Needing to deliver a brand new IT project – Australia’s New Payments Platform (NPP) – within a tight timeframe, Heritage Bank turned outward for help. But rather than ask a consultancy or look for off the shelf products, the bank asked an open source software company for help.

Australia’s largest mutual bank tapped Red Hat, an open source software and service firm best known for its enterprise version of Linux, to run one of its “Open Innovation Labs”.

Within 12 weeks the 144-year-old bank had a brand new NPP proof of concept and, according to its CIO, Wayne Marchant, an entirely new way of delivering IT services.

The concept was expanded and within 12 months Heritage had a full inbound NPP capability and added outbound within 18 months.

Under the bank’s traditional approach the NPP capabilities would have taken around five years to deploy, and potentially been impossible because of the Bank’s legacy systems, Marchant said.

“The integration [approach] cuts so much of the complexity of the bank out,” the CIO told media at Red Hat’s annual Australian event in Melbourne today. “Because [with] the old part of the bank, all of the legacy is the hardest part.”

Perhaps more importantly, Marchant says, the new approach shifted the IT department’s culture, one he conceded had not been especially service orientated in the past.

“You want the culture to be what you need and we didn’t. We didn’t have that culture and what this has done is totally change that culture into what we need.”

Marchant stressed to Which-50 the the labs are highly targeted and work well with specific projects but they had had a lasting effect, demonstrating the “tools” and “velocity” the bank now needs.

“For us, [the innovation lab] changed the way that we deliver services and it changed the way that we go about things. Today our teams continue to deliver in exactly the same way.”

What is an Open Innovation Lab?

Red Hat claims to be the only company offering a service like its Open Innovation Labs.

The company deploys staff to the customer’s organisation for short periods, usually between six and 12 weeks. The Red Hat staff work and often socialise with the customer – in the case of Heritage, which is based in Toowoomba, staff would meet at the pub after work.

The idea is to impart the agile approach to project delivery and begin coding as soon as possible, producing a tangible service within six weeks. Business leaders, including the board and executives, are asked to regularly check in on the lab.

“It’s an immersive experience,” says Marchant. “They come from six or 12 weeks and you take a business problem into this lab. Red Hat supply people, we supply people, and they really get taught agile, they get taught the technology, they really get taught to change the way that they do their work.” 

Changing people’s way of working is notoriously difficult and Marchant says early participants in the lab were hand picked because of their openness. However, known opponents to the methodology were also included with a view that converting them would provide valuable change agents.

Ultimately the bank’s IT team of around 80 lost two employees over the previous two years.

Red Hat sees the service as an extension of its own way of working, built on decades of collaboration around open source software.

Max McLaren, Red Hat’s ANZ VP and GM, said culture change had been a fundamental part of the company. Several analysts believe Red Hat’s culture was a major reasons why IBM paid $34 billion for the company last year.

“The concept of cultural change is something that we almost stumbled upon. Because we’ve been using collaborative open source development processes with the community – and that community is extensive, customers and partners –  to develop our technology for years.”

Customers had been requesting a service like Open Labs for some time but Red Hat needed to “bridge the gap” between its sales team and the people within Red Hat who best understood the concept of “open collaboration”.

“More customers started asking for it and so we’ve evolved the service that’s now being used as.”

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