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Rely on Data Quality to Survive
InfoManagement Direct, August 20, 2009
We are currently experiencing a domino effect as IT manufacturers and other organizations, cut spending to offset revenue losses during these challenging economic times. Inevitably, during this belt-tightening process there have been major job losses across the IT industry, as sales of both hardware and software products significantly decrease. New technology service contract sales also face steep decline as a result of the reduction in IT spending. According to Gartner, Inc, “The unprecedented decline of the global economy is impacting the IT industry with worldwide IT spending forecast to total $3.2 trillion in 2009, a 3.8 percent decline from 2008 revenue of nearly $3.4 trillion.”
Regardless of this doom-and-gloom forecast, technology manufacturers and their channel partners can use this scenario to their advantage by shifting emphasis to service renewal sales and increasing their focus on warranty revenue streams. Now more than ever, is the time for this shift to take place because customer organizations are saving money by using their technology infrastructure products longer. This means the need to purchase extended service contracts to protect valuable IT assets is at an all-time high.
Data Quality Is Key
Data quality is the key component to a successful business. Complete and accurate customer records are essential for effective selling of products and services. It is important for a company’s survival to establish and standardize data quality practices in order to maintain a healthy, progressive business during this economic slump. The impact data quality has on a company’s sales effectiveness, and the systemic issues that poor data quality has on the entire organization can dramatically affect the sustainability of a business.
By utilizing the principles of data quality to improve business intelligence, companies can maximize service sales opportunities to ride out this economic storm while also setting their organizations up for success when the global economy recovers. Plus, with market research indicating growth in services revenue, taking a closer look at this business as a sustainable revenue stream clearly makes sense. Indeed, according to Gartner, worldwide IT services revenue totaled $806 billion in 2008, an 8.2 percent increase from 2007 revenue of $745 billion.
So how can organizations generate reliable and complete customer data in the interest of improving service sales? In order to solve data quality issues, it’s important to understand why the data got so disheveled in the first place.
Unreliable Data: Why Does It Get That Way?
Historically, services have been perceived as a one-time sale. The business intelligence obtained from a service sale (e.g., contract number, expiration dates and purchase order number) is often stored in a different system than product information and customer contact information. Hence, a data disconnect often emerges at the onset of the transaction. Another challenge impacting data quality issues is the fact that product and service registration often doesn’t occur at all. Without registration, it is nearly impossible to align a service contract to the product that it serves, which subsequently affects a company’s ability to renew that service contract when it expires. The data obtained from registration is critical for completing a customer record for follow-up renewal sales and future product refresh sales opportunities.
Another issue is that service contracts are often sold through a two-tiered channel consisting of a distributor/wholesaler and a dealer/value-added reseller, making sales processes complicated and leading to missing information in the collection of customer contract data. Challenges arise because adequate automated systems are not in place for properly registering or effectively tracking the sale of the service contract. In addition, data is stored in disparate systems, requiring time-intensive mining and management – an undertaking that most companies would rather avoid. Compounding the issue, distributors work with hundreds or even thousands of VARs, who in turn may also represent numerous manufacturers, each with specific business rules and methods for registration. As a result, the quality of the registration data is compromised, which not only leads to delays in customer service entitlements but also hinders service sales and renewal efforts.
For these reasons, many companies have insufficient data to turn their services business into a successful profit center. It's not that the data doesn't exist; it’s that there are too few effective tools and processes in place to allow them to leverage the existing data. In addition, the cost to manually uncover and purse a service renewal opportunity is often perceived as too high. As a result, it’s estimated that most companies have at least five years’ worth of product and service contract data that they can turn into major revenue streams today. But because these same companies have been so focused on product sales, they have neglected this growing opportunity. Or, they simply have lacked the internal capability to improve the quality of their data and turn it into business intelligence that they can fully benefit from.
How Poor Data Quality Impacts Service Revenue Streams
Poor data quality is the primary factor driving these revenue detractors:
- More than 50 percent of maintenance contracts go un-renewed
- 30 to 60 percent of warranty service products are unregistered
- More than 50 percent of registration information is typically not actionable. Registration is defined as: complete customer contact information (i.e., phone, address, email, etc.), asset serial number, service contract number, purchase info, etc.
The Real Revenue Impact of Data Quality
A simple example illustrates how data quality is directly tied to service sales revenue. Let’s say Company X sold 100 service contracts at $500 each for a total of $50,000 in revenue. On average, only 50 percent of those contracts get registered. Lack of registration translates into a lack of data and an inability to track contract expiration dates, which essentially cuts the opportunity for renewing those services in half, amounting to $25,000 in renewal revenue losses. And, industry standards suggest that only 33 percent of the service contracts that are registered will contain complete and accurate data to finish the renewal sale, resulting in $16,750 in actual renewal revenue. Do the math and you’ll see that Company X just lost $33,250 in revenue as a result of ineffective registration and poor data practices.
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