The Impacts of Implementing a Data Warehouse in the Banking Industry

The impacts of implementing a data warehouse in the banking industry

Data warehousing in the financial sector

Introduction

In the modern banking and financial sector, there is keener and stronger competition and many enterprises are much more eager to get immediate and accurate information to make better and faster decisions. Furthermore, with many banks fighting to capture new customers and the rapidly growing need for larger amounts and more specific information, traditional databases are incapable of effectively handling the demands of increasing online information retrieval, access, update, and maintenance (Hsin-Ginn Hwang et al). This inability greatly impacts businesses in a way that the management level cannot utilise internal data efficiently and effectively to assist reliable decision-making in a timely manner. As a result, it is such a critical issue for every business to seek for ways and/or means to access, store, maintain, and utilise the massive data efficiently. The method that best fulfils the needs of the business is a data warehouse.

A data warehouse is a subject-oriented, integrated, time-variant and non-volatile collection of data in support of management's decision making process (Inmon). It also acts as a specially prepared repository of data created to support decision making. Data is extracted from source systems, cleaned, scrubbed, transformed, and placed in data stores (Gray and Watson 1998). Data warehousing is near the top, if not at the top, of most companies’ strategic IT initiatives. These repositories of data have great potential for providing insight into client behaviour in client-to-business e-commerce, implementing customer relationship management strategies, and supporting comprehensive performance measurement systems.

Within the financial and banking industry, it is becoming evident that corporations are realising the importance of a customer-orientated strategy that places the customers at the centre of all aspects of the company’s operations (Cooper 2000). It is apparent in First American Corporation (FAC) that a data warehouse was introduced to address various issues that caused the company to lose $60 million in 1 year. Many of the issues that are addressed in FAC are interchangeable with other companies in the financial industry. These issues focus on identifying client behaviour, client buying preferences and client value positions which enables the bank to establish the most profitable customers.

An assessment of the impacts of the implementation of a data warehouse

Management necessities

Management support is consistently identified as one of the most important factors for data warehousing success. It motivates people in the organisation to support the data warehousing initiative and the organisational changes that inevitably accompany it (Curtis and Joshi 1998). Management support can overcome political resistance and encourage participation throughout the organisation, and it has been found to be important to the success of many kinds of IT implementations, such as decision support systems (Wixom, 2001). Therefore it is important that prior to and during the introduction of a data warehouse, that there is absolute management support. Users tend to conform to the expectations of management, and they are more likely to accept a system that they perceive to be backed by the management of their organisation (Karahanna et al. 1999). It is also important that management create a culture within the business that focuses on all employees working in conjunction to ensure that the data warehouse is successful. If employees are felt to be left in the dark, they are likely to become unmotivated and stop working effectively, which in turn will cause the data warehouse to fail.

With the implementation of a data warehouse, which is a form of a knowledge management system, there are three main considerations that managers must take into account (Alavi and Leidner 1999). These include the cultural, the managerial and informational issues. In terms of the culture, managers must have a great understanding of the implications for change management. It is also essential to convince the employees and the individual business units to share their knowledge with other units, but in particular when each business unit is responsible for showing a profit. The managerial concerns relate to the concern over embedding a value for the data warehouse and the need for measuring value and rewarding the individuals and business units that appear to be adding value.

Today, the fundamental challenge facing many financial institutions is cost pressure, margin compression, and the growing mass market. Competition is rife and a focus on low-cost products and services are causing long-standing banks and financial institutions to be continuously chipped away. Nigel Wells (chief architect of the hsbc.com) and Jeff Wolfers (senior strategy manager of the hsbc.com project) from IBM United Kingdom Ltd., believe the answer to this problem is to return to the core values that made banks respected institutions in the community: trust, privacy, and personalised service. In 1925 these values were delivered face-to-face over a bank managers’ desk. Nowadays, other channels such as ATM’s, telephone banking and internet banking mean that it is nearly impossible for banks to implement these essential core values, of which the organisations originally stood allowing them to provide that essential and desired personalised touch.

Even though competition is continuously entering the financial market, customers are regularly presented with generic options that only provide a basic answer to their financial needs. Banks today are recognising that customers are not being offered the service they actually need and they realise that in order to survive and grow in the competitive market a focus on CRM is essential. Following a study by Hugh Watson et al (2001), it is evident that vice-presidents of business units, CIO’s and business unit managers are now the main driving force behind wanting improved CRM. They recognise that in order to achieve this improvement, data warehousing is now absolutely essential. This Executive Support System (EIS) once implemented, will be able to provide the same information and knowledge as the bank managers were able to in the early 1900’s which helps them provide a service that is based on their core values. Therefore it is clear that a high

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