Information Age spoke to Ian Taylor, procurement director at HBOS, about the key role technology plays in meeting the company’s post-merger objectives.
In September 2001, Halifax and the Bank of Scotland completed one of the most significant mergers in the recent history of the UK banking industry. The combined company boasts assets of £320 billion and more than 20 million customers.
One of the key incentives of the merger was to drive down costs. When the merger was announced in April 2001, the companies predicted the deal would ultimately deliver £300 million pounds in savings. By leveraging the combined buying power of the two banks – HBOS has a total procurement spend of more than £1.7 billion (EU2.7bn) a year, covering everything from company cars to legal services and stationery – a large portion of these savings could be achieved in procurement.
To help it achieve these savings, HBOS has built a supplier relationship management system, based on extraction, transformation and loading (ETL) tools from Ascential, a data warehousing system from Kalido and reporting and analytics tools from Business Objects.
By extracting supplier data from the many disparate procurement systems in use across the newly merged organisation, HBOS now has a consistent view of procurement operations, so it can see consolidated spend per supplier and commodity across the entire business and its subsidiaries.
The supplier relationship management system has already delivered measurable benefits – HBOS has drastically squeezed the number of account codes in its systems from over 17,000 to just 142, for example, and reduced its supplier database from 26,000 to 20,000.
Information Age (IA): When two companies merge, the implications of the deal for IT systems are frequently overlooked. How high up the list of priorities was IT in the pre-merger discussions at HBOS, and what challenges did post-merger integration of IT systems present for the newly merged company?
Ian Taylor (IT): It was fundamental. We came together as the procurement departments of a Scottish and a Yorkshire-based bank, so we don’t like spending money if we can avoid it! But as with any merger of two complex organisations, there were different systems, even different versions of the same system, so it really was quite difficult to pull together supplier and spending information across the entire group at a time when we were really under pressure to meet cost savings objectives. Halifax had already been working with procurement systems, so we were geared up to use that kind of technology, but had ambitions to go one better. I think we needed a second step forward, both in terms of approach and technology, in order to meet the new needs of HBOS and its colossal data requirements.
For example, [the two banks] had 17,000 different account codes, different data definitions, and even different reporting periods. So we needed something that would sit on top of all these disparate systems and play around with the data to meet our needs. The project was completed in three months – to time, to specification and to budget, unlike a lot of IT projects.
IA: Can you tell us a bit more about the technology involved in the project?
IT: We use Ascential’s DataStage product to extract data from our existing systems, which is then fed into a Kalido data warehouse, which orders the data hierarchically. We then present this information via a web browser to the various procurement managers, using Business Objects InfoView portal, which they then use to create reports, some quite complex. Before the merger, management relied heavily on IT staff to generate reports. We were spending a lot of time getting together not-quite-accurate information in a very labour-intensive way. So we needed to put [a system] in very quickly that would give us the leverage we wanted.
IA: Who uses the system, and did its introduction meet with any resistance from users?
IT: [The system is used by] my procurement team, along with any key managers with an interest in supplier relationships. [These tend] to be budget holders, people managing complex relationships with suppliers, and the finance department.
There was no resistance to the new system whatsoever. We received a lot of positive feedback. It’s a common application available to all users, with the same user interface, so there is no bias. Halifax users were used to this kind of system already, while the Bank of Scotland had been slightly behind in implementing a procurement system. But it is easy to use, so the Bank of Scotland users were soon on a par with the Halifax users.
IA: Why did you decide to build the supplier relationship management system using the technologies you mentioned?
IT: We approached [UK-based consultancy] Acuma, who came to the table with the components involved in the solution. We’d approached various other companies, but their approach was very much ‘Build on what you’ve got’, which would not [involve] heavy maintenance. This system allows us to be in more control and eventually go on with other projects.
We did a small proof of concept to begin with. Our greatest aim was to keep Business Objects at the front end because we had a lot of skills in using that product, which we didn’t want to lose. We did a skills transfer project with Acuma, so that for the next phase, we’re all ‘skilled up’ – not just the IT users, but also the business side as well. It means that we can use the IT resource on wilder and wackier things than supporting our procurement system.
We’ve also been able to get more value out of our legacy systems. Ascential transforms and cleans the data and feeds it into Kalido. We have feeds from multiple versions of the Walker Financial system, as well as a historical feed from a system called Millennium that no longer exists. We’ve captured supplier data extending back to 1 January 2001, so we had nearly 18 months’ data already in the system when we went live.
IA: It sounds as though you had to go through a lengthy process of data cleansing, creating categories and so on. How much of a challenge did this present?
IT: It was quite a challenge. I think as we bring on other subsidiaries we’ll have to go through that pain again, but the beauty of this system is that you only have to do it once. If we had a standard reporting system, you’d have to build that manipulation into every report you write, and the margin for error is much greater. This way, it’s built once and we can amend it very easily. If someone’s put a product in the wrong category, for example, a business manager can amend it. It’s a lot more business-driven.
IA: How has the new system changed the way procurement managers interact with suppliers, given their greater visibility of spending?
IT: Basically, they can see how much money is being spent, or who else in the organisation is spending money with the same supplier, or buying the same products from different suppliers. It’s been very useful to pull together information on both suppliers and categories so we can say to individual managers: ‘Did you realise how much money you were spending on this with this number of suppliers? Wouldn’t it be a good idea if we pulled that all together and used our real purchasing leverage to drive down costs and get better value from suppliers?’ When you’ve got the numbers there, it’s a very powerful tool. It gives my team a knowledge base for talking to suppliers. The system spans all kinds of procurement activities, from buildings, to cars, and even quite complex services, such as legal services. It’s rare for a procurement team to have such comprehensive information available in an organisation as complex as this.
IA: Do you allow suppliers to access any elements of this data?
IT: Not at present. In later stages, I’m sure that’s something we will do, but first we want to gain leverage with those suppliers. We have tested out exchanging data with a small number of suppliers, but not extensively.
IA: What efficiencies has the system enabled HBOS to achieve?
Ian Taylor: It’s creating more opportunities. For example, we’ve been able to take out any duplication of supplier data in the systems and marry up any inconsistencies. Managers can easily drill down through the hierarchies in the Kalido system to get to the area they want.
Having a single view of the supplier is absolutely essential. Most procurement people are quite good at bluffing their way through supplier situations, but it’s daft to rely on suppliers to tell you how much you’re spending with them. Having all this data to hand is a really big confidence boost. It also allows us to decide which categories we’ll hit first in terms of driving down costs, providing the basic information for developing strategies for meeting our budget expectations, and tracking our execution.
It’s not just about individual procurement managers and their performance. If all [purchasing is consolidated across the organisation], then we can apply pressure to get results. A lot of it’s based on gut feeling – the likelihood is that you’d miss a key supplier or a connection between suppliers without this level of data to hand.
IA: Overall, how important is technology to procurement?
Ian Taylor: Traditionally, procurement’s not been at all well supported by IT. Before the ecommerce boom in the mid to late 1990s, procurement systems were pretty crap. It then went through a ‘fashionable’ period, when a lot of our competitors spent millions on big applications. It’s only now that we’re seeing the evolution of genuinely useful tools that we can apply to procurement. We’re making sure we squeeze every single penny of value out of this system. We’re not in the vanguard — we’re learning as we go along.