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The Diligent team
GRC trends and insights

What is entity relationship diagramming and why is it important?

April 13, 2018
0 min read
Woman writing on whiteboard representing entity relationship diagramming

There was a time when all of the crucial information a business needed to go forward was stored in text documents and spreadsheets. Later on, the organization chart became popular as a basic visualization of the entity to sort out operations. But this still didn't quite solve the problem of translating all of that information into a form that could be grasped and acted upon by an entity's board of directors or senior management.

An Entity Relationship Diagram (ERD), as a data visualization tool, is a distinct step up from the org chart. Through the most advanced software applications, it aims to capture the full complexity of a modern enterprise as it gains in size and complexity due to the ever-advancing world market.

This post is meant to introduce the basic process of ERD to newcomers to the area. Later posts will focus specifically on the best practices for entity relationship diagramming and the process of building a business entity chart.

First, we will cover why visualization through diagramming makes basic sense for every kind of business. Second, we will look at who uses the ERD and what it is for. Finally, we will discuss a few examples from the contemporary political context, where ERDs can help a multinational entity adapt to and evolve in a turbulent business climate, before showcasing some basic functionalities of ERD software.

Why ERD?

Entity relationship diagramming is functional as a method of better visualizing data. Every senior manager, not to mention board member, of a multinational enterprise knows that spreadsheets are pretty much useless when it comes to understanding the overall picture of their entity's operations and how they are structured in relation to each other. This is because human beings do not generally learn and process by mere letters and numbers — nearly two-thirds of all human beings learn and memorize visually, through seeing the information presented in an accessible form.

ERD takes advantage of the basic learning strategy that's programmed into our minds by extending the programming into compatible and digestible visualizations of the relationships making up your entity. Software applications that diagram entity relationships are meant to make those relationships come to life on the screen (and in your mind), thus making them much easier to understand.

Who uses an ERD, and what do they use it for?

It's only with ERD software that your senior management, board and stockholders will be able to assess the whole business and to plot a viable strategy. Basically, an ERD's function is to bring all of that data stored in your servers to life so you can make sense of it.

An ERD tells a story about your entity's current state. Stories are how we learn the best, so it's also an essential part of how we analyze events and plan for the future. So diagramming should not only show what the current state of affairs is, but it should also show the potential ways structures and organizations within an entity can be altered and the potential effects of these changes. For groups that operate with hundreds or thousands of interconnected entities on a multinational scale, you can see how, without visualization, nothing would make sense.

How can ERD help my entity in the current business climate?

Economic ferment and political turmoil, such as Brexit in the UK and the Trump administration in the US, have made diagramming more compulsory than ever before for large enterprises that operate globally. For example, the disengagement of Britain from the European Union has forced multinational business to start thinking about newly separate entities in the UK and responsible to UK law. Visualization through ERD can help a multinational enterprise to understand the impact of creating new entities in this case.

Another example is the new US tax law, which represents a potential profits bonanza with the slashing of the corporate tax rate by 40% all at once. Many organizations originally based in the US are considering repatriation, and organizations with US operations are thinking about doubling down on their investment. Entity data visualization can help analyze the impact of transferring property, plants and equipment to the U.S. so that this unique opportunity isn't lost.


Some of the basic functionality to look for when you're considering ERD software should include:

  • Color, text, shape, line, alignment and percentage options to represent data effectively
  • Hyperlinks to more detailed information on each aspect of the chart
  • Envisioning the best hierarchy among entities and operations

Diligent Corporation, has a number of elegant and effective solutions along these lines to enable smarter decision-making. Our software not only performs all of these functions, but it also can automatically generate reports in PDF form that chart the global structure of your entity, and tie this information into specialized spreadsheets to see specific transactional data, as well as performing overall indexing, sorting and management functions. Please call or email us today to discuss this and others of our software solutions.


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