Westpac hits halfway in Strategic Investment Program

The bank is also overhauling its supplier relationships to shift technology overhaul risk to IT outsourcers

Westpac has reached the halfway mark in its Strategic Investment Program (SIP) and will now move to derive value from its extensive IT core banking investments, according to the bank’s CEO, Gail Kelly.

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Speaking at Westpac’s AGM, Kelly said 2011 was an important year for the bank.

“This November marks the three year anniversary of our St. George merger and markets three-year merger of our Westpac local implementation and effectively the halfway mark of our Strategic Investment Program agenda,” she said.

“For us we have gotten to the end of the first stage of the [SIP] we set up in 2008. Phase two is very much about driving value from the position we have established, further investment and delivery in the platform we already have.”

Kelly said the modernisation program was already delivery returns with increased customer relationship depth and in core earnings.

“On SIPs… we are on time, on plan and on budget.” she said. “That is a really important thing in any key technology agenda.”

Commenting on the core banking element of the bank’s SIP, Kelly indicated that six of 14 programs were now completed -- on time and on budget -- and its technology infrastructure had been strengthened.

“Three significant programs will be completed in the next 12 months including our new online platform,” she said. “We are fundamentally so much better placed in this arena than we were three years ago.”

Shifting IT risk to outsourcers

Kelly indicated the bank was also shifting its relationship with suppliers, particularly technology suppliers, in a way that took risk away from the bank and placed it on partners.

“We are changing the model and actually taking pieces of work – applications maintenance and other functions – and working with suppliers that they own that function and then measure them on an outcomes basis,” she said.

“That way we actually get the flexibility and scalability of that scenario and we can actually reduce our overall fixed costs; we get innovation and the value-add that suppliers bring. It is quite a significant change to our supplier model, but it does have some upfront costs.”

Kelly said these costs related to the extensive documentation of business processes.

“At the moment, a lot of the processes sit in the heads of individuals who have been in our organisation for a long period of time,” she said. “We now take the time to document them clearly so that when we do hand them over to the supplier they work to those processes and work to improve them.”

Detailing IT spending in documents released to the ASX, the bank said it had continued to ramp up its technology with a new teller platform, Spider@Westpac, rolled out into a number of branches in NSW and Tasmania.

“Following further pilot rollouts in 2011, full deployment of this new teller platform to the entire Westpac branch network will occur in mid-2012,” the documents read.

“The Spider teller platform, which leverages the St.George system, will provide significantly improved functionality and robustness to our customer facing employees enhancing the customer service experience.”

In addition, an integrated call centre desktop application was installed in the first half of 2011, with further capabilities added to continue to provide customised experiences to specialist bankers, improving the handling of customer enquiries and requests in call centres.

“Westpac has also installed a collections case handling platform that can ultimately ‘consolidate customer information on to one system,” the documents reads.

“The system has simplified the processing of collections and will increase the resolution of arrears at the first point of contact.”

During its full year 2011, the bank hired 736 in the technology department due to demand driven by the SIPs program and the need for IT support. In addition, 273 staff were hired to support project demand, including SIPs.

In August, Kelly foreshadowed the bank’s productivity plans indicating job cuts.

"Staff will come down somewhat over the year we are in, and will come down somewhat over next year, but there are quite a few moving pieces," she said.

Staff numbers were increasing in some areas, such as the newly launched Melbourne Bank, and changed frequently in IT and technology areas, Kelly said.

According to the results, spending associated with the SIPs program is estimated to be around $2 billion over the five-year period including direct expenses and capitalised costs. Program spend to date was at $1.1 billion.

Costs of the SIPs program were being allocated to individual business units which meant Westpac RBB would incur 58 per cent of the costs, following by St.George Banking, Westpac Institutional Banking (WIB) and BT Financial Group.

In October last year, Westpac confirmed that it was to suspend its $250 million migration to the Hogan banking platform from St George and Bank SA until 2014.

At the time Westpac’s group executive, technology, Bob McKinnon, preliminary planning and design, at a cost of $25 million, had been completed to date on the project, which is designed to provide Westpac with a single platform for term deposits, transactions and saving accounts.