Changing the game: Moving to open systems

1
Changing the game Moving to open systems

• Case Study Presentation to 2002 BAI Retail
  Delivery Conference and Expo - 7 November 2002
• David Boyles
• Chief Operations Officer
• Australia and New Zealand Banking Group Limited

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Agenda

• About ANZ
• ANZs Technology program and directions
• ANZs progress to open systems migration - case
  studies
• Next generation switching project
• ERP/Common standardised administration systems
• Item processing
• Payments clearing
• Core Banking outside Australia
• Conclusion

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About ANZ

• ANZ is a leading banking and financial services
  organisation with about 22,500 FTE employed in 29
  countries around the world.
• With total assets of USD 100 billion and market
  capitalisation of USD 15 billion, ANZ is also
  one of the worlds 100 largest banks.
• Our overriding philosophy in our interactions
  with our customers, our shareholders, the
  community and with each other is that ANZ is the
  bank with a human face.
• ANZ is represented in its primary markets of
  Australia and New Zealand as well as in Asia, the
  Pacific, Europe and the United States. Exchange
  Rate 0.55 USD (to AUD) As at 09.30.02

4
Delivering performance
ROE
NPAT

USD m
21.6
EPS Dividends
Cost Income Ratio
US Cents
46
DPS
EPS
Exchange Rate USD 0.55
5
We have a diversified portfolio of businesses
Change from 2001
2002 NPAT USDm
2002 NPAT USDm
Personal Customers Corporate Businesses ANZ
Investment Bank Mortgages Small Med Business
Consumer Finance Asset Finance Group Treasury
315 290 171 135 86 82 56 68
9 13 8 4 21 51 11 65
26 34 13 6 15 28 6 27
2002 NPAT increase
2001 NPAT
Exchange Rate USD 0.55
6
ANZs Strategy
Our targets

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

Organic out-performance

• Revenue growth materially higher than expense
  growth
• Take business units to sustainable leadership
  positions
• Build a range of strategic options

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

Portfolio reshaping
Transformational moves

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

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ANZs 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
  state-of-the-art payment capabilities

8
Initial Strategy (1998) provided focus to move to
next level
Infrastructure
Process
People
Customers (BU)
1998 Inward focused, low satisfaction, weak
process, complex infrastructure

• 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 methodology
• Billing of services incomplete and inaccurate

• Inflexible, high cost technology
• 15 data networks
• 6 core systems
• Many different platforms

2002 Customer focused, positive culture,
improving process, simpler infrastructure

• Explicit business partnership
• High Customer satisfaction 7.7 (Sep 02)
• Service Level Agreements
• Customer Survey/ feedback process

• 40m (USD) in benefits from our continuous
  improvement program
• Improved Staff satisfaction to 83
• IT staff turnover below 4
• Training on-line
• Leadership Development program
• Performance culture

• Full DRP in all critical processes
• 854 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 policies
• Detailed billing

• Tandem, Unix AS400 rationalisation
• 2 core systems
• Single IP Network
• Standard Win2000 desktop across Australia
• Intranet to all but 800 Intl staff
• Established strategy for standardisation and
  re-use

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People - Skilled committed
Management tertiary qualifications policy
Breakout cultural transformation workshop

• pcs_at_home heavily subsidised packages for staff
  to acquire PCs

Online training courses
Half yearly staff survey with action teams to
address issues raised
eVouchers provided free to staff to choose
reading materials

10
Customers - Commitment to focus technology on
business unit objectives
Service level agreements in place for each
Business Unit
Average SLA for major systems
Clear alignment between Technology Business
Units
Customer survey/ feedback process on 6 monthly
basis. Linked to individuals performance
measures.
Electronic timesheet capture for IT project
tracking, reporting billing
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Process - Commitment to improve execution
capability

• Capability Maturity Model
• Significant productivity quality improvements
• CMM level 2 certification 1st Australian Bank
• Bangalore, India - level 4 certification

• Project management training
• Generic training courses tailored with ANZ
  specific content latest Project in a Box tools

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Infrastructure - Commitment to rationalisation
standardisation
Core Systems
IP network
1998 6 major systems
1998 Multiple data networks

• Single IP Network provides universal connectivity

• Simpler systems platforms reduce cycle times

Servers Desktops
Platforms
2002
1998
1998 8 major platforms
2002
Platform Focus Eg,W2K, UNIX, MVS

• Greater ability to leverage new technologies
• Lower hardware, software licence fees support
  costs

• Provide all staff with best tools possible
• Low cost of ownership through standard solution

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Technology Transformation strategy 2002-05
Takeout Costs
Improve Project Delivery
Leverage Group Assets
Simplify Platforms
Robust Operating Model
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
Movement to open systems Key Factors

• Support re-use 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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ANZs 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 skills availability
• Flexibility speed, scalable, modern
  infrastructure
• Connectedness plug play, ease to innovate

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ANZs progress in migrating to open systems -
Case studies

• Implemented or underway
• Next generation switching project
• ERP/Common standardised administration systems
• Item processing
• Payments clearing
• Branch sales and service platform
• Next Phase
• Core Banking outside Australia
• Telling

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Next generation switching project - Background

• Replacement of existing ATM EFTPOS Switching
  functionality
• ANZ has approximately 1,500 ATMS and in excess of
  30,000 MultiPOS terminals
• Current environment based on proprietary
  hardware/platform and software since the early
  1980s
• Integration with open computing platforms is
  difficult
• Long lead time to upgrade capacity
• Necessary support skills/knowledge getting more
  difficult to source

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Next generation switching project - Open Systems
Challenges

• Meet or exceed service levels of existing
  proprietary solution
• No loss of committed data under any circumstances
• 24x365 availability
• Disaster Recovery
• No loss of committed data, failover 1 minute
• Performance, throughput and linear scalability

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Next generation switching project - Solution

• Migrate to Windows2000 OpeN/2 (from S2)
• Currently running in-house pilot for ATMs
• Soon to commence migration of customer ATMs
• POS to migrate mid 2003

• Dell 2-way Servers
• Win2000 Server
• OpeN2

• Dell 8-way servers
• Win2000 Datacenter Server
• SQL 2000
• EMC Resource PaK
• EMC GeoSpan

• EMC Connectrix ED-64M

• Quantum ATL
• EMC Symmetrix 8730
• EMC SRDF

Tape Library
Active
Comms Servers
Auth Servers
Database Servers
Front-end Processor
Storage Area Network
Comms Servers
Comms Servers
Comms Servers
Storage Sub System
Data Centre 1
Active DB
Data Centre 2
Storage Sub System
Comms Servers
Auth Servers
Database Servers
Front-end Processor
Storage Area Network
Comms Servers
Tape Library
Fail-over
Fail-over DB

• 4 Node MS Cluster

Win2000 Datacenter Server Environment
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Next generation switching project - Outcomes

• After full implementation operating costs are
  estimated at 50 of previous environment
• Trials have demonstrated that equivalent
  functionality can be developed in half the time
• Lower annual development cost
• Ability to quickly upscale capacity
• OpeN2 (S2) allows ATMs and EFTPOS to be
  integrated with existing web channels and CRM
• Eliminates the requirement for proprietary
  architectures and associated skills
• Lowers the overall diversity of platforms, with
  longer term cost reductions
• Reuse with telling platform

Cost

Flexible

Connected
20
ERP/Common administration system - Background

• Our ERP systems were fragmented and outdated
• General Ledger was no longer supported
• Payroll system was old and inflexible
• Very limited HR MIS

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ERP/Common administration system - Challenges

• Need for a common, standardised administration
  system
• PeopleSoft met all 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
• ANZs 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
  training
• Staged approach to deploy major modules
• - Procurement 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 HR, finance administration and
  procurement expenditure and greater control of
  fixed assets
• 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 delivery of web-based
  information anytime, anywhere, any place
• Reduction in operational risk

Cost

Flexible

Connected
25
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 inefficient physical storage, access
  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

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Item processing - Challenge

• 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
• Implement an Image POD System to further increase
  productivity and reduce the cost/item of
  processing
• Utilize the more efficient and flexible Image POD
  System to integrate with the aging Retail
  Lock-box System
• Create an Image Archive over 7 years to replace
  paper storage and provide rapid access across the
  enterprise
• Image enable back office processes and centralize
  those functions which would result in major FTE
  savings
• Interface into the banks Internet System to
  provide self-service archive access to ANZ
  customers

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Item processing - Solution
Two Pass Capture, Balance and Encode
PASS ONE
PASS TWO
Conventional Solution
CASHLETTERS
Receive
CAR/ICR
IMAGEBALANCE
MICRREPAIR
HIGHSPEEDCHECKCAPTUREPASS
HIGHSPEEDCHECKENCODEPASS SORT
CAPTUREIN -CLEARINGS
2 Pass Proof of Deposit
RE-HANDLEPASSES
WORKPREP
POSTDDA
IMAGEDATAENTRY
PAPERREJECTRE-ENTRY
PAPERBALANCE
LASTEXCHANGE
SPECIALISED FUNCTIONS
One Pass Capture, Key, Balance, Encode, Image
Capture and Sort System
ANZ Solution
BATCH PREPAMOUNT KEYMICR/OCR READMICR
REPAIRAUDIT PRINTENDORSEMICR ENCODEIMAGE
CAPTURESORT
CASHLETTERS
ReceiveWorkbyCourierfromBranches
One Pass Image Proof of Deposit Systems
POSTDDA
IMAGE CAPTUREIN - CLEARINGS
LASTEXCHANGE
ONE-PASS TRANSPORTS 1 OPERATOR PER MACHINE
ONE-PASS TRANSPORTS 1 OPERATOR
PER 3 MACHINES
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Item processing - Outcomes

• Streamlined processes
• 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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International Payments Clearing - Background
Inherent risks due to complex disparate payment
systems/processes

• Batch operations moving to real time
• High processing costs
• Non-standard processes and product sets across
  the network

• Fragmented systems and interfaces
• Significant levels of operating risk
• Difficulty in providing support and
• development

High Complexity within a proprietary environment
ANZ High Value Payment and Messaging
Systems (as of July 1999)
Telex
ANZ NZ
CorporateCustomers
Branches
Accounts
AVP/SCP
KITS
Corporate Customers
Branches
Treasury
Treasury
ANZ India (CBS)
Treasury
Asian Branches (only)
Accounts
Trade
NZD Accounts
Telex
Trade
Operations
Corporate Customers
Vostro Limits
Branches
Telex
ANZ London Office
RTGS
Telex
Treasury
Trade
Treasury
CorporateCustomers
Fedwire
AUD Accounts
Correspondent Database
Vostro/Nostro
CHIPS
Nostro Rec
ANZ Aust
ANZ NY Office
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International Payments Clearing - Challenge

• Multiple delivery channels to customers
• High visibility of system to customers/regulators
• ANZ highest market share in Correspondent
  Corporate/ Institutional Banking in Australia
• ANZ ranked 50th bank in global SWIFT traffic
  volumes
• Multiple functions - inward/outward payment
  processing, reconciliations clearing settlement
  systems
• High availability requirements especially for
  high value RTGS clearances and CLS requirements
• Interlinking batch-processing legacy systems with
  real-time web-based customer systems

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International Payments Clearing - Solution

• Single platform that processes international and
  domestic high-value electronic payments
• Redundant hardware and software, with cross-site
  data replication (recovery within 30 minutes)
• Farms of servers, load balanced across multiple
  sites
• Hardened server and network environment with
  Intrusion monitoring
• COM business logic tier
• IBM MQ series used for integration to all
  external systems
• Thin browser client or full function rich client

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International Payments Clearing - Outcomes

• Reduced staff in operations area
• Reduced technical staff in platform support and
  development
• 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
• Standardised platform in Aust/NZ
• Increased revenue streams and enhanced product
  development
• Improved operating risk management and better
  risk management tools
• Real time counterparty risk management

Cost

Flexible

Connected
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Next Project - Core Banking System outside
Australia

• Currently support seven off-shore sites in
  Pacific Asia on core system. All support and
  services provided from Melbourne /India team
• A further three countries will be added to the
  core platform, increasing scale and lowering unit
  costs across all countries.
• Opportunities for improved cost effectiveness
• Completed proof of concept to migrate banking
  platform to Intel/W2000 with SQL Server database
• Indicative Benefits
• W2K platform more cost effective lower annual
  maintenance costs about 30 savings 40
  reduction in hardware costs
• Faster processing giving bigger support or
  online window
• The W2000 / SQL server skills are easier to
  resource within ANZ

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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 Banks
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
Gentry Head of Investor Relations ph (613) 9273
4185 fax [phone] e-mail
gentryp_at_anz.com