Embracing culture change on the path to digital transformation
Laurel Ruma : I’m Laurel Ruma, and this is MIT Technology Review. This is Business Lab. This show helps business leaders understand the new technologies that are emerging from the lab and into their marketplace. Digital transformation is our topic today. Many organizations have started the journey to digitize services and operations. Some are more advanced than others in bringing about disruption to the market. How can you bring about transformation in highly regulated service-based industries that require innovation and competitive differentiation?
Inside transformation is what we need to focus on.
My guest is Steve Day who is the chief technology officer for enterprise technology at National Australia Bank.
This podcast is produced in partnership by InfosysCobalt.
Steve: Thank you, Laurel. It’s a pleasure being here.
Laurel: National Australia Bank or NAB is undergoing a significant digital transformation. Gartner recently discovered that IT executives view the greatest barrier to the deployment of emerging technologies, particularly cloud-based ones, as the talent shortage. However, NAB uses insourcing. Many listeners are familiarized with outsourcing. What exactly is insourcing?
Steve: Yeah. It’s all in its name. Outsourcing is the exact opposite of insourcing. And to give you a little bit of history, National Australia Bank, like many banks, decided to outsource a large part of its operations in the 1990s. We basically pushed all our operations and a large part of our development capability out to third parties with the intent of lowering costs and making our operations far more process driven. Although I believe those two objectives were met, we did not expect an unintended result. We effectively stopped our operations at the right time, which created a problem. If you roll forward to 2018, we realized that we were still operating like we’re in the 1990s. We were very waterfall driven. Our systems were highly automated, but we had to do it manually. It took us a long time to bring new products and services to our customers.
It was around that time that we realized that we needed to do something new. Although we spoke with our outsourcing partners, they were not motivated to lower our internal costs or help us become more agile. They were happy to accept large sums of money for large amounts work. We decided to bring back our ability to the business.
Laurel: So waterfall being the opposite of agile, right? That was what you were finding was hindering your company’s progress, right?
Steve: It really was hindering our progress. We were very slow. We took years to launch new products and services. There were many young financial service companies, startups, and other businesses that came knocking at our doors. We needed to change. We had to find a new way to deliver our products to customers. Many customers today are expecting an Amazon experience, a Google experience, a Meta experience, but we were still operating in the 1990s. That’s when we really pushed our call too. We took a step back and looked at the situation. We decided that our entire culture needed to be changed.
We did this by creating a series of tech guilds. We created a cloud guild and a data guild. Our NAB Engineering Foundation was created with the goal of creating a culture of cloud innovation, of agile, and being capable of delivering great products and services to customers in a cost-effective, but very secure way. We started our cloud migrations, and it is moving at a rapid pace.
Laurel: Insourcing seems to be working so far, but it didn’t happen overnight, as you said. 2018 was not that long ago. But what was it like to realize that you needed to change your work style and convince others to do the same?
Steve: We did realize that if we didn’t get the culture embedded that we would not be successful. Building that capability and the culture was number one. It was five years ago. It seems like a long time ago. But we started that process and through the cloud guild we trained 7,000 people in cloud and 2,700 of those today are industry certified and working in our teams. We’ve made great progress. We have actually moved many of the original teams who were a bit hesitant and worried about having to change to this new way of working. Remember that our original teams did not have much technical skills so it was difficult to tell them that they would have to assume all of the technical responsibility, an operational task that had been given to our outsourcers. We had to build our confidence to overcome this. We built our confidence through education. This involved a lot cultural work, explaining the strategy, and explaining to people how we would get there.
Laurel: NAB’s proportion of apps on public cloud will move from one third to about 80% by 2025, but security and regulatory compliance have been primary concerns for organizations and regulated industries like healthcare and financial services. These concerns have been addressed by NAB in the cloud.
Steve: Initially, there was a lot of concern. There was uncertainty about cloud’s resilience, security, compliance, and whether the board and our senior leaders would accept such a major change in the way we do business. To give the board a better understanding of the Valley, we flew them over to meet with many companies. We created a massive education program for our teams. The Executive Guild was created to give middle management a better understanding of what we were doing and why. We also created a set tools to help us move safely.
One of these tools was CAST. It is a framework we use to migrate our applications to the cloud. CAST stands for Cloud Adoption, Standards and Techniques. It covers all the controls that we use and how they are applied in our environment to ensure that applications migrate to the cloud safely. It is safe to say that CAST was a significant improvement in our requirements. This allowed many people to see that we took it seriously and that it was quite difficult to achieve compliance. We were willing to invest and we spent a lot to get the applications to this level.
Another thing we did was to build compliance as code. Infrastructure as code, which is what the cloud is built upon, allows you then to create compliance as code. All of the checks and balances that were once done manually by people using check boards, I used say, can now be done in the code. A server is no longer just a small piece of tin, it’s a piece code, and you can run many compliance checks on it, also from software.
A third thing we did to give everyone comfort was to not tie the success or failure of NAB to any particular cloud company. We devised a multi-cloud public strategy. This meant that we would use two cloud providers for at least all of our most important applications. This would be costly if you tried to do every cloud in the most robust manner, which would be active-active across all clouds. Our multi-cloud framework was created to categorize each application across multiple dimensions and then assign that workload to one or more multi-cloud treatment. Multi-cloud treatment 1 is, in essence, no multi-cloud. It’s an app for convenience. It doesn’t matter if the application is deleted. We allow it to remain in one cloud until our most critical applications are there. We insist that they run active-active across both clouds. In our case, MCT6 would be that. With all these frameworks, tools, and the attention we paid to them, I believe we gave the organization’s leadership some confidence that what they were doing was right and would allow us to serve our customers well while remaining safe.
Laurel: How has cloud enabled innovation across NAB? It’s evident in the teams, and you’ve even trained executives to be more comfortable with technology. What else do you see that has brought you a special efficiency that makes you proud?
Steve: I think I would go back to that description I just gave you about infrastructure as code being an incredible enabler of innovation. While I mentioned compliance as code, there are many other types of operational innovation you can do when your infrastructure is software. Simply being able to reproduce things quickly. You can have as many development environment as you need to build your applications efficiently and quickly. Once you’re done with them, you can turn them off and stop paying them. We can now move to serverless applications that don’t require any infrastructure below them, which allows our application team not to have to interact with anyone but just to develop their applications. Grid computing is a way to get massive computing power in a short time. Although you pay a lot, you only pay a lot for very short periods of time. You end up not paying much. However, you can do a lot to predict what the market will do in times of concern and other things. Some of the most amazing things we’re doing in cyber right now to understand cyberattacks and to be able thwart them in an elegant way than in the past. Financial operations that allow us to control the cloud environment’s elasticity. All of these things add up to a platform of innovation that people are able to build things on that can really drive creative innovation.
Laurel: And how does that turn into benefits for customers? As you know, customer experience is an important consideration when developing tech services. Customers expect Google- and Meta-like experiences. They expect online convenience and speed, wherever they are on any device. So how can artificial intelligence at an ATM serve both the security need and the user experience?
Steve: Great question. Fraud is a great option for security. There are many scams out there right now. AI has made it possible to detect fraud and work with our customers to prevent it. We are able to detect patterns of fraud and the methods that fraudsters approach their victims and can intervene in many cases. Operational predictions about things that will fail or break. Customers will be able to get faster loans, which is a great thing. Because the AI allows us take calculated risks and to manage risk in a very efficient and fast way, a large number of our home loans can be approved in less than an hour. There are also small things. There are some amazing things, like when I receive a check, I can take a photo of it from my iPhone banking app and it will be processed instantly. These kinds of things lead to better customer experiences.
Laurel: That’s my favorite as well, but a home loan under an hour, that’s pretty amazing.
Steve: And that’s because we have a history of what that customer’s done with us. We don’t have to ask the customer for large surveys about their monthly spending and their salary. All that data is available to us. All that information about the customer is available to us. To ask them again is silly. We can easily access all the information they provide and then process it directly from their account. We only need the permission of the customer. Open banking legislation and other things that have been passed at the moment allow us to access customer information with their permission through their other financial services. This allows us to have a better understanding of the customer’s ability for repayments.
We also use a lot AI for things like valuations. It is amazing how much AI goes into valuing a property. In the past, to value a property, you had to send someone out to the house. What is the amount of road noise that this property has? What are the features of this house? We can look at Google Maps to see how many cars pass that house per hour, the topology of that landscape around that house, and do calculations to determine the road noise at that property. We can use layers upon layers of information to determine if the house is on a flood plain. Is the house flooded by aircraft? What material is it made of? Satellite imagery can help us determine all of this. Is there a swimming pool? Are there solar panels installed? We can collect a lot of that information and also do the valuation of the property much faster than in the past. This allows us to provide quick turnarounds on things such as home loans.
Laurel: That’s amazing. All of this not only keeps innovation at the bank high, but also helps you improve your efficiencies and make more money. Being a business requires money. The money can then be used to create better experiences for your customers. It’s a win-win situation for everyone.
Steve: Yeah, I think so. Although I haven’t lent money to buy a house yet, I look forward to doing so in the future.
Laurel: Collaborating with your customers is very important and collaborating with your competitors could be as well. NAB joined other global banks and cloud providers to create new digital banking services. What made NAB do this? What were the global financial challenges this initiative was trying to solve?
Steve: I think creating great partnerships to encourage innovation is a path forward. We don’t have all the great ideas. I believe that limiting ourselves to the ideas we come up with would not serve our customers’ best interests. It’s a great way to bring innovation into your bank by searching for great ideas around the world and then looking to see if they can be produced.
My favorite is Project Carbon. It’s seven banks from around the globe joining forces to create a secure clearinghouse of voluntary carbon credits. This is a great way to bring innovation into the bank. There will be things that make payments more secure, faster, more convenient, and more resilient. I also mentioned faster home loans. It’s an exciting time to work in the industry.
Laurel: And to be so open and willing to work with other folks as well. What are you most excited about? There is so much innovation happening at NAB, and across the financial service industry. What are you expecting to see in the next three to five year?
Steve: I’m seeing a faster pace of change. One thing I am aware of is that things are changing so quickly, it’s hard to predict what’s going to happen in the near future. We know one thing for certain: we will need a platform that allows us to quickly pivot to whatever it is. I am most excited about the chance to build a platform that is agile and allows us pivot quickly to whatever it is. Many of the ideas that our new graduates have come up with are their own. How can we quickly and safely get these ideas into production? It is the chance to create such a platform that excites me, and I think that is what really excites.
Laurel: Steve, thank you so much for joining us on the Business Lab. It was a great conversation.
Steve: Thank you, Laurel.
Laurel: That was Steve Day, the chief technology officer of enterprise technology at National Australia Bank, who I spoke with from Cambridge, Massachusetts, the home of MIT and MIT Technology Review overlooking the Charles River. This is the end of Business Lab. Laurel Ruma is your host. Insights is the custom publishing division at MIT Technology Review. I am the director. We were established in 1899 by the Massachusetts Institute of Technology. You can find us at events around the globe, in print, and on the internet. For more information about us and the show, please check out our website at technologyReview.com.
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