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Seven ways to reduce IT costs with master data management

14th May 2009
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Smart IT decision-makers are seeking out technology investments that can help to accelerate cost reductions and at the same time streamline business processes - which is where master data management can play a crucial role. Ravi Shankar gives his top tips on making it work.

Ravi Shankar, Siperian

Master data management (MDM) ensures that critical enterprise data is validated as correct, consistent and complete when it is circulated for consumption by internal or external business processes, applications or users. A recent Gartner report on 2009 Enterprise Software Spending said "the business case for many application and infrastructure initiatives are now aligning to cost reduction and risk management," and that MDM is key to transforming business processes to streamline them further in current market conditions.

But not all MDM technologies can provide these cost benefits. Only an integrated, model-driven and flexible MDM platform with easy configurability can provide rapid time-to-value and lower total cost of ownership.

1. Reduce interface costs
One definite way to reduce IT costs is to reduce the number of point-to-point integrations across applications. Business processes such as order-to-cash that cut across several heterogeneous applications, including order management and accounts receivable, require complex point-to-point integration between the individual applications. Multiply that by the number of business processes handled by all business applications and what you have is a highly complex web of integrations across the enterprise.

"Business applications that provide data to the MDM platform should not have to be modified to store the identifier of the reconciled master record created by the MDM platform. This will enable rapid integration and time-to-value."

These point-to-point integrations are expensive to develop and maintain, but MDM can simplify them by centralising common information (master data) and making this reliable information available at the different points within business processes. Reducing interface costs has been proven in repeated implementations; a global investment banking company that embraced MDM to eliminate trade failures caused by counterparty inconsistencies was able to save millions of dollars by eliminating interface maintenance and support. But it's important to select an MDM platform that supports a non-invasive approach to integration. Business applications that provide data to the MDM platform should not have to be modified to store the identifier of the reconciled master record created by the MDM platform. This will enable rapid integration and time-to-value.

2. Reduce redundant third party data costs
Eliminating duplicate data acquisition from external data providers can account for significant cost savings. For many companies, integrating third party data from institutions such as Dunn & Bradstreet, Acxiom, IMS or Reuters, is a key requirement for their business operations. But frequently, different departments within the same company will source data for their own uses, unaware that another division within the company already procures the exact same data from the same source. The cost of these duplicate data acquisitions has a multiplier effect.

With MDM, the third party data is integrated directly into the MDM system and then distributed out to all downstream applications. This reduces the duplicate data acquisitions to just one. The same global investment banking company mentioned above was able to also save millions of dollars by eliminating redundant third party data costs. When selecting an MDM platform, ensure that it provides out-of-box integration with the most common third-party data providers or, if not, provides a facility to rapidly integrate the third-party data in real-time or in batch mode.

3. Reduce data cleanup costs
Cleansing data centrally in an MDM system can account for significant cost savings. Most companies have invested in data quality tools to clean up data within an application for a specific business purpose, such as direct marketing. Later, as data quality requirements grow for other business purposes, companies continue to cleanse the data within other respective business applications. This causes two problems: First, the costs for multiple uses can compound and significantly impact the IT budget. Second, since the cleansing is done individually by application, duplications across applications are not taken care of.

"As data quality requirements grow for other business purposes, companies continue to cleanse the data within other respective business applications. This causes two problems."

By integrating the data from these disparate applications into a central MDM system, it becomes possible to cleanse all data across the enterprise in a single system. This approach helps not only to resolve conflicts across source applications, but also makes it possible to create and store the history and lineage of any changes to the data. Thus, by centrally cleansing the data, companies can save on license and support fees for additional instances of data quality tools. It's important to add that in order to realise these benefits you need to ensure that the MDM platform is able to leverage your existing investment through reuse of the existing data quality tool.

4. Reduce outsourced cleansing costs
An MDM system can provide significant cost savings by eliminating expensive outsourced manual cleansing. Some companies outsource the de-duplication of their data to an outside data cleansing services provider, usually or either marketing or compliance reasons. A marketing department may outsource the de-duplication of their direct marketing lists, whereas under the pressure to meet regulatory compliance deadlines, the legal department may outsource the manual clean-up of their compliance data. But in both these cases, the cleansed data is never stored in a central place for future access, and it requires repetitive cleansing. Over a period of time, these costs can mount to millions of dollars across the organisation. Further, the history of how the data has changed over a period of time is not stored - a prime requirement for compliance audit.

An MDM system eliminates the need for outsourced manual cleansing by automatically cleansing, enriching and deduplicating data on an ongoing basis; centrally storing it for future use, tracking the changes to the data and then making the cleansed, enriched data available to marketing and compliance applications. Keep in mind that the most effective MDM platforms are those that also store the history of all data changes and the lineage of all merges as it modifies the data through cleanse, enrich and de-dupe processes. It should also support the ability to readily view the history and lineage at any point-in-time for audit purposes.

5. Reduce license, support and hardware costs of redundant systems
By centralising data for the enterprise, MDM makes it possible to reduce the amount of, or even eliminate, redundant data stores and systems. Instances that hold duplicate data can be retired, resulting in significant cost savings. Consider this scenario: A multi-national organisation operating in over 100 countries held their employee records in 70 different HR application instances. With this scattershot approach, company HR executives had no way to tell the exact count of employees—it would take over two weeks to tally the employee count, by which time a number of employees would have joined, quit or had their position terminated.

By centralising the employee information in an MDM system and retiring the redundant HR instances, this company can now not only gain the accurate employee count at any point in time, but also save on costs of maintaining the additional instances, thereby realising cost savings in a variety of ways:

  • Reduced license and support fees by retiring redundant instances.
  • Eliminated costs for tools required to perform customisation
  • Lowered costs associated with the maintenance of expensive hardware to run those systems.

6. Reduce custom solution development and maintenance costs.
By replacing old custom masters, companies can save on costs spent developing and maintaining them. Some companies have developed their own proprietary custom masters, such as a Customer Information File (CIF) or Operational Data Store (ODS), by stitching together various tools. These masters were originally developed to solve a specific business problem, but over time they have become inflexible to meet the growing demands of the department and are much less capable of addressing other business needs in different parts of the organisation.

Creating and maintaining these systems is resource intensive – armies of programmers are required to code, test and customise them. By replacing these antiquated custom masters with a configurable off-the-shelf MDM platform, organisations can not only save significant development and maintenance costs associated with band-aiding the custom solution, but also help refocus IT to support business operations with timely data.

"Pharmaceutical companies and banks used to rely on custom masters until it became cost-prohibitive due to problems such as integrating internal and external data, inconsistent data, duplication and multiple applications to deal with."

Pharmaceutical companies and banks used to rely on custom masters until it became cost-prohibitive due to problems such as integrating internal and external data, inconsistent data, duplication and multiple applications to deal with. Companies in these industries were vanguards in switching over to off-the-shelf MDM platforms to cut costs immediately and to save on future development costs. However, be sure that the MDM platform you choose can be easily configured, as opposed to requiring coding. With a flexible configuration, you can rapidly take over the current master and also extend your MDM implementation to address future business needs in other parts of the organisation.

7. Reduce the cost of information delivery
IT can reduce costs by delivering the right information at the right time. Compliance and management reporting are two of the major functions supported by IT. Errors in the reports delivered to regulatory agencies can result in fines and errors in reports delivered to management can result in mis-informed and poor strategic decisions. When auditors or management doubt the authenticity of the data in the reports, it will often result in calls to IT to help prove the veracity of the data. This can undermine management trust in IT department performance. It can also result in critical IT resources having to be diverted to mine the data for historical changes, which can be an expensive operation.

MDM can help eliminate this situation by managing a single version of the truth, along with a history of all changes, and delivering this information to any reporting, business intelligence or data warehouse. Hence, the compliance and management reports created from these systems always have the most authentic information. Should the veracity of the information need to be verified, it can be easily achieved with an MDM system since it stores all the changes to the data. Therefore, the MDM system helps reduce IT costs by delivering reliable information.

Investing in an MDM platform is a smarter way to cut IT costs during an economic downturn, instead of simply maintaining the status quo and facing hard decisions brought about by budget cuts. For some companies, a single reason might be large enough to warrant an investment in an MDM platform. But for others facing a litany of performance issues stemming from poor data quality, a number of these reasons would apply and an MDM investment is usually more than justified.

Ravi Shankar is senior director of product marketing at Siperian, Inc

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