Changing the game: Making the transition to

open systems

CIO 2003 Conference – 12 February

David BoylesChief Operations Officer

Australia and New Zealand Banking Group Limited

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Agenda

ANZ’s strategic direction

ANZ’s technology program and directions

ANZ’s progress in migrating to open systems - case studies

• ERP/Common standardised administration systems

• Item processing

• Next generation switching project

• International payments clearing

Conclusion

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ANZ’s strategic direction

Organic out-performance

Portfolioreshaping

Transformationalmoves

• Extend specialisation• Grow customer numbers• Increase share of wallet• Drive productivity

• Revenue growth materially higher than expense growth

• Take business units to sustainable leadership positions

• Build a range of strategic options

Our targets

• Invest in high growth areas• Build specialist capabilities• Exit weak positions• Risk reduction

• Step changes in positioning• Creating new growth options• Proactively shaping industry

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Delivering performance

NPAT % ROE

Cost Income Ratio EPS & Dividends

0

500

1000

1500

2000

2500

1997 1998 1999 2000 2001 2002

12

14

16

18

20

22

24

1997 1998 1999 2000 2001 2002

42

47

52

57

62

67

1997 1998 1999 2000 2001 20020

204060

80100120140

1997 1998 1999 2000 2001 2002

21.6%

46%

DPSEPSNote: 2002 figures exclude significant transactions

% Cents

$M

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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, benchmarking, increasing ‘straight-through’ processing, simplifying and automating administrative functions

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

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Initial technology strategy (1998) provided focus to move to next level

• Little BU focus• Poor understanding

of business drivers• Service levels poorly

understood

• Leadership

weaknesses• High staff turnover:

18%• Many cultures

• Poor disaster

recovery• Inconsistent

architectures• Poor project

management and methodology

• Billing of services incomplete and inaccurate

• Inflexible, high cost technology

• 15 data networks • 6 core systems• Many different

platforms

• Explicit business partnership

• High customer satisfaction 7.7 (Sep 02)

• Service level agreements

• Customer survey/ feedback process

• $75m in benefits from

our continuous improvement program

• Improved staff satisfaction to 83%

• IT staff turnover below 3%

• Training on-line• Leadership

development program• Performance culture

• Full DRP in all critical

processes • 900+ staff through

Project mgt program• New processes - PiaB,

One Team, CMM, Niku, RAD, Phased funding, Outcome management

• Technology costs defined and regularly reported

• Technology governance, standards and policies

• Detailed billing

• Tandem, Unix &

AS400 rationalisation • 2 core systems• Single IP Network• Standard Win2000

desktop across Australia

• Intranet to all but 800 Int’l staff

• Established strategy for standardisation and re-use

2003: Customer focused, positive culture, improving process, simpler infrastructure 2003: Customer focused, positive culture, improving process, simpler infrastructure

1998: Inward focused, low satisfaction, weak process, complex infrastructure 1998: Inward focused, low satisfaction, weak process, complex infrastructure

InfrastructureProcessPeopleCustomers (BU)

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People - skilled and committed

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

Online training courses

Half yearly staff survey with action teams to address issues raised

Breakout cultural transformation workshop

eVouchers provided free to staff to choose reading materials

Management tertiary qualifications policy

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Customers - commitment to focus technology on business unit objectives

Electronic timesheet capture for IT project tracking, reporting and 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

Clear alignment between Technology and Business Units

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Capability Maturity Model

• Significant productivity and quality improvements

• CMM level 2 certification – 1st Australian Bank

• Bangalore, India - level 5 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 and latest Project in a Box tools

Reengineering in a Box

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

Continuous improvement programme

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

• Resulted in $75m benefits to date

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Infrastructure - commitment to rationalisation and standardisation

1998:

6 major systems

CBSHogan

2001Core systems

1998 2003

- Provide all staff with best tools possible

- Low cost of ownership through standard solution

OS/2

Win 3.1Win NT

DOS

Servers and desktops

1998

Multiple data networks

2000IP network

- Single IP network provides universal connectivity

Platform focusEg,W2K, UNIX, MVS

1998

8+ major platforms

Platforms2003

- Greater ability to leverage new technologies

- Lower hardware, software licence fees and support costs

- Simpler systems and platforms reduce cycle times

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Take out costsImprove project delivery

Leverage Group assets

Simplifyplatforms

Leverage existing technology through re-use and componentisation

Capability upgrade of project process, business/ IT alignment

Next level tools and methods

Next level agility and adaptability, quick ability to up or downscale

Continued drive to simplify the platforms

Robust operating model

Technology Transformation strategy 2003-05

Movement to open systems – key factors

• Support re-use and components

• High levels of integration - ‘plug and play’

• Customer access through web enablement

• High availability of skills

• Good breadth of vendor support

• Standard commoditised technologies

• Efficient development environment

• High agility

• Vast breadth of tools and technology

• Open systems environment (eg, Wintel)

• Scale out model

• Ongoing enhancement to security capabilities

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ANZ’s move to open systems

From

• Traditional core applications based on proprietary systems

– Single vendor with limited scale to innovate

• Proprietary systems have limited interoperability/ integration

• Relatively expensive to run - often long lead times to upgrade system capacity

To

• Standards-based modular building blocks

• Benefits:

• Cost - efficiency and skills availability

• Flexibility - speed, scalable, modern infrastructure

• Connectedness - ‘plug and play’, ‘ease to innovate’

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• ERP/Common standardised administration systems

• Item processing

• Next generation switching project

• International payments clearing

ANZ’s progress in migrating to open systems - case studies

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ERP/Common administration system - background

• Our ERP systems were fragmented and outdated

• General ledger was no longer supported

• Payroll system was old, heavily customised and costly to support

• Very limited HR MIS

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ERP/Common administration system - challenges

• Need for a common, standardised administration system

– PeopleSoft met our mandatory selection criteria

– HR functionality was tailored to Australian regulatory environment

– General ledger structure is a good fit to our operations

– Technology fits well with our architectural standards

• ANZ’s PeopleSoft implementation is the largest on MS Windows 2000 and MS SQL 2000 in the world

• Implementation approach critical to success, trade off between package customisation and our current processes

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ERP/Common administration system - solution/approach

• We adopted a ‘vanilla’ implementation, thus our processes were changed to fit the software

• Focused on people impact – change management and training

• Staged approach to deploy major modules:

- Procurement and Accounts Payable

- Human Resources

- Fixed Assets

- Finance (General Ledger)

- Payroll

• Pushing the time/cost boundaries

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ERP/Common administration system - solution/approach

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ERP/Common administration system -outcomes

– Reduction in finance administration and procurement expenditure and greater control of fixed assets

– Reduction in HR expenditure in progress following recent payroll implementation

– Faster, easier and more cost effective way of working

– Straight-through automation

– Easier capture and use of business information

– Consistent business platform across ANZ

– Delivery of web-based information anytime, anywhere, any place

– Transformation of culture

– Reduction in operational risk

Cost

Flexible

Connected

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Item processing - background

• ANZ used the same equipment to process cheques for almost 18 years at five state-based Transaction Processing Centres

• Large logistics exercise to achieve same-day value processing of all cheques/deposits across 900 Australian branches

• This process had a number of disadvantages

• Aged Proof of Deposit platform and 5 major voucher processing sites

• Costly and inefficient physical storage, access and retrieval of cheques from paper archive warehouses for 7 years

• Geographic dependency on paper

• Day-2 functions (eg exceptions, returns) all required paper handling and records management actions

• In NZ we had an equally old system on different equipment in three centres using different software and interfaces

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To develop a best practice document processing environment to enable efficient and timely capture of customer and internal paper based financial transactions.

The strategy comprised five parts:

1. Implement an Image POD System to further increase productivity and reduce the cost/item of processing in a standard system across both Australia and NZ

2. Utilize the more efficient/flexible Image POD System to integrate with the aging Retail Lock-box System

3. Create an Image Archive over 7 years to replace paper storage and provide rapid access across the enterprise

4. Image enable back office processes and centralize those functions which would result in major FTE savings

5. Interface into the Bank’s Internet System to provide ‘self-service’ archive access to ANZ customers

Item processing - challenge

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Item processing - solution

2 Pass Proof of Deposit

One Pass Image Proof of Deposit

SystemsLAST

EXCHANGE

CASHLETTERS

IMAGE CAPTUREIN - CLEARINGS

ReceiveWork

byCourier

fromBranches

BATCH PREPAMOUNT KEYMICR/OCR READMICR REPAIRAUDIT PRINTENDORSEMICR ENCODEIMAGE CAPTURESORT

ONE-PASS TRANSPORTS 1 OPERATOR PER MACHINE

One Pass Capture, Key, Balance, Encode, Image Capture and Sort System

ONE-PASS TRANSPORTS 1 OPERATOR PER 3 MACHINES

Conventional Solution

ANZ Solution

Receive

WORKPREP

HIGHSPEEDCHECKCAPTUREPASS

CAR/ICR

IMAGEDATAENTRY

IMAGEBALANCE

PAPERREJECT

RE-ENTRY

PAPERBALANCE

HIGHSPEEDCHECKENCODEPASS &SORT

PASS ONE PASS TWO

MICRREPAIR

SPECIALISED FUNCTIONS

RE-HANDLEPASSES

LASTEXCHANGE

CASHLETTERS

CAPTUREIN -

CLEARINGSPOSTDDA

Two Pass Capture, Balance and Encode

POSTDDA

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Item processing - outcomes

– Streamlined processes in both Australia/NZ

– Lowest unit costs from ‘one pass’ data and image capture

– Efficient and timely capture of customer and internal paper based financial transactions

– Improved customer service through faster retrieval or self service

– A platform that can grow or contract with our imaging requirements

– Increased scalability and ease of integration

– In-sourcing opportunities - such as credit card services or white labelling

– Sales potential to off-shore banks

Cost

Flexible

Connected

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Next generation switching project

• Replacement of existing ATM and EFTPOS switching functionality (approx 1,500 ATMs and 50,000 plus POS terminals)

• Current environment based on proprietary hardware/platform and software

Solution:

• Migrate to Windows 2000 and OpeN/2 (from S2)

Outcomes

Cost

Flexible

Connected

After full implementation, expected to be 50% of previous environment

Equivalent functionality can be developed much faster Lower development costs, can upscale quickly

Allows integration with existing web channels and CRM Eliminates requirement for proprietary architecture Lowers overall diversity of platforms Reuse with telling platform

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International payments clearing

• Inherent risks due to complex and disparate payment systems/processes

• High complexity within a proprietary environment

Solution:

• Single platform that processes international and domestic high-value electronic payments

Outcomes

Cost

Flexible

Connected

Reduced resources in both Aust/NZ Reduced hardware maintenance/support costs

Increased STP rate for MT100/103/200 message types from 30% to 60+%. At same time business volumes have increased.

High availability and standardised platform in Aust/NZ

Increased revenue streams and enhanced product devp Improved operating risk management and tools Real time counterparty risk management

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Conclusion

• Historically, financial institutions have built a myriad of fragmented proprietary point solutions that are difficult to integrate

• ANZ is focussed on moving to open systems to simplify its environment, enabling:

– componentisation and re-use of solutions

– lower costs

– improved cycle times and business functionality

• But, this is not easy - it requires clear vision, unrelenting drive and constant innovation

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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