Ten-year IT review for Westpac
Strategic decisions made in the 1990s by Westpac, and reflected in contracts set early in the next decade, have nearly run their course.
The ten-year agreement with IBM, to support all bank systems, and the ten-year agreement with EDS (now HP) to run the mortgage-processing centre in Adelaide are both in their last year.
These contracts are a legacy needing review, and the key thinking behind this review is what Westpac management will address today.
Untangling the IBM relationship will be a tough task for Westpac if it chooses to go that far. And IBM may or may not keep the contract.
Westpac must be counting down the days to late 2011, when HP will no longer have anything to do with its mortgage-processing centre in Adelaide.
Whether Westpac has great plans to address the persistent productivity problems at Lockleys and other processing centres is a question many stakeholders will want answered.
The takeover of St George, in late 2008, is the second catalyst for the present review of priorities.
Priorities set by Westpac for IT investment by management in late 2008 and early 2009 are, in some cases, being abandoned, including spending on key projects such as the unification of the St George and Westpac core banking systems.
What is most surprising about the decisions being announced today is why they were not clarified, and announced, at the time of the St George takeover.
Hooking St George to the Westpac chassis was the short-term plan the latter had for its takeover of what was once the number five bank in Australia.
Unlike CBA, which knows how to annihilate a banking cost-base in a takeover (as with Colonial in 2000 and BankWest in 2008), Westpac was a lot less successful in reducing its cost base and lifting margins from its long-awaited consolidation play two years ago.
Having worked out that the takeover was executed with a lacklustre operational plan, it is, of course, the same management and board that is today pitching a new and presumably improved plan.
Ideally some radical thinking will feature of the Westpac presentation this morning? If it's a genuine core-banking makeover it will be the right choice.
It will also take time, and attract many doubters.
The new plan for core systems may be nothing so adventurous, with the line in trade media reports over the last day being that the previously planned core-banking projects are being "delayed".
Even if there are plans for a wider overhaul of core systems, putting such plans in place may be problematic.
For instance, National Australia Bank's progress with its next generation platform to date is slight. UBank and not much else runs on the Oracle core selected by NAB.
This is one system, incidentally, catching Westpac's eye, although every systems vendor in the world will be after a share of the new spending the bank will outline today.