Beyond Technology Delivering Transformation Ken Harvey Group Managing

Beyond Technology, Delivering Transformation Ken Harvey Group Managing Director and Chief Technology & Services Officer HSBC Technology and Services

HSBC TECHNOLOGY AND SERVICES } HSBC Today Offices worldwide 8, 500 Customers Over 100 Million 3 CISCO CIO Day International network People strength 86 Countries & territories 295, 000 Total assets H 1 2009 US$2, 422 Billion Pre-tax profit H 1 2009 US$5. 0 Billion Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Evolution of Transformation (One HSBC) Q 1 2009 Q 1 2008 Q 1 2007 Q 4 2006 Q 1 2005 Q 1 2003 IT SSO Created 2003 4 CISCO CIO Day 120 Data Centres merged into 5, 10% of Apps retired Joining Up Directive from CEO One HSBC for IT is launched Process and Operations added to scope of One HSBC Propositions and customer experience added to scope with Target Operating Models added to One HSBC 2009 Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } What is a CTSO? The CTSO is responsible for – } The delivery of transformational change consistent with the strategic plans of the Group } The integration of existing technology and operations platforms } The reengineering of customer experience and driving down the unit cost of production } Leveraging Global Service Centres and standardising process Responsibility includes the total cost line of the business, to prevent leakage and ensure the impact of the cost efficiency initiatives are reflected in the bottom line 5 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Jebson’s First Law of Computing } Hardware is Easy } Software is Difficult } People are Impossible 6 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Why does the CIO get to drive? } Natural Strengths – Process Engineering – Programme Management – Change Control – Change Agent } Historic Weakness – Drive Bottom Line – Execution and Branding trump technical brilliance 7 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Unit Rates are Crucial }35% }30% }25% }20% }WAVI }15% }WARR }10% IT Operations Rates improving even when volumes are increasing at a lower rate }5% }0% }2008 Site 8 }2009 2005 }2010 2006 2007 2008 2009 2010 % $(M) % $(M) HTSE -10. 40% -$59 -10. 80% -$78 -6. 20% -$44 -20. 70% -$211 -13. 70% -$125 -4. 90% -$29 HTSU -4. 00% -$14 -10. 60% -$68 -18. 20% -$114 -1. 90% -$11 -14. 70% -$97 -10. 70% -$59 HTSA -12. 00% -$25 -16. 60% -$45 -17. 60% -$50 -17. 80% -$56 -11. 30% -$36 -29. 80% -$117 HBMX -8. 90% -$10 -19. 70% -$24 -17. 40% -$24 -22. 10% -$40 -1. 60% -$2 HBBR $0 -19. 30% -$44 -44. 10% -$154 -14. 80% -$41 -4. 20% -$8 HBFR $0 -17. 50% -$21 0. 20% $0 -19. 70% -$27 -5. 10% -$5 Total -8. 80% -$98 -11. 00% -$201 -14. 40% -$297 -18. 20% -$456 -14. 70% -$366 -11. 30% -$220 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } 9 Implemented the same concept in Operations First Year Results show 10% YOY Reduction is Possible CISCO CIO Day Site % $(M) HTSE -15. 30% -$55 HTSU 3. 00% -$11 HTSA -11. 10% -$14 HTSC 0. 80% 0. 4 HTME -21. 70% -$8 HBEG 1. 10% 0. 1 Total -7. 80% -$88 Service Delivery Rates improving in the first year on year comparison Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Benchmarking is Key Outliers Peer avg. excluded peer 92. 94% avg. 64. 5% 25. 0% Peers HSBC IT Cost/ Operating Cost 20. 0% 15. 0% Outliers excluded peer avg 12. 0% Peer avg. 11. 1% 10. 0% 5. 0% 0. 0% 50% 100% 150% 200% 250% 300% Operating Cost/Operating Income * originally released as “Achieve IT/Ops Collaboration”, the text of this goal was modified to represent the consolidated outlook 10 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } 11 You can’t consult if you are apologizing CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } The Measures } Cost Efficiency Ratio and } The magic of arbitrary aspirational numbers } Centres Of Excellence (Offshore Penetration) – 30/20/50 and the “CIOs” become RMs – The concept of Manufacturing vs Distribution } Unit Rates (10% YOY reduction) } Run the Bank/Change the Bank (27% to 36% in 4 years) } Leverage and Standardization – Total FTE (down 6% in 2009) – Product Fragmentation 12 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Manufacturing vs. distribution }2008 FTE }60, 000 }52, 610 }51, 321 }50, 000 }53, 978 }2009 FTE }44, 299 }40, 000 }30, 000 }20, 000 }10, 000 }2, 176 }2, 233 }0 }Manufacturing 13 CISCO CIO Day }Distribution }Admin Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Why IT Doesn’t Matter (as much) USD 4 Bn The Task One HSBC Business Transformation (Front Office) 2011 2010 2009 Service Delivery/CRE (Back Office) Comprised of: 4 Sales 4 IT 4 Front Office 4 Marketing 4 CRE, CD, Admin 4 Mid Office, Collections 4 Back Office 14 CISCO CIO Day IT (Back Office) Sustainable Savings Through Transformation are key. Where is the Money? 14 Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Bottom Line Delivery } Each CTSO (14 in our world) owns a 5 year plan to improve the Customer Experience } Support income growth above industry average While: 16 Milestone Summit (July - Sept 2009) Restricted for company use only

} HSBC TECHNOLOGY AND SERVICES HSBCnet Volumes in 2009 } Direct Connect Customers – Total Customers up 47% – # Transactions up 106% – Value of Transactions up 192% } Internet Customers – Total Customers up 21% – # Transactions up 31% – Value of Transactions up 38% Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Role in driving effectiveness (innovation) } Create Bandwidth for change by harvesting } Hard measures are important – Unit Costing in business terms could take years – Teams will not drive to objective without the measures } Innovation that pays, gets paid – Measure and Pay – Channel Management – Customer Satisfaction – CER 18 CISCO CIO Day Restricted for company use only

HSBC TECHNOLOGY AND SERVICES } Questions? 19 CISCO CIO Day Restricted for company use only