Financial services companies in general, and banks in particular, find themselves in unexplored competitive territory in the mid-1990s.
Industry reform continues to blur traditional distinctions between commercial banks, investment banks, broker dealers, and insurance companies.
Competition is fierce, and more than a few observers believe that the battle will probably be won through technology and service delivery.
The strategies, resources, and skills required for success in banking are changing rapidly. In the 1980s and early 1990s, the ability to control costs and benefit from economies of scale were paramount.
Though these remain important, they have been joined by the need to analyze more effectively and serve the customer.
Key questions that a banking company must answer are: "Who is my customer? How profitable is he or she? What is the lifetime value of my customer, and how can I most effectively manage that relationship?"
Given the huge amount of information required to analyze customer attributes, data warehousing provides the mechanism to answer these critical questions.
Banking and other financial services institutions need to focus on three primary areas where data warehousing can be a crucial lever for competitive success. They are:
*Customer acquisition and management. Here the warehouse provides a means of viewing the bank's entire relationship with a customer across all portfolio segments, and provides the opportunity to realize the full potential of the relationship through every stage in a customer's life cycle.
*Service delivery. The warehouse is the "brain center" for delivering services to the customer as well as bringing together all the information needed to manage and track the quality of those banking services effectively.
*Profitability management. The warehouse is the system for gathering and analyzing multidimensional views of profitability. Banking executives today understand that it is not enough to understand profitability only from the customer or product level. They also must look at profitability in terms of geography, type of business, delivery channel, and even specific transactions.
Price Waterhouse has identified what it believes to be eight critical actions for banks to take to leverage data warehousing technology in order to increase market share and profitability in the years ahead.
Though it is worth noting that many of the country's largest banks are in the process of taking these actions. They are applicable to every financial services institution interested in achieving or maintaining its competitive positioning throughout the course of the decade.
The eight critical actions are:
1. Using data warehousing technology to better understand customers and their financial performance.
2. Analyzing transaction data to increase profitability by identifying attractive markets and customers.
3. Using data to forecast a customer's lifetime value to your bank, and projecting his or her behavioral characteristics over a lifetime.
4. Aligning the internal organization of your banking company to serve each of its customer segments through a unified process.
5. Using data warehousing, including nonproprietary demographic information, to develop a target marketing capability.
6. Tracking the behavioral attributes of customers in managing their accounts, such as the balances they maintain, when their pay-off dates are, etc.
7. Using data warehousing systems to manage customer segments as distinct portfolios.
8. Implementing more sophisticated financial analysis tools to more effectively measure the financial impact of individual customers and similar customers.
You don't need to be a technologist to project that data warehousing will be a cornerstone of successful management of bank customer relationships.
Institutions that truly want to focus on serving the customer will need to build data warehouses and implement tools to allow their business units to analyze and use information quickly and efficiently.
And, just as important, they will need to change the way they think about customers, systems, and profitability to take advantage of the inherent power in the billions of pieces of data - which we already have - that tell us so much about our customers, about how we serve them, and about how we perform as organizations.
Mr. Mueller is a banking and systems consultant with Price Waterhouse in New York.
