Why is MDM important? Quite simply, MDM not only gives companies the opportunity to better manage their key data assets and thereby improve the overall value and utility the data provides internally, but it also exposes internal process issues and business practices (or lack thereof) that are the underlying constraints to having and maintaining good data. Often, these underlying issues are generally known, but it's not until an MDM initiative is launched that the various business teams can or will start effectively addressing the issues. Looking at this from a Customer MDM point of view, the lack of having well-orchestrated data management practices will typically result in one or more of the following risks:
- Increased costs due to operational and data redundancies or differences across lines of business.
- Higher risk of audits and regulatory violations.
- Poorer BI and analytics, adding to customer frustration and missed opportunities.
- Customer/partner/vendor/employee dissatisfaction and consequently unrealized revenues.
- Possible overpayment of vendors and customers stemming from duplicate records.
- Over or under delivery of customer services due to inconsistent customer identity and tracking.
MDM does much more than just bring data together. It involves an entire set of processes, services, and policies that go along with it. Most MDM experts agree that the three main reasons used to justify an MDM implementation are cost reduction, risk management, and revenue growth, as shown in Figure 1.7.
Figure 1.7 Business Case for MDM
Cost Reduction
From an information and knowledge perspective, customer data is the nervous system of a company. It is extremely pervasive and impacts virtually every LOB in the company. It is key information associated with transactions from order to shipment, and associated services before, during, and after a deal. Furthermore, proper management of information requires a complex infrastructure, trained personnel, and a set of well-defined and properly followed business processes.
There are costs associated with hosting and manipulating data, as well as costs associated with the activities relying on the accuracy of the information itself. Therefore, any effort targeted at any of those elements will help lower cost. Data hosting is about IT resources, data manipulation is about business processes, and accuracy of information is about data quality. MDM is a perfect fit because it addresses all these facets.
From a data hosting perspective, MDM emphasizes data consolidation through the elimination of redundant systems. This type of activity lowers IT capital expenditures, reduces costs associated with software licenses and maintenance fees, decreases spending on human resources due to having fewer systems to operate and maintain, and eliminates certain consulting fees as duplicated systems are retired.
From a data manipulation perspective, MDM stresses the need for more efficient and effective business processes. A strong data governance program facilitates the standardization of business rules, policies, and procedures, therefore increasing the predictability of data changes needed. Data stewardship becomes better equipped to carry on data operations, lowering operating costs related to inefficient business processes, and minimizing the number of workarounds and redundant tasks.
Finally, data quality is a core competency of MDM. Data quality practices focus on cleansing, standardization, consolidation, and enrichment of information, therefore lowering costs related to incorrect business decision based on incomplete or wrong information. Better information also helps lower costs related to delivery errors, shipping fines, inventory management, wasted direct-marketing catalogs and other marketing initiatives, and so on.
Risk Management
Companies are susceptible to all kinds of risks. Large portions of them are dependent on having precise and timely information. For example, incorrect inventory management can lead to loss of customers, while improper compliance management can lead to lawsuits and hefty fines. Strategic objectives based on poor data quality analysis and results can have drastic effects, from missed targets to a total collapse of the company.
When looking at one aspect of risk, companies have legal and ethical obligations toward society. Law and ethics are intertwined, and a commitment to both is necessary to guarantee proper operations and successful business performance. Properly tracking and monitoring compliance to these rules requires active information management.
Obviously, the amount of regulation varies by industry, but just about every company will be subject to a multitude of labor laws and compensation, privacy at multiple levels, contract management, pricing, and so on. Additionally, regulatory compliances such as the Sarbanes-Oxley Act (SOX), U.S. Patriot Act, Basel II, and other financial related rules must be followed and flagged immediately if violated. These are all data-driven violations that threaten the survivorship of a company.
Looking at another aspect of risk, proper business decisions based on correct information will certainly lead to more opportunities and less waste related to mistakenly assigned and/or improperly executed activities.
Anyhow, the proper management of data as an asset will increase the probability of positive risks, such as better strategic decisions and increased opportunities, while minimizing the likelihood of negative risks, such as frauds, lawsuits, audit findings, loss of certifications, fines, penalties, and so on.
Revenue Growth
Companies are constantly looking for opportunities to increase revenue. While there are many strategies and variables to make it happen, it all usually starts with proper knowledge and understanding of the driving forces affecting that particular industry. These driving forces include: customer needs, market maturity, competition, partner relationship, product, price, distribution, promotion, and so forth.
A very common and effective strategy is improving customer relationships. However, this is easier said than done. Companies have been implementing Customer Relationship Management (CRM) systems to achieve that goal, but results are not necessarily optimal. A CRM system is just as good as the data behind it. If the data is siloed, and does not encompass the many LOBs across the company, it is difficult to have a clear understanding of the customer. This gap prevents a company from having a full insight into the customer information, or what is also referred to as a 360° view of the customer. This incomplete information is a double-edged sword, preventing a company from fully understanding its customer needs as well as preventing itself from being more efficient and effective when planning the next move. MDM and its practices address the root cause of those issues, consequently enhancing customer satisfaction, lowering customer churn, increasing sales, and ultimately improving revenues.
Better information will also lead to better marketing campaigns, improved partner relationship, and supply channel management.
Finally, an improved understanding of market forces, customer needs, and a company's own strengths and weaknesses will lead to enhanced strategic decisions, eventually culminating with a better focused company and potentially tactical mergers and acquisitions.