XBRL or Master Data Management?

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Summary
Master data management (MDM) and eXtensible Business Reporting Language (XBRL) are two key technologies that promise to address important information management issues. Ventana Research believes both will enable companies to reduce the cost, time and effort needed to collect, analyze and use information, whether for visibility, decision support or process execution. Some observers may see them as competing approaches, but in practice each has capabilities best suited to some applications and not others. Even where they overlap, the two may not be mutually exclusive. We advise companies that have not yet begun investigating XBRL and MDM to do so immediately, and all organizations should begin developing skills in using them.

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One information management issue that will confront organizations in coming years is when to use XBRL and when to use MDM. Ventana Research thinks in some cases the choice will be clear (even if there are some exceptions) and in others either might serve. We doubt the situation will be static since the choices of technology, techniques, tools and applications will continue to evolve. While we expect some proponents to champion the merits of one versus the other, selectivity will produce the best results. For example, in many cases, companies will use MDM to facilitate the XBRL data tagging process. XBRL has its own "master data" in the form of tags. Company-specific extensions to standard taxonomies certainly will need to be managed just as any other item of master data, especially as MDM plays a core role in managing a variety of data hierarchies and other business-related structures. Organizations need to develop capabilities in both technologies, and the faster the better.

We believe XBRL is the clear choice whenever data must be shared outside the organization and the objective is to eliminate (or severely reduce) the work associated with bringing in and using the data in a business process. Data tags ensure that systems understand the context of the information in a clear and consistent fashion, regardless of the purpose for which the recipient uses it. When the tags conform to externally maintained standards, the data's context will be universal and persistent. XBRL usually is associated with financial data since most of the visible effort to date has involved tagging publicly traded companies' financial filing statements and regulatory submissions by financial institutions. However, XBRL-tagged data could be used in any business process where companies share information. The ability to share would be most valuable in situations where there is a lot of data or a regular stream, where data must be shared among multiple participants in a joint process (such as an engineering or construction project) or where it will make straight-through processing feasible (order to cash, insurance claims processing and so on). The most likely initial application of XBRL-tagged data outside of financial reporting, though, would be in replacing proprietary electronic data interchange (EDI) systems, since it meets an existing need and the data constructs already exist.

On the other hand, highly granular information that is used exclusively within a company is likely to be handled most efficiently with master data management. Creating and maintaining (especially the latter) consistent lists of items used over time and across business units of a large organization (specific "customers," individual "products," each component of a chart of accounts and so on) should prove easier using MDM. Some data must be managed at a close level of detail, and XBRL does not easily lend itself to ensuring duplications are eliminated, for example. Companies are likely to elect to manage the structure of accounts in their various general ledgers so their summarization and grouping conforms to an internal standard (for example, a specific method of handling customer hierarchies) or an external one (such as the lowest level of detail in published XBRL financial statement taxonomies).

The size of the company is likely to have an impact on which approach to take. Smaller companies - perhaps those with fewer than 10,000 employees and almost certainly those with fewer than 2,500 - may not have the resources or the need to use MDM. They are likely to have simpler information management environments and will focus more on developing XBRL assets and skills for internal reporting and external reporting and process execution.

Assessment
Ventana Research asserts that all companies, particularly Global 2000 corporations, must begin developing XBRL and MDM skills in their finance and IT organizations. Information management is one of the most pressing issues facing IT organizations today. Difficulty in maintaining data consistency across and within business units and organizations drives up costs, delays internal and external reporting and limits companies in implementing more efficient and effective business processes. Today, it may appear that these skills are merely nice to have, but we expect adoption rates to accelerate soon, as more companies understand the real business value of the two technologies. We advise companies to begin pilot programs and projects with achievable but meaningful objects right away.

Related Research Notes:
Diagnosing An MDM Malaise
How to tell if you have problems with master data.

MDM for Operations and Analytics
Varying technology and business approaches provide options.

No Need to Fear XBRL
SEC supports flexibility and openness.

About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research