UK's Co-op Bank failed IT project beset by management weakness, claims Kelly report

Matthew Finnegan

A series of significant management failings were to blame for spiralling IT costs which contributed to the Co-operative Bank's £1.5 billion capital shortfall, according to a damning report from Sir Christopher Kelly.

The 152-page report highlights the problems encountered as the bank attempted to replace its core banking systems with Infosys' Finacle platform, a project which was cancelled in 2013 with a bill of almost £300 million added to its balance sheet.

"The weight of evidence supports a conclusion that the [core banking replacement] programme was not set up to succeed," said Kelly. "It was beset by destabilising changes to leadership, a lack of appropriate capability, poor co-ordination, over-complexity, underdeveloped plans in continual flux and poor budgeting."

The bank agreed a deal with Infosys in 2007 to overhaul its ageing IT systems, which had applications built on top of each other since the 1970s. However, the project encountered significant problems and was put on hold in 2011, before eventually being cancelled last year, with IT write-down costs of £148 million.

According to Kelly's report, the failure of the project was due to poor decision-making as the already ambitious project ran into further challenges such as the Britannia merger in 2009, and proposals to purchase bank branches from Lloyds Banking Group in 2011.

'Litany of deficiencies'
One of the major factors highlighted was a frequent change in leadership for the project, with three different executives leading change between 2007 and 2012.

The departure of CIO Gerry Pennell to join the London Organising Committee of the Olympic and Paralympic Games in 2008 was considered to be a particular factor in the derailing of the project. He had been "the driving force behind the decision to replatform," Kelly said, and, with his departure, the organisation "lost some of the capability and drive to make the project a success".

For example, Pennell had overseen plans to outsource management of aspects of the IT programme which were originally intended to be handed to IBM, under the guises of Project Magellan and Project Olympus.

Kelly stated that partnering with IBM would have would have resulted in shared responsibility for project management, meaning that the bank would not be solely liable for unexpected costs relating to the project. IBM would also have been given powers to negotiate and sign contracts with the core banking system vendor, which could have also helped to reduce the overall cost of the project.

However, following Pennell's departure, plans to outsource certain business process responsibilities to IBM were reduced significantly reduced, with Infosys handled the majority of systems integration delivery.

Furthermore, his replacement, who had previously overseen the merger of Bristol & West Building Society and Britannia systems, did not have experience of a change project of the scale the Co-op Bank was attempting, Kelly said.

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