With pressure from regulators to ensure the correct identification of business trading partners, entity data is coming into greater demand. But as David Reed finds out, do you choose your own definition of that business entity or source it from a third party?
What the barcode is to retailing, business entity data could be about to become to B2B organisations. That prediction by the European Central Bank reflects a sudden upswing in interest around how to align business customers within the database, understand their hierarchies and cross-links, and be confident that they have been correctly identified.
Legal entity identifiers (LEI) have long been a staple item of reference data, of course. They underpin many external data services, such as credit referencing. But as part of a new wave of global finance controls and better governance of risk, LEI may be about to jump the shark and establish itself at the heart of all B2B data management and data governance programmes.
As part of this trend, there is a growing focus on how to master business entity data. Should an organisation work on the basis of its own internal definitions, agreeing global what it will accept as a legal entity and even creating its own master list of businesses? Or will there need to be a new wave of data-as-a-service from third parties feeding into MDM hubs to support and validate this critical data component?
“Management of corporate hierarchies, organisational structures and legal entities among business partners and B2B customers is becoming a focus for our clients,” says Christophe Barriolade, CEO of Orchestra Networks. “In large organisations, functions like finance, human resources, risk and procurement are now taking the lead on MDM and trying to master hierarchies and entities as a corporate service.”
Regulatory pressure to establish global LEIs is growing, starting within the financial marketplace around inter-company trading, but expanding outwards beyond regulated sectors. It could become standard practice in all B2B environments with a few years. As a result, business entity MDM projects will no longer be isolated within single lines of business, but will move one level up to be enterprise-wide.
Barriolade points to corporate reporting as another important driver of business entity mastering. “For many years, MDM has been disconnected from the operational and analytical worlds. Now, by mastering hierarchy and business entity, it drives better analytics and reporting,” he says.
When the company has to put together its routine reports for shareholders, it becomes much easier to establish what risks or exposures exist from dealings with multiple entities. At the same time, operational efficiencies can result. “Our clients are trying to align operating, ERP systems to that regulated data to be sure any business application runs on the right reference data,” says Barriolade.
One major benefit from both reporting and operational systems being fed by master data in this way is the removal of lengthy reconciliation processes. If the same hierarchy and entity is used each time data is entered into a system, it removes the need to align multiple records manually when this has not been done.
This underlines the importance of adopting data governance processes as well as MDM technology when looking to master business entity. “You need a platform, support and change management because it is very complex,” he says.
Part of that complexity comes from deciding whether to validate reference data through a third party. Many companies adopt their internal perspective on hierarchies and entities, others use a commercial data provider to supply this information, and some even use two or more providers in order to be absolutely sure. The level of maturity around data governance within an enterprise will often determine the approach.
But Steve Cook, sales and marketing solutions leader at D&B UK, is more sceptical about what is driving the current interest in business entity. “MDM on one level doesn’t exist, in my view. To go into an organisation and talk about master data involving every part of the organisation being ready and willing and with the resources to adopt it from day one - that is very unlikely,” he says.
He does acknowledge a growing interest in using data-as-a-service as a result of one of two types of project. “We are seeing DaaS implemented in sales and marketing functions, then finance sees the advantages and wants to run it on its own system using our Duns number as the account number,” he says.
Where a central CRM system has been introduced, sales and marketing have often become much better aligned and are working off higher quality data. Their processes also become more effective, with prospects validated and identified from the start so that subsequent sales are properly attributed.
In some organisations this is happening the other way around. “Finance may be managing customers from a risk perspective using DaaS, then sales and marketing want to take advantage of that,” says Cook. He believes either of these help to avoid the risk of MDM projects imitating the data warehousing projects of the late 1990s, which often got bogged down through their sheer scale and multi-function complexity.
D&B has created connectors for the main CRM platforms which allow for plug-and-play functionality to be added to users’ screens. APIs have been established for other vendors that require more programming to achieve the same end.
Either way, once implemented, DaaS generates a traffic light indicator which shows data quality issues within the family tree of a record, such as where a duplicate record may already exist, and also a lead indicator for cross- and up-sell opportunities. “A company may already be dealing with five accounts that are part of the same group and we can show there are ten others that they are not working with. That provides an easy way in,” he says.
This is the strength of using a third party business entity master. In the case of D&B, it has 200 million global records which it is constantly reviewing and updating. Within a DaaS environment, those updates are supplied live to users every time they pull up a record. For global organisations, this can be really important to the alignment of sales and marketing where key account managers in different regions might be working on the same business entity and need to be aware of each other’s activities.
Whichever way around an organisation arrives at it, this is when business benefit starts to be derived from mastering data. There may be regulatory drivers for MDM projects which are sufficient in their own right. But many companies need more than that to trigger an investment.
Tony Fisher, CEO of DataFlux, says: “In MDM, you are trying to ensure that you have the best reference data available and that you are identifying opportunities across your organisation. If you look at what is provided by external data suppliers, they only provide half of that. The history has to be built internally and a data master created.”
Often when organisations start to talk about MDM, they really only want the reference data element which a third party can provide. Limiting the scope of a project in this way excludes the potential for future extension into other activities that might generate additional benefits, however.
“If you are only concerned about ensuring consistent information across systems, reference data is valid. If you want to do a few other things, like push update information to applications, rather than reactively when that record is accessed, that is a different project,” says Fisher.
This is where a MDM hub becomes relevant, since it delivers the knowledge which an organisation is continually building about its business partners out to every point where it might be needed. Aligning records to correct business entities and hierarchies will ensure this happens effectively.
“The ultimate driver of full MDM implementation is to get information across different applications aligned and fit for business intelligence and analytics. You need a single record of relationships and organisations you are dealing with. That is when you need a full-blown MDM hub,” he says.
Consistency of business entity data is not always an obvious need for some lines of business, such as sales. In fact, it can even be seen as an obstacle, for example where a new prospect is revealed as an existing customer elsewhere in the business. For compliance, it is important that entity data is consistent, but it does not necessarily need full mastery. When the business wants to understand the full scope of its relationships and partners, however, master data is critical.
DataFlux has created connectors to external reference data providers to support this type of MDM hub approach. “It doesn’t matter which external reference you want to use - we are vendor neutral. We have pre-built links for D&B and Experian and work with clients if they want to use other, specific providers,” says Fisher.
One major benefit of getting the full picture of business partners can be in supply chain management. If an organisation is regularly buying from three suppliers and then, through mastering entity data, recognises that they belong within the same company, it may be able to negotiate a volume deal based on its total buying.
For regulators, it is reporting and compliance that are the big issues which they are seeking to resolve through business entity data. There is a current push to create global LEIs for financial trading with the intention of avoiding trades with blacklisted organisations or those based in countries that are outside of permitted trading areas.
If that drive succeeds, it will trigger further interest in the whole realm of business entity data mastering. The benefits are evident, even if the process is not always easy.