NAB outsources IT transformation

NAB’s technology team is relying on outsourcing contracts with IBM, Telstra, Oracle and SAP to keep it on a disciplined refresh cycle despite cost pressures from the organisation.

The bank is three years into its NextGen transformation program, intended to replace its core banking systems and retire more than 100 legacy applications by 2014.

But that program was only one part of the bank’s technology and cultural overhaul, NAB’s group business services executive Gavin Slater told an FST Media conference this week.

In recent years, NAB has entered into infrastructure, telecommunications, core banking and enterprise software deals with IBM, Telstra, Oracle and SAP respectively.

Slater said transforming the bank’s technology to avoid future outages was akin to “building a house”.

“When we have an internet banking issue, it could be an issue with the application, it could be a connectivity issue with the network, it could be a hardware failure,” he said.

“When we stepped back and looked into the organisation, we felt that we needed to deal with these issues across every part of our supply chain.”

Meanwhile, the bank was saddled with legacy systems and was operating at what Slater described as an “artificially low cost base” since many of its technology assets had “no current value”.

Deploying new hardware and software was easy, he said. Far more challenging was establishing a new operating model that would value updated technology.

“Those of us who work in technology know that we’re always at the receiving end of cost cuts,” he said.

“I think by signing up with someone like IBM or any of the other major partners, it does force you into a very disciplined and sustainable capacity for a refresh program.

“The reality is that in organisations like ours, we have sweated the assets.”

Like rival ANZ, NAB is moving away from heavy customisation and control of its IT projects so it may benefit from its vendors’ investments in research and development.

Oracle reported spending $US4.5 billion ($4.4 billion) on research and development last year. Meanwhile, at its annual results announcement last week, NAB reported a record profit of $5.5 billion.

Slater and NAB’s executive program director of the NextGen program, Christine Bartlett, highlighted opportunities that would come from Oracle’s success in the core banking technology market.

“[Oracle] will be harvesting input not only from the NAB but also from other tier one banks around the globe and continuing to invest in that application, to keep it current,” Bartlett said.

“Part of our focus is making sure that we minimise our customisation so that we’re agile and able to take advantage of new release of their product as they become available.

“We’ve made the decision to move away from bespoke developed code at NAB and looking toward implementing packaged applications.”

NAB attributed $205 million of its 2010-11 software costs to the NextGen program, as well as “most” of an $258 million increase in its infrastructure spend.

Bartlett said the program would deliver a new Oracle Fusion-based system to NAB’s online-only subsidiary, UBank, in the new year.

In line with NAB chief executive officer Cameron Clyne’s comments at its interim results announcement in May, the bank recently completed a network upgrade with Telstra.

Slater said it upgraded its network at 800 branches, 200 business banking centre and corporate offices to a faster, more flexible and reliable multiprotocol label service.

It was also in the process of moving towards more high-density zones and consumption-based pricing from its data centre in partnership with IBM, he said.