Article updated on: 5 November 2024
We are at an inflection point when it comes to artificial intelligence. Companies that fail to adopt the technology in the next couple of years will be caught in the downward spiral few can escape. On the other hand, the ones that leverage AI will see tremendous benefits in their efficiency and bottom line.
Until now, however, managers have mostly ignored the basics they need to cover regarding data. They were busy chasing the newest AI-powered solution without stopping to think if it could work with the data they had. And many are finding out the answer is ‘no’.
This leads us to the main question: What happens when your company’s data isn’t useful because it’s kept in isolated pockets throughout your organization? Or, in other words, stored in data silos.
In this article, we’ll cover:
What Are Data Silos?
A data silo is a collection of data accessible to one team or department within the company but not to others. Just think about all the PowerPoint decks, meeting notes, or monthly reports you couldn’t open recently and had to wait until someone gave you access.
This issue can initially seem minor – after all, most of us are guilty of unintentionally hoarding data. But the number of data silos and their size increases exponentially over time, leading to potentially crippling consequences for the company. More on that in the next section.
Cost of Data Silos
The hidden costs of data silos can greatly affect your business and prevent you from being a market leader. We say ‘hidden’ because they can often be difficult to spot and attribute, so companies carry on as usual until something big breaks down.
Some of the most common costs of data silos include:
- waste of time and resources
- lack of cooperation and coordination between teams
- incomplete view of the business
- poor customer experience
Waste of Time and Resources
When data is trapped in silos, employees often spend an unnecessary amount of time searching for the information they need. This inefficiency results in lost productivity, as team members might spend hours duplicating efforts or manually integrating data.
Moreover, the resources allocated to managing these fragmented data sets divert attention and funds from more strategic initiatives, hindering overall business growth. According to SiriusDecisions, it costs about $1 to prevent a duplicate, $10 to correct a duplicate, and $100 to store a duplicate if left untreated.
Lack of Cooperation and Coordination Between Teams
Data silos can appear if your organizational culture lacks transparency and trust, but they can also cultivate this type of culture. As a result, teams will be more hesitant to share data with others or even resist change programs that aim to break down the silos.
When data is difficult to share, all teams work independently based on the available data. In such a scenario, they are unlikely to work together towards a common company goal. This way, you end up with a company that is less unified and less innovative since open collaboration and trust are the main pillars of true innovation.
Incomplete View of the Business
If you’re leading a company, there’s a high chance you had to make far-reaching strategic decisions in the past. Maybe you were deciding on a new market to enter. Perhaps it was saying ‘yes’ or ‘no’ to a new product launch. One thing these situations have in common is that you want to ensure you have all the data available.
Data silos make it difficult for leaders to see the big picture, as they only have access to separate datasets without the overall context. This lack of clarity creates space for bad decision-making with potentially devastating consequences.
Poor Customer Experience
When customer data is fragmented, the service you provide can suffer. Inconsistent information leads to disjointed experiences for customers, who can receive mixed messages from different parts of the organization.
A single, unified customer view is essential for crafting personalized, effective interactions that enhance satisfaction and loyalty. Without it, a business risks alienating its audience and damaging its reputation, ultimately affecting its bottom line.
Low Quality of Data
Data is one of the most valuable assets your company has. But with time, data becomes outdated, incomplete, or goes missing altogether.
When you store the same data across multiple (isolated) locations in your organization, you don’t just waste storage space. You also prevent data from being cross-checked and corrected, leading to more bad data – which will cost your company. In fact, MIT Sloan reports that the cost of bad data for most companies is between 15% and 25% of their revenue.
How Are Data Silos Created?
Data silos happen naturally over time as teams create and store data for their own needs. However, five main reasons lead to the creation of data silos:
- siloed organizational structure
- mismatched technology
- people and company culture
- business growth and acquisitions
- lack of a data strategy
Let’s go through each of them in more detail.
Siloed Organizational Structure
In organizations where teams or departments operate as independent units, it’s natural for data to be siloed. After all, each group has its way of working with different goals, timelines, and policies. And all of this will reflect on how they collect data and why.
This situation is likely to happen in large organizations with a rigid organizational structure made up of teams working completely independently.
Mismatched Technology
Teams operating as separate units are more likely to buy software solutions independently. As a result, you get a convoluted web of mismatched solutions being used across the organization. The latest research shows that, on average, companies use 112 SaaS tools, with large companies going up to over 150 solutions.
As you can imagine, getting over a hundred different solutions is nearly impossible, which leads to the creation of data silos based on the tool a team is using.
People and Company Culture
As is often the case, people – and how they interact – have a massive effect on how frequently data silos appear. Suppose the organizational culture of a company doesn’t promote transparency and openness. In that case, teams will be very reluctant to share their data with others.
After all, we are only human, so it’s normal to feel a sense of ownership of our data. But, this makes us suspicious when someone asks for it – especially in a highly competitive business environment.
Business Growth and Acquisitions
Data silos can also be a result of uncontrolled growth spurs. As the organization becomes too large too quickly, structural issues can naturally create data silos. It’s the same in the case of acquisitions or mergers, which can bring their own data silos into the organization or make new ones if the systems between the two are not interoperable.
Lack of a Data Strategy
A company that doesn’t have a comprehensive data strategy is particularly vulnerable to data silos. Without clear guidelines on collecting, managing, and sharing data across the company, teams can develop their own methods and policies.
If your marketing collects and formats customer data in one way and your sales in another, it’s complicated for them to share or even understand the meaning behind the data.
How Do You Identify Data Silos?
Since data silos sprout naturally over time and are often connected to organizational culture, they can be challenging to identify in the first place. In a perfect world, your IT department would audit all the different systems across the organization, identifying silos as they go. However, this takes time and money, so companies often hesitate to go into a full IT audit.
Based on our first-hand experience in this area, we’ve come up with a list of questions that will help you recognize if there are data silos in your company:
- Do your teams often produce conflicting reports on the same topic?
- Is there a lack of communication between departments, leading to missed opportunities?
- Are departments working independently on similar projects, resulting in duplicated efforts?
- Do you have to navigate multiple steps or approvals to access essential data for your work?
- Are the goals and strategies of different departments misaligned, with little coordination between them?
- Are different departments using different software systems for similar tasks?
- Is decision-making delayed because crucial information isn’t available in one central location?
- Do you frequently need to manually reconcile data from different sources to ensure accuracy?
- Is it difficult for you to get a comprehensive view of the organization’s performance due to scattered data?
- Is tracking contributions of various departments to company goals challenging due to a lack of unified metrics?
- Is there resistance to adopting new organization-wide systems because of a preference for existing ones?
- Is there a heavy reliance on specific individuals to access or interpret data, causing issues when unavailable?
- Does the organization face challenges with regulatory compliance because data is stored in various, uncoordinated locations?
- If you answered most of these questions with a ‘Yes’, there is a big chance your company is suffering from data silos. Luckily for you, the next section is entirely dedicated to finding the best way to break down data silos.
How to Break Down Data Silos?
When it comes to dismantling data silos, the approach will depend on the causes that contributed to their formation. Here are some effective ways to eliminate data silos in your organization:
- foster a collaborative culture
- centralize your data
- establish data governance practices
Foster a Collaborative Culture
If company culture is the reason behind data silos in your organization, changing it would be the best solution. But as we all know, that’s easier said than done – especially in large organizations.
An excellent way to start would be to openly communicate with your teams about the adverse effects of data silos. Helping them understand why data silos are problematic for them and their work goes a long way – as none of us want to spend more time dealing with mundane data tasks than we absolutely have to.
On the other hand, work to promote a culture of openness and transparency throughout your organization. For example, you can organize workshops with people across different departments working together. Workshops will help your teams understand what information others need and the best way to get it to them.
Finally, clearly communicate the overall company goals and how different departments need to align with them. This will help avoid redundant effort and ensure that every team works towards a shared vision.
Centralize Your Data
A surefire way to get rid of data silos is to centralize your data into a cloud-based solution. Doing so ensures that all the data you collect through the organization is unified and accessible to all relevant teams.
Depending on where the silos are most common, you might need to consider different solutions. For example, Enterprise Resources Planning (ERP) systems are great for unifying data vital to your backend teams (such as finance or logistics).
On the other hand, if the issues are with the customer data, then you would mostly benefit from a customer data platform. This platform combines data from disparate sources into a single 360 view of the customer, allowing your marketing and sales teams to launch highly precise and targeted campaigns.
However, it’s not all about buying a new solution. You also need to equip your team with the necessary skills to use these integrated systems effectively. By providing ongoing training, you improve employee proficiency and encourage the adoption of new methodologies.
Establish Data Governance Practices
Developing robust data governance practices is critical to breaking down data silos effectively. This includes establishing roles, policies, and procedures for data management.
A good first step would be establishing a team or data governance council to oversee these roles, ensuring compliance and consistency in handling data across departments. Follow that up with clear data entry, storage, access, and sharing policies to avoid discrepancies and miscommunication.
Furthermore, adopting standardized data formats and protocols can streamline data integration across various platforms, reducing redundancy and error. You should conduct regular audits and compliance checks to identify gaps or inefficiencies in data handling.
By establishing these governance practices, organizations can cultivate an environment where data is regarded as an asset, enhancing its quality, security, and availability across departments.
Ready to Tear Down Your Data Silos?
Whether your data silos are caused by technology or culture, we at NETCONOMY are uniquely positioned to help. Our blend of business understanding and cutting-edge technologies means we will provide you with the best way to break down your data silos.
Get in touch. Our consulting team would be happy to book an exploratory call to find out more about your unique context and challenges.
