Data warehousing – Extracting value from data

Data warehousing - Extracting value from data

Locking information into storage and forgetting about it will nothelp companies to secure competitive advantage, says Mark Johnson. Helooks at the ways to turn a cost centre into a profit generator.

One of the anomalies of the information age is the lack of true value being delivered by information itself. Organisations are discovering that, despite having huge reservoirs of data about customers, markets and trends, the information is still not helping them to secure competitive market advantage.

In fact, according to the latest information from KPMG, the largest organisations are actually losing market position to smaller companies, because their vast stores of data are organised so badly it is impossible to use it to their advantage.

The information store in many firms is typically inaccessible and filed in databases across incompatible computer systems, unsorted and incomplete.

The only way to turn this situation around is for companies to organise and manage the data in a data warehouse.

A number of IT vendors now offer full data warehouse management services, which include the extraction, cleansing, dating and migration of existing data into a warehouse solution. Experts predict that end-user companies will concentrate first on building “data marts”, subsets of information relevant to a group of users in a particular department. “These will act as pilots for greater deployment in other departments later on,” says one vendor.

The IT firms are also beginning to change the focus of their marketing strategies. Roger Gilheany, business development director at Cognos, says his firm is pitching its warehouse solutions to the business-minded people in companies, rather than the IT bosses.

Jim Bush, managing director at data warehouse vendor, VMark, says line managers in firms are becoming more computer literate. “Most now have PCs on their desks and have a good understanding of what they want the system to deliver to them,” he says. “And they know best what kind of data they want access to.”

With companies facing stiffer competition than ever, not just from their traditional rivals, but also from newer, leaner players entering the market – ironically, because technology is lowering the barriers to entry – there are compelling reasons for firms to have an effective information management strategy in place.

A new report from KPMG, called A Business Guide to Data Warehousing, gives examples of how some firms are successfully using data warehouses to deal with a range of business-threatening issues, such as defending market position against new entrants.

The aim of the report is to show companies that data management techniques, such as data warehousing, are key to future decision-making policies over customers, product lines and corporate growth. KPMG partner Paul Baker concludes that data warehousing is now “a board-level issue which cannot be ignored”.

The 10-page guide also attempts to explain the main reasons why the data warehouse has “come of age”.

The rise of the PC user in firms means that data is no longer based solely in a central management information system (MIS). And, as companies continue to evolve their IT infrastructures, incompatibility sets in, with historic data collection and processing systems unable to communicate with newer systems.

The report suggests that these factors result in “information chaos” which, in turn, reduces a company’s ability to capitalise on what it, theoretically, already knows about its customers and market segment.

Alex McMorland, data warehousing expert at KPMG, says companies are beginning to look for ways to transform information from being a cost centre into a profit generator. “Large companies, like BT, Unilever, Prudential, want to be able to put information on the books as an asset,” he says.

But despite the efforts of some firms towards investing in a data management strategy, the majority of companies have so far been reluctant to make a heavy commitment to data warehouse technology, which often comes near the bottom of the IT priority list.

A recent survey by Benchmark Research on behalf of software vendors, Cognos and VMark, found that cost and staff training were the main concerns of companies looking at data warehousing solutions. The survey noted that firms with data warehouses cited a lack of end-user training as the biggest issue, whereas those without a warehouse put cost at the top of the agenda.

However, cost and training alone are not responsible for the slow take-up of the technology. According to an IDC report on the financial impact of data warehousing, which was published in November 1995, the sluggish growth is due to the fact that computing has traditionally focused on automating clerical tasks. “The focus has been on improving process efficiency and collecting data,” the report says.

This has created a corporate IT culture in many firms, which needs to be re-appraised. Considering that most companies have their basic automation processes in place, the analysts say it is now time to take the information age to the next level. And that means coaxing firms out of the cultural rut of simply collecting and storing data, and into the habit of turning it into useful information and market intelligence.

While no one industry sector appears to have taken a great lead in applying data warehousing techniques, firms in the retail sector stand to gain most from the rapid deployment of a data management strategy. The explosion in loyalty card schemes among the supermarket chains means firms like Sainsbury’s and Tesco will be able to collect data on the product preferences, shopping habits and spending levels of each customer.

These firms are increasingly relying on data warehouse technology to generate profiles of their customers at an individual level, enabling them to develop tailor-made strategies for promotions, discounts and new product lines.

IDC figures put the average return on investment in a data warehouse solution at around 401 per cent over a period of three years. Financial services giant, Merrill Lynch managed a considerable 1,464 per cent Return on Investment (ROI) on a data warehouse it installed in its brokerage operation in New York. Built around a mid-range server with a single software product line, the warehouse enabled the company to compile reports on customer satisfaction levels and sales activities from existing data that was previously impossible to obtain.

Success stories, though, have had little impact on the wider business community. KPMG surveyed 84 firms to find out how far they had gone down the data warehousing route. Most firms admitted that the data they held in decision support areas was not being stored or accessed as efficiently as it should be. Yet those same firms also agreed that the main benefits to be gained from data warehouses were a greater competitive edge and improved quality of products and services.

Over the next 12 months, though, a growing band of IT firms will be placing greater emphasis on the need for an effective data warehousing strategy.

A spokeswoman for one IT firm said companies were beginning to realise that information was a powerless tool unless it was properly controlled and managed.

In January, computer services firm ICL joined the throng with the launch of ICL Warehouse International. The division was set up to help companies implement and integrate data warehousing solutions across their businesses, using existing IT infrastructures.

Tim Alexander, who heads up the division, believes the market for data warehousing is about to mushroom. And ICL’s move could prove very timely, as the market was valued by the Gartner Group at US$3bn in 1996, and this is expected to grow at a rate of 35 per cent per year over the next three years to become a $6bn market by 1996.

Alexander says many businesses tend to be put off by the cost and complexity of implementing their own systems. Warehouse International will offer a range of services from full on-site implementation projects to a managed service based at an ICL centre. The firm has already won orders from HM Customs & Excise and at least one major high street retailer for the Warehouse service, based on ICL’s Goldrush Megaserver massively parallel processing database platform. Alexander adds that the firm also offers a “taster” service. “This means that clients can see what it has to offer without making major investments in their systems and staffing.”

KPMG’s report claims that the first firms to harness the power of data warehouses will enable them to raise the barriers to entry in their market segment, making it more difficult for new players to muscle in. And the technology is reaching other parts of the IT universe.

Software and services vendor, Software AG, recently launched a service that links company data warehouses to the Internet, via the World Wide Web.

The opportunities provided by this kind of link are taking data warehouses into the next generation, according to KPMG. As the technologies continue to converge, companies leading the field will be able to establish data centres. These, says KPMG, will be driven by the company’s business people, rather than the IT department, thus placing control of the business back into the right hands.

Mark Johnson is a freelance journalist.

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