Consolidating previously fragmented day-to-day financial functions required a major re-engineering effort at Mercantile Mutual. The new structure leverages personnel and financial systems more efficiently, but even more important, customers reap the benefits When Bob Kotic arrived as CFO at Mercantile Mutual in 1998, he embarked on re-engineering the company's finance function from business unit level to group level. Mercantile Mutual has distinct business units that encapsulate its core products, and part of the re-engineering strategy was to look at the underlying systems, which again were also business unit-focused, and to integrate them so that a Mercantile Mutual customer could have a single contact and point of entry.
As Shayne Bryant, Mercantile's director financial re-engineering, corporate services division, puts it, process and systems reorganisation need to go hand in hand in order to succeed. This led to the birth of Mercantile's Future Finance Project, stage one of which went live on 1 February 2000. This first stage involved the implementation of SAP R/3 financials software (version 4.0b) running on Compaq Proliant servers under Windows NT and Informix (a Mercantile Mutual strategic platform).
The new system caters for business processes such as financial accounting, management accounting, statutory and management reporting, Web-enabled procurement, and project timesheets. It also integrates with Mercantile Mutual's R/3 HR and payroll modules, which went live in December 1998 in a separate implementation. There are about 220 users, typically in the group finance function or those supporting the finance component of business units.
The new system replaced a number of disparate legacy systems, many of which had been in place since the late 1970s sitting across different platforms. "A key objective of the Future Finance Project was to integrate the back-end systems, and we now have what we call our core finance functionality in place," says Bryant, who is project director. "SAP traditionally has had a manufacturing client base; but now that that's a mature industry, it's looking for other industries to move into and financial services is one that it's picked."
According to John Lombard, associate director, KPMG, with whom Mercantile Mutual chose to partner in the project, the implementation also moves Mercantile Mutual towards a single source of data. All of SAP's modules access one central physical database without large amounts of interfacing occurring within the system, resulting in reduced data duplication, he says.
The re-engineering study commenced in 1998 and ran for more than three months. Bryant says the study looked at Mercantile's processes and systems, what the company was doing as opposed to best practice, and where it may be able to improve. Evaluation of different software packages followed, again with KPMG's involvement. This, Bryant says, focused particularly on whether the functionality of the package addressed Mercantile's specific inefficiencies in addition to ongoing commitment to further development of the product.
Mercantile opted for R/3 financials in December 1998, its ability to integrate with the company's HR/payroll system being an added bonus. The implementation phase of the project began in February 1999 using Accelerated SAP (ASAP) methodology, which Bryant describes as structured but flexible. "ASAP has a number of stages in it around analysing, designing and constructing the system," Lombard explains. "The first major milestone would have been the business blueprint that was finalised in May 1999. The second major deliverable was the configuration of the system, completed in September that year. Then we went through an intense period of testing.
"This took the form of unit testing of additional customised reports we had developed, functional testing within the team and volume and stress testing. We then undertook a system test to bring all this together. After that we handed the product over to the business [for acceptance testing], with which we helped them a fair bit as well."
According to Bryant, a significant training program accompanied the project. One aspect of this was user training that involved not only the direct users of the system but also the education of a wider population as to how the system worked and what it meant to the organisation in practice. Given that it took place over the Christmas period it was quite a logistically challenging exercise.
KPMG also provided training to the project team during the life of the project in order for Mercantile Mutual to meet its objective of supporting itself when the project ended. "We monitored the knowledge transfer gained from this on-the-job training and took corrective action when it wasn't happening or we felt it wasn't happening quickly enough. We needed a core team of people to support the system once [it went] live, rather than leaving us vulnerable by just training up one or two people. That was quite successful, and since going live our reliance on an external partner to support the system has been minimal," Bryant says.
In fact, Bryant thinks Mercantile Mutual and KPMG complemented each other's skill sets well and that KPMG's project management, technical SAP and other IT skills were a very good match with Mercantile's knowledge of the business. Lombard also says there was a relatively low consultant-to-client ratio on the project: in the order of 1:2.5.
"Again, this was part of the knowledge transfer strategy," Bryant adds. "But it's a flawed strategy if you expect an implementation partner for a system like SAP to come in and suddenly understand all of the intricacies of your finance area. You have to recognise there's a part for the business to play and that there's only so much you can expect from an implementation partner. If you don't provide the partner with that support, [the relationship] is not going to work."
The investment in the initial stage of the Future Finance Project was more than $10 million and Mercantile Mutual anticipates a payback period of around four years. According to Bryant, the chief benefit the new system is already yielding is improved efficiency through a single integrated system. In the re-engineering work that preceded the project, the company discovered a lot of manual intervention in its business processes and much duplication and even triplication of data entry just to get fragmented systems to work together. This, says Bryant, has all been eliminated now.
In addition, he says Mercantile Mutual has been able to move to a shared-service scenario and to access economies of scale, rather than doing everything separately in different areas of the business and duplicating functions. The move has eliminated certain processes and saved on infrastructure and human resources in those areas. However, while this improved efficiency does lead to a reduction in costs, Bryant claims it also allows more time to deal with both internal and external customers.
"Cost-efficiencies were a key driver, but so was the ability to take ourselves away from transactional processing and focus on adding value," he says. "I think people are pleasantly surprised about the functionality and how it makes their day-to-day jobs easier. We also have a much better understanding of how the business is operating and of our clients. So management is much better off in terms of information when it comes to making financial decisions.
"Benefit realisation is always an important part of a project and the first review will happen after six months [in August 2000]. It takes a while to bed the system down and to produce the benefits you're looking for. The point of the review is to make sure we do realise the benefits we set out to realise and take action where necessary to bring them to fruition."
Kotic says Future Finance has been recognised by Mercantile Mutual as a "model project". According to Bryant, this means that it came in on time and within budget. Because of the size of the project and the investment in it, he says, there was also a strong emphasis on getting it right, making sure the right people were involved and bringing in the skills from outside where needed.
The biggest challenge for Bryant in the project was the integration aspect, and trying to get all the separate business units to think together as a group and to gain consensus: what might work well for one unit might not suit another. In hindsight, he says, he would also have tried to include more detail in the blueprint - the first significant deliverable of the ASAP methodology. He thinks the business was a bit uncomfortable trying to sign off at a conceptual level without a fuller understanding of the proposed system.
Mercantile Mutual now wants to leverage its initial investment and in particular is looking at insurance-specific products. "SAP has some smart products currently on offer and in development. John [Lombard] and I recently visited its developers in Germany to look at where it was going in financial services and insurance. The key product we're interested in is [the] insurance collections and disbursements module that handles the core receipting, payment and administrative functions of insurance and financial services. Again, that will reduce the fragmentation of [different] lines of business.""In the second stage of the project, Mercantile Mutual is also considering implementing SAP business information warehouse (BW), a data warehousing solution that it purchased along with R/3 financials back in 1998. When BW is fully integrated to its financial system, the company hopes the solution will be able to quickly analyse data posted to its general ledger in a variety of ways and enable its financial controllers to evaluate results by customers, agents or products.
"The key interest in what is offered in our second stage is how it positions our back-end systems for e-commerce," Bryant says. "We've produced a scoping document and built a prototype that I've been roadshowing' and looking at business support for. But we haven't gone to a business case yet, which will take three or four months to compose. We would then look to implement the [next stage of the] project by logical product groups and would expect that to take 18 months to two years, based on the experience of reference sites we visited in Europe that have gone live," Bryant concludes.
BankING on Continuity
Mercantile Mutual is a key member of ING Group, one of the largest insurance, banking and investment groups in the world. Mercantile was founded in Sydney more than a century ago and has grown to become one of Australia's leading financial services groups, providing a range of financial solutions to both individuals and organisations. The company manages total assets of more than $29 billion and has more than 2000 employees.
Another ING Group subsidiary in Australia is ING Bank (Australia), which last year launched ING Direct, a non-branch-based consumer banking service. At this stage ING Direct offers one product, called the Savings Maximiser, that customers can access 24x7 by Internet or telephone (either by speaking to an operator or through interactive voice response).
From a personal perspective, business continuity planning (BCP) has always been a high priority for Vaughn Richtor, chief executive and country banking officer, ING Bank (Australia). He has witnessed significant interruptions to banking as a result of bomb explosions in London. (See, "Ready or Not", Page 104 for a more in-depth look at BCP.)According to Richtor, business continuity planning is much broader than just disaster recovery, where the focus is sometimes solely on IT. Consequently, the bank's team leader with day-to-day responsibility for BCP does not work in IT. Rather he is the head of treasury, whose job is not only to make sure there is a plan in place, but that it is continually reviewed as part of ING's overall compliance process and culture.
ING undertook a risk analysis in 1995-96 and identified the need for an alternative site to enable it to continue its business should its primary site in Sydney's CBD become inoperable due to fire or flood, for example. ING selected facilities management supplier Syntegra's accommodation in North Ryde for this purpose, with rented space permanently available to the bank.
"Some disaster recovery sites are available but they're shared," Richtor points out. "We took the business risk point of view that we would have a dedicated capability with PCs, desks, chairs and phones that no one else could use. In a shared site, you need to ask yourself who are you actually sharing with. For example, there was a power failure in the city recently and if the four buildings next door to each other are all going to be affected, you may all be scrambling for the same space. We don't have those issues."
In conjunction with Syntegra, ING also performed a number of "what if?" scenarios to determine the optimal operational and commercial recovery solution. These ranged from instant recovery that would have cost a huge amount of money, to a cold situation that was operationally unacceptable. Although ING's business continuity plan has never had to be put into action to date, says Don Koch, chief information officer, ING Bank (Australia), the plan has been fully tested twice, in addition to partial tests.
"Because we can mirror any event in the city to North Ryde within seconds, we can recover technically within 20 minutes. It's literally quicker than we can put people in a cab and get them from the CBD," Koch says.