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DATA WAREHOUSING STRATEGIES: A STRATEGIC ALIGNMENT PERSPECTIVE

Conference Paper · January 2004

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DATA WAREHOUSING STRATEGIES: A STRATEGIC ALIGNMENT PERSPECTIVE

Emad AbuShanab, Department of Management, Southern Illinois University

Carbondale, IL, 62901, emad62@siu.edu, 618-5497851

ABSTRACT
Data warehouses are essential assets for business firms. This paper proposes a conceptual
typology (classification) that sheds some light on the relationship between data warehousing and
business strategies. Data warehousing strategies; data mart, enterprise, and flexible strategies, are
linked to Porter’s framework. The literature provides support that certain data warehousing
strategies are aligned with certain business strategies, and data warehousing can be considered a
sustained competitive advantage. Propositions are included in the paper.

INTRODUCTION
A recent survey showed that large companies are heavily investing in data warehousing systems
and implementing more data analysis tools to improve the flow of information [34]. Executives
from large, small, and midsize companies have been asked if they requested their management
teams to improve the quality of operational data that reaches their desks, and the answers showed
that 73% of small and midsize companies’ executives said “yes” (percentage was 87% for large
companies). This example indicates the importance of data warehousing as a system that
provides competitive advantage to businesses in the third millennium. Starting from operational
databases, we can see the need for a data warehouse (DW). Databases lack the necessary features
to support the following tasks: graphics and multimedia data requirements, time oriented data, a
web-based integrated data, fast and available data, and finally, data suitable for decision support
usage [20]. The need for data warehousing is growing because it improves the accessibility,
quality and consistency of data [11].
This paper builds a classification system that defines three cases of alignments between business
strategy and data warehousing strategy. Also, the paper discusses the conceptual background by
reviewing more than one model in the area of strategic information systems, and from that
extends to the literature that supported the competitiveness of information technology. The
second section will explore data warehousing and data warehousing strategies. The third section
will provide the conceptual model and the classification system proposed based on that
conceptual model. Finally research propositions, conclusions and future research are stated.

INFORMATION SYSTEMS AS A COMPETETIVE ADVANTAGE

Strategic conceptual models:

Research in the area of competitive advantage emphasized the importance of IT in providing
firms with competitive advantage, but yet the sustainability of competitive advantage provided
by IT is not clear [15]. In their resource-based argument, Mata et al. suggested two conditions for
having sustained competitive advantage: the first is the heterogeneity of this capability (IT
resource), and the second is the immobility of this resource. Such concepts are important to test
for sustained competitive advantage. The second model of interest in this paper is Porter’s Forces
and Strategies Model for competitive advantage [23]. The model describes three different
strategies for competitive advantage: (1) firms competing based on cost, (2) firms competing by

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differentiating the firm’s products and services, and finally (3) firms competing by focusing on a
niche market or on a specific element of the market. Also, Porter and Millar [24] categorized the
activities that can provide value for firms into two main categories: supporting activities and
primary activities (value chain model). Using the three conceptual models in analyzing the
competitive stance of data warehousing would be of great importance, as we can evaluate firms’
strategies and test for sustainability according to Mata et al. [15].

IT strategic perspective:
The other perspective of IT competitive advantage is the alignment of IT strategy with business
strategy. Chan, Huff, Barclay, and Copeland [4] provided an instrument for measuring business
strategic orientation, IS strategic orientation, and IS strategic alignment. The study measured the
implications of these three constructs on perceived effectiveness and business performance. Chan
et al. concluded with empirical evidence that IS strategy and alignment are linked to perceived IS
and business performance. Brown, Gatian and Hicks [3] concluded that strategic information
systems (SIS) are associated with better performance in firms that invest in SIS. This result is
based on analyzing thirteen years of financial records related to thirty five companies [3].
In their Strategic Alignment Model, Henderson and Venkatraman [9] identify four domains
related to strategies in the business area: business strategy, information technology strategy,
organizational infrastructure and processes, and information technology infrastructure and
processes. This model illustrated two characteristics of strategic management: strategic fit, which
describes the interrelationships between internal and external components of the strategic
context, and the functional integration between business and functional domains. The model was
explored by testing parts of it only [5]. We will be interested in this study in the path that
connects business strategy, IT strategy, and IT infrastructure. Bettis and Hitt [2] described
organizations in the new competitive landscape to have a fast response capability to market and
environmental changes. We can see the link between data warehouses that provide fast and
timely information that leads to customer satisfaction. Such investment in data warehousing will
improve firms’ position in the new competitive landscape [2].

DATA WAREHOUSING AS A COPETETIVE ADVANTAGE

What is data warehousing? Wixom and Watson [31] conclude that even though there are few
academic empirical studies on data warehousing, data warehousing has common implementation
success factors like any other information system. To create a successful and functioning data
warehouse, organizations need to provide management support, a champion, and needed
resources. While data warehousing is the entire process, a data warehouse is simply a repository
of data or data collected to support decision-making [28]. According to Inmon [12], the father of
data warehousing, data warehousing has four basic characteristics: subject oriented, integrated,
nonvolatile, and time variant. Research included other characteristics like summarized data, large
size of data, not normalized, metadata and an un-integrated environment [8]. Gallegos [7, p 41]
defined a data warehouse as “a collection of integrated databases designed to support managerial
decision-making and problem-solving functions”.

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Data warehousing strategies:
In building a data warehouse, organizations can take two common approaches: the bottom-up-
approach, and the top-bottom-approach [7][29]. Such approaches are called strategies [30]. The
following are descriptions of data warehousing strategies:

The data mart strategy implies that the firm “starts small, and thinks big”. The start would
typically be a data mart for a specific department, and then consider adding applications for more
departments when needed and when appropriate. The data mart strategy advantages are: the
speed by which the data warehouse becomes operational, the data used need not to be
standardized on the organizational level [7], the lower cost that can provide fast return on
investment and the easy addition of related departments with less investment risks [30]. On the
other hand, the disadvantages of such strategy is future integration as this strategy will produce a
series of fragmented data warehouses, and eventually the data needs to be standardized and
cleansed when trying to integrate it in an enterprise data warehouse [7].

The enterprise data warehouse strategy builds the whole data warehouse architecture for all the
organization. The data warehouse need not to be populated by all kinds of data, but the more
urgent departments can be served through a specific data mart, or a specific subject can be
facilitated through a certain data mart, but all data marts will be integrated within the whole data
warehouse. This approach provides an integrated perspective of the whole firm and provides a
base for totally integrated data warehouse, where all the departments, customers and suppliers
are fully integrated in one data system. Two main disadvantages are stated by Gallegos [7]: the
cost of building an enterprise data warehouse is high, and the complexity of the work tends to
hinder firms from pursuing this step as a start.

The flexible data warehousing strategy; called the parallel strategy, it is a combination of the
two previous strategies. This third strategy starts with building the needed data marts with the
basis for an enterprise DW that documents the boundaries and data relationships that exist
between functional areas. This model will evolve and form the basis for the future EDW [22].
Sammon and Finnegan [26] explored a flexible model in implementing an enterprise DW and
cautioned firms to keep the corporate wide view representation when implementing the data
warehouse as the implementation process is incremental.

Data warehousing objectives and benefits:

Data warehousing can benefit the business in the following areas: less effort to produce
information for data suppliers and customers, more and better data, better decisions, improved
business processes and improved business effectiveness, a single image of the business, and
support for the accomplishment of strategic business objectives [11][21][28]. Also, data
warehousing is considered one of the basic tools for supporting knowledge management [6], as it
empowered employees to become knowledge workers when utilizing data warehouse and they
become components of a business intelligence system [14].

The strategic link of data warehousing:

Parzinger and Frolick [21] claim that software and hardware technologies are easily imitated by
competitors and thus such technologies provide a temporary advantage. The authors continue to
argue that even data warehousing in it self does not provide value but value comes from the use

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of the data in the warehouse. The support for timely decisions and fast access to strategic
information can provide a competitive edge. Further, more firms can customize their customer
service by utilizing the available information in their data warehouse [21][27]. Rundensteiner,
Koeller and Zhang [25] emphasized the flexibility side of data warehousing as it allows more
users to make use of distributed information over networks and increase the productivity of users
and system administrators by maintaining customized interfaces to information. On the other
hand, if IS can provide information storage, processing, and communication capabilities, then it
can support the organizational competencies by supporting inputs to the systems [32]. The
previous list of capabilities is a fundamental part of a successful data warehouse that can provide
the suitable information in a timely fashion. Finally, if we look at the literature that connects data
warehousing to performance, we can see that data warehousing is affecting firms ROI [29],
providing good data for reducing operational and manufacturing costs through accounting
systems [20], improving firm’s effectiveness by enhancing users performance, and improving
accessibility and reduce time required for users operations [11].

Business Strategy

Strategic Business Competitive

Alignment Performance Advantage

IS/IT Strategy
Data warehousing Figure 1: the conceptual model
Strategy (adapted from Chan et al. (1997)

THE RESEARCH MODEL

Figure 1 shows a conceptual model that describes the relationship between Business strategy, IT
strategy and performance. The conceptual model is adapted from Chan et al. [4] in which they
adapted the previous work of Henderson and Venkatraman [9]. The model tries to explore the
alignment of IS strategy and Business strategy and how they will affect performance. Business
strategy and IS/IT strategy will affect business performance within the alignment process
proposed by Henderson and Venkatarman. Finally, it is expected that the continuous alignment
and the improved business performance will yield a competitive advantage for the firm.

Data warehousing and sustained competitive advantage:

Research that provided support for the argument that IS/IT can provide a sustained competitive
advantage is rare and lacks empirical support, but we can test data warehousing conceptually for
competitiveness for the purpose of this research. The argument provided by more than one
research that computer software [2][21], IT applications [15], and computer hardware [21] are
easily imitated, and difficult to protect is an outdated one since 1981. Recent research provided
good analysis and argument against all previous research that claimed that computer software
cannot be protected, and supported their argument with examples from the software business
domain and the legal proceedings of this issue since the year 1981 [17][18]. Through the process
of patenting software and hardware products, firms can now guard against the thrift and copy of

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their products, and even generate more revenues when leasing such products. This type of
protection is applicable to data warehousing software and tools.
On the other hand, and assuming that firms can develop a different software for data
warehousing that overcomes the issue of licensing costs or patent infringement issues, it would
be a valid argument to see if data warehousing will provide firms with a sustained competitive
advantage or not. Based on Parzinger and Frolick’s [21] article, the contents of the data
warehouse will make this resource a sustained competitive weapon. The value of the data
warehouse comes from the use of the data in the warehouse. If we apply Mata et al.’s [15] model
on this tool, we can say that with the contents of the data warehouse that are accumulated for a
long time (valuable data aligned with the business needs and objectives, and customized to fit
with customer needs and characteristics), this resource can be considered heterogeneous and
immobile. Heterogeneous as it is a unique resource by its capabilities and the data content it
provides, and immobile because of the patent protection and the difficulty of imitating the long
term data available.

Propositions and research agenda:

We have discussed three models: Porter’s models of competitive advantage [23], Chan et al.’s
model for strategic alignment [4], and previous research on the categorization of data
warehousing strategies [12][28][22]. The following classification system is proposed:

Business Strategy
Cost Focus Differentiation

Data Enterprise DW P1 B C
Warehousing Flexible DW D P3 F
Strategies Data Marts G H P2

Figure 2: A classification system of Data warehousing strategies.

Much research has emphasized the importance of alignment between the data warehousing
strategy and the business strategy and its relation to performance and effectiveness. Sammon and
Fonnegan [26] emphasized customizing the building process of data warehousing and
organizations’ specifics. They continue to argue that there are common critical factors
(organizational prerequisites) which have been identified for data warehousing initiatives, and
those factors were identified before launching a data warehousing project, then organizations can
predict if data warehousing is suitable for their business needs or not. Finally, in their study of
the implementation process of data warehousing, Joshi and Curtis [13] started with business
needs and then the definition of the data warehousing project scope and goals. The alignment
between business strategy and data warehousing plans is required, as the commitment to the
project will be supported by the organization if the scope and goals of the DW fits with business
strategy. Based on the previous section, we propose the following:

Proposition 1: Firms that compete based on cost, and implement an enterprise data warehousing
strategy will have a positive relationship with performance: the basic premise for those firms is
to reduce cost. This strategy calls for more control over operations and needs accurate
information to keep the competitive position with respect to their competitors. To achieve all of

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 that, firms need to implement an enterprise data warehousing strategy as it enable firms to reduce
cost [33]. Such strategy will provide corporate wide information and a cross functional analysis
that leads to cost effectiveness. Such combination is also suggested by Gallegos [7].

Proposition 2: Firms that compete based on differentiating their products and services, and
implement a data mart warehousing strategy will have a positive relationship with performance:
this type of combination is based also on cost of investment that firms can provide for data
warehousing, as firms always search for the suitable project with the least cost [7]. The data mart
strategy will provide firms with a fast and cheap way to implement a data warehouse for business
purposes and in specific areas only [28][29]. An example would be: if a firm is competing based
on a specific product, then a data mart that governs this product and its customers will serve the
firm at this stage with the least cost, giving the firm a competitive edge.

Proposition 3: Firms that use a focus strategy, and implement a flexible data warehousing
strategy will have a positive relationship with performance: a firm that addresses a specific need
in the market, or a specific customer segment might need more of a flexible data warehousing, as
it needs to fit with the overall enterprise data warehouse, and in the same time be concentrated on
specific areas only. Such firms need information on all of the market and all segments of
customers, and then from this they can concentrate on a specific segment or focus on specific
area. Such flexible strategy will yield a lower cost and a higher response to customers [26].

Conclusions and future research:

We have seen that data warehousing can provide competitive advantage by supporting business
processes and by providing better data at suitable time for strategic decision-making. The basic
strategies for implementing a data warehouse are three: enterprise data warehouse, data mart
warehouse, and flexible data warehouse. Data warehousing strategy should be aligned with
business strategy. We cross-classified two strategic models to gain more insight into the issues
related to data warehousing as a competitive advantage. Data warehousing strategies were
explored in the context of Porter’s strategic model, and this implied three propositions that
discussed different situations of alignment between business strategy and data warehousing
strategy. Applying our logical test on data warehousing to check its ability to provide a sustained
competitive advantage, we can conclude that data warehousing with its content of better data for
decision –making is a heterogeneous and immobile resource that can be protected by patent
process as well.

As data warehousing is fairly a new topic (since the early 1990s), we can see that the agenda for
future research can be a busy one. More research is needed to test for the best strategy to apply in
certain situations and provide an empirical support for the propositions stated in this research and
the competitiveness of this tool. Issues like third party providers and security, data warehousing
costs, and explore the relationship between alignment and performance.

References available upon request from Emad AbuShanab (emad62@siu.edu)

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