What's a financial institution to do? In an industry that used to thrive on stable product lines and familiar markets, globalization and deregulation have made huge changes to the ways in which they compete and do business.
To maintain and extend competitive advantage in their markets, many firms have turned to mergers and acquisitions to help them meet the current and emerging needs of stakeholders. But this tactic brings with it its own array of complex management challenges, not the least of which are the host of IT-related problems that arise from M&A activities.
To add more fuel to the fire, the digital economy is charging ahead like Zorro at the Kentucky Derby. It seems like everyone is on-line. Everyone has better information: more accurate, more comprehensive and more easily accessible. Virtually every company realizes that its vast stores of information are critical to helping them thrive and survive in industries in which the only constant is change.
That realization is driving financial institutions to adopt a flexible, scalable information architecture that provides decision-makers with improved access to data and the tools with which to manage and analyse it.
To compete effectively in this dynamic marketplace, financial institutions are being forced to recreate themselves by offering new software-based services and, in turn, improving the speed and quality of transactions and other business processes and procedures.
While mergers improve the breadth of services a company has to offer, they also present a multitude of onerous tasks. One of the stickier ones is integrating large amounts of global purchasing information, which is often fragmented among multiple systems and exists in a wide variety of formats.
To this end, a growing number of companies are turning to Internet-based information-management systems and Web-enabled software to integrate stand-alone legacy systems by creating data marts, which consist of a database, reporting applications, and other tools. These decision-support and on-line analytical tools enable them to capture data from one or more lines of business, document business processes, and develop custom business intelligence tools that have a much broader and more detailed vision than previously possible.
Managers are combining these Web-enabled tools with their company's asset/liability model to not only enhance operational efficiencies, but also to ensure profitability and enhance shareholder value. Information in these data warehouses comes through regular feeds from key applications, including loan, deposit, and investment systems. This creates a unified information architecture that allows decision-makers to use the most current data from across the enterprise to make better decisions more quickly. When combined with archived data, for example, banks can more accurately predict the direction of interest rates which, in turn, will help them determine whether to increase or decrease the number of fixed-rate loans on their books.
Many financial institutions used the years leading up to Y2K as an opportunity to adopt new software and applications that could scale and adapt to meet current and emerging needs.
One such company is The Dominion of Canada General Insurance Company, which underwrites both personal and commercial lines of business, and distributes all of its products through independent brokers. As the tenth-largest property and casualty insurer in Canada, the Toronto-based firm required an IT solution to create, maintain and extend competitive advantage in the intensely competitive insurance sector.
"We needed a system that integrates multiple sources of information and gives us comprehensive and timely information that will enable us to respond to a changing marketplace," says Janet Babcock, assistant vice-president, Application Services, at The Dominion.
The insurer's mainframe system lacked the flexibility to meet these new requirements. With the help of a professional services firm, The Dominion made the decision to implement an enterprise resource planning (ERP) system, including financial and human-resources applications that would run on a robust database.
"A database allows for the deployment of robust analytical tools that give our people the ability to put industry trends into perspective," says Doug Hogan, vice-president and chief financial officer for The Dominion. "Subtle tendencies in market and business behaviour can be converted into critical cost savings and often used to create competitive advantage.
"Business rules and repetitive tasks are built into the application design, so by automating workflow, documents no longer have to shuffle between departments to be granted approval. The cumulative effect has been a dramatically reduced transaction time, which allows information to flow quicker and decisions to be made faster."
In addition to enhancing critical decision-making, Internet-enabled financial applications can also help streamline procurement processes. In the past, it has been common for companies to spend more than 60 per cent of total revenues on buying goods and services. A Web-based procurement application enables organizations to save up to 20 per cent on all types of purchases, and may yield up to 300 per cent return on investment after the first year of deployment.
Procurement within financial services organizations has typically been viewed as an administrative process characterized by complicated, complex purchasing policies and procedures. But with the advent of the Internet, many are discovering that Web-based procurement applications can lead to significant cost reductions from the time the order is placed, through the approvals process, to when the products and services are finally received.
Furthermore, self-service applications empower employees to independently initiate transactions that adhere to company business rules and pre-negotiated contracts. By implementing state-of-the-art workflow technology, requisitions and purchase orders are rapidly routed and approved, eliminating inefficient manual processes, often reducing the purchasing cycle by up to 50 per cent.
Take the example of the Credit Union of Central Alberta Ltd. (CUCA). The Calgary-based organization is transforming procurement and other administrative processes into the foundation of a sophisticated e-business strategy. CUCA's Calgary office is the centre for the province's 85 credit unions, and provides banking services and back-office applications; its principal financial role is to ensure the stability of member credit unions by maintaining liquidity at the provincial level and participating in a national liquidity pooling arrangement.
Internet-enabled software applications have given CUCA employees the ability to create budgets, record journal entries and create financial reports from their desktops by using a simple browser interface. Using these applications, users can analyse data and drill down for more specific information. Previously, these paper-based processes were cumbersome and time-consuming, and required hours of analytical work poring over reports. Now organizations like CUCA can employ Web-enabled applications so their employees can search for anomalies in expense categories, or to simply make material requisitions.
"Now that the information is available on-line, the organization can quickly check the accuracy of reports as soon as journal entries are entered," says Terrance Flanagan, assistant vice-president and controller for CUCA. "This makes it possible for us to catch errors earlier, and reconcile accounts more easily."
Success in the financial services sector continues to hinge upon timely access to information across the enterprise, Flanagan adds.
"Internal users have noticed a large improvement in the timeliness and accuracy of the data, especially now that they can prepare and upload their own budgets. It gives them more power and reduces their dependency on the accounting department.
"The system also provides users with first-hand information and timely feedback. As a result, departments can make necessary changes without having to redistribute reports, wait for feedback, and go through three or four repetitions of a given process."
While the advent of the Internet and Web-enabled software solutions has made it possible for organizations to uncover and exploit business opportunities more quickly than ever before, core business goals remain the same: manage performance and improve efficiencies of employees and operations, retain profitable customers, and expand markets. But technological advances that are having a profound impact on the way businesses function internally are enhancing their abilities to compete externally.
A large part of the battle to make key business information accessible to decision-makers who require it most is picking the right combination of hardware and software with which to deploy a business intelligence system. Many of these companies now provide their employees with access to Web-based training to bring them up to speed more quickly. And Internet technologies such as real-time chat and streaming video give students access to interactive forums without the constraints of time or geography.
Globalization and deregulation have played significant roles in the evolution of the financial services industry. The result has been the creation of global mega-organizations seeking to enhance their product offerings, gain access to new markets, and increase efficiencies. Internet-enabled business tools provide the underlying architecture to make this possible.
Carolyn Collett is Senior Marketing Manager, E-Business Suite, and Paul Smith is National Leader, Financial Services, for Oracle Corporation Canada Inc. in Mississauga, Ont.