Tim Wood Powell     The value of knowledge

We’re living amidst a paradox in our relationship to information.  A recent University of California study finds that the average American consumes information for nearly 12 hours a day, sucking down about 34 gigabytes during that time.  Yet, we are continually surprised by stock market crashes, assets bubbles…and who knows what next?

We suffer from a quantity-relevance gap with regard to information.  Simply put, the voluminous information we have is not always the information we most need.   As a result, “data overload” or “information anxiety” are maladies that many of us experience often.

Part of the problem is the escalating proliferation of information sources.  This started back in the last decades of the 20^th century when the number of magazines and TV channels began growing exponentially.  And the subsequent growth of the Internet in general, and of social media in particular, makes that pale by comparison.

You might explain this by saying that a household—being the smallest type of organization—is especially inept when it comes to information usage, and assume that larger organizations would have figured it all out by now.  But in my experience they suffer from the same kinds of problems, often compounded by being up-scaled and highly complex.

Large organization C-level decision makers typically report that they have to make bigger decisions, in shorter time frames—and have less than they would prefer of the information to do so rationally.

Not enough information?  When companies spend on average more than 5% of revenues on information??  How is this possible???

Take a look at the range of information resources available to decision makers—IT; market research; the corporate library; reports of customer interactions; and so on.  And that’s only internal sources, there are those external to the organization too.  Now do you see the problem?  These functions are silo’ed such that they don’t often “talk” to each other, and may even report through different organizational lines.

It’s like an archipelago—a chain of loosely related islands.  Here’s a diagram of how this knowledge archipelago looks in a typical large, complex organization:

Professor Warren MacFarlan of the Harvard Business School developed a similar theme in his 1982 Harvard Business Review article “The Information Archipelago—Maps and Bridges”.  I’ve respectfully morphed that term in homage to his pathfinding insights.

Not only do the “islands” in the knowledge archipelago typically not talk to each other, there is often no overarching coordination function to facilitate this.  The decision maker hitches her wagon to a team of information horses—each one pulling in his own direction at his own speed.

Drucker’s “meaningful Outside”

But there’s another, even bigger, problem.  Not only are our information resources not aligned with each other—they’re too often not focused on the things that matter most to the enterprise in its quest to create value.

Peter Drucker took note of this—he didn’t miss much—in his arresting 1995 Harvard Business Review article “The Information Executives Truly Need.”   There he acknowledges that much current information is useful at a tactical level, but further points out that  “For strategy, we need organized information about the environment.  Strategy has to be based on information about markets, customers, and noncustomers; about technology in one’s own industry and others; about worldwide finance; and about the changing world economy.  For that is where the results are.”

Drucker later spoke in a Wall Street Journal article (“The American CEO”) about the “meaningful Outside” that the CEO—being the true head of strategy in most organizations—must define as his or her “first task”.   It’s an evolution of Drucker’s earlier “What business are we in?” question that forms the foundation of a successful strategy.

The CEO’s second task according to this article is to “think through what information regarding the Outside is meaningful and needed for the organization, and then to work on getting it in usable form.”  Here we’re inclined to agree with Drucker’s 1995 assessment that this role is best played by outsiders like consultants, working as agents of the CEO and other key decision makers.  Drucker’s words essentially describe The Knowledge Agency’s business model.

The Environmental Information Deficit

I’ve previously proposed a simple test for the strategic value of information.  In my book 1993 book The High-Tech Marketing Machine I recommend that companies gauge their “Environmental Information Deficit” (EID), defined as the strategic shortfall in the information they currently receive.  To summarize, this works by contrasting the “internal/external” ratio between information available to the enterprise, versus factors that drive the value of that enterprise.

My chapter concludes that, “Many organizations…underspend on information on the environment relative to its importance to their business.”   (If you’d like a copy of the whole chapter, please contact me.)

I later developed this insight into the Knowledge Value Chain® model.  It rests on the simple proposition that organizational data, information, knowledge, and intelligence (“DIKI”) create value to the extent they support decision-making, action-taking, and value-creation at the enterprise level—i.e., what your organization does to satisfy its customers and stay in business.  There simply is no other meaningful metric.  And to the extent they do not support those “higher” value goals, DIKI are costs with little or no corresponding benefits.

The light is better

If our companies ran their manufacturing like they run their information, we’d soon be out of business.  We tend to manage information more by its availability than by its ROI as measured by its contribution to enterprise value.  We try valiantly to make what we have into something useful, while it would be much more effective to obtain what is useful.

I’m reminded of the old joke about the drunk who’s lost his keys.  Instead of looking where he lost them, he keeps looking under the street light because “the light is better here.”

That’s funny—until you realize that it’s essentially how we run our organizational information.  We meta-tag it, taxonomize it, slice and dice it—hoping it will reveal to us the “keys” to our business success.  The light is good—but the keys just aren’t here.  They’re “out there”, beyond the street light, and available to those with the initiative and resources to find and use them.

The challenge is that the information executives need for strategy (as defined by Drucker) is unstructured, unconnected, “external” to the enterprise, and often a real mess from a “data purity” point of view.  Have you ever tried to analyze the results of a Google search in a structured database?  We do this for clients—it’s not easy, or pretty.  There’s little in the way of tags or metadata to help.

So our information paradox boils down to:  the information that we have internally and can structure is largely non-meaningful from a strategic point of view—and conversely most of the “meaningful Outside” information we need for strategy remains outside, unstructured, and unusable.  Our comfort zone includes information that is “well behaved”—structured and quantified—but largely excludes the information that is strategically relevant for decision makers.

In short, what we capture and analyze doesn’t matter, and what matters we don’t capture and analyze.

What can we do about this?  We need to begin capturing strategically relevant information and forging it into a dynamic structure wherein it can be comprehended, communicated, and used to make decisions and create value.

Drucker’s prophetic words were true in theory when he wrote them 15 years ago, but not yet able to be put into practice.  The Internet has changed that.  It’s now possible to begin implementing what he could only envision.

So let’s get to it.

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