Why AFG Went All-in to Cloud

Australian Finance Group skips hybrid approach as it banks on Oracle Cloud to drive innovation.

By Mike Faden

March/April 2017

About three years ago, Jaime Vogel, CIO at Australian Finance Group, determined that the company needed to overhaul its approach to IT amid intensifying competition and to support AFG’s ambitious growth strategy. A variety of technology startups were starting to disrupt the financial sector, including the home-mortgage loan business that AFG operates via its network of 2,650 brokers. At the same time, AFG was diversifying into new products, such as car loans, commercial finance, and insurance.

The company needed to shift more of its IT resources into innovation—and to do so with a relatively flat IT budget. “At the time, we were spending only around 20 percent of our IT budget on innovation and the remainder on operational activities,” Vogel says. “We knew we had to invert those numbers.”

The route that Vogel and his team identified: progressively shift from on-premises computing to the cloud.

No Half Measures

AFG’s IT environment included a range of Oracle business applications running on Oracle Exadata Database Machines in two fiber-connected data centers about 20 kilometers apart in Perth, Western Australia.

The company initially considered taking a hybrid cloud approach, in which it would continue to run applications in one data center but close the other data center and use the cloud for disaster recovery. But it quickly became apparent that a hybrid model wouldn’t generate the required operational cost savings, Vogel says. Further analysis revealed that the greatest cost benefits would be delivered by switching from on-premises to cloud-based software-as-a-service (SaaS) applications.

We were spending only around 20 percent of our IT budget on innovation and the remainder on operational activities. We knew we had to invert those numbers..” –Jaime Vogel, CIO, Australian Finance Group

“We could recognize the true savings and benefits only by completely embracing the cloud,” he says. “No matter whether you are running one server, 50, or 150, there’s a baseline of operational costs, and until you eliminate those servers you can’t really gain satisfactorily from the transition to the cloud.”

Another important factor played into the company’s ultimate decision to move to a 100 percent cloud model and close both of its data centers. “The key breakthrough was our confidence in providers understanding our needs and providing the availability and reliability that AFG and our customers desire,” Vogel says.

Methodical Migration

Once AFG had made its decision, it formulated a strategy for migrating each application. “If there was a cost-effective SaaS solution that supported our business initiatives, then we’d adopt it,” he says. If not, the IT team moved the application to infrastructure as a service (IaaS), while rearchitecting the application to take advantage of cloud capabilities such as automated scalability and recovery.

AFG took a methodical approach, starting with lower-risk applications such as Microsoft Exchange and SharePoint, as well as development tools. With the confidence earned from those early successes, Vogel’s team then began moving AFG’s core business applications to their SaaS equivalents, including Oracle Fusion Incentive Compensation Cloud Service and Oracle Financials Cloud. In all, roughly 90 percent of AFG’s applications are SaaS today, Vogel says.

However, a different approach was needed for AFG’s on-premises Siebel Customer Relationship Management (Siebel CRM) applications from Oracle, which support the company’s all-important broker network. During 10 years of using the software, AFG had customized the Siebel applications extensively, and it determined that the same functionality wasn’t available in a SaaS alternative.

If you just take what you’ve already got in your data centers and move it into the cloud, it may be a much easier project, but you’re probably not going to get the benefits.”
–Holden Lai, IT Manager–Sales, Australian Finance Group

So AFG chose instead to migrate the Siebel applications to IaaS, while adapting them to scale automatically to match the ebb and flow of demand. At night, the system runs on just a handful of virtual servers, minimizing operational cost. The next morning, it automatically adds servers to handle the increasing load as brokers log in. “We script and template-build these environments, to scale out when demand is high and down when the system is quieter,” Vogel says. “We’ve effectively taken a traditional application and adapted it into a new-world cloud environment.”

To ensure a smooth transition of the production Siebel system to the cloud, AFG prepared for about a year, first architecting and then progressively moving the development, test, and training environments, followed by considerable preproduction testing, says Holden Lai, IT manager–sales at AFG.

In all, AFG moved about 80 on-premises applications to its SaaS cloud, allowing the company to shut down its two underutilized data centers in May 2016. Vogel estimates that the shutdown saves the company about AU$500,000 (US$385,000) a year in operational costs, while the cloud applications and services bring a modern feature set, as well as modern APIs that improve integration and automation.

IT Budget Swings Toward Innovation

Meanwhile, Vogel has grown his team from 22 people four years ago to 36 today—on a relatively flat IT budget. Those 14 additional people are all developers focused on creating new products.

Today, Vogel says, AFG spends about 60 percent of its IT budget on new, innovative projects (as opposed to support and enhancements), compared with 20 percent when he joined the company.

Those innovations include the integration of Oracle Financials Cloud and Oracle Fusion Incentive Compensation Cloud Service with the Siebel CRM applications now running on IaaS. The integrated systems automatically collect data on daily mortgage sales transactions and commissions from lenders, calculating the required broker payments. As a result, AFG can now process its 600,000 monthly commission payments five times faster than it could before—in 2 hours instead of 10.

Oracle’s platform-as-a-service (PaaS) products have also enabled innovation at AFG. The company built a new loan-origination system for its own home-mortgage business, using a combination of Oracle’s PaaS products to develop functionality that wasn’t available in off-the-shelf software. AFG found that the off-the-shelf solutions weren’t flexible enough to allow it to quickly adapt as the financial services sector gets disrupted by market entrants. “We think the market is going to change rapidly, and we want to be a leader in that space,” says Andy McGee, IT manager–business services at AFG.

By combining Oracle Process Cloud Service, Oracle Documents Cloud Service, Oracle SOA Cloud Service, and Oracle Policy Automation Cloud Service, AFG created a solution that manages the entire loan process, from receiving a loan application through the assessment process and obtaining additional information and services from third-party providers, to ultimate approval and funding. Despite the breadth and complexity of the process, AFG built the system in about 12 months, McGee says.

Lessons Learned

The cloud transition hasn’t been seamless. Several times during the transition Vogel’s team determined that the cloud products they were deploying lacked certain functionality, but the beauty of the cloud model is that the needed improvements tended to show up in a new release three months later, Vogel says.

Lai also emphasizes the need to allocate time for testing and tuning during a migration to ensure the same level of performance as with on-premises systems. And to get the most benefit from the cloud, he suggests looking at how to take full advantage of the features available via APIs and scripting. “If you just take what you’ve already got in your data centers and move it into the cloud, it may be a much easier project, but you’re probably not going to get the benefits,” Lai says.

Another early challenge was convincing AFG’s IT staff that the cloud transition is the right move for them. “People naturally tend to be protective of their roles as system administrators and in managing infrastructure,” Vogel says. But when AFG started explaining their future roles, it gave staff the understanding that the cloud transition was probably their best opportunity to obtain new skills in preparation for what the future may hold, says Vogel. “It didn’t take long for people to get on board. Today, a lot of them are writing scripts and coding, and it’s actually been a very welcome change for most of them,” he adds.

One example of the reskilling: the team’s former IT operations manager is now in a continuous-improvement role, responsible for evaluating business processes with an eye toward boosting efficiency, reducing costs, and upping the quality of customer service.

Now that AFG’s IT environment is running entirely in the cloud, Vogel continues to look for ways to direct an even bigger percentage of the company’s IT spending—beyond the current 60 percent—into new, innovative projects. “We’re continuing to evolve and improve,” he says. “We like to aim high. Any incremental increase in IT budget is focused on innovation.”

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Photography by Natalia Y, Unsplash