It takes a Nation of millions

How do you achieve true business evolution in an economic downturn? According to Nationwide’s Peter Stafford it’s all about picking your partners.

“Spending money is the easy bit. It’s more difficult to know why you’re spending it”
-Peter Stafford, Nationwide

In early 2008, Nationwide Building Society announced a €350 million business transformation project. Naturally, as IT director, Peter Stafford has been at the very heart of this process. “I suppose you’d call it sort of an umbrella that encompasses a series of IT investments,” he tells us. “What we’re trying to do, like everyone else, is basically undo some basic constraints that the IT architecture has forced on the business. Over the last 25 or 30 years, systems that were transaction-based have had a great deal of complexity added to them. The thing that a business wants from technology now is flexibility and not having to get IT involved in the launch of new products.” In response to these changing needs Nationwide announced a number of IT investments around products engine, origination systems, point of sales systems, business process and back office processes that were intended to drive up flexibility and build greater efficiency into the systems. “Then from an IT perspective that will lead to consolidation of some of our backend IT setup by rationalizing onto fewer platforms, not running so much technology and not having so many systems,” Stafford continues.

The motivation for this huge investment comes from a familiar source; aligning IT with business and providing better service to customers. As the world’s largest building society and by virtue of its mutual status, Nationwide already occupies a unique niche in the market. With a long-held focus on customer service, the society wanted to continue giving its customers good products which displayed flexibility, speed to market and the ability to personalise on a very individual level. “The systems that we had weren’t conducive to that,” says Stafford. “We had to turn those systems into what we wanted them to be, which is why we’re investing in them across the board. So if you look at what we’re doing with SAP deposit management around the product engine as an example, we’re working with them on these solutions and putting more origination software in.

 Outside partners play a big part in Nationwide’s technology setup. For Stafford, bringing in specialists affords a flexibility, reliability and agility that would otherwise be harder to achieve. The partners are roughly split into two different groups: those that assist in the general day to day activities of the organisation and those that cover the more IT intensive aspects of the business. For example, 2008 saw the beginning of a seven year agreement with BT to managed Nationwide’s networked IT services. While the Society traditionally developed and run its own operations in-house, rapid growth over recent years has led to a rethink. Ultimately this partnership, and others like it, boil down to being able to offer a better service to customers “These guys do it for a living,” says Stafford. “They’ve invested in the tools, the process and the people. It would be difficult for us to take it to that level of expertise.”

There is also an inevitable financial impact to outsourcing. “Something I like as the senior IT guy is that it very much changes the dynamic of my costings,” Stafford continues. “At the moment I’m running a large fixed cost. If I’m asked to do something to reduce those costs then I am limited in what I can do. The idea is to move to a more variable cost model.” The result is that rather than having to shut down an internal call centre to reduce costs, for example, the company would have that ability to just reduce the number of seats its outsourced provider is running. “It makes budgeting and flexibility and the ability to react to changing markets, circumstances and business demands much easier,” Stafford continues. “IT can move more quickly.”

A key benefit to handing over some of the more nuts and bolts workings of the Society from Stafford’s point of view is the freedom it gives him to really do his job. “Rather than being an expert on running networks or desktops, it lets me focus on managing risk and IT strategy,” he says. But this is not to say that the whole process is a walk in the park. “If you’re not ready or aren’t clear what you’re getting into, if you don’t know what ‘good’ looks like and you can’t articulate what sort of service your business wants, it’s very hard to set the right set of expectations both in the business and with the supplier about what you require from them,” Stafford continues. “Similarly, if you don’t know where your money goes and you haven’t got some degree of control –you give away a lot of the goodness to the supplier because you don’t really know the levers to pull.

In short, it’s vitally important that any company looking to outsource really does its homework. “We spent a good four to six months looking at this, getting into due diligence and really defining what we wanted out of it and certain expectations correctly,” Stafford explains. “We make sure that they can prove that they can do it because you don’t want anyone learning on your behalf” But it’s not over there. As with any relationship, there has to be good ongoing understanding to keep things moving smoothly. “You’ve got to make sure something’s in it for both parties,” he continues. “So you’ve very much got to penalize bad performance as well as incentivise good performance. You can’t always predict how change will work or what the future will be, so you’ve got to factor in a degree of flexibility, a degree of benchmarking and a good definition of what value looks like so that if you have to flex the resource around projects then you are capable of doing that. There are a number of ways of doing this: there’s benchmarking and in certain circumstances you can go to another third party just to get some competition into it.”

In the current business climate where consumers are unusually attuned to any perceived weakness in a financial institution, a strong technological base can be a key differentiator. It’s a view that Stafford ascribes to and it is one of the main reasons behind Nationwide’s ongoing transformation. “One thing you’ve got to be at the moment in this market is nimble,” he says. “An organization relies on technology to be nimble from a product launch or a service perspective. It contributes a lot. The other thing is it’s just paramount that your day to day service is good because if you’ve got some prolonged service outages on your web channels for example, that’s not going to look good in the current climate. Your technology needs to stand up and just really focus on and protect that service.” Stafford goes on to describe the issue of demand as one of the key areas where robust technology can be a real boon. “You can launch a good product especially on the sales and the savings side of it and demand can regularly increase fourfold from normal levels. Technology can help the organisation take that strain by pushing it through the web channels for example. Technology can’t sort it all out itself but there are things it can do to contribute.”

But at times like these, with budgets shrinking and costs under the microscope, there is always the risk that investment in technology will be targeted in efforts to help the bottom line. Though Nationwide’s sizeable and continuing expenditure seems to indicate that these concerns are not affecting the Society as much as certain other institutions, Stafford nonetheless acknowledges that the downturn has had an impact. “It’s caused us to look at what we thought our priorities were,” he says. “ We’ve moved forward certain things that we we’re doing, specifically around initiatives to protect our depositors, get good products out there to savers and develop a better service around things like ISA renewals where you get high peak volumes at certain times of year. So we’ve reshuffled a few things and put more investment into that so that we retain our competitive edge. Our reputation is a service if you like.”

Stafford also tells us that there has been increased activity around regulations. It is understood across the financial industry that more regulation is on its way in the wake of the credit crunch, but as yet there seems to be little idea of exactly what form this regulation will take. This can make things extremely difficult IT professionals: how exactly do you prepare for something when you don’t know how it is going to look?  “You can’t really,” is Stafford’s response. “You can just get involved and try to anticipate the implications of it. There are people in our organization that will be talking to the regulators, helping them shape what the future will look like. You just have to make sure that you play your contribution around that really.”

For Stafford though, the biggest impact the downturn is having on his professional life is the increasingly need for IT to demonstrate its value to the business. “We have been looking at things that historically we would have done and asking the question, ‘Do we really need to do this?’” He says. “We’re looking at ways to challenging IT spend and IT cost base.” Inevitably, it falls to Stafford to explain the reasons behind any major technology decisions. “It’s an increasing part of my job and it’s something I pride myself on,” he confirms. “Spending money is the easy bit. It’s more difficult to know why you’re spending it.  I think it’s quite easy for an IT department if you lose sight of what you’re doing, just forget to enter a dialogue with the business about what risks they’re willing to accept and what service they want. You have to make sure that you’re getting a fair price and good value but also that you’re actually doing what they want rather than more than what’s required. IT costs are some of the biggest costs in the organization. It’s obviously going to be looked at very closely.”

At Nationwide at least, senior business leaders seem to recognise the role that technology plays in a successful business. “I think they’re certainly aware of the importance of IT in delivering service and acting as the life blood that sustains the organisation and the oil that lubricates it,” Stafford says. “To agree the sort of investments that we’re doing is a clear vote of confidence. We probably still got a little way to go in terms of exactly aligning the IT portfolio with the business portfolio. That’s one of the key business priorities for the next year.”

Caught in the web
Stafford explains the importance of online to Nationwide and its customers
We were one of the first organisations to offer online retail banking in the UK. Our online presence has traditionally been very importance to us and will only become more so in the future. You’ve got to give people choice and more and more of them are choosing to do banking online from the comfort of their own homes. Online security is something we’ve invested heavily in it over the past two years. Hackers and fraudsters out there are getting better and better and more and more innovative. We’ve got to keep ahead of them and also support our customers. Our online presence is a big part of this £300 million business transformation. We are going to be re-platforming our internet bank because it was written 11 years ago and we’re just want to put a little bit more flexibility into it, so that it’s better integrated with some of the other things that we’re doing. It’s been a real asset and it’s something we’re justifiably proud of.