Revisiting Analytical Systems; like Europe after World War II, the American Banking Industry Has Undergone an Era of Reconstruction

By Dorman, John | American Banker, September 19, 1994 | Go to article overview

Revisiting Analytical Systems; like Europe after World War II, the American Banking Industry Has Undergone an Era of Reconstruction


Dorman, John, American Banker


The market forces unleashed over the past two decades have swept away an old order and its rules, replacing it with a far more competitive and dynamic environment. Banks have been forced to redefine the ways they operate and, even more importantly, the ways they view themselves.

The effects of this process are reflected in the business analysis systems that banks use to guide their decisions. The combination of intensified competition, improved technology, and increasing regulation has forced banks to install systems of increasing breadth and sophistication. In many banks the proliferation of these systems spawned the condition I have labeled data chaos, a state of contentious uncertainty created when independent business analysis systems, drawing data from separate sources, produce discrepant results.

A few banks have resolved this state of numerical anarchy by installing comprehensive decisionsupport data bases that extract, reconc'fie, and integrate data from all appropriate sources prior to use. Some analysts refer to this process as creating an "information warehouse." I prefer to call it "a single financial reality."

In the real world, of course, every solution carries with it the seeds of future change. And banking business analysis systems are no exception. Once these data bases are installed and an integrated financial reality is established, the institution faces new challenges in applying them effectively.

First, given that it now has reliable, enterprise-wide financial and operational data available to guide decisions, how will the bank make the best use of its new information? This issue may not appear serious at first glance, but it is actually profound in its consequences.

The bank now has the ability to measure the true costs and profits of every operation, at almost every level. With proper cost allocations, it can determine the profitability of every product and every customer relationship. It can accurately estimate the returns on capital and assets deployed for each business unit. With each of these steps, it can more accurately gauge the contribution of managers down to the branch and even the platform level.

It should be obvious that information systems with these capabilities will change, even revolutionize, the ways that the bank does business with its customers, altering products, pricing structures, customer relationships, and marketing strategies.

Even more importantly, these systems will alter the ways the bank conducts its internal business. The relationships between tactical managers and their supervising executives will change. Tactical managers will become more directly accountable for results they can control. Inevitably, they will demand more authority to match the increased accountability. Budgeting and planning will become highly distributed processes, as advances in technology allow corporate units to exchange information with operating groups quickly, economically, and in great detail.

Decisions will be made more frequently as well as more speedily. The bank will now have the capability and the motivation to change pricing, product offerings, and risk management positions rapidly in response to market changes and competitive developments. Organizational charts and position descriptions will be redrawn to eliminate bottlenecks in decisionmaking and product delivery.

Changing org charts and position descriptions are symbols of the most critical impact that the new decision-support systems will have.

The roles of significant numbers of bank employees are going to change in very significant ways. Nowhere will the changes become more visible more quickly than in the business analysts units that are the primary users of decision'support systems within the bank. Almost every large bank maintains several of these units within its corporate staff. They are composed of intelligent, well-educated, and expensive professional employees charged with safeguarding the financial position of the bank. …

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