Holy grail or costly folly?

Data warehousing is the hot topic of the information technology industry. Trade publications are full of articles extolling its virtues while seminars around the country attract huge crowds. Billed as the holy grail for companies looking to use their information reserves to achieve that elusive competitive advantage, data warehouses are big business and vendors are rushing to grab a piece of the action.

With the cost of an average data warehouse in Europe coming in at around pounds 2.5m, installation is not for the faint-hearted. Despite this, an increasing number of companies are investing in a tool they see as a "must have". The research company IDC predicts the worldwide market for data warehouses will reach pounds 1.3bn in 1998. This compares with just pounds 480m in 1993.

But many may be stopped in their tracks by a recently released report which claims most companies that have already implemented a data warehouse have failed to realise any benefit.

Organisation and Technology Research (OTR) polled 1,500 European companies and found that most were unable to quantify a return on their investment. Where the benefits had been measured, they were usually far less than expected.

"To put it bluntly, it's a dismal picture," says Colin Jackson, co-author of the OTR report. "There are a lot of companies in Europe wasting money on data warehousing at the moment."

The reasons behind this alarming conclusion are varied. The researchers found 40 per cent of companies did not know the true costs involved in implementing their data warehouse. Of those who did, few actually checked to see whether the cost had been justified by benefits. "A lot of data warehouses are set up as pilot projects by IT departments, with little cost justification," Jackson says. "They are then expanded into a company- wide system without the total costs being known."

Many projects are actually far more complex than companies realise. Because data is gathered and stored on different systems and in different ways, data warehouses need to be custom-built rather than bought off the shelf. This can mean initial estimates are inaccurate and final costs significantly higher. According to the report, companies found that, in general, data warehouses took twice as long to implement as originally planned.

Why, then, are data warehouses so popular? According to Jackson, enthusiasm for the technology stems from the burning desire of many companies to use their data more intelligently. "Many a businessman will tell you that buried within his organisation is data which would have stopped him making the wrong decision he made six months ago - he just couldn't get at it."

This need has caused a flood of data warehousing products on to the market during the past two years. While some have been specifically designed for the job, others have simply been relabelled. "Some almost have just added a little sticky label like Intel Inside on the packet to show they are data warehousing products."

The OTR report concludes that data warehousing is suffering from overhype and that demand for products will peak by 1998. "But something else will turn up," says Jackson, "something that fits the age-old need of wanting to get more out of existing information - and off we will go again"

Ian Grayson