From Information to Knowledge
Focus on Change
This module is about how people use information to make decisions. Technology has provided decision makers with new sources of information and tools for analysis.
Consider the phenomenon of the Internet and the vast amount of information available, often at no charge, to people facing a decision.
If you plan to buy an automobile, there are at least three websites that provide retail sticker prices and dealer invoice car prices.
In organizations, vast databases contain information and knowledge about the firm. The decision maker uses powerful software packages and workstations connected to networks to access data and perform complex analyses.
The Nature of Information
Information Technology has had a profound impact on the way we make decisions.
The last module described the broad categories of change stimulated by technology. Many of the contributions of IT involve people and their use of information.
Individuals seek information for many reasons, for example, to make decisions, evaluate a proposal, answer questions from a customer, and so on.
Too many information systems have failed, not because of their underlying technology, but because they did not contribute much to solving user problems.
These systems may have provided inappropriate or inaccurate information, addressed the wrong problem, or suffered from other flaws that came about because designers did not understand how managers make decisions and use information.
What Is Information?
We define information as some tangible or intangible entity that reduces uncertainty about some state or event.
Information derived from processing transactions reduces uncertainty about a firm's order backlog or financial position.
Information used primarily for control in the organization reduces uncertainty about whether the firm is performing according to plan and budget.
Another definition of information has been suggested:
"Information is data that has been processed into a form that is meaningful to the recipient and is of real perceived value in current or prospective decisions"
This definition of information systems stresses that data must be processed in some way to produce information; information is more than raw data. In this module we focus on information and its interpretation
Interpreting Information
- How do people interpret information, and what kind of internal and external factors influence their interpretation?
A classic article on information systems suggested in part that an information system serves an individual with a certain cognitive style faced with a particular decision problem in some organizational setting (Mason and Mitroff 1973).
- In addition to these variables, we suggest the importance of personal and situational factors in the interpretation of information. We shall examine each of these factors to see how they influence the interpretation process.
How People Interpret Information
Clearly, the nature of the problem influences the way we interpret information.
How serious is the decision? What are the consequences of an incorrect decision, and how do they compare with the benefits of a correct one?
An important decision may require more care in analyzing data than would a minor decision.
For example, a bank's decision to merge with a stock brokerage firm is more important than its decision to lease additional office space. In such a strategic decision as whether to merge, the consequences and costs involved, plus the impact on the organization, require that information be scrutinized much more closely.
The organization itself affects the interpretation of information. Studies have shown that the individual becomes socialized by the organization. Over time we are influenced by our organizations in the way we approach problems.
Thus, in most instances, the attitudes of a new employee will differ substantially from those of the chairman of the board.
As the new employee associates over the years with other employees of the firm, he or she is influenced by their attitudes and by the environment of the workplace.
Gradually, new employees begin to change their attitudes to be more consistent with those of their associates.
Several individuals trying to influence the government to regulate prices in an industry may use the same information.
However, the head of a corporation in the industry, the leader of a consumer group, and a government decision maker in a regulatory agency will probably interpret the same information differently.
People who have different ideas interpret information differently. Again, many of a person's ideas are influenced by peers and by the socialization process in the particular organization where the individual works.
Personal and situational factors also influence the interpretation of information.
One study done many years ago showed that given comparable information, decision makers interpreted a problem differently depending on their position.
In the study, finance executives saw financial problems, sales executives recognized sales problems, and so forth. In all the given scenarios, the information was the same-it was just interpreted differently (Dearborn and Simon, 1958).
A more recent study found managers are getting less parochial, though personal experience suggests that many managers are heavily influenced in problem diagnosis by their backgrounds and position.
Psychologists studying the thought patterns of individuals have developed the concept of cognitive style.
Although there is no agreement on exactly how to describe or measure different cognitive styles, the concept is appealing since people do seem to have different ways of approaching problems.
One of the simplest distinctions is between analytic and heuristic decision makers.
On the next slide, we will explore the differences between these two decision makers
In general, different types of decisions require different kinds of information and providing inappropriate information is one common failing of information systems.
Operational control decisions are characterized by historical information. Usually the results are expected and the source of the information is the internal operations of the organization.
The data-for example, production control data, inventory status, or accounts receivable balances-must be detailed.
Because operational control decisions involve day-to-day operations of the firm, information often must correspond closely to real time. This information is often highly structured and precise.
Information for strategic decisions
Information for strategic decisions, on the other hand, is more predictive and long range in nature. Strategic planning may uncover many surprises.
Often, external data on the economy, the competition, and so forth are involved in strategic decision making.
Summary information on a periodic basis is adequate; there is usually no need for highly detailed or extremely precise information. Strategic planning decisions are usually characterized by loosely structured information.
The requirements for managerial control decisions fall between operational control and strategic planning.
Different types of decisions require different information.
From Information to Knowledge
Information alone is not enough to produce knowledge; we must also understand the best way to use information to solve a problem, contribute to a product or service, or make a similar contribution to the organization.
Knowledge builds over time in the heads of employees in the form of past decisions, processes in the organization, characteristics of products, interests of customers, and similar experiences.
Knowledge is a strategic resource for many organizations. We can define knowledge as "information plus know-how" (Kogut and Zander, 1992).
The Importance of Knowledge: Case StudA New England Company decided to move to the South. It offered all current employees jobs but would pay the moving expenses only of employees above a certain management level.
When the company left for its new location, most of the staff stayed behind. Within a year, the company was bankrupt. It had lost the knowledge that the staff possessed on how to run the business.
Customers did not like dealing with new order processing and customer service staff members who did not know their business and needs. These customers began to place their orders with competitors, and the firm could not survive its loss of knowledge from the staff it left behind.
Highly developed countries are in a "post-industrial" age; they have far more employees in the services industry than in manufacturing. Most of these people work with information and rely on their knowledge to earn income; employees in this sector are often called "knowledge workers."
For such organizations, knowledge is a strategic resource; it is valuable and hard to imitate. Imagine a company like Andersen Consulting with over 45,000 employees worldwide. When a new client approaches Andersen Consulting with a problem, there is probably someone at the consulting firm that has relevant knowledge to help solve the problem.
Andersen's consultants represent a huge investment in knowledge; the firm's challenge is to capture that knowledge and make it available throughout the world.
Andersen Consulting uses Information Technology, including groupware and an Intranet, to help meet this challenge.
How do companies acquire knowledge? The most obvious way is through experience, working with products, services, customers and suppliers.
Knowledge often comes from beginning to understand cause and effect relationships. Almost everything that one does in an organization presents a learning opportunity.
Research and Development departments, new product groups, engineers, and similar groups are formal efforts of the firm to create and acquire knowledge.
One important job for a manager is to foster the development of organizational knowledge and to create an organization that learns as it operates.
From Information to Knowledge
How do companies acquire knowledge? The most obvious way is through experience, working with products, services, customers and suppliers.
Knowledge often comes from beginning to understand cause and effect relationships. Almost everything that one does in an organization presents a learning opportunity.
Research and Development departments, new product groups, engineers, and similar groups are formal efforts of the firm to create and acquire knowledge.
One important job for a manager is to foster the development of organizational knowledge and to create an organization that learns as it operates.
Highly developed countries are in a "post-industrial" age; they have far more employees in the services industry than in manufacturing. Most of these people work with information and rely on their knowledge to earn income; employees in this sector are often called "knowledge workers."
For such organizations, knowledge is a strategic resource; it is valuable and hard to imitate.
Imagine a company like Andersen Consulting with over 45,000 employees worldwide. When a new client approaches Andersen Consulting with a problem, there is probably someone at the consulting firm that has relevant knowledge to help solve the problem.
Andersen's consultants represent a huge investment in knowledge; the firm's challenge is to capture that knowledge and make it available throughout the world.
Andersen Consulting uses Information Technology, including groupware and an Intranet, to help meet this challenge.
By; GERISHON MORRYL