When IT and corporate see eye-to-eye, alignment success is inevitableAs CIOs take an increasingly commanding role in strategy development, and boards get increasingly wised up to the strategic potential of IT, smart companies are beginning to take a good, hard look at the value that the IT investment contributes to the organisation.
Market leaders are using IT to extend their business model and embrace new opportunities and partnerships. In turn, those new opportunities and partnerships are helping them leverage competitive advantage from those IT investments. Consider it in that context, and the decision by Perth-based financial services provider BankWest (BWA) and e-business and IT services supplier Unisys Australia to forge a joint venture to deliver IT services to government departments and enterprises suddenly starts to make perfect sense.
"The vast majority of new emerging business opportunities that we're getting are technology-led," says BankWest general manager emerging businesses and systems Chris Whitehead. "To me there is absolutely no doubt that technology is the key to banks' competitiveness going forward and, indeed, you're seeing banks place investments with IT companies. So I say the other banks, if they're not looking at their own IT as a strategic asset, are being a bit inconsistent."
Not only consistent, the Unisys West initiative is also a significant strategic move for both BankWest and Unisys. It is aimed at providing Australian businesses and public sector organisations with a significant alternative in the large-scale mainframe and Unix mid-range-outsourcing marketplace. While a vast divergence from traditional banking activity, the move for BankWest springs from its utter confidence in its IT capability and is proving one way - perhaps even the only way - to extract fresh value from its IT spend. Further, it perfectly reflects the bank's strategy to diversify its business by developing profitable new revenue streams.
It also seems consolidating a bank's and an IT vendor's IT services groups can achieve wonderful things. The venture lets Unisys West offer business-to-business e-commerce transaction services, data centre outsourcing, business process outsourcing, network management, help-desk operations, disaster recovery services, managed services and application service provision (ASP). It capitalises on Unisys' end-to-end e-business solutions and deep vertical industry expertise and BankWest's strengths in payments processing, not to mention the combined IT and e-commerce capabilities of both. It has also tapped into the increasing need of customers for innovative and creative solutions outside core banking services, while providing the twin benefit of giving its main players improved economies of scale.
Unisys West uses both partners' data centres and has a board of directors comprising people from both companies under chief executive Doug Cox. Two of BankWest's senior managers report to Cox and run aspects of service delivery.
"The management is a mix of both companies and the board is a mix of both companies, and what we're now working on is making sure we integrate our strategies and sales efforts," Whitehead says. "We believe there's a strong opportunity to leverage each others' customer bases and offer those customers a more complete service and one where increasingly we can actually integrate banking-type capability with transaction processing capability. We think that's an exciting proposition."
On Unisys' part, the venture merely extends its embrace of new business models to accelerate its information services capability, exemplified by its acquisition earlier this year of QCOM, one of Queensland's leading e-business solutions providers. Unisys' West Australian branch manager, Murray Rosa, has described the venture as a prototype for deals Unisys might pursue globally, increasing the organisation's staff in Western Australia from 80 people to 160 people and enabling it to diversify through (BankWest's) IBM mainframe.
Meanwhile, for BankWest a move that just a few years ago would have been unthinkable is now perhaps not only proving the best way to leverage competitive advantage from its world-beating in-house IT department and data centre but also a way to generate fresh revenue streams. The end game is the achievement of a substantially better return on investments in BankWest's technology infrastructure.
The BankWest announcement in August last year was quickly followed by a decision to form a strategic relationship and investment in Pulse, an electronic payment switching company whose value proposition involves integrating payment switching into a company's business processes. The deal is seen as a way to acquire software development and specialised payments capability to complement the bank's service offerings.
BankWest is also constantly looking at other strategic alliances and very much looking to continue to build an advanced technology capability. For instance, almost a year ago it floated off a software development company called CBS IS which is marketing core banking systems globally. CBS IS recently sold BankWest's system to its parent company, the Bank of Scotland, which in turn is looking to sell it to other banks.
"E-business is changing business models: how firms do business and the roles and relationships between customers and suppliers - in fact between all stakeholders," noted GartnerGroup vice president, executive programs worldwide Marianne Broadbent in her May report "Shaping CIO Agendas in an E' World". "Business models are emerging around what information technology can enable."
That's exactly the principle Unisys West was built on.
Capitalising on Success
There's no doubt the joint venture represents a radical departure from core banking business. However, according to Whitehead, the new structure is extremely good business, arising as it did in part from the bank's habit of constantly reviewing costs and looking for opportunities to make the organisation more efficient.
"There were a couple of reasons for the decision to establish the joint venture," he says. "Looking from an IT perspective in the bank, we did a benchmarking exercise which proved the bank's IT services were already operating at world's best practice." Over the last 10 to 15 years, BankWest has maintained a close focus on its mainframe development and operations. It has also adopted a zero-tolerance approach to failures and built its infrastructure and capabilities around the notion of the mainframe as engine room of the bank.
Initially concentrating on building a robust environment, BankWest backed that robustness up with an advanced backup capability. It maintains about 10 high-speed connections between its two data centres, achieving real-time mirroring of all the key information in the core banking systems and ensuring it is extremely easy to switch services between the two. Together that robustness and reliability explain why the bank is running at world's best practice; but they also left the bank with a dilemma: how to extract more value from an already highly effective value proposition.
"The benchmarking exercise identified the fact that the only opportunity in reality to get down the bank's overall costs of IT was to gain scale," Whitehead says. "We could only get the unit costs down by having greater scale that would generate some benefits and an opportunity to be more efficient." Other banks when confronted with the need to achieve efficiency have decided outsourcing was the best way to meet their goals. Perhaps the reason BankWest didn't is because it approached the same dilemma from a very different mind-set.
"Our mind-set was very much that we're good at this, here's an opportunity to exploit it," Whitehead says. "We were very confident of our delivery capability and felt there was a strong proposition there that wasn't, from our point of view, getting out of IT services," Whitehead says. "Instead the proposition was, as an organisation through a joint venture, getting into another area of the value chain in terms of transaction processing."
However, the decision also sprang from a belief that an organisation running any function not considered fundamental to the core business at best practice standards has a perfect opportunity to commercialise that service. "That's another factor that drove us," Whitehead says. "Here we had something that was performing extremely well. If it gained scale we could get more efficient; and also, if we commercialised it, we could actually turn a cost centre into a profit centre."
While BankWest had robust infrastructure and IT skills aplenty, it lacked the ability to put together a saleable commercial proposal, with associated processes and controls. That's why it felt it needed to go into a joint venture in order to source the skills it didn't have.
BankWest actually runs little Unisys technology, apart from in its clearing area, and even that has now been outsourced to Austpay. It does, however, have a strong relationship with Unisys, having outsourced all its PC and LANs to them about 16 months before, an arrangement Whitehead says has gone extremely well. With that endorsement of Unisys' services capability it seemed perfectly logical that Unisys should be the one BankWest drew on for sales and marketing and services management capabilities.
BankWest has carefully nurtured its IT skills base over a long period. The establishment of Unisys West was its chance to capitalise on those skills.
The Bank's operations are highly automated, and BankWest has for years focused on maintaining a skilled operations staff with a high degree of knowledge of the applications that they're operating. Whitehead says when things go wrong his operations people never simply follow a script. Instead, all staff members know how to diagnose problems and can understand the implications or repercussions of system faults and take the appropriate action to fix them.
Getting and keeping some of the best IT people Perth can offer is one of the advantages that comes with being one of the top two or three IT organisations in the city, he says. Potential recruits and existing staff have always seen BankWest as a desirable place to work, not only because banking involves constant change but also because it typically embraces relatively large-scale technology. "Staff retention has been good. We've had a loyal workforce and their skills have grown over the years and I think that's been a big advantage," Whitehead says.
He says those staff - who had long recognised the bank would have to continue to take steps to improve its efficiency - have reacted enthusiastically to the chance to work for Unisys West. "I think there's always perhaps an element of feeling undervalued if you're working in a totally in-house environment. In addition, I think everyone really felt that some change was inevitable over time - just look at what all the other banks are doing," Whitehead says.
"The approach we came up with, which was to say, in effect, that we're going to commercialise our capability, was really a great compliment. It was effectively saying: you as a group of people are so strong we actually think we can build a customer proposition around your capabilities and the capabilities of the infrastructure'."
There was another reason why the move was so easy to sell to staff: it thrusts them to the centre of the business, Whitehead says. IT staff can never expect to be at the centre of the banking business the way Unisys West staff are central to the core business of the IT services company that has been created.
Whitehead says Unisys West draws on the combined skills of BankWest and Unisys to help clients move into the new economy. In that regard BankWest brings an edge to the new services company few competitors can match.
"Going back to the point in regard to the value chain in transaction processing, really a large part of banking is about helping customers do commercial transactions," Whitehead says. "As we provide the exchange of value, we're often also providing trust and security in terms of transactions, in terms of checking systems or credit card systems, and so on. We're providing the identification, authentication, security and trust into the transaction.
"Integrating our capabilities with an IT services supplier allows us to provide a greater part of that transactions processing value chain. It means we can say to our customer that we can provide the ability to process transactions in an IT sense and we can also integrate that into the payments systems and banking systems to provide a much stronger proposition."
There is also another factor. Whitehead says their reliance on EFTPOS and ATMs ensures banks have, at least over the last 15 to 20 years, recognised the importance of having extremely reliable systems. In the new economy, every organisation will find itself reliant on good infrastructure for a significant part of its business and needing the same availability characteristics, quality of data centres and the presence of hot backup sites. "I think one of the key propositions that we can provide is bank-quality transaction processing capability for companies," he says.
Merging the culture of an IT services supplier with that of a bank is proving an ongoing task which presents plenty of challenges. There are many areas of cultural divergence, Whitehead says. Take the fact that as a technology company many of the interactions between Unisys and its customers have been with the IT director or the CIO. By contrast, much of the bank's dialogue with its key customers tends to be through the chief financial officer or chief executive officer. In the case of a services company, those same people need to talk to a broader range of executives. Whitehead says it's one area where Unisys West's ability to combine the capabilities of its merged staff is likely to provide a major strength.
"We feel that there is an opportunity to build a unique culture and a unique capability in Unisys West. A lot of that is about communications," Whitehead says. "We're having regular meetings, educating people in the bank about the capabilities of Unisys West, getting their input in terms of how they can be leveraged directly and indirectly in the bank's business and looking at educating Unisys in terms of how the bank can assist in the business."
Another big challenge, perhaps the biggest facing former BankWest staff, is building an external customer service culture. Moving from being part of an organisation to being a service provider servicing multiple customers carries with it some responsibilities and an approach that's different from that demanded by a purely internal function. Learning those commercial disciplines and, indeed, building a commercial relationship between the bank and Unisys West is a key area of focus for the staff. On the other hand, staff joining Unisys West from Unisys find themselves suddenly thrust into a much smaller company where, while they still have access to the total resources of Unisys, the business relationship and marketplace proposition are very different.
Changing corporate cultures demands strong leadership; the fact that Unisys West has done so well to date, Whitehead says, is a tribute to one of Cox's great strengths as chief executive. Cox has been particularly interested in issues surrounding cultural change for many years and has been responsible for implementing culture changes in a couple of organisations within Unisys.
"The relationship between the two organisations is strong and we very much do share a vision as to what can be done in this market. I think a sign of the Unisys commitment is that this has the direct support of Unisys globally - right up to the president and CEO of Unisys, who became personally involved because it is seen as such a unique business model," Whitehead says.
Unisys West signed its first contract in November with the Western Australian Ministry of Justice for applications maintenance, enhancement and development along with other consulting services to support the operations and administration of courts within WA. It's a four-year, multimillion-dollar deal with an optional two-year extension.
The Ministry of Justice says it needed an outsource partner able to demonstrate an understanding of its courts administration services, and with which it could be confident about building a long-term business relationship. Unisys West also had to demonstrate proficiency in the support of existing applications and the development of new courts applications.
"Unisys West helps its customers provide improved, effective services. For the Western Australian Ministry of Justice, this means bringing global expertise in government and outsourcing and overlaying this with Australian knowledge and expertise, through the Unisys Justice and Public Safety program being delivered through Unisys West," Rosa says.
The contract highlights the company's ability in managing outsourced applications, building on the services Unisys West provides to other organisations such as the Education Department of Western Australia. Unisys West will now provide the Ministry with a contract service management facility and apply economies of scale. Using proven methodologies and project management expertise, Unisys West will focus on delivering business outcomes, and improved and consistent levels of service within an agreed service level framework.
Whitehead says like other customers the Ministry places high value on the fact that they're dealing with a company that has strong local routes and can leverage the credibility and trust that's associated with Bank West, as well as having access to the full capabilities of Unisys. He also says that is in keeping with the trend for banks, like everyone else, to compete for their space in the value chain by ensuring their relevance to customers.
"For our business and corporate customers, it's very much about helping them run their businesses. All the banks are providing a broad range of services. What we've seen is an opportunity for Bank West to really help our customers with technology as well.
"In fact, we see technology and transaction processing and banking so intertwined that I don't think you can provide as much value to your customers unless you're enabled to provide that integrated offering. I think it's a strong customer proposition and I think we were simply fortunate to have an area of strength where perhaps the motivation of other banks has been more in having an IT problem they need to solve."
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