Enabling World-Class Decisions for Banks and Credit Unions: Making Dollars and Sense of Your Data

Copyright © 2017 Michael Applegate, Corey Barak, Daniel Havey, Hadrian Knotz and Nils Rasmussen.

All rights reserved. No part of this book may be reproduced, stored, or transmitted by any means—whether auditory, graphic, mechanical, or electronic—without written permission of the author, except in the case of brief excerpts used in critical articles and reviews. Unauthorized reproduction of any part of this work is illegal and is punishable by law.

ISBN: 978-1-4834-7751-0 (sc)

ISBN: 978-1-4834-7752-7 (e)

Library of Congress Control Number: 2017918515

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Lulu Publishing Services rev. date: 12/6/2017

How this book is organized

To maximize the value and clarity of the book, the authors have organized the chapters the following way:

• Why it is important to consider business intelligence solutions to enable world-class decision-making: Chapters 1, 2, 3 and 4

• How to best prepare the decision-making processes: Chapter 5 and 6

• What to consider when deploying a business intelligence platform Chapters 7 and 8

A Note on the Use of Terminology in this Book:

This book focuses on processes and technologies related to planning, reporting and analysis. Analyst firms and industry experts use various terms and related abbreviations, including business intelligence (BI), corporate performance management (CPM), enterprise performance management (EPM), analytics, and more. For simplicity’s sake, the authors will, for the most part, use the terms business intelligence and corporate performance management.

For your convenience, we have also included a glossary at the end of this book.

Chapter 1

Introduction

The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim.

The Art of War, General Sun Tzu

The purpose of this book is to provide executives with a non-technical guide to help them understand the benefits and capabilities of modern business-intelligence (BI) suites and to assist them in the analysis their own financial institution’s current versus ideal-state capabilities to support optimal decision-making. By the time you have finished reading this book, you will be an executive-level expert on this topic so you can help lead your management and project teams to select and deploy a business-intelligence platform that will have a significant material impact on the performance of your business.

In other words, this book discusses optimizing your financial institution’s ability to make fast and good decisions by implementing a complete decision-support platform. Before we go into more detail, let us establish what world-class decision-making can potentially do for the success of your company, and then we will look at how to use BI technology as a major enabler to achieve this goal.

Here are some of the key findings from a survey published by McKinsey & Company. They received 2,327 responses from executives across the world and across all major industries. Companies who responded to the survey reported making decisions related to

• Product, service, or geographic expansion

• General organizational changes

• Investment in current products, services, or geographic areas

• New infrastructures

• Mergers and acquisitions

• Maintaining the current infrastructure

The same survey also asked respondents about the various discussions that were key to their decision-making processes. One of these topics was the issue of who would participate in the decision-making process. Including workers based on their skills and experiences was believed to increase the likelihood of a positive outcome. According to the survey, when experienced employees were involved in a decision, revenue increases exceeded expectations by 59%; profitability exceeded expectations by 61%; and speed of completion exceeded expectations by 63%. But because of factors such as promotions, turnover, retirement, and lack of well-organized IT systems of record, expertise is often lost and not available to new or less-experienced decision-makers.

Additionally, when the decision-making process was transparent to all participants, positive results were seen. Transparency resulted in revenue increases that exceeded expectations by 58%; profitability exceeded expectations by 57%; and speed of completion exceeded expectations by 54%.

McKinsey & Company. 2009. McKinsey Quarterly. How Companies Make Good Decisions: McKinsey Global Survey Results.

McKinsey & Company. 2009. McKinsey Quarterly. How Companies Make Good Decisions: McKinsey Global Survey Results.

The results from the survey indicate that transparency, alignment with corporate strategy and including key employees all help drive the success of the decision-making process. In other words, because of the significant direct impact on the company’s bottom line, apart from the actual designing of a high-quality decision-making process that includes thorough analysis, collaborative discussion and strategic planning, top management should encourage and support the implementation of modern technology to support and enable such critical processes.

So, the goal of this book is to discuss how technology can be used as a key enabler of world-class decision-making across your organization. Instead of implementing a complete, integrated business-intelligence (BI) solution, most banks and credit unions have until now lacked a cohesive BI strategy and they are still being reactive to their decision-makers’ pursuit of more and better information by just adding a dashboard tool or replacing a report writer. Some try to attack the problem at the transaction level by attempting to build a home-grown enterprise data warehouse or by implementing a budgeting and forecasting point solution and hoping to achieve some incremental benefits. While it is completely fine to replace a specific BI tool, like exchanging an older live ERP report writer with a new one to best serve a small group of users such as the accounting team, you need to think bigger if you aspire to enable world-class decision-making. The reasons are many, as the book will cover in detail, and the return on investment (ROI) can be high by implementing a complete planning, reporting and analysis platform that can serve organization-wide managers and information workers with the key information they need for better decisions. Every organization that wants to be competitive will have this type of platform in the future, and some are already on their way. It is not implemented overnight because a successful solution requires good internal processes as well as reasonably clean transaction data, and of course it requires a highly flexible and user-friendly business-intelligence solution to bring it all together.

Instead of several on premise and cloud BI tools being implemented separately based on how the platform is offered by each vendor, the optimal solution should be integrated and offered in the configuration that is best for you both now and in the future. If that means being completely cloud-based or all on premise or in a hybrid configuration, then the solution should let you do it that way today. Later, without replacing the tool, it should also let you migrate to a new configuration, for example all in the cloud if that is the direction your company is going.

Piecemeal replacement of different BI software compared to implementing a complete, integrated decision-making platform is analogous to space, automotive and solar entrepreneur Elon Musk’s strategy to deliver a world-class product: He has built—and largely taken control over—an integrated supply chain. First, he collects renewable energy through solar panels, then stores it in batteries and uses it to propel vehicles, and then enables automated driving through autonomous technology to make it as easy and safe as possible to get from point A to point B. A complete decision-making platform should do the same: repeatedly pull data (like solar cells collect energy), store it (like a battery stores energy) and use it for better decisions to get the company from where it is today to where it needs to be in the future (like autonomous driving from point A to point B). If all of Musk’s components listed above came from different vendors, with different, not perfectly compatible interfaces, Tesla would likely not have a car business as successful as it is today. With its ability to quickly adapt to changes in technology and consumer demand, the result is that Tesla, despite its size and tenure compared to much larger car manufacturers, often is voted number one by consumers and experts.

A very successful CEO and founder of a large company that the authors of this book interviewed had tried many market-leading dashboard and reporting tools in his career, and none of them had given him the complete decision-making platform he was looking for. He first expressed the business intelligence issues he faced, and all of them are echoed by hundreds of other executives we have spoken with in recent years. He then explained his vision of the ideal solution to his issues. In summary, these were the problems he faced:

1) Lack of one version of the truth when discussing performance.

2) Lack of accountability because management commentary was not tracked along with their reports.

3) Analysis paralysis – too many reports, too many versions and too many reporting tools.

4) Lack of core exception reports that immediately is sent to managers when there is an issue.

5) Lack of agile, strategically focused, centrally controlled, top-down, bottom-up budget process.

Let’s look at these issues one at a time and then discuss the ideal solution that the CEO was looking for to solve these problems:

Issue 1: Information is spread across multiple transaction systems, and different reporting tools provide different answers. Locally designed reports don’t match numbers from the reports that the executives at corporate HQ are looking at. This leads to a lot of wasted time discussing which numbers are correct and how they are derived. When making decisions, managers need access to both financial and operational data, and they need it in one place with the same definition of KPIs and metrics so they have one version of the truth.

Solution: Implement a central data warehouse that can house all key data required for reporting, analysis and budgeting. This data warehouse should be able to combine data from the ERP system(s) as well as data from the financial institution’s other data sources, such as the customer relationship management (CRM) system, payroll system, etc. One of the reasons that Microsoft Excel is still the world’s most popular report writer is that almost every transaction-based business software a company owns comes with one or more reporting technologies, many of them rather sub-par, as BI is not the core business of most software vendors, making it almost impossible for a company to deliver a single, automated decision-support platform to its users. So, just like no house builder would build the different rooms (aka different reporting, budgeting and dashboard options) of a house first, and then later attempt to build the house foundation (aka the data warehouse), a company should plan for a data warehouse to contain all important data for the BI solution that will be implemented on top of it later.

With the strong emergence of the cloud for various software-as-a-service offerings, an increasing number of banks and credit unions actually find it harder than before to provide a single BI solution to their users because now their data is spread across databases located in-house as well as in the cloud, or databases are located in different clouds such as private clouds, Microsoft Azure and Amazon Web Services. Many such systems have their own application programming interfaces (APIs) for pulling out data to collect it in your data warehouse. So, now more than ever, the integration tool (ETL) itself becomes a critical part of any successful data warehouse. More about this in Chapter 7 and Appendix 2.

Of course, a well-built, easy-to-maintain data warehouse is just a means to an end. What should come next is to