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Published: July 1, 1996

 
 

Along the Infobahn: Data Warehouses

Databases have long helped managers operate their businesses. Now, more companies are using a special kind for analytical tasks. The payoff can be enormous: everything from transformed business models and stronger customer relationships to new sources of revenue.

The data warehouse is now coming into its own as a management system driving major changes in business practices. What sets a data warehouse apart from other databases is that the information it contains is not used for operational purposes, but for analytical tasks - everything from identifying new market segments to corporate brainstorming. Its adoption has been spurred by the use of standardized hardware and software, putting the average cost below $3 million and, from its earliest applications in the consumer packaged goods and retail industries, it is now spreading into telecommunications, banking and other rapidly-changing business sectors.

As author Lawrence Fisher explains, companies are finding myriad uses for the data warehouse. Some use it to build relationships with their most important customers, by aggregating information about individual and group buying patterns. Some use it to rationalize inventory and supply, to the extent of driving production cycles at their key suppliers. Still others have discovered that the timely access to complex data can be a new business in itself.

However, running a data warehouse is neither a simple nor a predictable proposition, Mr. Fisher points out, and deploying it in the first place is rarely quick or easy. Few installations take less than six months, and many take two years or more. Another problematical area is over the type of database management program to use - a product designed specifically for the purpose or a standard relational database system. And potentially more difficult than the technological decisions are the political and cultural issues raised by warehousing. Harnessing the power of warehouses to make them truly strategic tools will require time and internal change, but most companies are finding the effort worthwhile.

When market needs and technological progress converge, they drive major changes in business practices. In the past two years, the adoption of data warehouses has helped many companies respond to an ever-shifting competitive landscape. In some cases, the effect has been quite dramatic, resulting in the wholesale transformation of business models or even the creation of entirely new enterprises.

Simply put, a data warehouse is just another database. What sets it apart is that the information it contains is not used for operational purposes, but rather for analytical tasks -- everything from identifying new market segments to corporate brainstorming. It is not a new device; the first decision-support systems, as they were then known, appeared in the early 1970's. But those systems were fiercely expensive, difficult to use and narrowly deployed. And most industries were more stable then, leaving companies with little incentive to pour resources into a system whose main purpose was to improve understanding.

There is plenty of incentive now. Deregulation, consolidation and the relentless globalization of competition have combined to put intense pressure on managers to better understand their businesses and their customers. At the same time, sweeping technological advances have reduced the cost of implementing a data warehouse to a tenth or less of the expense of the old days, while vastly increasing its ease of use.

For those reasons, most large companies have installed data warehouses, or are in the process of doing so. And even though the transformative power of this management tool has only begun to be felt, companies that have taken an aggressive approach to developing its potential are finding plenty of ways to make the warehouse pay off. Some use it to build relationships with their most important customers, by aggregating information about individual and group buying patterns. Some use it to rationalize inventory and supply, to the extent of driving production cycles at their key suppliers. Still others have discovered that the timely access to complex data can be a new business in itself.

 
 
 
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