Using a database approach can provide your business with a wide range of advantages, benefits, and profits. It saves you money, helps you make your customers happy, and shows you how to grow your company.
But what is a database? Why is it important and how does it work?
On this page:
- Database: meaning, definition, importance, role
- What is a database management system (DBMS)?
- Advantages and disadvantages of a database for business
- Infographic in PDF
What is Database? Definition, Meaning, Importance
Let’s define it:
A database is a collection of data that is organized so that you can easily access, manage, and update it.
In other words, the data is structured in a way that enables you to process it.
For example, a database could be something simple as a list of customers’ names ordered alphabetically. Or it could be an ascending list of orders’ numbers.
The software that contains databases is called a database management system (DBMS). It is specially designed to store, retrieve, protect, and manage data in a database.
The ultimate business goal of a DBMS is to store and transform data in a way that helps you make informed decisions.
A DBMS contains and communicates data such as sales transactions, customer orders, product delivery, marketing efforts, etc.
How does DBMS work?
To help you understand how DBMS works, let’s see first how the things look like without DBMS.
If your organization doesn’t have a database management system, all its data is organized in files and folders on computers.
Typically, organizations have a vast number of files and folders like Word documents, spreadsheets, business emails, presentation files, customer orders, photos, etc.
It brings a lot of challenges. You can lose an important file. Or, you can spend a lot of time to find a file. Or, you might forget to do a backup of the files, etc.
And what if your company has 1,000 employees, each with their own computer? Do critical financial data float around as simple files on individual computers?
This is where the DBMS comes to help you organize your files and give you more control over your data.
It can store virtually every type of data and then sort and deliver data to you with a few clicks.
Who operates and uses databases?
Within a company, the development and management of the database are handled by database administrators and other specialists. Their job is to ensure the database structure is efficient and reliable.
All of the employees can use the data in the database in different ways and for different purposes.
For example, some employees may simply want to analyze data. Other employees are actively involved in updating existing data.
Data administrators are those who set the user permissions and control user access.
Some of the most popular database management software systems are:
Advantages And Disadvantages Of Database For A Business
There are many benefits of using a database management system instead of spreadsheet software like Excel for example.
Let’s see the key advantages of the database for businesses:
1. Improves data sharing and employees’ productivity
As all data is centralized in a database management system, it creates an environment in which employees have greater access to a variety of data in one place.
Thus, users can respond fast to changes in their environment and make better decisions.
For example, users like marketers will have access to more customer data, enabling them to better understand customers and react fast to the changes in customers’ needs or market preferences.
This results in increased productivity for the marketers and all of the other end-users. So, DBMS empowers you to make quick and better decisions that can drive the success of your company.
2. No redundant data
This is one of the greatest database advantages.
DBMS removes redundancy.
It ensures that there is no data duplication and thus saves storage and improves access time.
Instead of having multiple copies of one piece of data for every user in a company, DBMS allows centralized storage for all data, and thereby it makes the storage space more efficient.
3. Provides greater security and privacy of data
Database management software allows control over who can access, view, add, or delete each part of the base.
The data administrator can set different access rights for different users.
Moreover, DBMS allows data to be encrypted, which is a must if the business is storing personal or other confidential information.
Limited data access also means greater privacy of data.
4. Shows you the big picture
Rather than checking one piece of software to look at the number of sales, another location to look at the number of digital marketing leads, then another to review the financial figures, DBMS lets you view all of this in one “single” place.
DBMS promotes an integrated view of your business operations and helps you see the big picture more clearly.
Thus, you can understand better how actions in one department of the company reflect other departments, for example.
5. Raises your ability to increase profits
It helps you better understand how your business processes are working. Are they working together to build your success? Or are they operating independently, not aiding each other?
You may be making mistakes that cost a lot of money and effort.
For example, let’s say you see that your business has high sales transactions but you are not gaining money. Instead, you are losing money.
Looking at your DBMS, you notice that you are selling too many low-end products. But as you are a small business, you can’t sell them in mass quantity (like Amazon) to gain a real profit.
It means you need to focus on quality, rather than quantity. Then, you can tell your sales team to sell more mid-level or high-quality products. Sell less of them, but improve the revenue.
6. Ensures consistency of data
In a database, each data item is held only once. It eliminates the threat of the item being updated on one system and not on another. This ensures data consistency.
Data consistency is the basis for successful data-driven decision making. Inconsistent data can lead to misinformed business decisions.
7. Robust backup and recovery
Data loss is a significant problem for all businesses.
In the traditional file system, you need to back up regularly or manually your data. If the amount of data is huge then this process may take a very long time.
DBMS solves this problem.
Most of the DBMSs have robust software that enables automatic backup and recovery of the database in case of failures.
They ensure automatic backup for all of your data, following preset schedules.
8. Improves your overall marketing and ensures a better customer experience
DBMS provides a clean and centralized record of each of your customers (within a Single Customer View database).
It stores customer info such as names, addresses, emails, age, gender, locations, etc.
It also records information on how customers interact with your business (including your brands, websites, products, applications, etc.)
In other words, the database allows you to obtain a full picture of your customers, that you can use for further data analytics in marketing.
Using this info, you can optimize your overall marketing efforts such as digital customer experience, personalization, retention, lead generation, etc.
DBMS helps the data-driven marketers understand customer behavior at scale and personalize offers for every buyer.
Thus, your business can serve your customers better while delivering a remarkable experience.
Along with the above key benefits, databases have some disadvantages you need to know.
1. Increased costs
As database management systems require advanced hardware, software, and skilled employees, it is often associated with higher costs.
The cost of maintaining the resources to operate a DBMS can include training, licensing, regulatory compliance, etc.
DBMS also requires a high-speed processor as well as a large memory size to store safely and securely data. They can be expensive solutions too.
To cover a lot of requirements and solve many data problems, the DBMS has complex functionality that makes it a complicated software.
It is critical for developers, designers, and database users to have an appropriate skill set in order to use the database successfully and unlock its power.
If they don’t understand the DBMS, then it may lead to loss of data or database failure.
3. Higher impact of a failure
The fact that the DBMS is a central place for all of your data increases the vulnerability of the system.
Since all users rely on one centralized place, the failure of any component can have a severe negative impact on operations or permanent damage to the database.
In today’s IT age, databases and DBMSs are critical business elements as they contain data that allows you to better understand your customers and business processes.
While small businesses collect less data than big companies, this doesn’t mean databases have no values for smaller players.
In fact, big data and databases can be more effective for small businesses, because they’re typically more agile and can react quickly on data-driven insights.
Ultimately, whatever you are a small company or a world-famous business, your database is the foundation of making better decisions, creating effective strategies, improving relationships with partners, and delighting customers.