Up to the Challenge
- 11 October, 2005 09:32
Challenger Financial Services aims to be a bright star in the financial firmament. Effective information systems are its greatest ally.
"You do always have to keep asking if the investment we are making will hit the right target when the ground is moving."
For CIOs of fast-paced businesses that uncertainty is a constant concern. Still, at some stage you have to take a punt on the strategy that the board is going to adopt and develop information systems that will then support that strategy. Fortunately for Derek Goh, executive general manager of information technology and facility management for Challenger Financial Services, most of his punts have paid off so far. But he acknowledges that it is a lot harder trying to transform IS when the business is also transforming. "There's a lot of guesswork and calculated punts," he says.
That is particularly the case when the business is new, the strategy is a work in progress and senior management changes midstream.
In its current incarnation Challenger is a relative newbie; it was formed in mid-2003 as a result of a merger between Challenger International and CPH Investment Corporation. After 15 months the foundation CEO, Chris Cuffe, stepped aside, although he stayed with the business to lead the wealth management unit. He was replaced by the current CEO, Mike Tilley. While it was Cuffe who personally brought Goh into the Challenger fold, Goh has since developed a rapport with Tilley to whom he reports. Goh has also built relationships with the managers of the three service lines in the group, and their teams, in order to work out what information systems are needed.
"I go the traditional way and have coffee and an informal chat with the business each week - and it's not just the one person," he says. "When things are chaotic you don't look for a formal way to communicate. You adopt a spy-like approach so that your intelligence comes from multiple sources. Sometimes a decision is made at the very last minute and you have not seen the symptoms along the way. You can't cater for all possibilities, but you need to narrow it to a set of possibilities.
"I learned that from experience and observation and from Colonial First State, where I was also CIO."
Even so, Goh acknowledges that at times he feels "like throwing a dart is a better way to make an informed decision". As yet Goh has no dartboard in his office, instead he's opted for the more classic route of gaining management expertise and business acumen via higher education. In 2000 Goh received an MBA from the Australian School of Management (AGSM), which he says has helped him formulate and plan for different business models. "When you see ideas, it's really like seeing many stars in the sky. With an MBA you can link the stars into constellations and articulate that and then influence other people," he says.
On first arriving at Challenger there was not much time for stargazing. Challenger was home to legacy systems from 13 business units that had been cobbled together as a result of the merger of Challenger International and CPH.
"The problem was that there was a high cost of support. It was non-discretional spending to ensure we complied with requirements, but we weren't adding value. If you've got an airline running eight different planes you need eight maintenance engineers and eight sets of parts. There were more IT dollars spent just on keeping the systems alive than we wanted," Goh says.
In fact four in every five dollars went towards just supporting the host of legacy systems. According to Goh, the inherited technology base was made up of multiple layers of legacy systems, none of which were integrated. In the wealth management business alone there were eight different unit registered systems running. Shortly after forming the new company, however, the board decided to streamline around three core business units: Challenger Life, which provides retirement products; Challenger Wholesale Finance, which now claims to be the sixth largest mortgage company in Australia with a book of around $18 billion; and Challenger Wealth Management, with funds under management of $7 billion plus.
"When we moved to the three core businesses as our business model there was quite a lot of commonality; therefore we could have some common technologies," Goh says. That meant some certainty about strategy and the opportunity to start building a single underpinning information infrastructure. And that meant savings.
"[Today] we spend about 10 to 11 percent of our total business expenses on information systems. It was 12.75 percent previously. I've brought that down but at the same time delivered a lot of business projects." (The focus on three core businesses has reduced the number of systems required and hence reduced operating cost.)
Goh favourably compares Challenger's spending to its peers. "In the financial services sector less than 8 percent [of expenses going to IT] is an under-investment and anything above 16 percent - which I have seen when doing due diligence on another company - is highly over-invested."
Goh adds that if more than 50 percent of your spending is non-discretional - that is, spending to keep the lights on - then your IT set-up is too expensive. "Our non-discretional spend is now less than 50 percent," he says, although he declines to reveal the actual amount. Whatever the dollar figures, it has to be better than the previous 80 percent impost.
As well as migrating onto a new integrated platform, Goh also established four key performance areas that could be measured and against which the IT division tracked: infrastructure services, application portfolio, IT finance and compliance.
Within two years of accepting the Challenger challenge Goh struck gold, travelling to New York this May to accept the international Stevie Award for the best MIS and systems organization in 2005. That award recognized the IT group's success in transitioning the firm successfully off legacy and onto newer IT platforms in two years and delivering significant savings to the business.
He is continuing the pace, and recently took just five weeks to migrate products Challenger inherited when it bought HSBC Asset Management in March this year onto the SimCorp Dimension investment management system, which supports Challenger's life and wealth management businesses and treasury unit. He may be spared one other quick change, however. While the company had planned to move out of the high rent Aurora Place premises in Sydney and find cheaper digs, that plan was apparently abandoned by the board in September, so his information systems can stay put for the moment.
Best and Brightest
Goh now runs what he describes as, "very much a Microsoft shop" with .Net. "In the financial services industry the skills set in .Net is better. There is no shortage of people. It's a bit different in the UK where they prefer J2EE and the US where it's a mix of J2EE and .Net."
That said, developing and keeping the right blend of skills has been one of Goh's great challenges for the past two-and-a-half years. When Goh joined Challenger he inherited 110 IT people, and although that number rose as high as 130 while he moved the firm off legacy and onto the newer platform, he is now back down to a team of 110 to support around 950 people and computing operations in Sydney, Melbourne and Hobart. Of those 110 people about 70 percent were with Challenger when Goh joined, although he says there has been a "transformation of the skills set and the emphasis on capabilities". In fact he has doubled IT training expenses in order to keep the skills base current and yet still claims his IT expense budget is tracking 10 percent below budget.
Recognizing that the job needed a strong support team to work with him, Goh installed a hand-picked team of IT people from his own network of contacts when he first arrived at Challenger. It has clearly been an intense couple of years for everyone on the team. Goh admits that the heavy demands on the IT team have meant lots of hours and lots of pressure. "Most leaders call for work-life balance," he says, "but when you are trying to turn a start-up around that wasn't my priority. The last two years have been very tough." Goh himself averages 10 to 12 hours a day. "But I have a lot of people who work much harder than I do," he acknowledges.
Nevertheless he still believes that although the past years have been hard he is effecting a transformation of Challenger's computing department that will see it attract the best and the brightest among financial IT personnel. "Three years ago, if someone was looking to join Challenger IT - well, it was just another IT shop. It wasn't like joining Macquarie or Colonial. Now I think we are becoming an employer of choice and in return our people feel they will have contributed," Goh says.
"That is recognized by the market. Just recently one of my people was approached and offered a 33 percent increase in salary. It is a challenge and a financial challenge. I like to think we are paying top-tier salaries and mostly we are. But it's not always about compensation because statistics show that 65 percent of IT employees leave because their job is no longer challenging."
Goh is not prepared to get into a bidding war to retain his people and is resigned to losing the staff member who is being poached. "That person probably will go because I don't believe in matching salary offers for retention. The company that is offering the role is far greater than our size, with more depth and scope than we can offer."
Goh doesn't believe in severing all ties with employees when they leave. He likes to keep a few strings loosely attached. "We wish them well," he says, "and they might become a spy for us in another business."
Spy? Yes, but in a constructive way.
Goh believes that there are benefits for all Australian businesses if more IT know-how is shared. Not strategic competitive know-how, but technical insight that might raise the general standard of computing in the country. "I don't think that all competition is direct; you can have co-competition," he says.
"Every time you push an Australian company to do well then you are pushing the whole Australian financial services market. IT people tend to be quite professional and know what is confidential and what they can share. In infrastructure there is no disadvantage in sharing information because there is no competitive advantage. If you didn't share then it would be a bit like trying to win a tennis game by hoping that your competitor gets injured.
"The key competitive advantage that every organization should protect is the best practice of their application sets. The key recipe for higher revenues or productivity is in the know-how and that should remain confidential. It's like KFC - everyone can buy the tools to make fried chicken but the KFC recipe is confidential," he says.
For that reason he's also chary of outsourcing. "I always feel that financial services is very special and it is a highly regulated and compliant industry. While I'm keen to reduce non-discretional spending you must have solid business knowledge and if I can retain people for more than 10 years the costs will be significantly lower."
A Single Source of Truth
He sees himself in for the long haul, and believes that with the infrastructure in place he is in a position to add real value to the organization. In fact, he is prepared to bet on it. "What I would like to do in two years is to be measured by how much value I can add. I'd like to be measured against the bottom line," he says, adding wryly that to be measured "against the share market, however, is beyond me".
He is likely alluding to Challenger's remuneration philosophy as outlined in its most recent annual report, which says that as well as offering competitive remuneration the company would link executive rewards to shareholder value, make some component of remuneration dependent on achieving specific benchmarks and establish "appropriate demanding performance hurdles in relation to variable executive remuneration" in order to attract and retain key executives.
While that portion of the annual report sings from the same hymn sheet as Goh, it waxes less lyrical about the contribution of information systems to the firm. In fact the online annual report, which was released in late August, does not mention the IT group at all, or the fact that it has won an international award for its efforts.
Despite what many might consider a slight, Goh maintains that his relations with the senior management and board are strong. "You need a track record and a vision and the ability to show how it is aligned to the business model. It's a catch-22 thing because when you get the track record and demonstrate you can deliver, well, that's when the board has more confidence in you."
He has also had to ensure that the business managers of the three independent units understand and accept his intention to provide a whole-of-business information system that integrates at the very top levels in order to provide improved management information to Challenger's senior team. Although he has already delivered IT savings, now he wants to generate IT-led revenue improvements and productivity hikes. To do that he needs to work with all three groups and get their buy-in.
"Infrastructure and compliance, yes you need that. But the value comes from business processes to drive revenues and increase productivity," Goh says. "You need strength in your distribution systems to drive revenues and then you need to drive that distribution at a lower cost to ramp up your productivity and profit. You also need to have a strong capability in administration, which can be a core competence if it makes you more accurate, more compliant. Then you need to manage the assets and the risks by providing information to hopefully help managers make better decisions.
"It will take the next two years to achieve accurate management information systems. If we can link all the information systems into the network, which is the aim of the application portfolio, then there will be a cross-selling capability."
Goh knows this will not be easy. "We have different business sponsors of each project. It's not always easy to get different business CEOs to talk around the table. But you have to, because it's like trying to build a ring-road - how can you build it if you don't finish the M2 or the M3?
"I did have the discussion that we will be the group IT if you, [the business units] CEOs, function as a group. Without that thinking then you may as well decentralize to the individual businesses." So far CEO Tilley seems to be listening and giving Goh the opportunity to create that whole-of-business management information system.
How long will it take this master builder to complete his ring-road? "Two years to achieve the full synergy," Goh says. Ultimately he believes that what he and his team will deliver is "a single source of truth of our customer and a single source of truth of our management and business information.
"It should deliver real shareholder return in a very direct sense," Goh says.
And as any CIO knows, when it comes to delivering IT value there is no better measure.