1. Relate the bank's problems to its computer system.
The Kwangju Bank, in the year 1989, had forty four branches and approximately 1200 employees. The bank also had a reasonable deposit volume of 850 million dollars during that time. However, the performance of the bank was gradually declining due to various external and internal reasons. The year of 1989 was, in fact, the worst year, in the bank’s history. Not only the bank lost approximately 43.8 million dollars in a fraud related to foreign exchange, but it also faced a couple of a huge information technology related issue, which resulted in downtime of over 32 hours. These issues deteriorated the image of the bank, in the entire region and customers were filled with doubt regarding the bank’s ability to serve them well.
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It was apparent that the computer system of the bank was creating some issues for the bank; therefore, scrutiny of all operational processes and procedures was carried out to reach the root of the issue. The evaluation revealed that computer system and the overall Information technology infrastructure within the bank was the main source of trouble. Though the IT environment did not evolve in 1980s as rapidly as it did later, yet by the end of a decade of the bank’s information system’s acquisition and setup, it became outdated and failed to provide necessary support to the bank’s employees and top management, in order to carry out routine tasks and decision making. First major issue with the computer system was that it was centralized; hence, whenever there was an issue, all branches were not able to operate. Ideally, the acceptable downtime in a banking sector is 0.01% i.e. less than an hour, in the entire year. However, the Kwangju Bank’s computer system faced a downtime of a couple of hours every month, which was not acceptable according to the international banking standard. Whenever a bank’s server is down, customers of that bank are financially paralysed and are not able to carry out an activity. An occasional downtime is acceptable, but if it becomes a norm of every month, then customers prefer switching their bank, in search of a better service.
Secondly, in case there was an issue in any part/ component of the system, the entire system had to be switched off, which created a huge wastage of time of both employees as well as, customers. Apart from this, it created information loss, as well. Third, the bank was planning to expand aggressively, during the upcoming years; however, the computer system was not scalable enough, to be able to support the expansion. Hence, it was not possible for the bank to continue with the same system, in the future. Moreover, the computer system was capable of providing service for eight hours a day only whereas, the trend was changing globally and banks were making an effort to provide 24 hours service, 7 days a week. Inability of the Kwangju bank to provide round the clock service to its customers had kept the bank at a major disadvantage as compared to its regional competitors. All these computer system related issues had become a major problem for the bank to perform efficiently.
2. Relate the change in the computer system to the bank's reengineering.
After the appointment of the new chairman, Mr Song, the computer system within the Kwangju Bank was modified to a great extent. First of all, the bank’s system was downsized to make it more flexible than its previous state. From original 3,000 transaction processes, the system was downsized to 400 transaction processes. All unnecessary processes were cut down, and two hundred new processes were developed at the request of customers. In addition to this, the entire information technology architecture of the Kwangju bank was decentralized on a regional and local branch level so as to avoid the situation of centralized downtime. Now, authority was divided on regional and branch level for better performance. The major benefit of this approach was the capability of the top management to come up with new products and services for its customers. The development time of new products and services was much shorter as compared to earlier, which provided an edge to the bank over its competitors. Customers had increased options of financial services to choose from, which resulted in the attraction of new customers.
Secondly, with the change in the computer system the bank also managed to reengineer its processes and procedures. The customer service time increased considerably. Initially, it took almost 4 – 6 seconds for in processing a transaction of the customer; however, with new information systems, the process time decreased to 0.7 – 2 seconds. This meant that the processing time decreased by more than half, which was a major achievement for the bank. In addition to this, the bank was able to increase its service hours. With the old information system, the service time was normal eight hours a day; however, the new system allowed the bank to provide a 24 hour service, seven days a week to its customers. This was a great step towards meeting the international banking standards, which were highly essential for improving the image of the bank in eyes of potential customers.
Third process reengineering with the change in the information system was lesser dependence on vendors for service provision and support. Earlier, the bank had to rely considerably on its vendors for services during downtime. However, the new system, which was based on an open source technology, allowed easier modification of the current and adoption of the new technology. This factor was evident from the operational and maintenance expense of the bank on its information technology infrastructure. After the change in the computer system, the expense was cut down to nearly one – third. Finally, the bank was in a position to derive value from its information system.
Another major change was in employees’ responsibility and their head count. Earlier, the strength of information centre staff was approximately 120, which was later cut down to 60, in just a matter of months. This step was carried out because the decentralized information system required minimal support from the centre as a result a huge human resource cost was saved. The saving in the human resource and information technology maintenance cost was utilized in other functions like new product development and branch expansion, which was certainly a better use of funds.
4. What was the significance of global competition in the IT decisions?
Every organization, around the world, is constantly looking for new ways of achieving competitive advantage within the industry. From treating human resource as an asset to implementing a strong organizational culture where employees have an opportunity to creatively exhibit their talent and contribute positively towards the organizational success, various organizations have turned towards a new and unique strategy for staying ahead in the global competition. Similarly, one approach, which became increasingly popular in 1980s and 1990s, was the use of information technology for increasing the operational efficiency of an organization. Gradually, information systems became a common phenomenon in every organization. Along with finance, legal, marketing departments, the organization started forming an information technology department, which was responsible for managing the entire information technology architecture within the organization. The importance of information systems and its supporting components increased tremendously, over the years as organizations started deriving much required value from it.
First of all, this was the era when many companies decided to pursue an aggressive expansion strategy so as to provide service to a greater number of customers. However, in industries like banking and telecommunication, it became nearly impossible for organizations to expand without posing a threat to its critical information. From information like customers’ personal details to organization’s financial position, every piece of data was considered sensitive, and any bank could not risk losing it. Protecting sensitive data from hackers and intruders became a top priority and new technological advances provided a solution for this concern. Secondly, with the incoming of new IT systems, operational approach of organizations improved tremendously. Employees with the support of information systems could perform their job responsibilities more efficiently and effectively. Not only the productivity of organizations increased many folds, but employees got the opportunity to work remotely. In addition to this, process of decision making became much more sophisticated as top managers were in a position to make an informed decision after considering all possible factors and constraints. This was the major factor in providing competitive advantage to organizations.
Third major factor of information technology, which influenced the global competition significantly, was the ability of the organization to derive maximum value from its information systems for serving customers in a more comprehensive and effective manner. The information system allowed employees to better evaluate the need of a customer. In addition to this, organizations were able to determine whether the customer would be able to provide a positive value for the company, or not. This feature not only decreased the cost of acquiring a new customer, but also provided an opportunity to target right customers. Last but not the least, information technology allowed better monitoring and evaluation of the business goals and objectives. As businesses are growing in new areas, sometimes it is not possible for top managers to travel around cities for monitoring and evaluating the local business performance. However, the information system availability provides an opportunity to remotely carryout the function of monitoring and evaluation and provides exclusive feedback to local managers.
6. How is the new system supporting the decentralization of operations?
In the new information system, the client – server architecture was distributed region wise. The Kwangju bank had 112 branches, which were divided into seven regional centres. So, for every region, there was a network of approximately 15 – 20 branches. Each region had its own regional server, which served as a centre point. In addition to this, each branch also had its own server. The regional server, which was deployed in the central branch of the region, served as a master account manager and database. The regional server was responsible for processing various transactions and many online activities, which were carried out within the regional jurisdiction. So, basically the regional server performed the task of serving as a central database and an application server for the entire region. Each regional branch server consists of HP 9000/70 with main memory of 256 MB and two hard disks of six gigabyte each. The server was accompanied by an Oracle manufactured database management system (DBMS). So, each regional server had adequate features and capability to efficiently and effectively serve its local customers. In addition to this, the regional centre had two databases and multi-server architecture. The information storage and application setup was carried out equally across multiple databases and servers so as to increase the reliability to the regional centre server. Now, even in case of downtime of a particular server, only few services, which were setup at that particular server, will get stopped and the remaining services will continue to perform as required.
The branch server was responsible for managing all transactional related activities for customers of its branch only. Though the online banking facility was available, but it required the support of the regional server for the confirmation of the transaction. Apart from the regional and local servers, there was a main server as well, which was deployed at the headquarters of the bank. The main server provided backup functionality for all regional servers along with performing some common tasks for all regions like office automation, home banking, foreign exchange, commercial banking, and high level decision making for the top management.
The major benefit of deploying new system architecture was the decentralization of the operation. Now, the impact and support of a server was limited to a single branch or a region only. So, whenever any branch or even a region was facing downtime, its impact was limited to that branch and the region only. Earlier, the case was opposite because of the centralized architecture. A disrupt in a central server would influence all regions and branches. Another support of the new information system in decentralizing the operation was the option of scalability available to that branch. In some regions, the customer count was higher than other regions; therefore, those regions required better features and functionality as they had to provide service to a higher number of customers. The information system allowed modifying features at branch and regional level based on its requirement, in order to better serve customers. Furthermore, the decentralized information technology architecture avoided the issue of sacrificing speed and availability of service applications as physical resources were available close to employees and was scalable and modifiable as per the need of customers.
8. Identify cultural, economic, or political factors that are relevant to this case.
First of all, a major factor that influenced the decision making in the entire case was the economic aspect; investing in acquiring a new information system, or downsizing the older one required millions of dollars. The bank was already going through a financial crisis because of poor performance; hence, the top management only had limited resources to resolve the issue related to computer systems. According to the vendor quote, the upgrade of OLTP system required an investment of 11.3 million dollars. The bank had already spent more than 7 million dollars, a year back; therefore, it was a major concern for the bank. Moreover, the IT infrastructure environment was changing rapidly; hence, it would not have been feasible for the bank to invest heavily as sooner, or later, the situation of reinvestment would have occurred.
Second factor that affected the decision making process was the cultural pressure of the society as well as, the bank. From the top management to low level employees, majority of the staff was cynical regarding the downsizing of the information system within the bank. Resisting a change is a common phenomenon, in almost every organization of the world primarily because employees have to make an additional effort in their work. In addition to this, there is a possibility that the change might not produce a positive outcome for the organization; therefore, many employees prefer continuing their work with the same effort, in order to avoid dealing with uncertainty. Moreover, the process of downsizing the information system had failed in many organizations of western countries, which also added to worries of the top management. However, in this case, bringing change on a large scale was inevitable as the performance of the bank was declining; so many employees understood the importance of new processes and ultimately supported the new Chairman.
The Kwangju bank is located in one of the largest cities of South Korea and has a population of approximately 1.2 million. The population within the region was just around 0.75% of the entire country’s population; therefore, expanding the bank outside the city was important for it to be recognized as a major player within the regional banking sector. As the bank started expanding outside Kwangju, its customer base increased tremendously and also opened new doors of opportunities for the bank to exploit.
9. Did the business process reengineering have to accompany the new information systems development? Why or why not?
In any medium to large size organization, all operational processes and procedures are directly linked to its information system so as to provide necessary support to all employees including the top management for carrying out daily routine tasks and making high level decisions. The entire rationale behind, switching from manual processes to computer enabled automated procedures, was to increase the efficiency and effectiveness of the operation. The major benefit of investing in Information systems, which were used within organizations, was to reduce the time required in decision making and better serve customers. Many organizations invest in the information technology without formulating a strategy for it and end up changing their processes and procedures as per the new information system. However, the ideal approach should be to ask vendors to develop an information system, which is suitable to the current needs and requirements of the organization. Though slight modification within the processes and procedures would be required, but, not on a grand scale that might affect the overall operation. All operational processes and procedures used within the Kwangju Bank were linked to its old information system; therefore, whenever the information system faced a downtime, most operations were halted, as well. So, it was essential for the top management to introduce business process reengineering across the organization, in order to derive maximum value from the new information system.
An example from the Kwangju bank’s perspective is when the downsizing of the information system took place, out of three thousand original transaction processes only 400 were kept and almost 200 new transaction processes were developed. This required reengineering at the operational level because employees were performing operations based on these transactional processes. Apart from this, new processes that were developed were based on a new vision, which was set by the new Chairman of the board. Hence, it was crucial for the bank to have those operational capacity within the new information system so that the routine and decision making support was possible. Another example would be staffing of employees as per the change in information system. Earlier, there were more than 120 employees in the information technology department who were responsible for providing support to employees in case of system issue; however, with the change in the system architecture from centralized to decentralized, not only the quantity to employees in the IT department was reduced, but also their placement was changed from headquarter to individual regional level.
Both the above mentioned examples prove that it was necessary for the top management to introduce business process reengineering along with the change in the information system, so as to ensure maximum utilization of technology. Often managers fail to realize the information technology is there for the support of normal operations and decision making. If the necessary link between the organizational strategy and the information technology strategy is not developed, then it would be difficult for the organization to not only justify the investment in this department, but also derive any value from it. Various scholars and industry experts have come up with multiple frameworks for linking the strategy of the organization with the IT department.
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