Changing the game: Making the transition to open systems

1. Changing the game: Making the transition to open systems CIO 2003 Conference – 12 February David Boyles Chief Operations Officer Australia and New Zealand Banking Group Limited

2. Agenda ANZ’s strategic direction ANZ’s technology program and directions ANZ’s progress in migrating to open systems - case studies • ERP/Common standardised administration systems • Item processing • Next generation switching project • International payments clearing Conclusion

3. ANZ’s strategic direction • Extend specialisation • Grow customer numbers • Increase share of wallet • Drive productivity Our targets Organic out-performance • Revenue growth materially higher than expense growth • Take business units to sustainable leadership positions • Build a range of strategic options • Invest in high growth areas • Build specialist capabilities • Exit weak positions • Risk reduction Portfolio reshaping Transformational moves • Step changes in positioning • Creating new growth options • Proactively shaping industry

4. Delivering performance $M NPAT ROE % 21.6% Cost Income Ratio EPS & Dividends % Cents 46% EPS DPS Note: 2002 figures exclude significant transactions

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, benchmarking, increasing ‘straight-through’ processing, simplifying and automating administrative functions • Provide low-risk, high-efficiency and state-of-the-art payment capabilities

6. Initial technology strategy (1998) provided focus to move to next level Customers (BU) People Process Infrastructure 1998: Inward focused, low satisfaction, weak process, complex infrastructure • Little BU focus • Poor understanding of business drivers • Service levels poorly understood • Leadership weaknesses • High staff turnover: 18% • Many cultures • Poor disaster recovery • Inconsistent architectures • Poor project management and methodology • Billing of services incomplete and inaccurate • Inflexible, high cost technology • 15 data networks • 6 core systems • Many different platforms 2003: Customer focused, positive culture, improving process, simpler infrastructure • Explicit business partnership • High customer satisfaction 7.7 (Sep 02) • Service level agreements • Customer survey/ feedback process • $75m in benefits from our continuous improvement program • Improved staff satisfaction to 83% • IT staff turnover below 3% • Training on-line • Leadership development program • Performance culture • Full DRP in all critical processes • 900+ staff through Project mgt program • New processes - PiaB, One Team, CMM, Niku, RAD, Phased funding, Outcome management • Technology costs defined and regularly reported • Technology governance, standards and policies • Detailed billing • Tandem, Unix & AS400 rationalisation • 2 core systems • Single IP Network • Standard Win2000 desktop across Australia • Intranet to all but 800 Int’l staff • Established strategy for standardisation and re-use

7. Management tertiary qualifications policy Breakout cultural transformation workshop Online training courses Half yearly staff survey with action teams to address issues raised eVouchers provided free to staff to choose reading materials $$$ People - skilled and committed pcs@home: heavily subsidised packages for staff to acquire PC’s

8. Average - 1999 Average - 2000 Average - 2001 Detailed billing to Business Units for IT services Customers - commitment to focus technology on business unit objectives Service level agreements in place for each Business Unit Average SLA for major systems Clear alignment between Technology and Business Units Customer survey/ feedback process on 6 monthly basis. Linked to individuals’ performance measures. Electronic timesheet capture for IT project tracking, reporting and 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 and process for re-design of business processes • Continuous improvement programme • Driving real cultural change • Series of workshops for all staff • Resulted in $75m benefits to date Process - commitment to improve execution capability Capability Maturity Model • Significant productivity and quality improvements • CMM level 2 certification – 1st Australian Bank • Bangalore, India - level 5 certification Project management training • Generic training courses tailored with ANZ specific content and latest Project in a Box tools

10. Hogan 2001 2000 CBS OS/2 Win 3.1 Win NT DOS Infrastructure - commitment to rationalisation and standardisation Core systems IP network 1998: 6 major systems 1998 Multiple data networks • Single IP network provides universal connectivity • Simpler systems and platforms reduce cycle times Servers and desktops Platforms 2003 1998 1998 8+ major platforms 2003 Platform focus Eg,W2K, UNIX, MVS • Greater ability to leverage new technologies • Lower hardware, software licence fees and support costs • Provide all staff with best tools possible • Low cost of ownership through standard solution

11. Technology Transformation strategy 2003-05 Simplify platforms Improve project delivery Robust operating model Take out costs Leverage Group assets Continued drive to simplify the platforms Capability upgrade of project process, business/ IT alignment Next level agility and adaptability, quick ability to up or downscale Next level tools and methods Leverage existing technology through re-use and componentisation Movement to open systems – key factors • Open systems environment (eg, Wintel) • Scale out model • Ongoing enhancement to security capabilities • High availability of skills • Good breadth of vendor support • High agility • Vast breadth of tools and technology • Standard commoditised technologies • Efficient development environment • Support re-use and components • High levels of integration - ‘plug and play’ • Customer access through web enablement

12. ANZ’s move to open systems To • Standards-based modular building blocks • Benefits: • Cost - efficiency and skills availability • Flexibility - speed, scalable, modern infrastructure • Connectedness - ‘plug and play’, ‘ease to innovate’ From • Traditional core applications based on proprietary systems • Single vendor with limited scale to innovate • Proprietary systems have limited interoperability/ integration • Relatively expensive to run - often long lead times to upgrade system capacity

13. ANZ’s progress in migrating to open systems - case studies • ERP/Common standardised administration systems • Item processing • Next generation switching project • International payments clearing

14. ERP/Common administration system - background • Our ERP systems were fragmented and outdated • General ledger was no longer supported • Payroll system was old, heavily customised and costly to support • Very limited HR MIS

15. ERP/Common administration system - challenges • Need for a common, standardised administration system • PeopleSoft met our mandatory selection criteria • HR functionality was tailored to Australian regulatory environment • General ledger structure is a good fit to our operations • Technology fits well with our architectural standards • ANZ’s PeopleSoft implementation is the largest on MS Windows 2000 and MS SQL 2000 in the world • Implementation approach critical to success, trade off between package customisation and our current processes

16. ERP/Common administration system - solution/approach • We adopted a ‘vanilla’ implementation, thus our processes were changed to fit the software • Focused on people impact – change management and training • Staged approach to deploy major modules: - Procurement and Accounts Payable • Human Resources • Fixed Assets - Finance (General Ledger) • Payroll • Pushing the time/cost boundaries

17. ERP/Common administration system - solution/approach

18. ERP/Common administration system -outcomes • Reduction in finance administration and procurement expenditure and greater control of fixed assets • Reduction in HR expenditure in progress following recent payroll implementation • Faster, easier and more cost effective way of working • Straight-through automation • Easier capture and use of business information • Consistent business platform across ANZ • Delivery of web-based information anytime, anywhere, any place • Transformation of culture • Reduction in operational risk Cost Flexible Connected

19. Item processing - background • ANZ used the same equipment to process cheques for almost 18 years at five state-based Transaction Processing Centres • Large logistics exercise to achieve same-day value processing of all cheques/deposits across 900 Australian branches • This process had a number of disadvantages • Aged Proof of Deposit platform and 5 major voucher processing sites • Costly and inefficient physical storage, access and retrieval of cheques from paper archive warehouses for 7 years • Geographic dependency on paper • Day-2 functions (eg exceptions, returns) all required paper handling and records management actions • In NZ we had an equally old system on different equipment in three centres using different software and interfaces

20. Item processing - challenge • To develop a best practice document processing environment to enable efficient and timely capture of customer and internal paper based financial transactions. • The strategy comprised five parts: • Implement an Image POD System to further increase productivity and reduce the cost/item of processing in a standard system across both Australia and NZ • Utilize the more efficient/flexible Image POD System to integrate with the aging Retail Lock-box System • Create an Image Archive over 7 years to replace paper storage and provide rapid access across the enterprise • Image enable back office processes and centralize those functions which would result in major FTE savings • Interface into the Bank’s Internet System to provide ‘self-service’ archive access to ANZ customers

21. Item processing - solution Two Pass Capture, Balance and Encode PASS ONE PASS TWO Conventional Solution CASHLETTERS Receive CAR/ICR MICRREPAIR IMAGEBALANCE HIGHSPEEDCHECKCAPTUREPASS HIGHSPEEDCHECKENCODEPASS &SORT CAPTUREIN -CLEARINGS 2 Pass Proof of Deposit RE-HANDLEPASSES WORKPREP POSTDDA PAPERREJECTRE-ENTRY IMAGEDATAENTRY PAPERBALANCE LASTEXCHANGE SPECIALISED FUNCTIONS One Pass Capture, Key, Balance, Encode, Image Capture and Sort System ANZ Solution BATCH PREPAMOUNT KEYMICR/OCR READMICR REPAIRAUDIT PRINTENDORSEMICR ENCODEIMAGE CAPTURESORT CASHLETTERS ReceiveWorkbyCourierfromBranches One Pass Image Proof of Deposit Systems POSTDDA IMAGE CAPTUREIN - CLEARINGS LASTEXCHANGE ONE-PASS TRANSPORTS 1 OPERATOR PER MACHINE ONE-PASS TRANSPORTS 1 OPERATOR PER 3 MACHINES

22. Item processing - outcomes • Streamlined processes in both Australia/NZ • Lowest unit costs from ‘one pass’ data and image capture • Efficient and timely capture of customer and internal paper based financial transactions • Improved customer service through faster retrieval or self service • A platform that can grow or contract with our imaging requirements • Increased scalability and ease of integration • In-sourcing opportunities - such as credit card services or white labelling • Sales potential to off-shore banks Cost Flexible Connected

23. Next generation switching project • Replacement of existing ATM and EFTPOS switching functionality (approx 1,500 ATMs and 50,000 plus POS terminals) • Current environment based on proprietary hardware/platform and software Solution: • Migrate to Windows 2000 and OpeN/2 (from S2) Outcomes Cost • After full implementation, expected to be 50% of previous environment • Equivalent functionality can be developed much faster • Lower development costs, can upscale quickly • Allows integration with existing web channels and CRM • Eliminates requirement for proprietary architecture • Lowers overall diversity of platforms • Reuse with telling platform Flexible Connected

24. International payments clearing • Inherent risks due to complex and disparate payment systems/processes • High complexity within a proprietary environment Solution: • Single platform that processes international and domestic high-value electronic payments Outcomes Cost • Reduced resources in both Aust/NZ • Reduced hardware maintenance/support costs • Increased STP rate for MT100/103/200 message types from 30% to 60+%. At same time business volumes have increased. • High availability and standardised platform in Aust/NZ • Increased revenue streams and enhanced product devp • Improved operating risk management and tools • Real time counterparty risk management Flexible Connected

25. Historically, financial institutions have built a myriad of fragmented proprietary point solutions that are difficult to integrate ANZ is focussed on moving to open systems to simplify its environment, enabling: componentisation and re-use of solutions lower costs improved cycle times and business functionality But, this is not easy - it requires clear vision, unrelenting drive and constant innovation Conclusion

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