24). Some of the more salient issues affecting the financial services industry today are described further in Table ____ below.
Table ____.
Examples of utilization of information technology in order to enhance efficiency and productivity by the financial services industry.
Area Impacted
Description of Impact
Credit card institutions store, retrieve, and analyze vast amounts of demographic customer information enabling them to more accurately target potential markets for new products and also identify less-attractive, credit-risk customers.
This allows them to reduce the amount of wasted resources in launching ineffective product campaigns and improperly estimated credit terms for high-risk customers.
Commercial and savings banks have continually promoted electronic banking services (paying bills online) and full-service automated teller machines, seeking to reduce the amount of fixed capital (size and number of branch buildings) and labor (less need for tellers) while expanding the scope of their banking operations.
Data warehouses with vast amounts of customer profile information along with data mining applications enable these institutions to devise new products that better accommodate the target market and, once again, identify and adjust for the presence of higher risk clients.
Investment banks have been able to take advantage of the global economy by expanding into emerging markets through the use of state-of-the-art information systems that more quickly and accurately clear security transactions.
These investment institutions then use data warehouses, query and report-writing software, and analytical information systems (IS) tools to more efficiently store global portfolios of securities, which allows them to estimate risk measures and, once again, identify higher risk counterparties in securities markets.
Brokerage firms have utilized it extensively by offering online trading and analytical tools for the customer, while booking systems enables them to facilitate a higher volume of market transactions.
Information technology has greatly transformed the brokerage business as automated trading systems have displaced labor. Automated trading has been prevalent on European futures exchanges for some time and has more recently proliferated into U.S. equities and foreign exchange markets.
Source: Diwan et al., 2002, p. 25.
According to these authors, "The trend in banking and finance has been the consolidation of organizations through merger and acquisition, forming such organizations as CitTravelers, JP Morgan-Chase, and Morgan Stanley-Dean Witter. Company leaders have continued to identify attractive synergies available from multifaceted organizations. The result has been great demand on it systems to facilitate data integration from diverse functional areas" (Diwan et al., 2002, p. 25).
Not surprisingly, then, many financial services companies today are in the awkward position of being required to reinvent themselves to remain competitive in an increasingly globalized and diversified environment. According to Divanna (2002), "The incumbent industry, banks, brokerages, insurance companies, fund management, and capital markets are now presented with a question: What is the value proposition for financial services organizations in the new connected business environment?" (p. 4). In fact, financial services companies are being confronted with an increasingly competitive marketplace wherein they must prioritize the management of customer relationships as a firm-wide imperative. For example, John (2003) reports that Dell Computer uses a "customer experience council" comprised of senior executives from each division or business line and major function that reports to a corporate vice chairman. According to this author, "The council oversees measurement of several aspects of customer behavior, including the effectiveness of its loyalty programs. Dell even measures all the costs its customers incur in purchasing and using their products, including such things as shopping, ordering, installing, operating, servicing, and disposing of products" (p. 160). Keeping track of these revenues and costs over the lifetime value of the customer allows companies to identify their brand-loyal customers and anticipate their future needs; these types of management practices will be able to deliver benefits to the heavy user to maximize their lifetime value (John, 2003).
The lifetime value of the customer must therefore be calculated for each individual customer; this assessment extends to revenues and costs over the lifetime of the customer's relationship with the company; the investment in acquiring and retaining a customer must be made based on the customer's lifetime value to the firm (John, 2003). Furthermore, an ongoing review of up-sell and cross-sell opportunities could increase the lifetime value of the customer because the potential customer equity from each segment or customer should serve to identify the extent of value-creating adjustments to be made in terms of delivery process or product outcome customization in terms of value or other benefits to the customer or in terms of adjusting the price and other costs to the customer (John, 2003).
Opportunities for Application and the Effective Management of the it Function.
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