Flawed organizational structure and poor customer focus are the real causes of the $409 million deep crater the impact of software write-downs caused in the National Australia Bank's annual report, according to a leading banking analyst.
As the NAB prepares to sack 300 technology staff to cut costs and put its technology house in order, East & Partners principal analyst Paul Dowling has a simple explanation for what went wrong.
"If you look at mainstream commercial banks [in Australia], not one of them can take a complete and comprehensive customer picture. [NAB] is symptomatic of the fever with which domestic banks are trying to get their house in order," Dowling said.
Dowling told Computerworld that while banks may talk big about enterprise-wide customer relationship management (CRM) - indeed even try to create a single view of their customers - their organizational structure remains built on banking product lines rather than the actual needs of their customers.
Worse still, Dowling alleges, the banking industry is wasting around $1 billion a year on CRM and ERP rollouts while failing to put new organizational structures in place.
"They [major retail banks] between them have spent $4.5 billion to $5 billion [on CRM projects] over the last four to five years... laudatory objectives, but ordinary execution. A lot of it [the problems] is about product driving IT rather than the customer.
"In the [business] process sense, that means going back to the drawing board. The fundamental starting point needs to be the customer. They [retail banks] have all embarked on this [CRM] journey," Dowling said.
Dowling was equally scathing about the way the banking sector values its software assets, especially on its balance sheet. While banks such as NAB, ANZ and Westpac have commonly carried between $300 million to more than $900 million as capital assets on their books over the last four years, Dowling said new governance rules such as Basel II were certain to see further software write-downs.
Basel II is particularly unpleasant for banks because compliance means banks will no longer be able to book-in software under required capital adequacy provisions. Capital adequacy is the required amount of capital banks are required to legally hold by the Reserve Bank in order to remain operating.
"Technology dates pretty damn quickly," Dowling said, adding that the banks wind up with an inflated asset on their books.
"The problem occurs when you have a large technology that fails - you have to write it off... this issue has a long tail on it," he said.
NAB wrote down its combined software assets by $409 million in its annual results published this month. This included a $200 million write-down of its SAP-based Integrated System Implementation (ISI) intended to unify human resources and general ledger functions.
According to NAB's annual report, $200 million worth of SAP-based ISI was written off as "fully impaired" and will never see the light of day.
Other vendors hit by NAB's $409 million IT write-down included Siebel's CRM package, reduced to $73 million as part of the remaining $209 million software book value reduction. A specific figure for Siebel write-downs was unavailable.
A spokesperson for SAP said the firm was aware of the book value reduction and ISI cancellation but retained other projects within NAB. Other vendors and NAB declined to comment.