Information Technology Infrastructure Investment: Dubai Islamic Bank - Case Study Example

Contents Contents Introduction 2 Dubai Islamic Bank and the tryst with IT 7 The market demand for the services of Dubai Islamic Bank 7 TheIT Assessment of the Dubai Islamic Bank 10 Recommendations 10 Conclusion 11 References 12 Bibliography 12 Introduction The government of United Arab Emirates has given great importance to the growth of the private sector of the country’s economy in order to attain economic growth and attain levels of full employment. Several government policies have been taken up involving the encouragement to the local investors to put their money into productive use as well as invite foreign investment into the country in its bid to become a modern nation – and reduce its dependence on oil. The most important features of the new outlook in the policy decisions of the country involves the setting up of excellent business support services and industrial facilities, the effective riddance of red tapism and the stream lining of the administrative services, and up gradation to friendlier commercial law structures. The political stability in this parts of the world along with the tax incentives that are on offer make it a prime location for business activity. The Payment Gateway Server (PSG), an internet based central financial forwarding and clearance facility is on the pipeline – a part of the steps the government has taken to ensure that the business community in UAE remains at par with the rest of the world (Business Environment, n.d.). The banking sector is seeing a boom in the financial serves sector in UAE. Banks in this country are classified under two categories – Locally Incorporated banks, public shareholding companies which are licensed under the provisions of the Union law of the country, and Foreign banks, which have received licenses from the central bank. The country also has several investment banks (Commercial and Investment Banks, n.d.). The Dubai Islamic Bank was established in 1975 as a full fledged Islamic bank. Islamic banking is one of the fastest growing sectors in the world economy, with 200 global organizations which account for over 200 billion dollars value in assets (YOUR GATEWAY TO BETTER BANKING, n.d.). The company projects itself as a customer centric organization and has pioneered new age banking in UAE. Several innovative features like the ‘Al Islami On-line Banking’ facility appear in the bundle of benefits that the company extends to its customers. The bank has 54 branches all over the UAE and offers services under different heads like * Retail Banking * Private Banking * Johara Banking * Business Banking * Corporate Banking * Investment Banking * Real Estate finance * Sharia Board The organization is structured around the central management of the bank. The board of members is headed by H.E. Mohammed Ebrahim Al Shaibani, who is the chairman of the bank. H.H. Khaled Bin Zayed S. Al Nehayan is the vice – chairman. The different business heads operate under able management of senior managers. Banking in UAE is highly competitive given the capital intensive nature of the business that organisations operated in this country. This calls for efficiency in data storage and transmission along with superior data warehousing capabilities. In order to understand the competitive position of Dubai Islamic Bank, Porters five force model can be used. No business works in isolation or vacuum rather it works in an environment, so competition is unavoidable and every business needs to incorporate the actions of the competition as a part of their business strategy. The business environment of a business is dominated by the organisation’s - Supplier Buyer/ customers New entrants Substitutes and Competitors. 1) Supplier: The role of supplier of inputs assumes great importance, as cheap and regular supply of raw materials is a prime requirement of a successful business. Any uncertainty regarding raw material supply would force the company to maintain high inventories which increases the financial burden. Also it is very risky to depend upon a single supplier, as any problem with the supplier would cause loss of production. Multiple sources of supply reduce such risks. The suppliers are powerful if suppliers are concentrated, or if the cost of switching is more. For a service oriented company like the Dubai Islamic Bank, customers form the supply field – retail customers who transact with the bank. This forms the firms’ base or the main proponent of the firms lending ability. The Dubai Islamic Bank’s retail banking division is the main stay of the business of the bank. The bank has an extensive network of branches and ATM’s in the UAE, and uses newer modes like the internet, mobile phone and telephone banking to get close to the customers. The bank has devised its product portfolio in a manner that allows it to cater to an individuals needs during his entire life span – educational loans, vehicle loans, financing for overseas travel and setting up individual businesses. 2) Buyers/ customers: A business thrives on customers, so they are, most often, the most important factor in the environment. Monitoring customer sensitivity and his pattern of choice is a pre-requisite for the business success. Even buyers/customers can have a lot of bargaining power and can exercise them quite effectively. Buyers also in some cases are very price sensitive, or if enough competition is there and substitutes can be found out easily. Bargaining power of buyer increases if the buyers are concentrated that is there are a few buyers but they buy significantly or if the products are standardised or when buyers can threaten to buy from the competitors. Dubai International Bank offers discerning services for the clients. The bank offers services at competive rates, and helps the business clients with fast decisions and speedy implementation of schemes. The bank also offers tailor made solutions for the business community according to the needs of the businesses in which the client operates. The product portfolio of Dubai International Bank contains services like Business Accounts and Small business finance which are targeted towards the business community. 3) New entrants: The proportion of threat that new competitors pose on the businesses of an organisation is dependant on the entry barriers pertaining to the particular industry. If the new entrant is a well established firm then the threat posed by them will be more intense. The government regulations in the UAE are conducive to newer players getting permission for starting operations. The amount of rich clientele will always act as an incentive for larger, global players with thorough expertise in dealing with rich clients, to open shop in UAE. In this regard it can be said that Dubai International Bank has tried to differentiate itself as the pioneer in Islamic banking Services, thereby creating a second barrier which would be difficult for other companies to breach. 4) Substitutes and Competitors: The threats of substitutes are pretty relevant in a scenario of competition. Competition also counts from the firms manufacturing similar substitute products. The nature of the business scenario in UAE is conducive to all forms of banking and will always be lucrative to other banks. The Abu Dhabi Commercial Bank Ltd., Arab African International Bank, Arab Emirates Investment Bank Ltd., Bank Muscat Al Ahli Al Omani are some of the other prominent banking organizations in UAE. Dubai Islamic Bank and the tryst with IT The frame work for the Competitive Forces Model for IT Infrastructure Investment aims to analyze the IT expenditure of an organization. The different forces which affect the IT spend of an organization are – The market demand for the firm’s customer services The business strategy of the firm The firm’s IT strategy, infrastructure, and cost The Information Technology The level of IT services being offered by the competitors The investment of the done by the competitors on the IT infrastructure The market demand for the customer services of Dubai Islamic Bank The total cash and balances with the bank rose from 4,905,657 AED in 2007 to 6,328,666 AED in 2008. Though the net profit received by the bank is negative (DUBAI ISLAMIC BANK P.J.S.C. CONSOLIDATED INCOME STATEMENT, 2008) the increase in the banks total cash and balance shows the growth that this organization is experiencing. The Dubai Islamic Bank can improve the products and services that it offers by becoming a better IT player in – Retail Banking – The different services and products here that the Dubai Islamic Bank offers are Current Account, Savings Account, Cards, Investment Account, Auto Finance, Home Finance, Personal Finance, Takaful Program and Lockers. Though the portfolio is quite big, the company can maximize pits reach by using IT in a judicious way. The bank will have to invest in a better software platform so as to increase the effectiveness of the internet and phone banking facilities in Current account and Savings account services that it offers. The credit and debit cards that the Dubai Islamic Bank offers are of the highest quality. However an improvement can be done soa that the customers may receive online or telephonic alerts as soon as their balance gets below a certain level deemed permissible by the bank. The company will achieve this by investing in a better data mining facility which will let systems to analyze customer data real time and coordinate with other platforms to send messages to the customers. The investment account facility of Dubai Islamic Bank allows customers to make fixed deposits throughout the year at intervals of one, three, six, nine, or twelve months. Some fine tuning with the platform will eliminate the month constraints – customers will be allowed to make investments instantaneously and for a period of time that they want. Moreover the bank takes in investments only in the form of UAE Dirham or US Dollar – a shortcoming which can be dealt easily by the bank by adjusting its IT systems so as to recognize and accept currencies and convert them into a form acceptable by the system in the bank. Other services like Lockers can also be helped by building a better IT back ground, satellite communication can be used to transmit the status of the lockers real time and online requisitions may be allowed. Private Banking – Dubai Islamic Bank offers very committed services for the privileged customers. The bank provides the ultimate customer relationship practices, which can be taken to the next level by investing in a better IT backbone. The customers are often assigned individual relationship managers, and as the clients are key accounts and more often than not rely on high technology, it is imperative for the Dubai Islamic Bank to focus on keeping up. The premium customers enjoy the benefits of Al Islami online banking and mobile banking. Services like this are often a strain on the IT backbone of a bank – which should encourage Dubai Islamic Bank to focus on a information processing interface at the clients end. Such an interface should be customer friendly, light on the resources, allow co ordination between the central server and any device from which the client would want to interact with the bank. The software should be able to do preliminary data processing on its own and should be able to offer the client with options, which the human managers in the bank should be able to develop. The clients should be able to customize the service according to their own requirements and interact freely with the platforms at the central offices. The challenges that Dubai Islamic Bank will face in this regard are thus two fold – it needs to put in a system which will allow communication between a multitude of software platforms and remain fast and efficient at the same time. The IT Assessment of the Dubai Islamic Bank Dubai Islamic Bank plans to open up 10 new branches in 2009. It has offshore branches in Pakistan and the bank underwent a major rebranding exercise in 2006 where it adopted its new, easy to spot, green and yellow logo. The bank has therefore stayed with the mass as far as its IT spending is concerned, which is very competitive. The situation in UAE calls for a empowering banking system, where clients will have the liberty to interact with the banks without being physically being present in the premises. The Dubai Islamic Bank has therefore invested heavily in building a ERP simulated platform, where data is monitored and analysis can be done centrally. The presence of over 100 ATMs for the bank also shows the commitment of the bank on remote banking. Recommendations The Dubai Islamic Bank should increase the efficiency of an already robust IT platform that the organization is using by investing in the development of a platform which allows the clients to interact with the bank real time and from any locality. This should focus on the development of a system which allows seamless connectivity across different systems. Dubai Islamic Bank should also adopt several practices in vogue with several top banks in the west. It will also have to update its data bases to be compliant with the dynamic warehousing practices that are being readily adopted by global banks. The banking syatem adopted by Islamic banks are based on different accounting principles being followed by other banks in the world, so the new platform should allow the clients to transact with the foreign banks and financial institutions. Conclusion There has been a considerable increase in the IT related expenditure of organizations – the has been a high correlation between competition and technology since 1990. In a concentrated marketplace there are only certain companies which have resulted in the majority of market share. Competitive forces have ensured that organizations have to look forward to newer avenues to bolster their bottom lines – their offerings are similar as they cater to a highly informed and empowered clientele (McAfee A. & Brynjolfsson E., 2008). Dubai Islamic Bank should therefore realize that its IT expenditure is going to give it a headway in the quest of becoming a frontrunner in the field of banking, however it will be left on the management to adopt better practices across all the verticals of management to see the organization through to its goal. References Business Environment, No Date, [Online] Available: http://www.uae.gov.ae/government/business.htm [22 May 2009] Commercial and Investment Banks, No Date, [Online] Available: http://www.centralbank.ae/banksandoth.php [22 May 2009] DUBAI ISLAMIC BANK P.J.S.C. CONSOLIDATED INCOME STATEMENT, 2008, [Online] Available: http://www.alislami.ae/en/downloads/financial-report-2008-en.pdf [22 May 2009] McAfee A. & Brynjolfsson E., 2008, “Investing in the IT That Makes a Competitive Advantage”, Harvard Business Review, July – August 2008 YOUR GATEWAY TO BETTER BANKING, No Date, [Online] Available: http://www.alislami.ae/en/about_dib.htm [22 May 2009] Bibliography Anncchino M. A., 2003, New Product Development – From Initial Idea To Product Management, Elsevier, ISBN 0750677325 Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P., 2004, International Business: Environments and operations, 10th ed. Prentice Hall, London, ISBN 0131461060, 9780131461062 Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P., 2004, International Business: Environments and operations, 10th ed. 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