IT investment amongst banks has been almost all operational in nature and not about customer insight or management information for many years. It’s about time that banks start to see the value in collecting digital information on a business activity which can improve processes across organisations and put an end to the bad reputation banks have for Customer Service.
Original forms of management information systems
A management information system, often referred to as ‘MIS’ is associated with providing managers with the tools to organise, evaluate and manage departments through analysing past, present and predictive information about a business process.
Early management information systems would have been created around physical systems, often warehouses, where a variety of company products would be stored. The quantity of products would be subject to demand at a particular time as well as the replenishment of stock. Unlike today, the day to day operational running of the business was, strictly speaking, possible without the need for keeping records of the processes. However, in order to gauge how the company was performing or make effective decisions for the future, managers would need a set of historic, process related records to refer to and analyse to spot selling trends in their products.
Prior to computers, such management information systems were manually generated often in the form of lists and tables providing an inventory of all items in the warehouse and was updated frequently to record changes in processes. Although nowadays such recordings would be stored digitally, historically, these systems were manually generated and so took up a lot of physical space given the large amount of records that would be required for analysis. In addition to this, further disadvantages were that the accuracy of these records were subject to human error and all records could be entirely ruined by floods or fires.
A better way of recording the movement of stock, therefore, existed in the form of electronic inventories. These could however only happen with the existence of some form of digital footprint and therefore digital information about the business process was required and needed to be created.
Digital Footprints and management information
It’s important to understand the potential value in recording information on day to day processes within a business. Particularly for a data-centric business, such as a bank, recording information on various business processes can prove to be of great value to decision makers within the firm.
An example: A payments system
Although the electronic process behind a payments transaction from one bank account to another is intended to be a straight through process (fully automated and without the need for manual intervention), there is value in recording the information of failed payment transactions or, for instance, payments that weren’t processed on time. Recording such information can give management a clear indication of how effective the IT systems are in processing payments and highlight the need for improvements such as additional staff or updates to the IT systems.
The important aspect to consider here is that it is the digital information collected about the business processes and activities that enable the creation of management information. Management Information then, in turn, allows certain questions on the business processes to be answered.
Banks and MIS
Business processes within banks are carried out largely by IT systems and are usually fairly data centric. Referring back to the previously mentioned warehouse, in a physical system it is easy to see how the electronic MIS system would exist as a separate entity to the business process. However, in the digital world of banking, this distinction becomes less clear.
Operational systems tend to be transactional in their nature, the associated processes are generally repetitive, are expected to be always available and should never fail. These are essentially the core systems on which an operational business area’s processes are based and are where process related data can be sourced at its most atomic level.
However, operational systems within banks do not record historic data and instead, they are very much about carrying out specific processes and maintaining the current system status as a result of the completed process.
Systems that deal with the holding of the current bank balances for example generally do not store data on previous balances. They hold a person’s bank balance but as soon as a transaction on that account is made, the balance will be overwritten with a new balance, leaving no trace behind.
Management information systems work by extracting information from these operational systems and then transforming the extracted data into formats that are compatible with the intended MI system before finally loading them into databases.
A key component of an MI system is, therefore, the ETL (Extract, Transform, Load) layer. This is a concept (often computer programmes) which acts as the interface between operational and MIS systems. The management information database, commonly known as a data warehouse, would then be the system component which keeps the historical log of bank balances and other useful data over time.
Systems that contribute to the generation of management information generally sit separately from operational systems, generally for technical reasons – see below. These systems record the digital footprints created as a result of operational business processes and make the aggregated information available in a format that would be useful for analysis.
The need for standalone Operational and MI Systems
Having reliable and readily available operational systems is essential to the long-term running and growth of a bank and so as a result, IT architects within banks have realised the importance of keeping operational IT systems separate from management information IT systems.
Firstly, when considering the sheer volume of transactions that a bank processes over a given time period, it’s clear why it would be better to utilise a series of separate systems that are all optimised to perform their individual tasks. In addition to this, operational systems designed for processing single transactions repeatedly, accurately, reliably and continuously over long periods of time are generally bad at carrying out queries on the processed (e.g. payment) data simultaneously. If for example, as well as processing a large volume of payments throughout a day, a payments engine also had to produce information on those payments for analysis purposes, the system would generally be much slower and far less reliable at carrying out any one of its individual functions on an ongoing basis. Therefore, what banks tend to do is to have individual systems that exist to carry out individual functions. These systems then reliably carry out their individual processes but are all then connected to enable a large system made from a variety of system components to carry out a variety of functions reliably as a whole.
Within a company’s structure, the further up the ladder you go, the higher the need for management information will be as a result of the increased likely hood of making strategic decisions. For instance, within a bank, the teller who sits at the counter within a branch and hands out cash to account holders will only be taking on operational responsibilities and would, therefore, have no need for management information. However, the bank manager would want aggregate operational information on all cashiers within the bank to enable him to make strategic decisions for that branch going forward.
For banks, a grey area exists between Operational and Management Information, where MI type data exists which is used for more operational type purposes. Certain tools exist within banks that allows users to see lists of information in relation to certain business processes, for example, the investigation department’s lists of rejected payments so far that day. Someone would then go through these lists and action the relevant items. This process isn’t as transactional as the actual processing of each individual payment, but it certainly has a transactional element to it.
Operational MI can exist in the account information that a relationship manager would refer to when considering which banking products they may offer to a certain customer. For example, although a relationship manager wouldn’t be able to determine much about the banking needs of a customer by just looking at individual transactions on a company’s bank account, by looking at the pattern of the person’s bank balance over the course the last few months (via the operational MI that was made available), the relationship manager would be able to determine the trends in spending and bank balance for that customer and would then be in a position to make better informed recommendations on banking products for that company.
As you move from operational to management information, there is more of a time element involved. For example, operational MI is often created in a list format and would list a certain type of process data over the course over a recent period. However, management information is more associated with summarising various series of operational information and for this reason, often involves a greater formality of the time aspect; e.g. quarterly reports at specific period end points.
The concept of management information systems is more a senior management reflection of the business processes, so they store data about business processes in a variety of ways to facilitate the multiple ways in which management may want to ask questions about business processes (historical data, summarised aggregated data, period comparisons, geographic comparisons, product comparisons etc.).
Why do banks fail to invest in MIS?
There are several reasons why banks fail to invest in MIS which has contributed to a bad reputation as most of their investment over many years has been operational in nature and not about customer insight and management information.
One reason is that when operational process projects run out of time or money within banks, the priority then immediately becomes to start looking at the very minimum that needs to be done to ensure that the operational system goes live. Any extra steps to capture information for MIS purposes will, as a result, be made less of a priority and therefore skipped. Another reason that has contributed to the poor reputation of banks as regards to investing in management information systems is that the IT architects who build operational systems generally tend not to build management information systems, there is a clear distinction between the two skills. Finally, the business case for MIS systems is less tangible; automating an operational process can usually generate clear cost savings. The justification for better management information is much more of a leap of faith.
Although within banks where almost everything is a computer process the distinction does become less clear between operational systems and MIS, it’s important that banks begin to appreciate the value in recording digital information. Going forward banks should believe in the value of recording and capturing management information and then put in place the measures to ensure that the digital footprint capture systems are built in from the start. This means that alongside building the operational systems to take advantage of the value in recording digital information which can answer management questions and improve processes across the bank. Companies like Amazon and Google have done this from the very start of their business lives and now are reaping the benefits of being able to access rich information on their customers’ interactions. Banks have to catch up!!