enabled by the right IT&T capabilities. Under his IT approach there are three key and interrelated IT activities which link technology to corporate strategy: IT&T strategy, an IT&T management model and an IT&T sourcing strategy.
“There are really in our view three key building blocks to all of this and they are quite heavily interrelated,” he says. “They are largely driven by an overall framework that is all about acting in the best interests of the group as a whole, as well as the individual business units. It’s about trying to get that enterprise view of what you’re trying to achieve.”
McKinnon joined the bank as general manager group technology and CIO in September 2000, reporting through then head of technology, operations and property Russell Scrimshaw to CEO David Murray. Then in July last year — a few months after Murray delivered his unprecedented broadside to the IT industry, accusing it of over-promising and under-delivering — the CEO decided he wanted McKinnon as CIO reporting directly to him. McKinnon took on some of the work previously done by Scrimshaw, who has since left the bank. The CIO role was refocused on strategy and policy management as well as general management of the CBA’s large outsourcing contract with EDS.
In a statement announcing the appointment, the bank said having group technology reporting directly to the CEO would “strengthen its role in the group’s long-term strategic positioning”.
McKinnon was formerly MD and CEO of State Street Australia Limited. He has also been chief general manager of MLC, CFO of MLC Life and CFO of Lend Lease Corporation. He holds a Bachelor of Commerce with merit from the University of New South Wales and is a member of the Institute of Chartered Accountants in Australia. And he firmly believes that bringing the knowledge and discipline of non-technologists into the management of technology, ideally working alongside technology specialists, is crucial to dragging IT up to the standards other business disciplines have had to adhere to for many, many years.
For McKinnon the first principle is that, at the end of the day, the CBA’s ability to deliver on its business strategy is heavily reliant on technology. Since banks are primarily organisations that process information, he says, the CBA recognises the importance of having processes sitting below its business strategy, which help align its portfolio of technologies in a way that drives or integrates those technologies into the business strategy.
“I think there are business processes in place that have been there since the beginning of time in the organisation,” he says. “What we’re doing now is looking at those processes across the organisation, trying to make sure that we have an IT strategy that really brings our IT systems in line with our business strategy, and that we have in place an IT operating model consistently across the organisation that helps to bring all of those into line.”
Host of Challenges
There are numbers of daunting challenges facing the banking industry. One is a need to eschew the current vertical integration in siloed business units and move to a more holistic model as a financial services organisation with a broad range of product offerings. Effectively that means all banks are driving to become much more customer-driven and customer-focused.
That push has technology implications (see table below), because the only way banks can achieve a holistic view is by knowing precisely what relationship they have with every customer and managing each customer accordingly. It means decoupling front-end service platforms from the old traditional product systems and then building flexible front-end systems that can help manage the relationship the bank has with the customer.
Even as banks move from a product to a customer focus, competition is forcing banks to differentiate services based on value, and baby boomers — far more discerning in their choice of bank — are demanding solutions. That is a challenge all banks are struggling with, McKinnon says, and the CBA has in place most of the elements the other banks would have. Now it is working on its information repositories: trying to ensure the quality of information, that all necessary systems are properly linked, that it has the highest quality analytical tools, and working to improve the way information is moved to the front of the organisation.
“If you break that down there are a whole raft of programs happening, mainly business-driven programs at the front end of the organisation, supported with some infrastructure programs around the data repositories at the back end,” he says. “There’s technology infrastructure that’s required, and there’s business capability and functionality that’s required. And I suppose the challenge is always to keep those two in sync.”
At the same time, banks are engaged in shifting from managing stock to managing flow. McKinnon cites an example close to most Australian homeowners’ hearts: the mortgage. The average life of a mortgage has dramatically reduced with increased population mobility, and more mortgages are taken out on investment properties. So where the old processes used to revolve around putting a mortgage on the books and then collecting the mortgage payments, these days the processes around a mortgage operation are much more complex. That increased activity must be enabled with technology.
“Achieving that means eliminating paper from the process by automating as much of the process as possible with good workflow systems. That is what’s meant by moving from managing stock to managing flow,” McKinnon says.
And all of the changes are occurring against a backdrop of major belt-tightening in most organisations, as product margins shrink and competition grows. The need to continue to drive greater value out of technology means ultimately banks will need sales and service platforms that are very well integrated across the entire organisation, which in turn poses challenges in dealing with large legacy systems.
Right on Target
In the midst of such fundamental changes the CBA sees building a “target enterprise architecture” (see below) that recognises the technology implications of the changing environment as a vital step in its strategic planning process. During the second half of last year the bank refreshed EA work McKinnon and his team had done earlier, and he says CBA is “very happy with the enterprise architecture to which it is building”.
“We’ve just finished our second round of enterprise architecture,” McKinnon says. “We did a pretty thorough job on it not long after I came into the organisation. Getting that enterprise architecture in place was one of the first big projects that we undertook: working with the business to understand where we felt the organisation was going to be five years out, and what type of architecture would we need at an enterprise level to give the organisation the capabilities it needed.”
The architecture envisaged by the CBA has three key elements: access (front end), enterprise management (information) and product and funds administration (back end). These elements are supported by the common or shared services used to leverage those finance and HR systems, procurement, workflow and, at the highest level, risk and performance measurement systems. “The key three elements are the front end, the way we manage the information in the middle and then products and funds administration at the back,” McKinnon says. “So it’s all about decoupling those three layers.”
McKinnon’s next step was to examine the architecture in the context of the IT capabilities the CBA will need in the future to deliver on its business strategy, and to work with the business on a prioritisation process designed to ensure the IT initiatives under way either at a group level or with the business units were going forward.
Comparing the target enterprise architecture with the current portfolio of systems identified key gaps (a not surprising revelation, considering the CBA’s big bank heritage and numerous acquisitions). The exercise found particular need to address a number of areas: Web-enabled front ends, integrated sales and service platforms, improved information infrastructure, common and reusable interfaces, and rationalising of product systems (see Filling in the Gaps, below).
As an example, McKinnon found the existing information architecture was unable to adequately support customer relationship management.
“In the end you can run a suite of programs designed to put in place the additional infrastructure that you need to make sure that that information architecture does support the customer relationship management,” he says. “So you may find not all the product systems you need are adequately connected into the forward data repository. You identify those systems, you understand what value is there and then it becomes a business decision whether you hook that information in there or not.”
Back to the Source
Having decided on the architecture it wished to build, both at an enterprise level and then in more detail at a business level, the CBA moved on to consider the way it would source the solutions and services it required in its technology portfolio.
In 1997 the CBA entered into a single source preferred provider contract with EDS Australia (EDSA), a strategic initiative which has favoured both the CBA and EDSA in its first five years. The CBA achieved its objectives in relation to IT cost reduction, and IT expenditure has reduced as a proportion of non-interest expense from 16.3 per cent in 1998 to 15.5 per cent in 2001. The major part of the IT cost base is now funded on an output rather than input basis — that is, the CBA buys services not pieces of technology.
Not only is the CBA receiving a positive return on its 35 per cent investment in EDSA, McKinnon says the move to full outsourcing, in what remains the largest financial services outsourcing deal in the world, has fundamentally changed IT at the CBA. He says the bank keeps its sourcing strategy continually in focus, recognising it must support the needs of the business for the present and the future. The strategy focuses on the bank’s need for a portfolio of services that deliver flexibility, scale and leverage, new and enhanced capabilities, and value for money.
“Just as your IT strategy requires you to look to the future and ensure you are building towards a solution that will enable your future business strategy, so your sourcing strategy must also be focused on future business needs,” McKinnon says. “To achieve the right balance within your portfolio, you must consider changes in the business and technology environments, vendor capabilities, economics, as well as your own management capabilities to support sourcing alternatives.”
A number of principles underpin the sourcing strategy and reflect the recognition that organisations cannot outsource accountability.
“The IT strategy work is an important element,” McKinnon says. “It’s about setting your enterprise architecture. It’s about understanding capabilities within the organisation, prioritising those, and starting to ensure that the things you’re trying to build, as you go through your planning process in an IT sense, are the things you actually need to support that.
“The same thing happens around sourcing. When it comes to how you source those services, you need to have the frameworks around how you do that sourcing. Again it’s a matter of building yourself a road map, and from a strategy point that is the way towards your enterprise architecture. It’s about saying: ‘In an ideal world how would I source all those services? How does that compare with where I am at now? How is that going to ensure the bank meets its corporate strategy?’ It’s taking a strategic approach to how you source those services.”
Binding It all Together
McKinnon says having a sound strategy is vitally important, but ultimately strategy is only as good as the ability to implement. Execution is everything. That means the organisation must bind all of the building blocks together with a strong operating model — in the CBA’s case, it is the IT&T management model.
“The management model in a sense is the way you keep all those things in sync. Driving down from some principles: How do you make decisions in the organisation around technology? Who’s accountable for approving decisions? Who’s responsible for making recommendations? Who should be involved in the process of making those recommendations, if you like [reviewing them], or who are the participants that need to be involved before the recommendation is finalised?
“That needs to be done in the context of the IT activities that you undertake, and that needs to be supported by a strong process framework.”
McKinnon says the framework has given the CBA a very clear understanding of the role, responsibilities and accountabilities for technology across the organisation. The management model, like the sourcing model, is constantly subject to revision. It is focused on standards like CobiT (Control Objectives for Information and related Technology) and the Information Technology Infrastructure Library (ITIL). Where these fail to embrace areas of IT process and activity important to the CBA, the bank is filling in the gaps itself. But the bank does try to keep to the standards as closely as possible, wherever possible, and finds that a very useful process.
And with regard to filling in the gaps, the CBA is moving towards a more comprehensive adoption of IT portfolio management than has been seen in many organisations to date.
McKinnon says when most organisations talk portfolio management they are really only talking about a small subset of this principle. Some organisations talk about a portfolio of application systems, others their hardware portfolio, but few talk about what a powerful tool IT portfolio management can be when it also embraces the processes used to manage technology, and everything else, he says. That noted, he adds, neither do the portfolio management models currently available really embrace process and execution, which is why the CBA is building its own.
“We’ve built a very comprehensive management model from the inside out,” McKinnon says. “We’ve had some help, but we put in the thinking. We’ve put some industrial engineering skills to the process, and got some people in the organisation to do it who aren’t the sort of people who you traditionally find trying to deal with your IT management. They’re people with a broader set of skills and perspectives.”
McKinnon believes organisations which embrace a narrower definition of portfolio management run the risk of never truly being able to answer the perennial question that his CEO and every other CEO would like answered: How do I make sure I’m getting value out of technology in the organisation?
The only way to know IT’s value, he says, is to start with a strong strategic perspective. Then, by using the principle of portfolio management to include systems, the way technology is managed, the decision-making process, the prioritisation process, the sourcing strategy and value for money considerations, ensure the standard of service provided can support the business strategy.
“You need to pull together a lot of information about all sorts of aspects of the way you use technology in the organisation, not just the software program,” he says.
In the CBA’s march to maturity, all that information should make a big difference.
A Sourcing Resource
These principles underpin the CBA’s sourcing strategy, reflecting the recognition that an organisation can’t outsource accountability
- Manage and be responsible for IT&T strategy, architecture, policy, technology planning and demand forecasting.
- Protect intellectual property in relation to unique group systems.
- Seek to preserve architectural integrity while optimising flexibility and the cost base.
- Always seek to source and integrate the best applications development/solution delivery outcomes for the business.
- Generate returns to scale wherever possible.
- Only outsource into competitive markets.
- Do not stretch suppliers beyond their capabilities.
- Do not commit to supply contracts where services and risks cannot be defined, understood, priced and monitored.
- Maintain flexibility to exploit, or minimise impacts of, shifts in supply markets.
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