CommBank reduces IT expenditure

CEO opens up on days-long July outage.

The Commonwealth Bank has reported a reduction in its IT operating expenses by $34 million over the past year due to better vendor relationships and use of “on-demand infrastructure”.

The bank this week posted a $7.09 billion profit for the 2011-12 financial year, up 11 percent on the prior year.

Chief executive officer Ian Narev pinned the record result on its technology investments, including a $1.1 billion core banking modernisation program that concludes this year.

Since embarking on its IT transformation initiative five years ago, CommBank said it had consolidated 23 data centres into two and reduced the occurrence of severity one incidents from 70 to seven per year.

The bank told analysts that it now spent 26 percent on infrastructure and 74 percent on customer-focused content, compared to spending half its IT budget on infrastructure five years ago.

It reported making 3000 changes to its production IT environment each month, compared to 1200 five years ago, spending $322 million on application maintenance and development in the 12 months to June 30.

“We have worked hard at tailoring our cost base to this new lower growth [financial] environment,” Narev said, highlighting improved cost-to-income ratios in business units on the new core platform.

As a whole, CommBank’s operating expenses grew 3 percent to $9.2 billion, due in part to increases in staff, occupancy and equipment, as well as compliance expenses.

IT operating expenses fell 3 percent to $1.16 billion, with desktop costs falling $15 million to $105 million and data processing costs falling $26 million to $241 million during the year.

The bank declined to comment further on its end-user computing strategy, after asking vendors to address issues with the deployment of 6000 MacBook Air laptops earlier this year.

It also declined to comment on plans to deploy smartphones to all staff at Commonwealth Bank Place after staff reported difficulties in using the prescribed Lync softphones on their MacBook Air devices.

CommBank’s profit announcement this week also included a $5 million increase in communication costs to $226 million in the 2011-12 financial year.

The bank reported spending $368 million on core banking modernisation in the 12 months to June 30, including $188 million in the six months to December 31.

Narev has previously indicated the bank would allocate a similar amount of funding to a mixed bag of smaller technology programs in the coming years.

CEO opens up on days-long outage

Late last month, CommBank staff blamed IT supplier HP EDS for a patch that brought down a wide range of systems across the bank, with some remaining offline for days.

Narev acknowledged that the bank had met with HP’s US-based chief executive officer Meg Whitman in Australia following the incident but would not comment on how it would affect the companies’ outsourcing contract, which was due for renewal this year.

“We’re one of the most significant customers of HP worldwide. Meg Whitman did what good CEOs do: go and visit your good customers,” he said.

“We always look at all sorts of different alternatives [in contract renewals]," he said, declining to comment further on CommBank's plans for the HP EDS relationship.

“At the moment, we’re still working through exactly what the implications of what happened were, but we’ve got no immediate need to change our IT strategy.”

Narev credited the bank’s IT team and front-line branch staff for ensuring minimal customer disruption as a result of the outage, which he said resulted from a routine, overnight software upgrade on July 26.

However, the Finance Sector Union asserted that CommBank should not hold staff to their usual performance targets as a result of the outage.

The bank declined to discuss its service level agreement (SLA) with HP EDS and whether the outage had resulted in any financial penalties for the supplier.

“In terms of cost [to the bank], it’s minimal,” Narev said. “I can’t even tell you what the number is.

“We have technology as a focus of our strategy; we’re very committed to resilience and stability.

“Unfortunately, sometimes these things do happen. But one thing we showed ourselves at the time was our ability to respond is now significantly improved from how it was before.”