The specific cost of data quality problems varies from business to business and vertical to vertical. But, on average, low-quality data costs organizations around $13 million a year (Gartner, 2021).
That’s a number that should make data leaders (and the C-suite leaders they support) sit up and take notice.
While the negative impacts of poor data quality can unite data leaders across verticals, the cause of those issues is as unique as each product or service that the data team supports.
As Tolstoy said, "Every happy family is the same, but every unhappy family is unhappy in its own way." I think about data quality the same way. Every negative business outcome is negative in its own way.
As a data leader, it’s your responsibility to contextualize data quality in a way that makes sense to business stakeholders within the scope of your business’ KPIs and goals. After all, with great power comes great responsibility, and that includes making sure that low-quality data doesn’t hurt the reputation and bottom line of your business.
Two things to consider when thinking about the impact of your data’s quality
Aside from that big scary number up top, how should you think about the way data quality impacts your business? The answer depends on two things:
- The quality of the data itself: While perfect data doesn’t exist in the real world, you should be able to identify what "good enough" data looks like for your company.
- How the organization uses data overall: There’s no single "right way" to use data. Rather, you should be creating data management best practices that make sense for your unique use cases.
For example, incorrect customer data in a B2B SaaS company could lead to mistakes like sending someone an irrelevant product recommendation at the wrong time. This hurts your reputation for being customer-centric and can cost you revenue in the long run. Incorrect customer data for companies in the healthcare industry, however, could lead to prescribing a drug that triggers a fatal reaction, seriously harming the patient and sparking a lawsuit as well as a flurry of bad publicity.
From this example, we can see that poor data quality in one context (B2B) is important, but not fatal. In other words, there’s more margin for error. Data teams working with healthcare data, on the other hand, need considerably more strict data quality guardrails. This is to say: Not all data quality consequences are equal. Context matters.
Below, I’ll explain:
- The four main ways companies use data
- The three-part framework you can use to identify how data quality impacts business performance in your organization
- How to prevent and troubleshoot data quality issues (before they impact your business)
The four main ways companies use data
Most companies use data in one of four ways: ignoring it, using it for operations, using it to inform strategy, or selling it as a product.
With the exception of ignoring it (there’s no "good" way to NOT use data), data quality impacts all of these approaches. High-quality data is a competitive edge, while low-quality data is a hindrance at best. Let’s take a closer look at what each of these data uses entails:
- Not using data at all. This is surprisingly common despite the hype around "data-driven" organizations (and the competitive advantages afforded by high-quality data). There isn’t a good way to not use data at all, so this is an outlier on the list.
- Using data for operational purposes. This includes internal operations like allocating ad spend and external operations like customer communications. High-quality data helps your marketing team target people most likely to buy, helps your logistics team move product efficiently, and helps your customer success team provide the personalized service that creates raving fans. Applied well, high-quality data can maximize revenue while minimizing costs.
- Using data to influence internal product decisions and market strategies. The competitor with the best data gets the first crack at opportunities. With reliable, high-quality data, product teams can track trends and be the first to develop features customers want. They’ll also have foresight when the winds are changing and it’s time to change course. Good data helps your company make market moves when they’re most advantageous.
- Using and selling data as the product. If you are in the business of selling third-party data, the importance of data quality is obvious. A clean, secure, reliable product improves customer satisfaction and retention, reduces legal liability, and keeps you on the right side of regulatory authorities.
When you boil it down, every business in every vertical does three things: spend money, make money, and take risks. The moment you tether data to one of these activities, the quality of that data becomes paramount.
If your business uses data for anything, data quality impacts business performance. The only question is how.
A three-part framework to identify how data quality impacts your business
It’s easy to see how poor data quality impacts other companies.
In 2021, problems with Zillow’s machine learning algorithm led to more than $300 million in losses. About a year earlier, limitations on table rows caused Public Health England to underreport 16,000 COVID-19 infections. And of course, there’s the classic cautionary tale of the Mars Climate Orbiter, a $125 million-dollar spacecraft lost in space because of a discrepancy between metric and imperial measurement units.
It can feel more challenging to see how poor data quality can impact your own company (especially if you’re trying to improve data quality before there’s a big public issue with it). I find it helpful to think about data quality using a three-part framework:
- You don’t use data at all, so data quality doesn’t matter. There are two kinds of companies at this level of the framework – those who don’t use data and those who don’t use data (yet). Businesses in the first camp are rapidly dwindling as modern data infrastructure becomes more feasible to set in place, and as the businesses that use data begin to gain competitive advantages.
Those in the second have at least one thing going for them: you can bake data quality assurances into your business data strategy from the very beginning. While it’s possible to delay data quality assurances until after issues occurs, it’s best to begin collecting relevant information to prevent issues and to maximize context when issues (inevitably) occur.
- You use data to fuel business decisions and strategy, which means the cost of bad data quality is the cost of a bad decision or lost trust. For example, low-quality market data could lead you to open new locations in a region where the median income isn’t high enough to support them. Or, a customer success manager who shared faulty data to a high-value customer would be justified if they became skeptical of the data in their reporting dashboards.
Like time, strategic decisions and trust are easy to lose and hard to regain. If trust is lost with business stakeholders, data teams have to expend valuable effort to answer ad hoc requests and build in additional assurances. If trust is not regained, it’s not uncommon for stakeholders to begin spinning up their own "shadow" data stacks, which can undermine the purpose of the data team altogether.
- You use data to inform business operations or product experiences, which means the cost of incorrect data is the cost of wasted time and money or trust from customers. For example, incomplete customer data leads your marketing department to target the wrong buyers, spending the advertising budget on a campaign that fails to convert. In the best case, this results in wasted spend and the time to correct the issue. In the worst case, customers who have received irrelevant or incorrect information begin losing trust in the competence of the company.
At the highest level, businesses exist to increase revenue, mitigate risk, and reduce costs. If your company uses data to power operations or product, then you are in the enviable position of tying data directly to your company’s success. However, with great power comes great responsibility, meaning that the cost of a lapse in data quality can directly is now as important, if not more important, than every other function in the business.
It’s worth noting not all downsides have dollar signs attached. Low-quality customer data also costs you in reputation and relationships. Nearly half of people who responded to a ParcelLab study said they’re frustrated when brands’ poor data quality results in recommendations for products they’ve already bought, and almost a quarter said they would never buy again from a brand that sent them irrelevant messages.
By focusing on data quality across the org, you reduce the risk of bad decisions in business processes, which helps you make smarter strategic calls, delight customers, and gives stakeholders more confidence in data-based decisions.
If this article resonates with you, we’d love to chat! You can reach out to Kevin, the team at Metaplane, or book a time here.
