What Is Master Data Management and Why Is It Important?

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master data management

Master Data Management (MDM) is an important method for developing and maintaining the uniformity and accuracy of the organization’s shared “master data.” Master Data Management allows businesses to improve the accuracy and uniformity of their important data assets, such as customer data, product data, asset data, and location data.

Master data can be described as an organization’s core data. This core data is based on information that rarely changes and is essential for running a business’s operations. The ever-increasing amounts of data businesses collect and store about their products, inventory, data assets, and customers must be managed in order to remain accurate. Inaccurate data, and especially inaccurate master data, makes it more difficult to make intelligent decisions about the business.

During the 1950s and ’60s, back when electronic computers were not yet commonplace, organizations did have master data containing what was – and still is – called “contact information.” It was normally copied by hand into the organization’s master file from a salesman’s address book, and vice versa. These master files often existed in the form of Rolodexes and address books.

General Data Management, as a computer concept, was introduced in the 1960s by ADAPSO (which, after being renamed a few times, is now called TechAmerica). The computerized version of master data evolved as a result of Data Management programs that became popular in the 1980s. These included early master Data Management software programs.

Master Data Management provides businesses with a way to access all of their essential data from one file – referred to as a master file or a master data file – that acts as a common reference platform. When done correctly, master Data Management can provide accurate, trustworthy data that can be shared between staff and departments.

(Author’s note: A large number of articles seem to describe Master Data Management as though it is Data Governance using another name. Master Data Management focuses on master data, while Data Governance deals with all of an organization’s data. The two systems usually work hand in hand and support one another.)   

A Potential Business Horror Story

A business – your customer – moves from 847 North Hamilton St. to 1045 North Oak. The business changes its billing address with your organization immediately but receives no invoices for two months. Concerned, the customer calls and verifies that your organization has the new address, and the accounts department verifies it as 1045 North Oak. The customer asks for the recent invoices to be mailed again to the new address, to settle the account.

After another 13 days without the invoices, the customer discovers their account has been frozen. Calling and demanding more information, the customer discovers that even though their address in the master file is listed as 1045 North Oak, the billing department shows the address as 1045 North Hamilton. The problem is resolved, but the customer decides they no longer want to do business with such a “disorganized” organization.

The billing department apparently created its own data silo, because there was no Master Data Management system. Without accurate records, several departments within the business may struggle with incorrect information and angry, frustrated customers. Master Data Management has become a critical necessity for data-driven businesses.

Multi-Domain Master Data Management

Master data is data that changes rarely and normally includes reference information, which can provide context. Master data, by nature, is not considered transactional – though it does “define” the organization’s transactions. There are several different types, or “domains,” of master data. Each domain of master data has its own unique importance and purpose. Some examples of master data domains are listed below:

  • Customer Data: Used to record and manage communications and relationships with customers. It typically includes such information as the customer’s name and address, purchase history, and contact information.
  • Product Data: Includes information such as descriptions, product names, prices, and stock levels. This process is typically used to track and manage the business’s inventory. 
  • Financial Data: Used to follow and manage the business’s financial performance. It can include information about expenses, income, and profit margins.
  • Party Data: Holds information about individuals and organizations, such as customers, vendors, suppliers, employees, etc. 
  • Financial Structures: Information about various assets, accounts, and certain documents.
  • Locational Concepts: Provides information about geographical areas, such as sales territories and office locations.

Multi-domain Master Data Management systems control all different types of master data from one location – a centralized platform. A multi-domain Master Data Management system integrates all of an organization’s domains, providing access to all of an organization’s master data in a single file.

Multi-domain Master Data Management systems impact essentially all data transactions within an organization.

The Importance of Master Data Management

Donna Burbank, the managing director of Global Data Strategy, described the good management of master data as providing a full view of the organization’s core data. She said: “Master Data Management (MDM) can help build this 360-degree view of key business information to allow you to take full advantage of your organization’s data for better business outcomes.”

Master data is the data that is absolutely critical to the business’s operation. It is data that multiple departments rely on for accurate information. From product data to customer data to inventory data, master data provides a standard of accuracy. By understanding the importance of MDM, organizations can maximize their data’s full potential. Master Data Management can benefit an organization by improving a variety of processes, such as: 

  • Business intelligence
  • Improved Data Quality 
  • Increased efficiency
  • Reduced cost of data integration
  • Supply chain management
  • Enhanced Data Governance
  • Improved data security

Business intelligence: With the decline of purchased third-party data for marketing research, first-party data is becoming increasingly important in developing business intelligence. Master Data Management is an ideal platform for researching first-party data and gaining insights into a business’s customer base. 

Additionally, MDM can be used for customer segmentation by the sales, marketing, and service departments. Customer segmentation involves grouping customers by why and how they make their purchases. This process allows businesses to develop specific marketing and sales strategies for different groups of customers. 

Improved Data Quality: Master Data Management establishes a single source of consistent and accurate data. By using it as the authoritative reference, it helps to minimize data errors and inconsistencies, which improves Data Quality. In turn, improved Data Quality helps businesses to make better decisions.

Increased efficiency: A modern MDM system helps to automate the various Data Management processes. It should reduce the number of manual data entries, and reduce the errors that were caused by inconsistent data. It can help businesses to integrate their data more quickly, efficiently, and accurately. 

Reduced cost of data integration: An effective master Data Management solution should automate many of the Data Management processes, reducing the costs of data integration. MDM can be used to reduce the costs of data integration by providing a consistent and accurate base of critical business data. 

Supply chain management: MDM offers businesses a single, consistent view of the information affecting supply chain management. It will eliminate the data silos that individual departments sometimes create and bring the information together for a complete picture of the supply chain.

Enhanced Data Governance: A primary goal of Data Governance programs is improving Data Quality. MDM supports this goal by providing a single consistent source of accurate data. This helps to ensure the data is used consistently by all departments of the business, reducing the risk of human error. 

Improved data security: The use of MDM can improve a business’s data security by establishing a central storage space for its critical data. MDM allows sensitive information to be managed, controlled, and secured from a single location. Modern master Data Management solutions often include advanced security features.

The Future of Master Data Management

The next evolutionary step in the development of MDM will most probably involve the use of machine learning and artificial intelligence. These technologies can be used to predict events, identify data anomalies, provide recommendations, and classify information. Other probable trends include:

  • Increased cloud usage: Currently, MDM is being used more and more as a cloud-based solution. The cloud offers scalability and cost-effectiveness while managing master data.
  • Data fabric: The use of MDM is an important feature for the new approach to Data Management called data fabric. This Data Management system involves connecting data taken from different sources within an organization to develop a unified view of the organization’s data. MDM provides a common source of reliable data.
  • Improved security: MDM systems are currently supporting the use of data encryption and tokenization, as well as other security measures. It is reasonable to assume, with hacking, and other data security threats, that improvements in data privacy and security will continue to be made.

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