Relevance of Knowledge management in Banking sector

1. 12/10/2013
REPORT ON
KNOWLEDGE
MANAGEMENT IN
BANKING SECTOR
ABHISHEK NAGRE
Abhisheknagre777@gmail.com

2. KNOWLEDGE MANAGEMENT IN BANKING SECTOR
Scope and relevance
The banking sector is always targeted to improve their customer satisfaction that will result in revenue
increasing. The process of Knowledge creation, storage and dispersion becomes essential and banks
assign specialized personnel to watch over and manage these critical processes. The most common fields
of knowledge management applications in a bank are risk management, marketing management, customer
relationship management and performance measurement especially for the benefit of its stakeholders.
Usually, in major banks investments in Knowledge Management systems such as Decision Support
Systems, Data Warehouses and Data Mining are rapidly growing. These days’ bank managers use
computerized support system as a personal support in decisions making. Knowledge Management System
in banks ensures better and more efficient results in decision making.
Banks and financial institutions rely on gathering, processing, analyzing and providing information in
order to meet the needs of their customers. Banks were among the early adopters of Information and
Communication Technologies. The visible benefits of ICT in day-to-day banking in India are quite visible
One of the key success factors of financial institutions (FIs) is the effective and efficient application and
deployment of information and knowledge systems in the areas of operations, management, accounting
and marketing. However, organizations must compete for their survival through continuous improvement
and innovation to gain competitive advantage. The monetary value of such investments makes it critical
for the FI’s to use the right information system and knowledge management system. Throughout the
world, FI’s are becoming more dependent on information system and technology. Information system has
dramatically changed the core of operations of business especially the banking institutions. The growth of
the knowledge management infrastructure has increased the competition among the banks which has led
to strategies for customer satisfaction and human resource management improving organizational
performance. Implementation of Core Banking Solution, ATM, Internet Banking, Mobile Banking, RTGS
(Real-time Gross Settlement), NEFT (National Electronic Fund Transfer) etc. have enabled Indian Banks
to manage increased transaction volume with large customer base in a very efficient, accurate manner
leading to high level of customer satisfaction.

3. Fast-changing technology, rising customers’ expectations and tough completion from private & foreign
players have led Banks in India to grow up in every aspects, including knowledge management, during
the last decade. Banks are trying their best to attract and retain the best talents in the industry. Just
attracting & retaining the best talents is not enough. Banks are implementing strategies to utilize these
talents in the very interest of the organization. For doing so, banks have implemented State-of-the-art
Infrastructures in their Banks. Banks have re-engineered/optimized various business processes. Banks
also try to effectively share/spread the knowledge throughout the Bank.
KNOWLEDGE ACQUISITION & CHALLENGES
Knowledge can be classified into three main categories

Explicit knowledge

Implicit knowledge

Tacit knowledge
Explicit knowledge can be transferred easily through books and reports so it’s a tangible form of
knowledge. In banks this knowledge. In banking sector this plays a major role due to the importance
given to publishing of reports and journals in order to maintain free flow of information and the
transparency every year many banks publish reports on the current trends and their future plans in order to
let the customers and investors know about their future plans to foster the relationship they share with
them.
Implicit knowledge is not explicitly captured, but can be simply reported explicitly in to papers such as
the working experience. These day banks are trying hard to make banking a pleasant, hassle free, easy and
customized offering in order to tap new markets and increase customer base. Banks no longer feel that
their service to limited to the regular cash deposition and other simple ones – banks have entered ingot
various part of the customer’s life through service innovations to help and make customer feel more
engaged and happy with its services.Banbking has become an experience more than mere service due to
the competition and the need to attract customers through new service innovations to be able to become
customer friendly.
Tacit knowledge is an intangible form of knowledge such as values and beliefs. For the organization the
tacit knowledge is the most important type so it is rarely recorded and transferred.

4. The processes of knowledge management in various Banks in India are almost similar. Most Banks adopt
some or all of the following measures for managing knowledge in their organization:

Orientation/Induction Training for new recruits- Banks conduct Orientation Programme or
Induction Programme for all the new recruits to apprise them of the history, culture, strengths etc.
of the Bank.

Training- Banks provide training to their Employees through Bank’s own Staff Training Colleges
(STCs), as well as through external training provided by premiere banking institutes like
Institutes for Research and Development in Banking Technology(IDRBT), Hyderabad, National
Institute of Bank Management (NIBM), Pune, Bankers’ Training College(BTC), Mumbai etc.
Mentoring-One senior executive (normally Chief Manager & above) acts as a mentor to a new
recruit for a specific period (normally one year). The mentor trains/grooms the new employee on
technical/business/functional knowledge/skills.

Brain storming session- Banks conduct brain-storming sessions on specific topics related to
various banking/business/customer service etc. among staff members from different departments
to generate new/innovative ideas to improve existing processes.

Review Meetings- Periodic Review Meetings (Quarterly/Monthly) are held in every
departments/branches/offices to review the business position/progress of the branch/department.
The minutes of the important Meetings are circulated to various employee groups of select
departments/executives.

Quality Circles/Professional Circles-Voluntary groups of 3 or 4 Employees form a Quality
Circle/Professional Circle & give Presentations to other Employees/Executives on a specific topic
normally to improve a process/quality or provide a new idea or concept.

Intranet/eLearning/Knowledge Portals- Banks implement Intranet/eLearning/Knowledge Portals,
which contain Bank’s internal circulars, policy documents, manuals etc.

Internal Magazines/News Letters-Banks publish (quarterly/monthly) magazines (usually on
Banking, IT, Risk management, Economic Research etc.) where respective department
contributes articles for the benefit of all employees.
Knowledge management is becoming very important in almost all Banks since it simplifies the delivery
of timely and effective information that are used in all the organization's processes from planning,
controlling, decision making and evaluation. It helps managers in formulating strategic, tactical and
operational activities in a best ways in order to achieve the organization's desired objectives.

5. Knowledge acquisition is captured by seven factor in banking sector

Valuing employees attitudes and opinions & Encouraging employees to up-skill, having a

Well-developed financial reporting system

Being market focused by actively obtaining Customer and industry information,

Being sensitive to information about changes in the Marketplace,

Employing and retaining a large number of people trained various fields

Working in partnership with international customers

Information from market surveys & researches
KNOWLEDGE MANAGEMENT PROCESS
The knowledge management processes are in the literature mentioned as the knowledge management
practices. KM practices are defined here as observable organizational activities that are related to
knowledge management. It is an interrelated set of various business processes developed in an
organization to create, store, transfer, and apply the knowledge. Knowledge management practices the
first stage is knowledge acquisition, knowledge creation, knowledge storage, knowledge distribution,
knowledge use, and knowledge maintaining
In modem banks there is no debate about the value of Knowledge Management as a business practice.
Banks, insurance companies and all other players in the competitive financial service sector have
recognized that knowledge is power. But the question is, how they leverage that knowledge more
effectively. The knowledge, in this sense, covers the range from the bank organization’s own internal

6. intellectual capital, to the wealth of data heel on any customer's transaction. However, the overall aim of
the banking sector is to enhance their customer satisfaction and increase revenue as a result. One would
have thought that this form of Knowledge Management was something that financial services companies
were skilled in because of the service-based nature of their business. But this does not appear to be the
case. Few banks or brokerages take knowledge management seriously, while greater number of industrial
companies do. Cross and Weller (2001) say that insurers have been more receptive to the benefits of
knowledge management than the banking sector.
The survey, conducted among top two hundred banks and one hundred insurance companies across
Europe, found that while thirty percent of the overall respondents were not considering implementing a
knowledge management programme- their number included only one insurer. Despite this, they warned
that two thirds of European Banks are failing to exploit their intellectual capital effectively by not having
a knowledge management strategy in Place. In fact, skill at knowledge management has become a critical
competency for banking sector survival in the 2lst centaury. Whether or not a bank has formally
recognized the importance of knowledge management by creating their internal environment. The fact is
that every organization needs a person or persons to watch over and manage the creation, storage and
dispersion of knowledge
CHALLENGES AND PRACTICES
How can banks achieve good knowledge management practices?
Usually, information builds on data and knowledge, knowledge builds on both data and information and
Knowledge Management includes all these three elements. It does not focus only on databases or
information technology, although it may use both. Its concern is with managing its knowledge assets:
creating, storing, and protecting, disseminating and using mission-critical knowledge. When people need
knowledge, is it the right knowledge and is it timely and easy to locate and access is the question needed
to be answered.
A study has suggested applications of the Knowledge management model made by Michael Earl. She
argues that the approach introduced by Earl can be useful to represent knowledge management
components such as Knowledge systems, Networks, Knowledge workers and Learning organizations in
the banking sector. She pointed out that a bank as a whole have must of these four key components, but
each, institution highlights a different combination of them.

7. The hard indicators such as IT infrastructure, databases, and software applications are usually well
developed because banks are heavily dependent on IT and cannot survive without it. On the other hand,
the soft ones i.e., human resource development, promotion of cross-functional learning culture,
cultivation of skills are often scattered or lacking. In addition she has pointed out that in banks there is no
debate about the value of Knowledge Management as a business practice.
Nevertheless, the current situation shows the banks are beginning to recognize the relevance of
knowledge Management as a competitive differentiator and professional core Competencies. The most
common fields of knowledge management applications in a Bank are

Risk management

Marketing management,

Customer relationship management

Performance measurement
Especially for the benefit of its stakeholders. Usually, in major banks investments in Knowledge
Management systems such as Decision Support Systems, Data Warehouses and Data Mining
Are rapidly growing. It is a first attempt to capture and share information (even if this knowledge is closer
to the explicit kind than the tacit), creating an environment, which promotes the transfer of knowledge.
Also Bank’s core competencies are beginning to be considered a valuable asset. In the banking sector, it
is especially emphasized that Customer Relationship Management (CRM), which includes marketing and
Presentation components is essentially about Knowledge Management (In order to sort out and track
relationships overtime and through transactions, it is necessary to focus on two things. Banks have great
deal of knowledge about their customers but they have a great difficulty in putting that knowledge to
Practical use in all encounters with an individual customer In Knowledge Management systems, the large
amount of instructed Information that exists in banks may be useful when put into specific Contexts.
Neural Network Technology can be used to identic patterns in Consumer behavior that can help banks to
exploit cross-selling to other Needed services additionally, this type of technology in Knowledge
Management systems will allow for tacit knowledge of employees to become explicit so faster decisions
can be made, and more innovative products and services can reach markets more quickly. Although there
are many Knowledge Management activities in the banking sector, the Knowledge Management
Magazine (2001) says

8. " You cannot use Knowledge Management techniques to improve customer service and boost
the bottom line until you can share that knowledge effectively and efficiently ".
In Accounting and Finance, knowledge can be categorized as an intangible asset but organizations
downplay the importance of their intangible assets. Highly competitive business organizations have found
out that many types of sources (tangible and intangible), are needed to gain a competitive edge in order to
maintain competition and superiority in the marketplace. This is shown by an increasing number of firms
which give more emphasis to their intangible assets. Managing this type of asset (knowledge) through
organizing, creating, sharing, and acquisition between employees, such an organization will enhance its
existence in the marketplace and probably maintain progress in its banking operations. Therefore for this
paper KM supports the creation of knowledge as an essential basis for a quality of operations in the
banking industry.
No universal definition for KM or knowledge exists. For the purpose of understanding the following
definition of KM is appropriate: Knowledge management is the planning, organizing, motivating and
controlling of people, processes and systematic in the organization to ensure that its knowledge-related
assets are continuously improved and effectively employed. What is important in this definition is that
KM involves knowledge creation, refinement, sharing, acquisition, and utilization. Thus the KM function
is the organization that facilitates these processes, and the development of a system that motives
employees to participate
CODIFICATION IN BANKS
Banks experience in Knowledge management
Maryam have studied the KM practices and experiences of Indian and Iran banks. Their study shows that
informal training is the main source of communication for sharing knowledge. Working on the other
aspects such as IT systems, for the ease of strong and sharing experiences or lesson learned are useful.
The study elaborates on capturing knowledge from industrial resources in three investigated banks, such
as industrial associations, competitors, clients and suppliers. It showed that banks adopt themselves with
the changing environment and can be more proactive than reactive .Today competitive benefits of
strategic attempts along with knowledge management have relatively been recognized among all
industries across the world. Research results give firm evidences and documents about this point that
organizational culture has a positive relation with knowledge management and organizational benefits

9. programs Dr.chatdzigol Proposed an approach for integrating a system that utilizes decision support and
KM to enhance the quality of the support provided to decision makers in a bank’s loan department is
presented. Some of the benefits of this new system include enhanced quality of support provided to bank
managers in real time decision-making and KM functions
Furthermore, banking technologies contribute great benefits not only to banks themselves but also to
their customers (e.g., convenience, security, improvements, better access to information, and an
alternative to cash). Thus, new models which include all the factors mentioned in the above statements
will provide more benefits and conveniences to banks and their customers. The value of knowledge on
bank’s customers and products can erode over time. Since knowledge can get stale fast, the content in a
knowledge management programme should be constantly updated, amended and deleted using results
from regular survey of customers and Customer Satisfaction Index. Therefore, there is no endpoint to a
knowledge management program. Like product development, knowledge management is a constantly
evolving business practice which reflects the needs of banks’ customers.
True enterprise-wide KM solution cannot exist without a BI-based meta-data repository. In fact, a
metadata repository is the backbone of a KM solution. That is, the BI meta-data repository implements a
technical solution that gathers, retains, analyses, and disseminates corporate ‘‘knowledge’’ to generate a
competitive advantage in the market, the intellectual capital (data, information and knowledge) is both
technical and business-related. Techniques of knowledge discovery such as on line analytical processing
and data mining, though they support the management of explicit knowledge, help in mastering the
hidden knowledge of the individual in the decision making process. The decision making system can be
observed as decision making based on rules and decision making based on skills and knowledge
INTEGRATION OF BI AND KM
Studies show that IT executives believe business managers do not understand what data they need and
business managers reflect their belief that IT executives lack the business acumen to make meaningful
data available. There is no easy solution to this problem; the beginning of the solution is for business
managers and IT managers to pledge to work together on this question(Davenport and Harris, 2007).One
of the factors for BI success is team work and business-IT alignment, and is necessary to support adoption
and use of BI. Second involves implementation success outcomes when democratization or universal user
adoption of BI has been achieved. In past studies measuring BI success, only a small portion of users had
access to BI capabilities, successful outcomes can be realized while extending BI benefits to all users.
BI/MIS converts data into information, and then into knowledge that finally meets the needs of users of
the system.

10. ICICI BANK AS AN EXAMPLE
In India, ICICI Bank's data warehousing capability is powered by Sybase IQ's unique column-based
architecture, developed specifically for analytics and business intelligence. The foundation for ICICI
Bank’s wide-ranging CRM programs is a Sybase IQ-based data warehouse (The Bank initially used
Teradata as its data warehouse platform and migrated to Sybase IQ a year ago.). The first iteration of the
warehouse in 2000 generated a wealth of insights that enabled the bank to build customer intimacy,
reduce churn, and offer cross-sell and up sell promotions.
ICICI Bank deployed Power Center in 2003 as it embarked on the next phase of its warehouse, which
would add data from five new sources, in addition to the initial three sources of retail banking, credit
cards, and securities information. Power Center’s easy-to-use drag-and-drop interface, native connectivity
to a wide range of data sources, and standards-based architecture have helped ICICI Bank’s internal IT
personnel rapidly develop expertise in Informatics-based data integration .KM portal named ‘Wiseguy’ at
ICICI India began on an experimental basis and carried on expanding and exploring, widening its ambit
of operations. To develop ‘WiseGuy’, a team was put together encompassing KM, HR, technology and
research with a brief to ‘just do it’. Indeed they did and a beta version was ready within just three months.
The requirement of relatively young age group of employees to achieve an understanding of the working
culture and support provided by the top management had led to the progress of the concept of Knowledge
Management
To a large extent, it is seen that the benefits of implementing ‘Wiseguy’ fulfils the needs of the technical
and professional workforce by giving them a platform for airing their views, contributing as well as
upgrading their expertise. It has also achieved in being a learning organization. KM at ICICI Bank was
started in a non-dictatorial manner and its use is voluntary, but a programme of this nature cannot be
expected to continue on momentum

11. In order to be successful in today’s dynamic business environment, ICICI has to continually improve and
upgrade its BI system. Employees require information at all levels of the organization for ongoing
decision making processes. Integration of BI and KM (Figure) increases the usage of the knowledge
generated through BI system. This allows top management to understand the end-users perception and
make further changes in BI system, if required. Though KM was started with the initiative taken by young
age group employees with top management support, later the middle level employees also realized the
benefits of KM and started using it. It may face problems in future as it is not getting upgraded in
strategic manner. They need to have a meta-data repository, which supports to maintain KM repository in
a systematic way and helps users to find the required information in an effective manner.
TECHNOLOGY SRTATEGY FOR KM
The Bank’s products and services are becoming more information intensive. In addition, the Bank
generates wealth of knowledge every year through its operations across the continent. However, this is
not systematically captured, codified, or disseminated. Nor is it sufficiently valued and consumed by the
Bank for its own operations. This ITS aims to leverage web technology to consolidate data, information
and knowledge resources on a platform that will enable the Bank to synthesize the research and
knowledge into policy and advice for the RMCs. The creation of web portals and implementation of
collaboration tools will enhance information sharing and team productivity.
Banks can use technology to improve their performance and they can get the sustainable competitive
advantage. According to our study, we can conclude that proper integration of BI & KM can help bank to
get wide benefits. It includes historical context, not just a shallow examination of what is apparent and
easily accessible. Instead of nuggets or pockets of information from corporate databases, it provides a true
360º view of attitudes and behaviors’, combines structured and unstructured data, meshes solicited and
unsolicited feedback, and keeps a real-time pulse on business.Banks will be able to manage explicit
information and thereby transform the information to knowledge which in turn can help bank in making
better decisions and lead them to be in a better position in contemporary business competitive
environment. This integration will not only facilitate the capturing and coding of knowledge but also
enhances the retrieval and sharing of knowledge across the bank to gain strategic advantage and sustain in
competitive market.

12. KM enabling technologies
The leading Banks are focusing on connecting people to reusable codified knowledge, while the others
with more of a personalization strategy are less dependent on IT. In fact 50% of
the banks use both Database Management System and Information Retrieval Engines while the Grade A
banks are the only ones to use such technologies as Management Information System, Decision Support
System, Data Warehousing and Expert System. None of the banks used Desktop Video Conferencing
E- mails, telephones and Intranet were among the most commonly used technologies to connect people.
50% or fewer respondents used mobiles phones, laptops and Extranet but these facilities were mainly
provided to the top management team.
It was the three leading banks that largely provided these facilities. In addition, there was no on-line
forum or groupware where the employees could share views and opinions. Therefore, it can be inferred
that, apart from the leading banks, IT is not supporting socialization for knowledge creation purposes. It is
only the leading bank that used a company portal to facilitate access and availability of information to all
employees. It was mainly the leading banks that could easily encode the information they possess to
determine its relationship with rules and conditions. Thus, they are well ahead on using IT for
contextualization purposes. So it can be inferred that the Grade banks are the ones using IT to fulfill the
three main functions of connect, create and collaborate, and contextualize in support of KM
Some tools used are …
ETL Process: ETL packages extract data from internal and external sources, eliminate data error and
redundancies, and provide tailor data for access and analysis and load to DW. An important part of this
process is data cleansing where variations in data schemas and data values from disparate transactional
systems are resolved.
Data Mining: Data mining tools for determining patterns, generalizations, regularities and rules in data
resources
DW (Data warehouse): Collects relevant data into a repository, where it is organized and validated so it
can serve decision-making objectives. The various stores of the business data are extracted, transformed
and loaded from the transactional systems into the data warehouse.
OLAP (online analytical process): Depending on the organizations requirement one or more data cubes
will be created. Each OLAP database contains specific number of cubes and dimensions. OLAP is a

13. multidimensional model can then be created which supports flexible drill down and roll-up analyses (rollup analyses create progressively higher-level subtotals, moving from right to left through the list of
grouping columns. Finally, it creates a grand total).