Michael Harte wanted to be a landscape architect when he was younger, but his mother talked him out of the idea. "She said there's no money in it and that I should go and get a business degree," relates Harte. His mother's advice turned out to be a fortunate development for Sydney-based Commonwealth Bank of Australia (CBA), one of Australia's largest banks with more than US$700 billion in assets.
CBA celebrates its 100th anniversary this December, and after a century in business, it's one of the world's only remaining AA-rated banks. Yet significant challenges remain: The global financial crisis raised the cost of the business of banking in terms of higher funding costs, more intense competition for deposits and stricter regulatory requirements. At the same time, customers are borrowing less, leading to a slowdown in credit growth.
CBA's leadership has responded to these trends with a strategy of providing exemplary customer service. To turn that strategy into operational reality, the situation called for a creative turnaround specialist with a broad business background and skill in execution.
Enter: Harte. When Harte joined the bank as CIO in April 2006, he says, he discovered an IT staff that was disillusioned, demotivated and disengaged. At the time, the technology group was run separately from the banking operations group, and this led to duplication of efforts, high incidence of errors and lack of communication, Harte notes. "We didn't have a portfolio approach to projects, so we didn't know which projects we were managing or how many we had," he says.
Harte responded by creating a leaner IT organization that has reduced service outages from 80 per year to fewer than 10. Through a portfolio governance program ranked among the top 10 percent in the world, CBA was able to achieve project-level discipline over priorities and resources, according to Harte, who adds that the IT development process also underwent a complete overhaul, resulting in higher-quality code being delivered three times faster than before. Over the course of three years, Harte reports, these changes generated a AUD$300 million reduction in operating expenses.
"Once we had these successes over the first three years, we were given more responsibility," Harte recalls. "With increased stability, much greater responsiveness, and real control over the predictability and the reliability of new products, services and investments, we were then given a mandate to manage both operations and technology in an integrated fashion."
In October 2008, Harte was named group executive of Enterprise Services, with responsibility for both technology and banking operations under a single banner. According to Harte, an extensive process-reengineering effort covered not only internal solutions, but also external vendors, including EDS (which was acquired by HP in mid-2008), which had to ensure that their solutions were available as service-oriented architecture components. "We wanted everything service-oriented from end to end," Harte says.
In accordance with the bank's customer-service strategy, the operating model for Enterprise Services (ES) establishes performance goals based on external customer satisfaction measures, Harte explains. "For our bank, the single biggest driver for transformation has been customer service," he asserts. "We're making sure that we deliver the most delightful, convenient and meaningful services to our customers in every single interaction and every single transaction."
To accomplish that goal, Harte supplemented real-world experience -- his and his team's -- with theoretical knowledge from academia, forming a working relationship with MIT's Center for Information Systems Research (CISR), which gathers and analyzes field-based research on IT deployments and IT management. More than 350 CBA employees have attended a weeklong program hosted by MIT CISR focused on managing IT value, Harte reports. "We have turned our functional managers -- who had been focused on projects, applications or engineering concerns -- into strategic leaders who can make decisions around value and who can see how each and every step we take is directed toward the customer," he says.
The Power of Information
The MIT training provided Harte and his team with the tools to undertake significant change at the enterprise level, he acknowledges. Based on MIT research on the sources of competitive advantage, Harte says, CBA now ensures that every product deployment includes sources of sustainable differentiation. "For each of our banking and asset management platforms, we make sure that innovation around those platforms is greater than anything our competitors are doing," he insists. "We do that by reducing the cost of operation of those platforms and by improving the capabilities and information available through those platforms."
Earlier in his career, Harte notes, he gained an appreciation for the famous banking aphorism of Walter Wriston: "Information about money has become almost as important as money itself." According to Harte, "Through having more granular and persistent information, the richer the value proposition to customers and the more likely you are to enhance your competitive position."
The results have been striking. Five years ago, Harte admits, "We had been regarded as a slow, lumbering giant, and some of our technologies were two to three years behind the competition, and even farther behind international best practice."
Under Harte's leadership, however, CBA has launched CommSee, a new customer interface system at the branch and call center; NetBank, an online and mobile banking solution with almost 6 million registered users; CommBiz, a secure online business banking solution; CommSec, an online retail trading platform; and FirstChoice, a real-time system for superannuation and retirement investment transactions.
Furthermore, CBA is in the midst of a large-scale core banking transformation using SAP (Newtown Square, Pa.) for Banking, which will replace a wide range of legacy systems -- some dating from the 1960s. CBA already has migrated more than 50 million customer records and 10 million deposit and transaction accounts from batch-based systems to SAP's real-time banking solution, Harte relates. "Eventually, we'll be looking to reuse these transactional capabilities, lending capabilities and deposit capabilities as we grow throughout the Asia-Pacific region," he says.
With the core banking transformation, CBA will be capable of providing full real-time capabilities across its product and service offerings, Harte says. "Customers want real-time capabilities for trading, banking, asset management and insurance," he notes.
Looking ahead, the improved technology architecture also will prepare CBA for the competitive challenge posed by Internet giants such as Amazon, Apple and Google. "They have low cost of computing with increasingly rich information about our customers," observes Harte. "They can easily aggregate our services, take away our core value proposition and erode our competitiveness."
Although Internet firms may match a large bank's economies of scale and sophisticated data analytics, according to Harte, there's at least one thing that would be very difficult for an Internet firm to replicate: a rock-solid privacy guarantee. That alone, he asserts, creates a powerful competitive rejoinder from a bank.
"Based on customer loyalty, risk profiles, behaviors and preferences, we know enough about our customers to offer specific services to them proactively," Harte says. "If we protect customers' social and commercial digital footprints, and indemnify that wherever they go on the Internet, their information won't be stolen, manipulated or maliciously attacked, then we can continually work with them to give them very specific products and services of value. We don't have to bundle up their information and sell it to others."
Taking on the giants of the Internet economy also acts as a wonderful staff motivator, Harte adds. "We're on a mission to bring out greater transparency and value for customers, and we're doing that through increased speed and improved information," he relates. "Our entire team is very excited about being part of the change."