The balance sheet of almost any Forbes Global 2000 company would show entries for assets such as property, cash, equipment and accounts receivable. Unfortunately, one item that is not seen in the asset section of the balance sheet is data. Data is every bit as valuable as property, equipment and accounts receivable. Low-quality data, poorly understood data, mismanaged data, redundant applications and poorly built applications prevent companies from effectively managing their other assets. How can a company convert accounts receivable into cash when the accounts receivable system has transaction records with data quality issues that prevent them from ever becoming billable? Moreover, all of the needlessly redundant applications create a substantial cost drain on the enterprise's cash assets.
This is an especially important concept because all companies are desperately trying to increase shareholder value. Corporate executives spend numerous hours looking for ways to increase the value of their companies because 95 percent of these executives' compensations are directly linked to shareholder value. They realize that shareholder value is tied not just to the assets on the balance sheet but also to nonphysical factors (e.g., intellectual capital, customer loyalty, brand recognition, etc.). Moreover, CEOs and CIOs are using successful technology implementations as trophies to improve shareholder value by enhancing the company's reputation as an innovator and by attracting better employee talent.
Understanding and leveraging technology is critical for any enterprise. The average company spends 5.3 percent of its gross revenues on its IT applications. This means that a company with $1 billion in revenues spends, on average, $53 million annually on their IT systems. Several Fortune 50 companies and large government organizations have IT budgets that approach or exceed $1 billion annually. These same organizations have implemented systems to manage almost every aspect of their business, including payroll systems, accounts receivable applications, order entry systems, marketing campaign management, human resource systems, logistics, invoicing applications and even systems to track the placement of office furniture and employee holidays. In fact, a great number of the same organizations have systems (though unauthorized) that manage the weekly football pool. Despite this massive investment, most companies do not have an application to systematically manage their IT systems. This reveals a fundamental truth about data management: We build systems to manage every aspect of our business except the systems themselves.
Despite spending exorbitant amounts on IT, most companies still do not value data as an asset, whether on the balance sheet or in the boardroom. Most companies' IT development processes can best be described as piecemeal. Typically, systems are built through heroic effort by groups of developers and business users who get together to implement new applications (e.g., data warehouse, customer relationship management, enterprise resource planning). These heroes embark on a perilous journey to understand the existing (and often convoluted) system's architecture, work many long hours, make business assumptions with little or no common business understanding and hope that their efforts will be successful. This situation explains why 60 to 75 percent of large IT initiatives fail. Even successful initiatives may not be repeatable because an application development process is not in place and the standards for building the application have not been formulated or documented. Moreover, even those companies whose IT processes are repeatable find that they can be repeated only by a single group of developers. Their work and effort cannot be transferred to other groups. Even with a failure rate so high and an investment in IT so great, most companies still do not manage their applications systematically.
A managed metadata environment (MME) can manage a company's systems by cataloging the applications, data, processes, hardware, software (technical metadata) and business knowledge (business metadata) possessed by an organization. This information (metadata) can then be utilized to identify redundancies before they occur and eliminate duplication that already exists. A world-class metadata management solution dramatically improves data quality by providing a full understanding of the data and is essential for having repeatable and transferable IT processes because it centrally and completely documents data and applications. Business executives are beginning to realize the importance of managing their data as an asset and thus are starting to look to the MME as the crucial technical solution for data asset management. The key to your company's prosperity is how well you gather, retain and disseminate knowledge. Managed metadata environments are critical to gathering, retaining and disseminating knowledge.
One of the chief challenges in building a successful MME is to decide on the specific business objectives for your MME. In my next several columns, I will describe the most pressing challenges that organizations are currently facing, including the need to:
- Reduce IT redundancy,
- Provide IT portfolio management,
- Prevent IT applications failure,
- Reduce IT expenditures,
- Enable knowledge management,
- Adhere to regulatory requirements, and
- Enable enterprise applications.
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