May 30, 2008 Building The Business Case For Master Data Management MDM Projects Should Start By Aligning With Key Business Drivers

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1 Building The Business Case For Master Data Management MDM Projects Should Start By Aligning With Key Business Drivers by Rob Karel and R Ray Wang with Kyle McNabb and Norman Nicolson EXECUTIVE SUMMARY Most information and knowledge management (I&KM) professionals today understand the value that a master data management (MDM) strategy could bring to their organizations. But many often fail to secure the necessary prioritization, resources, and funding to get started. Building a business case for MDM is often more challenging than other technology initiatives, such as enterprise resource planning (ERP) implementations or business intelligence consolidation initiatives, which often provide transparent efficiencies and cost savings. MDM, by definition, supports other technology and business process investments and does not in and of itself return business value. When building a business case for MDM, I&KM pros should paint the relationship between the proposed MDM solution and how it supports strategic business objectives related to increasing revenue, reducing costs, and mitigating risk. MDM BUSINESS CASES, WHILE CRITICAL, OFTEN FAIL TO COMPEL CHANGE I&KM professionals, such as architects, data stewards, and sales and marketing operations and support professionals, often recognize that data quality problems exist throughout the enterprise, but are powerless to implement the necessary changes to mitigate risks and concerns. These I&KM pros witness the often broken processes that capture and maintain data in upstream ERP, customer relationship management (CRM), and Web applications. They also hear the frustration and complaints from business stakeholders who access this unreliable data to support business operations or make business decisions. The cross-enterprise visibility that I&KM pros have allows them to recognize that developing and implementing an MDM strategy could increase stakeholders confidence in critical enterprise data. But this visibility alone does not empower them to institute the necessary business process and technology changes required to implement an MDM strategy. MDM requires a convincing business case to motivate business executives to change. Without this business case, MDM projects deliver below expectations because IT and business stakeholders often: Fail to create business/it alignment. Successful MDM projects demand deep commitment from both business and IT stakeholders. Without active accountability and participation from the business especially senior business leadership efforts usually sink before they swim. These initiatives leave critical requirements undocumented, rarely achieve strategic alignment, and fail to establish standardization of data quality and governance processes. Meanwhile, failing to engage IT often results in requirements that lack rigorous scrutiny for issues such as integration, scalability, and security. Underestimate the sponsorship commitment required for success. Delivering enterprise-class MDM capabilities, such as hierarchy management and continuous data management, requires Headquarters Forrester Research, Inc., 400 Technology Square, Cambridge, MA USA Tel: Fax:

2 2 collaboration across lines of businesses, functional organizations, and IT application silos. Executive-level business sponsors must evangelize the bridging of traditionally siloed organizations to ensure the necessary changes to business processes, policies and standards, and technology capabilities that an MDM initiative demands. View poor data quality as the disease, but not the symptom of broken processes. Too often, a data quality or MDM project will focus on repairing broken data wherever it resides, ignoring the broken processes that created the mess in the first place. For example, matching and merging duplicate customer records in a marketing data warehouse downstream of your CRM system doesn t change the fact that your call center and sales reps continue to create new duplicate customers upstream. A healthy MDM strategy will not only cure the diseased data downstream but will also ensure the elimination of further potential data contamination at the source. ORGANIZE MDM PROJECTS ACCORDING TO RISK AND THE STATE OF THE ECONOMY Funding prioritization for MDM projects should align to your organization s most critical business drivers. To accomplish this, I&KM professionals should organize their business case for MDM initiatives into four business driver categories (see Figure 1): 1 1. Growth projects that support increasing top-line revenue. Growth projects focus on sales and marketing with specific revenue growth goals such as increasing upsell and cross-sell opportunities by 10% and improving direct marketing response rates by 5%. Typical initiatives include improving campaign management, implementing high-value customer segmentation, and introducing price optimization. In times of expansion, growth business drivers fare best in the boardroom and encounter lower project risk. Provided that you make the difficult case proving that MDM can support growth drivers, it might take several quarters after implementation before you recognize a positive ROI. 2. Efficiency drivers that deliver bottom-line savings. Efficiency drivers target improving operations and creating systemwide efficiencies. Typical initiatives include improving supplier and procurement leverage, improving call center productivity, increasing shipping accuracy, reducing cost of sales, and improving overall sales cycles. Due to lower project risk, business and IT leaders often prioritize these projects during uncertain economic times. These cost-saving projects represent the low-hanging fruit of your MDM initiative, allowing you to prove the value of an MDM investment with a shorter time to delivering ROI. 3. Compliance initiatives that mitigate risk. Compliance initiatives zero in on adhering to external mandates from government entities or other authoritative governing bodies. Emblematic efforts include addressing public market regulations, mitigating counterparty risks, supporting privacy communication preferences, delivering internal controls, addressing product recalls, and meeting information security requirements. This category is the least sensitive to

3 3 economic conditions, but the visibility of such engagements brings a higher project risk in areas such as length of deployment time, buy-in required, and overall project cost. 4. Strategic efforts that support a company s long-term vision. Strategic efforts deliver on market differentiating strategies. These projects focus on building customer loyalty, identifying customer value, fostering supplier and partner collaboration, and addressing stakeholder retention. Given the high project risk and long-term commitment, strategic efforts receive the highest level of prioritization during times of economic expansion and are nearly impossible to evangelize during economic uncertainty. Figure 1 Four Categories Of Business Drivers For MDM High Project risk Low Compliance Address Wall Street regulations Attend to security issues Support privacy preferences Basel II, SOX, etc. Efficiency Improve supplier and procurement leverage Identify aggregate credit risks Manage personnel hierarchies Reduce swivel chair data integration Reduce cost of sale Weak Economic climate Strategic Know the customer Address retention Identify customer value Improve data quality Growth Target top accounts Grow sales by cross-sell or upsell Market effectively Improve response times Strong DEVELOP A BUSINESS TECHNOLOGY VALUE PLAN FOR MDM PROJECTS Since MDM initiatives are organized by business drivers, I&KM professionals can develop a business technology (BT) value plan. A BT value plan will help connect the dots between high-level business goals and the actionable project(s) and IT strategies (see Figure 2, see Figure 3, and see Figure 4). The result: necessary business buy-in for MDM. The three key steps required to create a BT value plan include: Start with business goals. Explain the business drivers or the why of the plan. Determine corporate business and IT project objectives. Use this opportunity to establish a baseline to then set realistic targets. Some examples could include business drivers focused on improving business performance via market share, retention rates, profitability, and customer segment ownership. Targets could include improving profitability by 20%, increasing install-based sales by 15%, improving shipping rates by 20%, and reducing sales cycle time by 10 days.

4 4 Identify BT strategies. Determine the substance, or the what, of the plan. Aim to move the needle and apply a stakeholder-centric approach to create strategies that support the improvement of business goals. One methodology is to analyze, segment, and target a specific market using value propensity, risk, or product trending information. Then focus on an area like increasing products per customer or reducing exposure in product recalls. For example, a bank that wants to better understand its walk-in client base might separate walk-ins from online banking customers. In the process, they might determine that walk-ins with safety deposit boxes have the highest customer value because they take the time to sign up for additional products when in the branch. Create tactics and measurement plans. Put into action the plan or the how. Craft specific business and IT actions required to implement each strategy. Look to create trigger events or initiate actions such as incentives to drive desired outcomes. One approach is to apply A/B testing methodologies to identify which programs would be more interesting to certain types of customers. For example, a bank has discovered that walk-in customers with safety deposit boxes sign up for additional products and services more often than others. They might now set up a campaign to test which offer appeals the most to these customers: signing up for online accounts or teaser rate CDs. The results of a 30-day campaign could be used to identify future customers for cross-sell or upsell, and more importantly, to decide when to make the targeted offer. Metrics could then be compared with initial baselines as stakeholders tweak their tactics to optimize for customer satisfaction and profitability. In this example, MDM for customer data plays a subordinate role to the marketing initiative. Figure 2 Build An MDM Business Technology Value Plan MDM value plan Description Example Business goals: Why? Corporate business objectives Measure business performance Sample metrics: market share, retention rate, profitability, segment ownership Strategies: What? Stakeholder-centric approaches in support of business goals Analyze, segment, and target Sample metrics: value, propensity, risk, products, trends Tactics: How? Specific business actions required to implement each strategy Initiate action (e.g., trigger events) Sample metrics: incentives and outcomes

5 5 Figure 3 Sample BT Value Plan For Customer Hubs In Action Customer example: high-tech B2C CRM value plan Increase retention and value Example Customer retention Share of wallet Usage of online channels Customer segmentation scenarios Promote product mix to drive loyalty Product mix optimization by segments Behavioral detail by segments New customer program, retention alerts Trigger events: online customer registration, preference management, automatic offer generation for key milestones, community blogs, and RSS feeds Figure 4 Sample BT Value Plan For Product Information Management (PIM) In Action Product example: retail CPG PIM value plan Reduce slow-moving SKUs Examples Common product category sales Stock levels Order demand signals Product segmentation scenarios Conduct 30-day inventory reviews Velocity charts by product category Behavioral detail by product category Conduct rolling 30-day inventory reviews Trigger events: operational dashboards, RSS feeds, par value alerts

6 6 R E C O M M E N D A T I O N S KEEP MDM STRATEGIES IN LINE WITH BUSINESS GOALS MDM strategies require both technology and business strategy components. Successful MDM projects align overall MDM strategies with business goals while concurrently adding relevance and prioritization to corporatewide initiatives. Information and knowledge management professionals should: Regularly assess MDM strategies with business drivers. A good practice includes assessing your current MDM strategy and then performing ongoing, semiannual periodic reviews. Prioritize cost-saving initiatives in today s period of economic uncertainty. Given the current economic state, projects with the highest likelihood for funding include support for regulatory requirements such as Sarbanes-Oxley, counter-party risk, and product recall/ product safety support. Use a framework to gauge progress across multiple dimensions. Use Forrester s longterm packaged applications strategy framework to gauge progress across not only the MDM components, but also the organization s overall project portfolio. 2 ENDNOTES 1 Successful packaged apps strategies require business process and applications professionals to align with corporate business drivers. But because business drivers for individual IT projects often shift with time, the portfolio of apps initiatives requires organization and alignment by economic state and project risk. Once alignment is achieved, business process and applications professionals should identify the high-priority initiatives that best align with current business drivers and create a business technology (BT) value plan that connects the dots between corporate strategy and application tactics. See the March 20, 2008, Does Your Apps Strategy Support Your Corporate Business Drivers? report. 2 Forrester developed a framework of more than 150 applications strategy elements organized around the four pillars of a successful long-term packaged apps strategy: people, process, technology, and ecosystem. To breathe new life into your long-term packaged apps strategy or generate a strategy if your organization lacks one business process and applications professionals should use this framework and self-assessment designed to assess your current strategy, identify areas for improvement, and provide a baseline to track ongoing progress. See the December 11, 2007, Forrester s Long-Term Packaged Applications Strategy Framework report. Forrester Research, Inc. (Nasdaq: FORR) is an independent technology and market research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. For more than 24 years, Forrester has been making leaders successful every day through its proprietary research, consulting, events, and peer-to-peer executive programs. For more information, visit , Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. To purchase reprints of this document, please resourcecenter@forrester.com.