Technology & Innovation

Hidden cyber risks of financial data silos for SaaS companies

Uncover hidden cyber risks of siloed financial data. Learn the difference between data silos and data lakes. Improve security & compliance. Read on for more.

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As a SaaS CFO, you know you’re responsible for working with large sums of data–about financial processes, customer behavior, and much more. What you might not know, however, is that putting unnecessary walls up around your data can have terrible consequences for your firm’s productivity and efficiency. 

Finance teams are under increasing pressure to protect sensitive financial data from cyberattacks and comply with ever-evolving regulations. Unfortunately, many organizations still rely on outdated financial management tools and processes that create unnecessary risks. 

Read on to explore what data silos are, why they are problematic for organizations, and how consolidating financial data can improve security and compliance. We will also discuss how you can migrate to the cloud to unlock your data’s full potential and improve data management workflows. 

What is a data silo? 

So, you might be asking, what is a data silo? 

The term “data silo” bears a striking resemblance to the term grain silo, the large metal structures that store large quantities of grain. In the same way that a grain silo closes off grain, a data silo is a large accumulation of data controlled by one department and inaccessible to the organization as a whole. 

In simple terms, a data silo is a situation where different teams within an organization are working with different versions of the same data, and there is no integration between these different data sources. For example, different departments within an organization may use different software systems to collect and store data, leading to unintentional data silos. This can cause inconsistencies, errors, and conflicts which ultimately put the organization at risk. 

As cloud adoption rates have climbed for SaaS accounting in recent years, teams have discovered the usefulness of a different method: the data lake. 

RELATED: Unlocking Digital Transformation In SaaS Organizations

Data silos vs data lake

Data silos and data lakes are two different approaches to managing an organization’s data. As we’ve discussed earlier, data silos use the incredibly restrictive approach of putting one team or department in charge of vast quantities of data. Data lakes are a centralized repository for all types of data, which can be accessed and analyzed by different teams within an organization. 

Data silos are collections of data that are stored separately from the rest of an organization’s data. If you do this as a SaaS CFO, your siloed data is likely strategically critical for other teams outside your department. This disconnect between teams creates considerable inefficiency around data gathering, leading many accounting teams to migrate to the cloud and embrace data lakes instead. 

Data lakes, on the other hand, are large, cloud-based repositories of centralized data that are designed to make it easy to store, access, and analyze all of an organization’s data in one place. This data is securely stored within an organization yet remains freely accessible to all departments and people who might need it. 

When it comes to the issue of data silos vs data lakes, there’s no question that data lakes offer several advantages over data silos. The data lake approach saves time and money, prevents manual errors, and helps your organization stay agile. They make it easier to combine and analyze data from multiple sources, and they can provide a more complete view of an organization’s data. Data lakes also make it easier to scale an organization’s data infrastructure as it grows, as new data sources can be added to the data lake as needed. 

What causes data silos?

In general, organizational silos are created when individual departments lose sight of the broader company goals and instead focus on local goals. Ultimately these issues tend to culminate from a lack of team mentality, poor communication between groups, uncertainty in company goals, and misguided incentives. 

Data silos are natural byproducts of a company’s growth–though, they don’t have to be. As companies expand and take in more information, various teams within the organization tend to get walled off between other departments, unless you’ve opted for the cloud from day one. 

Because of this, siloed data is often a silent threat. It can be hard to spot until you’re already on your way to creating problems for your company. 

Two of the most significant contributors to the creation of data silos include:

  • Outdated financial software: Using an accounting suite that doesn’t leverage a data lake–also known as a single source of truth, or SSOT–will invariably create data silos across your departments. That’s why it’s essential to streamline your FinOps tech stack
  • Company culture: If you foster an organizational culture that doesn’t actively emphasize company-wide collaboration, you’ll likely end up with data silos. As a CFO, it’s your job to prevent that. 

Data silos are problematic for several reasons. Let’s examine these issues in more detail, below.

Why are data silos problematic?

Why are data silos problematic for SaaS companies, and why should you dismantle them the moment you find them? Not only are data silos a silent threat, but the organizational risks they present are multi-layered.

First, they create a lack of visibility and transparency within an organization, making it difficult for decision-makers to get a complete picture of the financial health of the company. This can lead to inaccurate forecasting, poor decision-making, and missed opportunities. 

Second, data silos can lead to compliance issues. Regulations like GDPR and HIPAA require organizations to protect sensitive data and provide complete transparency over who has access to it. When data is siloed, it becomes much more difficult to ensure compliance with these regulations, which can result in costly fines and reputational damage.  

Siloed financial data: Layers of risk

There are absolutely no redeeming qualities in data silos. They present a full menu of risks and liabilities to SaaS finance teams, from legal to operational. 

Cyber risks of siloed financial data 

According to the Identity Theft Resource Center, data breaches rose more than 68% in 2021. Security breaches are also getting more expensive. The average cost of a breach rose 10% to $3.6 million, the IBM/Ponemon Institute’s 2021 Cost of a Data Breach survey found. 

Siloed data goes hand in hand with manual accounting workflows. Financial information is too often stored in unconnected databases, hard drives, and software applications, which teams export into spreadsheets and send across the organization as email attachments. Each data transfer and hand-off introduce a new set of risks–at a time when cyberattacks are rapidly increasing.

If teams operate with data silos, the number of high-risk processes they need to engage in rises exponentially. Relying on manual processes creates a chain of vulnerabilities and weak points that hackers could exploit. A data leak could mean hefty fines or other legal penalties being leveled against your firm. 

Poor data sanitation

Data silos seriously endanger the accuracy and quality of your data. With every data silo wall that goes up, the odds and instances of inconsistencies across datasets multiply. 

Data analysis difficulties 

Data silos make it extremely difficult for teams to interact with and analyze their data quickly and effectively. This is a major problem, especially around time-sensitive data involving pricing, campaign results, budget variance, and more. 

With a data lake in the cloud, anyone in your organization will have real-time and immediate access to the most recent version of their data. 

Breaking down data silos: why consolidating financial data is critical for security and compliance

Now that we’ve covered data silos and touched on the various layers of risk that accompany siloed data, let’s look at the other side of the coin. How can you avoid data silos in your firm, and what are the benefits of doing so? 

To avoid data silos, organizations need to consolidate their financial data onto a single, cloud-native platform. While data lakes are a step in the right direction, they still require manual processes to integrate different data sources, which can lead to inconsistencies and errors. A cloud-native platform, on the other hand, provides a fully integrated solution that eliminates the need for manual processes and provides a single source of truth for financial data.

Benefits of migrating to the cloud 

Cloud-native applications are built with granular controls for compliance and access, allowing finance managers to provide different levels of information to different stakeholders, by way of personalized role-based dashboards that display all the information they need to do their jobs, but nothing more. 

SaaS CFOs who use cloud-based automated accounting software access a variety of competitive advantages. Dismantling your data silos and migrating to the cloud will cause a positive ripple effect throughout your entire organization.

Higher collaboration between teams

In the data silos vs data lake debate, the cloud offers unmatched collaborative benefits compared to siloed data. As we’ve touched on, a cloud-based suite gives teams instant access to a fully updated and centralized data pool. 

This enables employees and department heads to develop pricing strategies and sales campaigns more quickly, critique each other’s ideas in real time, and much more. 

Data integration with an SSOT 

In addition to the collaborative aspects of an SSOT, companies who leverage the cloud also see an instant improvement in their data’s overall hygiene and reliability. 

This is because an SSOT knocks down data silo walls. Teams no longer need to wait for spotty manual updates or spreadsheet email attachments. Forecasting is just a matter of plugging in your starting data to get a low-variance, long-range forecast in one click, and reporting is instant and granular. 

In the cloud, your data pool updates automatically and continuously to ensure complete accuracy. 

Seamless third-party connectivity 

It’s becoming increasingly common for SaaS CFOs and other department heads to connect third-party applications to their primary accounting software. 

Sage Intacct offers best-in-class third-party integration without the sizable IT fees accompanying many other accounting suites. Effortlessly integrate with leading platforms like VersaPay, Salesforce, Workiva, Expensify, and hundreds of others. 

Streamlined growth

Getting everyone in your company on the same page with unified and centralized data is essential for sustained corporate growth. The more you scale, the more data you take in, naturally. 

And it won’t take long for the complexity of your FinOps processes and other data-dependent workflows to become unmanageable. This creates a serious problem for growing SaaS companies: the higher they climb, the heavier the burden of their mismanaged data. 

Growth should be an exciting and satisfying experience, not a stressful one full of frantic data-gathering emails. In the cloud, all your essential growth metrics and customer data are right there whenever you need them, for total peace of mind and streamlined growth.

Embrace the cloud: Move beyond financial data silos 

Data silos can pose several challenges to organizations, including inconsistencies in data, difficulty accessing all of an organization’s data in one place, and increased security risks. By moving towards a data lake approach and leveraging cloud-based technology, organization’s can overcome these challenges and have a better grip on their data to drive insights and decision-making. 

For SaaS CFOs who want to embrace truly data-driven leadership, moving beyond data silos is the best place to start. 

Read our recent ebook to learn even more about how to keep pace with the rapidly evolving world of SaaS accounting.