Jesper Apps |Blog Detail

30 Nov, 2024

Introduction to Siloed Systems and its importance in a Business Landscape

Siloed System refers to informational data that is isolated within different systems, departments, or teams, making it difficult for the organization to access and utilize it in a comprehensive, unified way. In many businesses, data is stored in separate, disconnected databases, applications, or platforms—often due to legacy systems or lack of integration. This fragmentation leads to inefficiencies, errors, and delays because teams are unable to easily share or leverage data across organizational boundaries. As a result, siloed data hampers decision-making, slows down operations, and can significantly affect business performance and growth.

Siloed data doesn’t just hurt one department—it erodes organizational agility, customer satisfaction, and long-term growth. Breaking down silos through integration and data centralization is no longer optional; it’s a business imperative.

Are you ready to tackle the cost of siloed data in your organization? Let’s discuss how integration strategies can transform your operations.

The cost of siloed data is significant, impacting businesses in multiple ways:

1. Lost Productivity:

Employees spend countless hours manually reconciling data across systems.
Duplication of efforts occurs when teams work without visibility into each other's activities.
Studies show workers waste 4-6 hours weekly searching for or re-entering information due to siloed systems.

2. Poor Decision-Making:

Fragmented data leads to incomplete or outdated insights.
Leaders risk making critical decisions based on inaccurate or inconsistent information.

3. Revenue Loss:

Delayed actions due to slow data access can lead to missed opportunities.
Customer churn rises as service teams lack a 360° view of the customer journey.
On average, businesses lose $15 million annually to inefficiencies caused by data silos (Gartner).

4. Increased Costs:

IT teams face higher costs maintaining redundant systems and troubleshooting data sync issues.
Manual workarounds inflate operational costs and decrease profitability.

5. Compliance Risks:

Inconsistent data makes regulatory reporting and audits more complex.
Errors in siloed data can lead to fines or legal challenges.

How is the cost of Siloed Data calculated?

Calculating the cost of siloed data involves assessing the direct and indirect impacts on your organization. Here’s a step-by-step guide to quantify these costs:

1. Identify Key Areas of Impact

Determine which business critical functions that suffer due to siloed data. Common areas include:

Employee Productivity: Manual tasks and duplicated efforts.
Missed Revenue Opportunities: Delayed decision-making or lost sales.
Operational Inefficiencies: Higher costs for IT maintenance or redundant tools.
Customer Satisfaction: Losses from poor customer experiences or churn.
Compliance Issues: Fines or penalties due to inaccurate reporting.

2. Quantify Productivity Losses

Calculate the time employees spend weekly on manual data management (e.g., searching for data, reconciling discrepancies, re-entering information).
Multiply this by their hourly wage to get the cost of lost time.

Formula:

Cost = (Hours lost per week×Employee hourly rate)×Number of employees affected×52

3. Estimate Revenue Impact

Evaluate how delayed or poor decision-making affects your bottom line (e.g., lost deals, delayed launches).
Calculate churn caused by poor customer experiences due to siloed systems.

Example:
If poor integration leads to a 5% customer churn rate and the lifetime value (LTV) of a customer is $10,000:

Lost revenue=0.05×Total customers×10,000

4. Assess Operational Costs

List all redundant tools or IT systems that exist because of silos.
Factor in costs of additional IT support for maintaining fragmented systems.

5. Factor in Compliance Risks

Identify past fines or penalties linked to siloed data issues.
Estimate potential risks based on your industry’s compliance requirements.

6. Combine the Costs

Sum up the costs from all categories to get the annual cost of siloed data.

Total Cost of Siloed Data:

Productivity Losses+Revenue Impact+Operational Costs+Compliance Penalties

7. Evaluate Opportunity Cost

Consider the growth opportunities lost due to siloed systems (e.g., delayed innovations or market expansion). While harder to quantify, this can be an additional cost layer.

Example Calculation

For a company with:

50 employees wasting 5 hours/week on manual tasks at $30/hour.
$200,000/year in IT redundancies.
A 3% churn rate among 1,000 customers with a $10,000 LTV.

Calculation:

Productivity Loss=50×5×30×52=390,000

Lost Revenue=0.03×1,000×10,000=300,000

Operational Costs=200,000

Total Cost = $390,000 + $300,000 + $200,000 = $890,000 annually.

Business Case Example: Chemical Manufacturing Company with 1000+ Workforce

Let’s assume we’re dealing with a chemical manufacturing plant that produces specialized chemicals.

The company operates multiple production lines, each with its own set of siloed data (e.g., production systems, inventory management, maintenance logs, quality control).

1. Productivity Losses Due to Manual Data Entry and Delays

Problem: Data from the production line isn’t integrated with inventory or quality control systems. This results in manual reconciliation between systems, leading to delays in production and inventory tracking.
Impact: Employees spend significant time updating multiple systems manually, which reduces the time spent on actual production and maintenance.

Calculation:

Assume 30 employees (production, inventory, and quality control) spend an average of 5 hours/week on manual data reconciliation.
Hourly wage = $25/hour

Annual productivity loss:

Cost of Lost Productivity=30×5×25×52=195,000

2. Increased Maintenance Costs Due to Lack of Real-Time Data

Problem: Siloed data leads to inefficiencies in equipment maintenance. For example, production data is not connected with the maintenance scheduling system, meaning issues are often identified too late, resulting in unplanned downtime and emergency repairs.
Impact: Equipment failure costs are higher due to reactive maintenance rather than proactive, data-driven maintenance planning.

Calculation:

Assume the plant experiences 3 days of unplanned downtime per month because equipment failure is not detected in time.
Each day of downtime costs the company approximately $100,000 due to lost production.
The plant experiences 12 unplanned downtime events per year due to data silos.

Annual downtime cost:

Cost of Unplanned Downtime=12×100,000=1,200,000

3. Regulatory Compliance and Reporting Issues

Problem: Siloed data across different departments (e.g., production, quality control, and safety) makes it difficult to gather accurate information for regulatory reporting, potentially leading to non-compliance.
Impact: The company faces fines and penalties due to inaccurate reporting or missing documentation. For instance, discrepancies in quality control records or safety compliance data could trigger inspections or fines.

Calculation:

Assume the company faces a $250,000 fine annually due to inaccurate or incomplete regulatory reporting because siloed data prevents accurate record-keeping.

Compliance cost due to fines:

Cost of Non-Compliance=250,000

4. Lost Revenue from Delayed Orders and Production Bottlenecks

Problem: Sales and production data are siloed, meaning customer orders are not automatically aligned with available production capacity or raw materials. This leads to delays in order fulfillment, which in turn affects revenue.
Impact: Customers wait longer for their orders, potentially seeking other suppliers, and the company misses out on sales opportunities.

Calculation:

Assume the company loses $500,000 in sales per year due to production delays and misaligned inventory.

Lost revenue from delays:

Cost of Lost Revenue=500,000

Total Cost of Siloed Data for the Chemical Manufacturing Company

Now, let’s sum up the costs:

Lost productivity: $195,000
Unplanned downtime: $1,200,000
Regulatory fines: $250,000
Lost revenue from delays: $500,000

Total Cost = $2,145,000 annually.

Key Takeaways:

Siloed data creates operational inefficiencies, higher maintenance costs, compliance risks, and lost sales opportunities, all of which significantly impact profitability.
Integration of systems—such as production, inventory, and maintenance software—can streamline data sharing across departments, reduce manual effort, enable real-time maintenance, and improve regulatory reporting, ultimately saving millions annually.

Conclusion:

Today, businesses are transforming into technology companies and they can no longer afford the inefficiencies and risks caused by siloed systems. The inability to integrate data across various platforms not only slows down operations but also impedes decision-making, stifles innovation, and increases operational costs.

This is where JesperApps stands out as a trusted expert in system integration. With years of experience in connecting disparate systems and ensuring smooth data flow, JesperApps provides tailored integration solutions that break down silos, streamline processes, and empower your organization to operate at its full potential.

By leveraging cutting-edge integration tools and deep industry expertise and process knowledge, JesperApps helps businesses achieve seamless data synchronization between ERP, CRM, SCM and other core systems. This ensures real-time, accurate information is available across departments, improving productivity, reducing operational costs, and enhancing customer satisfaction.

Talk to us today for a free audit of your existing systems!