Tony Prestedge took over as COO at Nationwide in 2010, mid-way through a five-year transformation project. He tells Karl Flinders how the company is transforming its business through a £1bn investment in technology, how the IT department changed from a development shop into an integrator and how it kept the £1bn financial services IT transformation project on track when the finance sector was collapsing.
When Nationwide embarked on an IT transformation, which aimed to turn the company into a full service bank, management did not expect that only weeks later the entire global banking sector would be on its knees as a result of the train of events set in motion by the collapse of Lehman Brothers at the end of 2008. As a result, Nationwide suffered the same financial problems as other banks. It also had the challenge of integrating the struggling finance businesses it acquired during the turmoil - the Cheshire, Derbyshire and Dunfermline building societies - which had to be integrated into the Nationwide's infrastructure.
At such a commercially sensitive time, when finance firms were hanging on to their capital, Nationwide was sticking to its guns and spending £1bn on IT. As a result the building society hopes to stand apart from its peers in the banking sector in boasting completely renewed front-office systems by 2013.
The importance of project leaders understanding the business and technology was driven home when the financial turmoil meant changes had to be made to the project's structure without making an impact on the end results, says Prestedge. Changes had to be made to the leadership team and the contractual agreements with suppliers to keep the project on track during the crash. The leadership team had to change because the investment took on more business risk, given the financial environment. The relationship with system integrator IBM had to move away from being based on time and materials and towards a more strategic relationship.
In 2008 the project set itself the challenge to use technology to increase its speed to market for new products, provide agility in developing propositions and products and improve efficiency. Nationwide broke from tradition by outsourcing for the first time as well as buying software off the shelf. Nationwide upgraded its datacentre and implemented Microsoft technology in the front office and SAP at the back.
Moving to off-the-shelf software is not the norm in financial services, where software is traditionally highly bespoke and created in-house. Much of it is also decades old. So moving off the shelf is perhaps more pioneering than the label suggests. The rationale for doing so by implementing SAP throughout the back office and Microsoft in the front office was clear, says Prestedge.
Banking architectures are often complex jigsaws of legacy systems that, over a period of time, fewer and fewer people understand. The lack of skills associated with aging systems was a problem and stayed the company's ambitions of being quick to market with new products. "Off-the-shelf software provides architectural simplicity so you have dependency on a few people with the right skills. Otherwise you slow to the pace of the slowest," says Prestedge.
He says the use of off-the-shelf software and the removal of legacy systems also makes it easier to integrate new technologies. But a change in mindset was also required. "The IT department had to start thinking about life as an integrator rather than a development shop."
Prestedge says IT needed investment to meet customer expectations and to make it more efficient. "There had been underinvestment in the business for a long time and we were in no different a place to any other bank during that period."
This underinvestment left its legacy. For example, the banking and savings business was using a Unisys platform that had been in situ for more than 20 years.
Prestedge said there was not enough automation when customers interacted with the bank and that manual intervention was required across all channels, whenever customers applied for a product.
Bringing Nationwide IT systems up to date
Back in 2008, Nationwide kicked the project off with plans to bring its IT infrastructure up to date. This began with its first ever outsourcing strategy, when it contracted BT and Computacenter for networking and desktop management services. It has also completed a £150m datacentre in Newbury, which harnesses the latest technologies such as server virtualisation. Its previous datacentre, in Wellingborough, was over 30 years old and had no virtualisation.
It has since moved on to address its legacy applications. In January this year, Nationwide introduced a new mortgages origination platform. It has already put £7bn of new business through the system and has reduced the cost of originating a mortgage by between 35% and 40%. This platform will be introduced to telephone banking, internet banking and branches in the first quarter of 2012. Then the previous front-end mortgage system will be decommissioned.
Nationwide has also introduced a new internet banking platform based on Microsoft technology with IBM the systems integrator. It has already moved 300,000 accounts from its in-house platform and plans to migrate another 1.25 million by the end of next week. It will complete the migration of all accounts before December. "By the end of this month we will have introduced a new internet banking system and migrated 4.5 million customers to it," said Prestedge.
The internet banking platform will then be used in other channels. "We can extend this across all of our channels and this will happen over the next 24 months. When this is deployed in 2013 we will have completely renewed our front office." The company, which was the first bank to offer internet banking, previously had an entirely in-house developed internet banking platform. "It had added layers of in-house development and was complex as a result," said Prestedge.
In the back office the company is replacing the banking and savings platform from Unisys with SAP, while its existing Fujitsu back office mortgage system will remain for now because it is fit for purpose.
The first SAP release will be for current accounts. Prestedge said it is now in pilot and the company plans to go live for new products on the SAP platform between July and December 2012. "We will then role the platform out over a number of years so that by 2014 we will have all banking and savings on the SAP platform. This will be about 20 million accounts."
Prestedge describes the characteristics needed for project managers working on large IT projects in the financial services sector as: intellectual capacity; deep personal resilience; effective relationship management; enjoyment of people; obsession with detail; able to do strategy and operations; and an absolute understanding of the business operations as well as the technology.
This was first published in November 2011