Is Your Taxonomy Strategy Slowly Killing Your Bottom Line?

Taxonomy Priority

Line Graph

Bar Graph

Taxonomy Inaction

Why Taxonomy is Often a Secondary Consideration:
Taxonomy—the systematic classification of data—is frequently deprioritized due to:

1. Perceived Abstraction: Unlike immediate concerns like tariffs or supply chain disruptions, taxonomy’s impact on efficiency and compliance is less tangible.
2. Complexity: Multi-dimensional data and evolving business needs make taxonomy design seem daunting (e.g., Contify highlights challenges in tagging dynamic information across teams).
3. Short-Term Focus: Companies prioritize quick wins (e.g., cost-cutting) over foundational investments like data organization.
4. Misunderstanding ROI: Taxonomy’s value is often tied to indirect benefits (e.g., data quality, compliance), which are harder to quantify than direct revenue drivers.

Taxonomy Inaction Cost

The Bottom Line #1

Conclusion:
Taxonomy neglect costs companies 5–20% of annual revenue through lost productivity, compliance penalties, and customer attrition. For a $50M revenue company, this translates to $2.5M–$10M in losses yearly. Prioritizing taxonomy as a strategic asset—not an afterthought—can unlock efficiency, agility, and long-term competitiveness.

The Bottom Line #2

MODEL 1

Estimated Adoption Breakdown

Taxonomy Maturity Level	Estimated % of Companies (All Industries)	Description
✅ Proper, Actively Managed Taxonomy	15–25%	Enterprise-wide structure, continuously updated, aligned with AI/spend tools
⚠️ Partial or Static Taxonomy	~40–50%	Initial classification effort exists but is outdated or inconsistent
❌ No Formal Taxonomy	~30–40%	Use of free-text entries, spreadsheets, or ERP defaults; no centralized control

MODEL 2

Estimated Percentage

• Large Enterprises: Likely 70–90% have a proper taxonomy, driven by regulatory needs (e.g., EU Taxonomy), ERP integration, and ProcureTech adoption in sectors like energy, utilities, and manufacturing. The EY report’s 88% compliance rate supports this for large European firms.
• Mid-Sized Firms: Approximately 40–60% have structured taxonomies, often supported by solutions like AdaptOne or Tealbook, but many rely on partial or manual systems.
• SMEs: Only 10–30% likely have proper taxonomies, as they often lack resources for advanced systems, relying instead on basic categorizations or no formal taxonomy.
• Overall Estimate: Across all industries, considering the dominance of SMEs (which constitute ~90% of global businesses per World Bank data), I estimate 25–40% of companies have a proper taxonomy. This accounts for high adoption among large enterprises, moderate adoption among mid-sized firms, and low adoption among SMEs.

MODEL 3

MODEL 4

What’s Your Taxonomy Bottom Line?

30

IMPORTANT AFTERTHOUGHT:

How does poor or low taxonomy accuracy with SMEs impact a large enterprise’s ability to manage its taxonomy?

While exact percentages vary by industry and enterprise size, the following estimates contextualize the scope:

• Prevalence of SME Taxonomy Issues: As estimated previously, only 10–30% of SMEs have proper taxonomies, compared to 70–90% of large enterprises. Since SMEs often constitute 50–80% of a large enterprise’s supplier base (based on World Bank data on SME prevalence), taxonomy inaccuracies affect a significant portion of supplier data.
• Cost Impact: Poor data quality, including taxonomy issues, can increase procurement costs by 10–20%, according to Deloitte’s CPO survey, due to manual corrections and missed savings opportunities.
• Compliance Risk: In regulated sectors, inaccurate taxonomies can lead to non-compliance penalties, with fines reaching millions under frameworks like the EU Taxonomy or CBAM, as noted in EY’s 2024 Barometer.

More To Come In Future Posts . . .