As financial services firms feverishly search for ways to improve their competitive positions with lower cost structures, Master Data Management strategies can provide a hidden cache of millions of dollars in savings and new revenue, according to Diamond Management & Technology Consultants.
A new report from Diamond asserts that in the heat of the recession, Master Data Management is one area that must avoid the chopping block, because of its revenue-building potential as well as the ability to achieve a unified vision while competitors’ sights remain blurred.
With a myriad of mergers and acquisitions introducing new technology, processes, and data that are not properly integrated, it has become more and more difficult for financial services firms to get a “single version of the truth” about their customers. Thousands of customers receive annoying duplicate marketing mailings. Customer service reps waste time accessing multiple systems to look up information. There is confusion internally about which systems have the most accurate, complete customer information.
A key to resolving these expensive problems resides in master data—the core collection of information that uniquely defines customers, accounts, products, and other assets that are shared across a company.
“Think of Master Data Management in terms of a four-star restaurant with a kitchen that’s in disarray and chefs who can’t agree on the menu,” says Jeff Catalina, author of the report and a Partner at Diamond. “The customers may be happy, but there’s clearly a lot of room for ‘back office’ improvements. Clearing up the disagreement and getting the kitchen in order will make a huge difference in the restaurant’s cost base as well as its productivity.”
While the notion of “mastering” master data might sound straightforward in theory, a variety of factors conspire to make things difficult. Data is often replicated from one business unit to another, which creates additional costs, confusion and redundancy.
The good news: A financial services firm can create an effective Master Data Management strategy in the span of a few months, and implement it gradually over a few years while creating incremental value. However, such an initiative demands careful oversight.
“Attempting to clean and centralize huge volumes of data at the same time seems attractive, but can lead to an unmanageable migration plan and, ultimately, increased costs and missed milestones,” says Anthony Troy, co-author of the report and a Principal in Diamond’s Financial Services practice. “Only the right blend of people, processes, and technology can keep a Master Data Management program on course.”
To put Master Data Management in perspective, Diamond’s report cites a global payments firm that will be able to deliver $20 million straight to the bottom line as a result of more accurate details on pricing data, customer insights, and profitability analytics.
In another instance, the client service team of a major financial services company is utilizing improved Master Data Management capability as a cost-cutting tool. Each 1% decrease in calls to the customer contact center will save an estimated $1 million in operational costs, according to the report.
These examples demonstrate that a sound approach to Master Data Management can alleviate serious business challenges, particularly those resulting from globalization, acquisition, and innovation.
But while companies that adhere to a disciplined, multiyear execution process can achieve great long-term benefits, many firms are overwhelmed by the challenge because of their legacy systems and processes. Siloed business units, inconsistent definitions and calculations of key business metrics, and overly complex IT infrastructures are just some of the barriers.
An effective Master Data Management strategy requires a core team of master data advocates with authority, technical acumen, and business experience. It requires processes such as assigning responsibility for enforcing rigid data quality standards. And it requires a pragmatic focus on three keystone technology aspects:
The Truth – a universal version of master data with uniquely identified records;
The Moving Parts – a means of managing key supporting data that underlie master data; and
The Platform – an ability to integrate master data across systems and functions.
Says Catalina: “Financial services executives who first acknowledge the challenges of master data and then thoughtfully apply people, processes, and technology to ‘master’ that realm will reap benefits from the power of information for years to come.”