The bottom line is we have only been 'all blue' – a single ANZ entity - for almost three years, after the brand merger with National Bank in 2012.
It's still a relatively small economy so what has it got going for it? Well:
- New Zealand is a dynamic, advanced market economy;
- We have come through the G F C better than most countries;
- The economy is outperforming most of the other 34 OECD economies;
- Unemployment is under 6 per cent;
- We have strong economic structures created by successive governments;
- We produce a range of goods and services the world wants;
- We're on the door steps of the region of the century;
- We don't have a Senate;
- And we have well-funded and regulated banks.
New Zealand still has its challenges.
The reality is its population is relatively less affluent than Australia. We are a nation of 4.4 million and 86 per cent of our population earns less than $NZ70,000 a year. In 2010, it was $NZ56,000.
So, that means any company operating in New Zealand doesn't have the luxury of being able to segment the market to any great degree – there just aren't that many people.
And you don't have to be Einstein to work out that if you run a large bank with a large cost base and you only have a small population to serve, you need to be able to have something for just about everyone to spread your costs or you won't win.
At ANZ NZ, we were way over-complicated as a bank before we merged our two brands.
Our brand consideration was last, our staff engagement was low because the majority - being National Bank staff - were all wondering if they would lose their jobs one day. National Bank and ANZ staff didn't know each other and saw each other as the opposition.
In fact staff took pride in telling me how they had won a new account - from our other brand! So the power of two just was not happening.
Meanwhile Mike Smith had launched the super-regional strategy but half of our business here didn't think they were a part of it because they were a different brand.
As a business, ANZ in New Zealand was confused and complicated. After seven years of owning the National Bank we had two of everything – two management structures, two brands, two computer systems, two processes for doing anything and well over 300 different products.
Seven years on from the purchase of the National Bank, we had not solved the brand problem, we had not solved the cost-to-income and return on equity problem - 49 per cent and 10 per cent respectively - we had falling market share and we had falling staff engagement.
In Auckland, which generates 40 per cent of New Zealand's GDP, we were not visible. We were acquiring 24 per cent of home loans against the market leader at 30 per cent, our branches weren't in the growth corridors and with a head office based in Wellington, we just didn't have sufficient focus on the main game. So the first thing I did on arrival was to move head office to Auckland.
Years ago when I was doing my MBA we did a case study on Wesfarmers. At that time they had a simple mission statement, to deliver a satisfactory return to shareholders. The clarity of purpose of that really resonated with me.
Many big companies spend most of their time managing scale rather than using their scale to create value. A big company can only be effective and productive if it's simple.
Meanwhile, it's hard for a business to have a strategic competitive advantage. That is defined as something that is relevant to customers, sustainable over time, and difficult for competitors to replicate. Now we had the ingredients of that, but we didn't have it.
We had a big combined advertising spend but splitting our brand advertising made our two brands look roughly the same as the other banks and it also meant we failed to get the best media buying power.
We also had this huge advantage through our institutional and corporate market-led relationship share, yet we weren't leveraging the access to all those corporate employees so we could grow our retail base. Nor could we leverage our super regional strategy.
And we had more people and specialists in more towns than anyone else, yet they were split in colour, and often competed amongst themselves.
To make matters worse, we had a pile of regulation coming – things like OBR, and I was being told we had to build it twice – once for each bank.
We had to change. There was no alternative. The first thing I had to do was change the team.
We now have world class people. We are world class in many measures like effectiveness. And we are ahead of the game in terms of innovation.
Our new team came up with our New Zealand Simplification Strategy.
The objective was clear. We wanted to significantly simplify our business, get head office out of the way and make life easier for our customers and those serving them.
We focussed on the products that had the largest profit pools, chose the best of both banks, and created what we called at the time “the new ANZ".
It's worth making the point that the National Bank green bank was a strong, up-market, popular brand. The ANZ blue bank was seen as downmarket and tired.
Putting the two together and going with the ANZ brand was a big risk that really did go against conventional wisdom.
So labelling the merged bank as a new bank was a critical part of our strategy. It meant the National Bank customers and staff knew it was going to be better than the old ANZ and the ANZ staff looked forward to being re-rated to main brand status.
It's worth pointing out, the systems merger was the largest IT project in New Zealand business history and I can tell you, on conversion night, I never slept a wink. But in something that will never cease to amaze me, when we fired up the new bank, we balanced a $100 billion book to the cent. It’s a tribute to the dedication of the team who worked on the project.
THE TIGHT FIVE
Part of our simplification plan was to cut the number of products to focus on products the mass market really needed. When we looked at the profit pools it confirmed that focus and led us to what we called our “tight five" strategy.
The tight five is a rugby union term, a term familiar to our rugby crazy staff – the tight five are the guys who are the grunt of a scrum! At the time we launched it, we were sponsors of the 2011 Rugby World Cup so it fit nicely with our brand campaign. But it has worked so well we've kept it going ever since.
Our tight five are transaction accounts, credit cards, superannuation - which we call Kiwisaver here - insurance and mortgages.
Every working Kiwi needs an account to put their pay into, a credit card to smooth their cash flow, a KiwiSaver to save for their future, some insurance to protect them and the things they love, and if they are really lucky, a mortgage to buy their dream home. Simple.
Staff could relate to it, and as soon as we narrowed the focus we started to grow.
So we then had a huge focus on simplifying those tight five products, making it easier for customers to get them and for our staff to sell and process them. For example we cut the time it took to get a home loan approval from 50 minutes to 15 minutes.
Today, we've gone from 300 products to under 50 products, and were still going.
It may come as a surprise to some of you, but the key to executing that strategy and to us creating a sustainable and growing business was our heavy focus on people and culture.
Just about anyone can create and talk about a strategy but the trick is in executing it.
People at every level of the bank have to understand what the business is trying to achieve, or else I think you have no hope. Which is why we worked so hard to engage our people.
Now I know you are all are very much numbers focussed, so talking about a strategy based on people and culture may sound a bit nambie pambie. But if you ask any one of our team here they'll swear it's made the difference.
In fact, I'd say there is at least an extra 20 percent output available if you can switch on the front line to having a sense of pride in their brand and faith in their management.
There is no doubt our staff were the critical point in making our brand and systems mergers work because if they didn't believe in it, our customers certainly wouldn't. This is what has made so many mergers fail in the past.
Since brand change, we have continued this focus and it continues to pay dividends for us. It's why we've gone from stone motherless last to number one in most measures in such a short space of time.
WHERE TO FROM HERE?
Because we have had shareholder value as our True North all of this has produced record results, it's seen our CTI reduce 10 per cent to under 40 per cent, and our ROE now runs above the group average.
Our brand consideration has moved from last to first of the big four and is at record levels. We are number one in every town in NZ.
We have far less branches but our reach has gone from 75 per cent to nearly 90 per cent of where Kiwi's live.
After a lot of hard work, we are number one in Auckland and Christchurch for home loan origination, for the first time ever. And we are now visible across Auckland.
We have more local home-loan, small-business and wealth specialists in local areas than any other bank because we have the critical mass to support them – something the other banks don't have. And it's all under the one colour; we really have a true strategic competitive advantage.
We are using our strength in Institutional and Corporate to get in the doors of employers and put in employee banking plans for their staff. Again, leveraging a strategic competitive advantage.
With New Zealand now having free trade agreements with China, Taiwan, South Korea and hopefully more to come soon, Institutional and Commercial teams can leverage ANZs Super Regional Strategy across both brands.
We are only three years in – it is only three years that New Zealanders have really seen blue as a credible alternative on the banking landscape. After 100 years of the National Bank, that's a pretty good start.
We are now leveraging our strategic competitive advantages and scale which will make it even harder for our competitors. We are adding more customers per month now than we ever did with the two brands.
This is an edited version of the opening address to the 2015 New Zealand Investor Tour.