• Brendon Koh

Why are Data Silos Bad for Business?

Updated: Jun 30, 2021

Data silos pose a serious issue for businesses, and many firms are completely unaware that they exist within their organization. Often data is collected in one system, reported in another, and then shared or exported on a completely different platform. While these decisions may have made sense at the department level, it prevents the integration needed to make crucial business decisions. If data only exists, in silos no one understands the big picture – a major problem that must be corrected.

What is a Data Silo?

A data silo, sometimes called an information silo, refers to an instance where only one particular group in an organization can access certain data. In other words, it is when there is a repository of information that cannot be easily or fully accessed by other systems or departments. For example, marketing and sales departments rely on specific data to operate, and sometimes the information is collected separately and housed in different systems. Lack of proper integration creates separate data silos, and this can lead to overlapping and inconsistent information and reduced efficiency. In this instance, the data silos may make it impossible to credit specific sales to a marketing campaign.

There are three basic types of data silos: cultural, technological, and structural. Cultural data silos are a result of a department within an organization choosing to keep information from the other - instead of working together. A technological data silo involves the use of systems or databases that cannot cross-reference each other, or when different groups do not have access to the necessary platforms. A structural data silo refers to those stemming from complex hierarchies within large organizations that create information sharing issues between the many layers of management.

How are Data Silos Created?

Most data silos are created when a business purchases too many custom applications or ERP systems that do not support proper integration. Sometimes these decisions are made at individual department levels and may make sense at the time, especially considering how easy it is to use the SaaS model, or subscription as a service.

Most SaaS applications used to manage core processes do not directly integrate. This leads to multiple sources of data and applications and will eventually spur the development of data silos.

Data silos also occur naturally as a business grows, as digital transformation and automation become an increased priority. Technological systems and organizational processes within a business must adapt to allow for growth, but often decisions are made in an ad hoc way to solve the issues currently being faced. Failing to scale these processes and prepare for the future will result in duplicated efforts, redundancies, and obsolete processes. It also creates a backlog of cleanup work that must be done when growing in the future.

Complex organizational structures can also inadvertently create data silos. Restrictive access control systems and red tape can inhibit data-sharing, and often no one is responsible for ensuring that there is collaboration and integration across the whole organization.

How Data Silos Can Negatively Impact your Business

Organizations that purchase niche applications may be able to get by for a while, but they may suffer in the long run due to the negative impacts that data silos can have on your business. Companies must have collaboration between departments and core business processes to be truly competitive and make strategic, data-driven decisions.

Data silos significantly reduce employee efficiency and lead to direct waste of company resources. If data is spread across several systems and not integrated, it will take much longer for decision-makers to analyze it and determine how to proceed. This delay can truly inhibit a firm's ability to compete in the market.

F5 surveyed firms in 2016 to determine how many different applications existed within their organization, and the results made it clear that data silos are a serious issue. 54% of those surveyed said they had as many as 200 different applications on their networks, while 23% said they had a staggering 500. Imagine how overwhelming it would be to have to investigate an issue by manually checking each data silo to try and put together relevant information!

This dense network of applications, which often includes duplicated and siloed systems, also results in higher costs within IT departments. It takes additional resources and efforts to maintain and support all of these different platforms.

Data integrity also suffers when data silos exist because information can be duplicated or improperly sourced when kept only at the department level. The inability to reconcile these issues can cause significant logical errors during analysis and result in inaccurate findings. Similarly, bad data can lead to incomplete views of essential information that may cause leaders to make poor decisions.

Benefits of Integrated Business Applications

Data silos and the issues they cause must be resolved, and this can only happen if management encourages cross-team collaboration and invests in a system that allows databases and business to be fully integrated within the organization.

Application integration, which refers to the process of trying to get independent applications to work together, is an option – but one that can be very manual and require the installation of additional middleware. Fortunately, applications like Integromat make data integration possible through trigger-based events or user defined schedules across different applications without expensive middleware.

A better solution is cloud-based relational databases. Cloud-based relational databases allow real-time data synchronization across all employees and workflows on a single data warehouse which enhances collaboration and makes it easier for performance analyses.

To further prevent data silos, organizations should adopt these integrated solutions that can be customized to meet their unique organizational needs, as well as to adapt and scale as their business does.

If data is shared across an organization, management can make accurate data-driven decisions and understand the big picture. Integrated ERP systems built on cloud-based relational databases allow leaders to discover trends and opportunities that they may not have been able to identify before.

As you can see, data silos present major challenges for small and mid-sized businesses – especially if management is unaware that they exist. These firms need to adopt an integrated solution early on that supports data-driven decision making, digitalization, and business process automation.

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