Technology Horizons in Financial Services ANZ’s path to IT effectiveness

1. Technology Horizons in Financial ServicesANZ’s path to IT effectiveness Presentation to INSTO eScape Technology Conference 22 October 2002 Peter Dalton Chief Technologist, Consumer & Business Technologies Australia and New Zealand Banking Group Limited

2. Agenda • Technology is changing its focus • ANZ’s strategies • Outsource or Excellence? • ANZ’s current focus - improving our IT efficiency • Outcomes to date • The next wave of IT productivity improvements • Conclusion

3. Technology is changing its focus • IT in general has had a number of years of high investment and big projects. • Focus has been on Customer Relationship Management, new systems and new infrastructure. • Different companies took different paths in achieving their outcomes - outsource or in-house with a focus on operational excellence. • The world has now changed - IT is being asked to contain or even reduce spend. Project money is harder and harder to come by – return on investment is key. • The new word is: efficiency. How well can you reduce costs and not lose quality outcomes? What kind of productivity improvements can you get?

4. Specialise • Building a portfolio of stand-out businesses with distinctive business leadership and a sustainable top 3 position that work as one ANZ • Embracing technology to drive radical change, boost productivity, accelerate innovation and dramatically improve service and value eTransform • Ensuring “best in class” performance for shareholders, customers, staff and the community Perform • Demonstrating strong growth momentum in core businesses and positioning ourselves in attractive new high growth categories Grow • Being bold and different, a high performance culture with a human face, technological leadership and a strong domestic and regional strategic position Breakout ANZ’s Strategy

5. ANZ’s Technology Focus Putting technology to work to: • Provide our customers with a personalised, consistent experience • Empower our customers and our people with real time information access and online applications via web-based technology, anywhere and anytime • Ensure our technology is robust, flexible and cost effective • Aggressively reduce costs, improving productivity, increasing ‘straight-through’ processing, simplifying and automating administrative functions • Provide low-risk, high-efficiency & state-of-the-art payment capabilities

6. Four years ago, we established the foundations for technology and IT excellence 1998: Low satisfaction, inward focused, weak process, complex infrastructure (compared with best practice) Starting in 1998 we made and delivered some key commitments involving People, Customers, Process and Infrastructure • People:Alignment, collaboration & team work. Environment where individuals can excel. Retain critical individuals. • Customers:Customer feedback processes & accountability, meaningful service levels, align with BU, implement TQM. • Process:Consistent project management standards, strict criteria for new investment in applications, rationalise & standardise operational processes. • Infrastructure:Reduce costs, rationalise, consolidate & automate networks & platforms. Position for the future. Reposition ‘back-end’ product functions behind integrated service ‘front-end’.

7. Fixed pay increases no longer the main strategy $$$ People: Skilled & committed pcs@home: heavily subsidised packages for staff to acquire PC’s Management tertiary qualifications policy Breakout cultural transformation workshop Online training courses Half yearly staff survey with action teams to address issues raised Casual dress policy instituted

8. Service level agreements in place for each Business Unit Average SLA for major systems Average - 1999 Average - 2000 Average - 2001 Detailed billing to Business Units for IT services Partnership model between Technology & Business Units Customers: Commitment to focus technology on business unit objectives Customer survey/ feedback process on 6 monthly basis. Linked to individuals’ performance measures. Electronic timesheet capture for IT project tracking, reporting & billing

9. Project in a Box • ‘Best of breed’ project management tools • Central repository for all project reporting • Open access to all users • Reengineering in a Box • Standard tools, templates & process for re-design of business processes • Continuous improvement programme • Driving real culture change • Series of workshops for all staff • Resulted in $53m benefits Process – Commitment to improve execution capability Capability Maturity Model • Significant productivity & quality improvements • CMM level 2 certification – 1st Australian Bank • Bangalore, India - level 4 certification Project management training • Generic training courses tailored with ANZ specific content & latest Project in a Box tools

10. Hogan 2001 2000 CBS OS/2 Win 3.1 Win NT DOS Infrastructure: Commitment to rationalisation & standardisation Core Systems IP network 1998: 6 major systems 1998 Multiple data networks • Single IP Network provides universal connectivity • Simpler systems & platforms reduce cycle times Servers & Desktops Platforms 1998: 8+ major platforms 2002 2002 1998 W2K UNIX MVS • Greater ability to leverage new technologies • Lower hardware, software licence fees & support costs • Provide all staff with best tools possible • Low cost of ownership through standard solution

11. Outsourcing An important consideration in achieving IT effectiveness

12. Core & context* has been suggested as a basis for outsourcing decisions • Extend or create competitive advantage • Existing markets • New opportunities • Minimise disadvantage • Find someone else to do it for you • Look to create new opportunities & advantages • Make a context process core Objectives Execution Control CORE Any process that contributes directly to competitive advantage in target markets • Internal • In-house • Strategic joint venture • External • Outsource • New venture CONTEXT All other processes required to fulfill commitments made to one or more stakeholders in the enterprise *Source: Geoffrey Moore, The Chasm Group

13. Three other considerations when making an outsourcing decision Cost: Teamwork, collaboration & service levels: Innovation: • Can you achieve at or near world class best practice? • Can you achieve efficient & reliable services? • Are you willing to pay away a margin to an outsource vendor? • How will outsourcing achieve competitive advantage? • What will be the impact on the ability to create innovative IT solutions? • How will open architectures & new technologies be funded & deployed? • Are there impacts on alignment with BU customers ? • Will collaboration & teamwork improve? • Will service levels decline or improve? GST 10% Illustrative Return on Investment 15-20% Margin you pay away Sales & Marketing 5-8% Outsource provider’s cost to serve Cost of outsourced IT

14. Our outsourcing experience What we have we outsourced • Property management • Components of procurement • Components of telecommunications • Desktop support/help services • Training & development support • Components of legal services Majority of functions are not outsourced, but are under periodic review: • Major operations • Data centres and IT operations • IT development • Cheque processing • Cards back office

15. Outsource or excellence? • To date, no compelling opportunities have been identified for outsourcing a significant amount of our technology functions • But, we continue to actively benchmark our operations to best practice to ensure continued IT effectiveness & review potential selective outsourcing opportunities

16. Agenda • Technology is changing its focus • ANZ’s strategies • Outsource or Excellence? • ANZ’s current focus - improving our IT efficiency • Outcomes to date • The next wave of IT productivity improvements • Conclusion

17. Improving our IT efficiency Findings from a recent independent benchmarking study* on our server environments: • Current environment is very efficient by Industry Standards • ANZ staff efficiency (staff numbers compared with number of servers) is very good to excellent in MVS, Unix and Wintel • Server utilisation is very high in mainframe and at, or above, industry levels in Unix and Wintel • * Study conducted by IBM

18. Capability Maturity Model Improving our IT efficiency • Attained CMM level 4 certification from the Software EngineeringInstitute (USA) for our India Software Development centre – placing it in the top 1% of software organisations in the world • First Australian Bank to attain CMM level 2 certification – this was achieved by the International Systems Teamin Melbourne, placing it in the top quartile of softwareorganisations worldwide • To achieve this, we displayed a very high standard of processdiscipline in all areas of software development, includingthe rigorous use of metrics for tracking of quality of outcomesat all stages

19. Improving our IT efficiency – some examples from our continuous improvement program • Bar-coding at Output Services – Increased productivity and cost savings, and reduction in operating costs. • Renegotiation of Optus inbound costs – cost saving. • ANZ Common Disk Platform Review – reduction on total cost of ownership. • Decommission the ANZPAC Service in Australia – cost saving. • Mortgage Origination System (MOS) Navigator Support Tool – One-off and ongoing savings. • Efficient, cost effective processing of Telstra 2 Instalments

20. Outcomes to date • Focusing on people, customers, process & infrastructure, we achieved: • Better IT outcomes for our Business Unit customers • High IT staff satisfaction rate • High quality, more productive staff • Simpler infrastructure - robust processes supported by a continuous improvement focus

21. Average SLA for major systems 100.0% Total Mainframe Unit Cost 4500 4000 3500 inc GST 3000 $/MIPS 2500 MIPS $ / MIPS 2000 1500 1000 500 97.0% 0 Average - 1999 Average - 2000 Average - 2001 Average – 200 (YTD) 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 Number of MIPS at Year End Total Cost/MIPS Outcomes to date - business improvements Cost savings Improved system robustness

22. 85% 80% 75% 70% 65% 60% Internal Customer Satisfaction (out of possible 10) 55% 8 50% 1999 2000 2001 2002 6 4 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Outcomes to date - business improvements Operations, Technology & Shared Services staff satisfaction Staff satisfaction Customersatisfaction

23. Next Steps: Cost leadership provides capacity to reinvest in growth • Continuous improvement • Componentisation and reuse of Technology • Straight Through Processing – through reengineering and simplification Cost leadership… next wave productivity improvements:

24. CONTINUOUS IMPROVEMENT • Develop ANZ group-wide & continuous improvement mindset • Rewards based on outcomes not ideas • Standard set of quality measures • Large number of small wins • COMPONENTISATION & REUSE • Similar processes across Business Units can use same infrastructure & software components • Components assembled rather than built • Shortened delivery time at lower overall cost • Flexible customer-centric solutions • STRAIGHT THROUGH PROCESSING • Improve customer experience by automating manual processes • Standardise processes across Business Units – such as product origination • Leverage “best class” processes through organisational learning • Technology driven solutions to eliminate re-entry of information Next wave productivity improvements:

25. Good progress to date on improving our IT efficiency through innovation, renegotiation, cost savings and new tools Successfully rationalised and simplified infrastructure Strong improvement in staff satisfaction Improved and more consistent customer service Increased robustness in systems Lower costs Conclusion • Now focusing on next wave of productivity improvements for technology • Continuous improvement • Technology componentisation and reuse • Re-engineering and straight through processing

26. Copy of presentation available on www.anz.com

27. The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. For further information visit www.anz.com or contact Philip Gentry Head of Investor Relations ph: (613) 9273 4185 fax: (613) 9273 4091 e-mail: gentryp@anz.com