1st Chicago Linking All Business Lines

As many institutions get their first taste of data warehouse technology, First Chicago Corp. is moving into the second stage of its project.

The technology is helping the bank build customer profitability models in the bank card, community banking, middle-market lending, and corporate banking units. Each of these efforts, whether in operation or still in development, is specific to a line of business.

In the newest phase of the bank's data warehousing strategy, these division-specific projects will be pulled together under a larger umbrella that provides faster access to customer information.

At the heart of the new strategy is an integrated system from SAP, a German software manufacturer that is making its debut in North America. Most of SAP's installations have been in the manufacturing sector, though the company counts a handful of European banks among its customers.

First Chicago bought the software in June and expects full implementation by the end of next year.

The system will operate in a client/server environment. Whether it will also be used by First Chicago's recent merger partner, NBD Bancorp, has not been determined. There have been some initial discussions about the project between the two parties.

In casting a wider warehousing net, First Chicago is moving aggressively with a technology that the financial industry has only just begun to use.

"Data warehousing is a very big area in the future of banking as it evolves from a product foundation to a customer-oriented view of the world," says Peter DiGiammarino, a vice president at American Management Systems Inc. in Fairfax, Va.

"To get there requires a major evolution in systems, processes, and organization."

But creating an expensive data warehouse is just part of the answer. "To pull it off requires solid leadership," Mr. DiGiammarino said.

The commitment appears to be there for First Chicago.

According to Erik Harris, senior vice president at First Chicago, the SAP project represents a departure from the way most financial institutions approach data warehousing.

"Instead of us trying to take information from a number of applications and pull it into a data warehouse, SAP does it inside the application itself," Mr. Harris said.

By integrating applications such as general ledger and accounts payable, for example, SAP gives the bank a common set of systems for all its relationship managers. Each line of business will have access to the SAP system.

"Today we have to have a number of different interfaces to different transaction systems to pull information out and put it in one warehouse," Mr. Harris says.

With the new system "we will have just one interface between each transaction system and the SAP system."

"Since we will be able to capture from one system at one time, we won't have to reconcile the numbers from different systems," Mr. Harris said.

"We'll be able to provide information to managers electronically instead of producing lots of paper reports, which is more convenient and much faster."

With more time to spend analyzing data, customer relationship managers will also be able to drill down to new levels of detail and make better use of links to spreadsheets and other analytical tools.

The plan to create a more ambitious data warehouse will have implications throughout the bank, given First Chicago's relationship-driven rather than product-driven customer service.

"Having this information accessible and being able to carve up data to better segment our customers is very consistent across all our lines of business," Mr. Harris says.

Perhaps the strongest success First Chicago has had implementing data warehousing already is in its large corporate banking unit, which is considered one of the most profitable among large banks. The warehouse is used to assess each customer's profitability and the value of its relationship to the bank.

"Many banks have systems that tell what customers have in loans and demand deposits, but we are able to pull information from trust, cash management, trading, from all the areas of the bank," Mr. Harris says.

"Based on that, we can deal with the customer appropriately. Obviously we want to give them the best service and pricing on the next piece of business we do with them."

With the more user-friendly data warehouse in the works, the process for all units is expected to be much easier and to save on expenses and errors.

"We do a lot of paper reporting and a fair amount of downloading from the mainframe to the desktop where the analyst does additional work," says Mike Siconolfi, First Chicago vice president and senior systems manager.

"As the process takes longer, the costs add up. The more time there is to handle the data, the more opportunity there is to interject errors."

In addition to its worth as a tool to spur market segmentation and build more profitable customer relationships, data warehousing is also expected to reduce some of the expense in the bank's finance function.

"Part of the SAP project is to help lower our cost base," Mr. Harris says. "It will allow us to manage the bank faster by reducing redundant systems and paper processing, which involves collating and distributing reports, reconcilement, filling out paper forms, taking time to correct errors. There's enormous opportunity for this system to eliminate work steps."

Mr. Siconolfi adds, "We want to spend more time making decisions with value-added data as opposed to spending time collecting that data."

As First Chicago brings up the SAP system, the bank will be coming closer to a purer definition of data warehousing proposed by Matt Kuckuk, vice president at American Management Systems' office.

"A data warehouse is where everybody is using the same information as the source of data for reports," Mr. Kuckuk says.

Getting to that point has been a frustrating exercise for many large banks that have made major investments in data warehousing.

Mr. Kuckuk says that having clear goals for a project as complex and sophisticated as a data warehouse is a basic requirement for making it work.

Another challenge is anticipating the way warehousing will change workflows and procedures. Mr. Kuckuk uses the example of a customer identified as a strong prospect for additional credit products.

"If that customer comes into the branch to fill out a loan application, then the branch automation should inform the branch personnel that this customer is slated for special treatment," he says. "This may mean taking a different path through the application process or granting the loan instantaneously."

AMS's Mr. DiGiammarino says that to make data warehousing a success the bank must: be able to determine the value of every customer, set a strategy for maximizing profitability for each customer segment, and develop communications with the customer that are consistent with this strategy.

Mr. Kuckuk adds, "Unless the data warehouse is designed around thoseneeds, then it generally will not be able to support those needs."

Acknowledging the relative novelty of data warehousing in banking, First Chicago's Mr. Harris says the bank recognizes that the SAP project is not the ultimate solution to its data warehouse needs.

"Once we have the applications installed, we may need to gather more information outside of SAP," he says. "We don't think we will have solved all our needs with SAP, but we'll get to that as we move forward." v

Ms. Monahan is freelance writer based in New York.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER