Basic concepts – understanding information

LEARNING OUTCOMES

After reading this chapter, you will be able to:

■ distinguish between data, information and knowledge;

■ describe and evaluate information quality in terms of its characteristics;

■ classify decisions by type and organisational level;

■ identify the information needed to support decisions made at different organisational levels;

■ identify some of the tools and techniques used to help make decisions.

MANAGEMENT ISSUES

The purpose of business information systems (BIS) is to produce high-quality information that can be used to support the activities of an organisation. In order to gain a good understanding of BIS, managers must fi rst understand the nature of information and how eff ective decisions are made. From a managerial perspective, this chapter addresses the following areas:

■ the importance of managing information and knowledge as a key organisational asset;

■ the transformation process from data to information of high quality;

■ the process and constraints of decision making;

■ the different kinds of decisions that managers make and how these affect the organisation.

CHAPTER AT A GLANCE

MAIN TOPICS

■ Data and information 6

■ Creating information 8

■ Qualities of information 11

■ Knowledge and wisdom 15

■ The business environment 16

■ Managerial decision making 18

FOCUS ON . . .

■ Knowledge management 27

CASE STUDIES

1.1 Technology sponsors a complementary form of capitalism 14

1.2 Dealing with the data deluge 23

CHApTER

1

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Part 1 INTRODUCTION TO BUSINESS INFORMATION SYSTEMS6

The general aim of this chapter is to introduce readers to the basic concepts needed to gain a thorough understanding of business information systems (BIS). However, before looking at BIS themselves, it is important to understand something of the nature of information. For BIS to be effective, the quality of information provided is vital. In this chapter, we look at how we can assess and improve the quality of data and information. The topics covered are intended to give readers an understanding of:

■ the nature of data, information and knowledge; ■ the value of information; ■ the characteristics that can be used to describe information quality; ■ information in the context of the e-business environment; ■ managerial decision making, including the characteristics of decisions at different

organisational levels; ■ the information needed to support decision making.

INTRODUCTION

DATA AND INFORMATION

As will be shown a little later, much of a manager’s work involves using information to make decisions and ensuring that information flows through the organisation as efficiently as possible. Increasingly, technology is used to capture, store and share information throughout the organisation and with business partners. Many organisations are keenly aware that using information – and information technology – effectively can have an impact on every aspect of their operations, from reducing running costs to dealing with competition in the marketplace. In his best-selling book, Business at the Speed of Thought, Bill Gates (2001) says ‘Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other.’ In this chapter we present an insight into the natures of data, information and knowledge to provide a foundation for learning about BIS.

Russell Ackoff ’s ‘DIKW’ model (Rowley, 2007: 176) provides a good framework for helping to understand the relationships between data, information, knowledge and wisdom. As can be seen in Figure 1.1, these concepts can be shown as a hierarchy. The hierarchy suggests three important ideas. The first is that data becomes information, information becomes knowledge and knowledge ultimately becomes wisdom. In other words, there is a progression from one level to the next. The second idea is that knowledge and wisdom are somehow more valuable, desirable or important than data and information. This is because wisdom and knowledge sit at the top of the triangle. In turn, this leads to the third idea, that data are relatively common while knowledge and wisdom are less so.

We will look at each of the levels in the hierarchy in detail throughout the rest of this chapter, starting with data in the next section.

What is meant by data?

Data are raw facts or observations that are considered to have little or no value until they have been processed and transformed into information. A single piece of data is called a datum. Unrelated items of data are considered to be essentially without meaning and are often described as ‘noise’. It is only when data have been placed in some form of context that they become meaningful to a manager.

Data

A collection of non- random facts recorded by observation or research.

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7ChaPter 1 BASIC CONCEpTS – UNDERSTANDINg INFORMATION

There are several definitions for data that are in common use:

■ a series of non-random symbols, numbers, values or words; ■ a series of facts obtained by observation or research and recorded; ■ a collection of non-random facts.

Examples of data include:

■ today’s date;

■ measurements taken on a production line;

■ records of a business transaction, such as a single visit to a web site.

Figure 1.1 The ‘DIKW’ model

Wisdom

Knowledge

Information

Data

Meaning Applicability Transferability Value Human input Structure

Computer input Programmability

Low

High

High

Low

What is information?

As with the concept of data, there are several definitions of information that are in common use:

■ data that have been processed so that they are meaningful; ■ data that have been processed for a purpose; ■ data that have been interpreted and understood by the recipient.

Information

Data that have been processed so that they are meaningful.

Data can exist naturally or can be created artificially. Naturally occurring data need only to be recorded. In business, organisations often establish procedures to make sure data are recorded properly. When a customer makes a telephone enquiry, for example, staff may be instructed to ask for up-to-date contact details and make sure they are recorded in the company’s database.

Artificial data are often produced as a by-product of a business process. Processing an organisation’s accounts, for example, might produce the number of sales made in a particular month.

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Part 1 INTRODUCTION TO BUSINESS INFORMATION SYSTEMS8

CREATING INFORMATION

Processing data is necessary to place them into a meaningful context so that they can be easily understood by the recipient. Figure 1.2 illustrates the conversion of data into information.

A number of different data processes can be used to transform data into information. Data processes are sometimes also known as ‘transformation processes’. The next section describes a range of common data processes.

Some examples of information include:

■ a bank statement;

■ a sales forecast;

■ a telephone directory;

■ graphs of trends in visitor numbers to a web site.

Three important points can be drawn from these definitions. First, there is a clear and logical process that is used to produce information. This process involves collecting data and then subjecting them to a transformation process in order to create information. The concept of a transformation process will be discussed in more detail in the next section. Secondly, information involves placing data in some form of meaningful context, so that they can be understood and acted upon. Thirdly, information is produced for a purpose, to serve an information need of some kind. The concept of an information need is described in more detail later on.

Transformation process

A transformation process is used to convert inputs into outputs.

Information need

Information is produced to meet a specific purpose or requirement.

A somewhat different view of information can be examined by introducing an additional definition:

Information acts to reduce uncertainty about a situation or event.

Although uncertainty can never be eliminated entirely, it can be reduced significantly. Information can help to eliminate some possibilities or make others seem more likely. Managerial decision making can be improved by using information to reduce uncertainty. Information is said to influence decision behaviour, the way in which people make decisions. Managerial decision making is dealt with in more detail in a later section.

To summarise the key points made in the preceding section. Information:

■ involves transforming data using a defined process; ■ involves placing data in some form of meaningful context; ■ is produced in response to an information need and therefore serves a specific purpose; ■ helps to reduce uncertainty, thereby improving decision behaviour.

Figure 1.2 Transforming data into information using a data process

Data Transformation process

Information

Data process

A process used to convert data into information. Examples include summarising, classifying and sorting.

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9ChaPter 1 BASIC CONCEpTS – UNDERSTANDINg INFORMATION

Data processes

Some examples of data processes include the following:

■ Classification. This involves placing data into categories, for example categorising an expense as either a fixed or a variable cost.

■ Rearranging/sorting. This involves organising data so that items are grouped together or placed into a particular order. Employee data, for example, might be sorted according to surname or payroll number.

■ Aggregating. This involves summarising data, for example by calculating averages, totals or subtotals.

■ Performing calculations. An example might be calculating an employee’s gross pay by multiplying the number of hours worked by the hourly rate of pay.

■ Selection. This involves choosing or discarding items of data based on a set of selection criteria. A sales organisation, for example, might create a list of potential customers by selecting those with incomes above a certain level.

It is worth noting that any action that serves to place data into a meaningful context can be considered a valid data process. In addition, several processes may be used in combination to produce information.

From the point of view of a student at university, which of the following might be examples of information? Which might be examples of data?

(a) the date;

(b) a bank statement;

(c) the number 1355.76;

(d) a National Insurance number;

(e) a balance sheet;

(f) a bus timetable;

(g) a car registration plate.

Data v. informationActivity 1.1

Value of information

It is often possible to measure the value of information directly. The tangible value of information is often measured in terms of financial value. An example might be the use of inventory information to improve stock control procedures. A simple calculation can be used to determine the value of a given item or collection of information:

Value of information 2 Cost of gathering information

However, in many cases, it is not possible to calculate the value of information directly. Although it is certain that the information is of benefit to the owner, it is difficult – or even impossible – to quantify its value. In such cases, the information is said to have intangible value. A good example might involve attempting to measure the extent to which information can improve decision behaviour. Such a calculation might appear as shown below:

Improvements in decision behaviour 2 Cost of gathering information

Tangible value

A value or benefit that can be measured directly, usually in monetary terms.

Intangible value

A value or benefit that is difficult or impossible to quantify.

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Part 1 INTRODUCTION TO BUSINESS INFORMATION SYSTEMS10

There can be little doubt that the ability to make better decisions can be of great value to any organisation. However, one cannot readily quantify any improvements in decision making since a large number of other factors must also be taken in account. We will see in later chapters that this makes performing a cost–benefit analysis for BIS difficult (Chapters 8 and 14).

When information is used effectively, it can bring about many of the improvements listed below. State and explain why each of the items listed illustrates a tangible or intangible value of information:

(a) improved inventory control;

(b) enhanced customer service;

(c) increased production;

(d) reduced administration costs;

(e) greater customer loyalty;

(f) enhanced public image.

Tangible and intangible informationActivity 1.2

Using the Internet as a resource, find three case studies that show the value of information in the context of a business organisation. As an example, you might locate a news story in Computer Weekly (www.computerweekly.com) describing the savings made as a result of implementing a new stock control system.

Information valueActivity 1.3

Sources of information

Information can be gathered through both formal and informal communication. Formal communications can include reports and accounting statements. Informal communications can include conversations and notes.

Formal communication

Information transmitted by formal communication tends to be presented in a consistent manner. Company reports, for example, will often use the same basic format. This allows the recipient to locate items of interest quickly and easily. Since formal communications tend to be presented in a more structured manner, they are also more likely to present a more comprehensive view of the situations or circumstances they describe. In addition, the information transmitted in this way is likely to be accurate and relevant, since it is normally created for a specific purpose.

BIS can be used to help apply a ‘house style’ for standard documents. Memos, reports and other documents are produced by making use of the templates that are found in most modern word processing packages. These templates contain the basic structure of a given document and can be compared to completing a standard form. Templates can also contain detailed instructions that specify what information should be included in the document and, more importantly, what information should be excluded.

Formal communication

Formal communication involves presenting information in a structured and consistent manner.

Informal communication

This describes less well-structured information that is transmitted by informal means, such as casual conversations between members of staff.

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11ChaPter 1 BASIC CONCEpTS – UNDERSTANDINg INFORMATION

However, formal communication also has several disadvantages. The structure imposed on information is often inflexible, sometimes limiting its type, form and content. In addition, formal communications often overlook information obtained by informal means. This can affect the decision-making process, reducing the quality and accuracy of any decisions made. Finally, formal communications often ignore group and social mechanisms. A formal report, for example, might marginalise or ignore staff opinions, causing offence and leading to reduced morale.

Informal communication

Informal communication is always present in an organisation, regardless of its size or nature. Information of this kind can be considered a valuable resource and one of the aims of knowledge management (described later in this chapter) is to harness it to work for the benefit of the organisation. Perhaps the most common means by which informal communication takes place is by word of mouth. This kind of communication is sometimes known as water- cooler conversation. In a sales organisation, for example, a casual conversation between a salesperson and a client might yield information that can be used to enhance a product or find new ways of making it more attractive to customers. If this information is not recorded the feedback will not be available to the new product development group.

Informal communication tends to offer a high degree of flexibility since there is more freedom to choose how information is structured and presented. Information obtained in this way also tends to be highly detailed, although it may often contain inaccuracies and may not be entirely relevant.

Consider the role of informal communication within an organisation such as a local government department or hospital.

Informal communicationActivity 1.4

The scope of information obtained in this way is often very narrow, relevant only to localised problems and situations. However, even at a local level, this can improve problem solving and decision making since it allows managers to gain a more detailed and in-depth understanding of a given situation.

One of the major disadvantages of informal communication is that it cannot deal with large volumes of information. Furthermore, as a means of communication, it is relatively slow and inefficient. Informal communication can also be highly selective, for example a person taking part in a conversation may be able to restrict what information is transmitted and who is able to receive it. Perhaps a more serious disadvantage is that informal communication is often ignored in favour of formal communication.

QUALITIES OF INFORMATION

Information can be said to have a number of different characteristics that can be used to describe its quality. The differences between ‘good’ and ‘bad’ information can be identified by considering whether or not it has some or all of the attributes of information quality.

Lucey (2005) provides a list of characteristics likely to be present in information considered to be of good quality. However, others, such as O’Brien and Marakas (2006), take a more structured approach and describe the attributes of information quality as being divided into three basic categories: time, content and form. Table 1.1 summarises information characteristics that can be used to assess quality. Note that each column is independent; reading down each column lists the attributes associated with a particular factor.

Attributes of information quality

A group of characteristics by which the quality of information can be assessed, normally grouped into categories of time, content and form.

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Time dimension

The time dimension describes the time period that the information deals with and the frequency at which the information is received.

■ Timeliness. The information should be available when needed. If information is provided too early, it may no longer be current when used. If the information is supplied too late, it will be of no use.

■ Currency. The information should reflect current circumstances when provided. One can go further and suggest that as well as being up-to-date the information should also indicate those areas or circumstances liable to change by the time the information is used.

■ Frequency. In addition to being available when needed, information should also be available as often as needed. This normally means that information should be supplied at regular intervals, for example some organisations may require weekly sales reports whilst others need only monthly reports.

■ Time period. The information should cover the correct time period. A sales forecast, for example, might include information concerning past performance, current performance and predicted performance so that the recipient has a view of past, present and future circumstances.

Content dimension

The content dimension describes the scope and contents of the information.

■ Accuracy. Information that contains errors has only limited value to an organisation. ■ Relevance. The information supplied should be relevant to a particular situation and

should meet the information needs of the recipient. Extraneous detail can compromise other attributes of information quality, such as conciseness.

■ Completeness. All of the information required to meet the information needs of the recipient should be provided. Incomplete information can compromise other attributes of information quality, such as scope and accuracy.

■ Conciseness. Only information relevant to the information needs of the recipient should be supplied. In addition, the information should be provided in the most compact form possible. As an example, sales figures are normally provided in the form of a graph or table – it would be unusual for them to be supplied as a descriptive passage of text.

■ Scope. The scope of the information supplied should be appropriate to the information needs of the recipient. The recipient’s information needs will determine whether the information should concern organisational or external situations and whether it should focus on a specific area or provide a more general overview.

Table 1.1 Summary of attributes of information quality

time Content Form additional characteristics

Timeliness Currency Frequency Time period

Accuracy Relevance Completeness Conciseness Scope

Clarity Detail Order Presentation Media

Confidence in source Reliability Formatted correctly Appropriateness Received by correct person Sent by correct channels

Time dimension

Characteristics of information quality such as timeliness, currency and frequency which are related to the time of collection and review.

Content dimension

Characteristics of information quality such as accuracy, relevance and conciseness which are related to the scope and contents of the information.

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Form dimension

The form dimension describes how the information is presented to the recipient.

■ Clarity. The information should be presented in a form that is appropriate to the intended recipient. The recipient should be able to locate specific items quickly and should be able to understand the information easily.

■ Detail. The information should contain the correct level of detail in order to meet the recipient’s information needs. For example, in some cases highly detailed information will be required whilst in others only a summary will be necessary.

■ Order. Information should be provided in the correct order. As an example, management reports normally contain a brief summary at the beginning. This allows a manager to locate and understand the most important aspects of the report before examining it at a higher level of detail.

■ Presentation. The information should be presented in a form that is appropriate to the intended recipient. Different methods can be used to make information clearer and more accessible to the recipient, for example it is common to present numerical information in the form of a graph or table.

■ Media. Information should be presented using the correct medium. Formal information, for example, is often presented in the form of a printed report, whereas a presentation might make use of a video projector.

Additional characteristics

In addition to the attributes described above, one might also add several others. Of particular importance is confidence in the source of the information received. Recipients are more likely to accept and trust the information they obtain if it is received from a source that has been accurate and reliable in the past.

A further attribute of information quality is that of reliability. It can be argued that recipients should be confident that they can rely upon information being available when required and that the information will be of a consistent quality in terms of other attributes of information quality, such as accuracy and conciseness.

The widespread use of computer-based information systems raises a number of issues related to the sheer quantity of information that is freely available via sources such as the Internet. In addition, the use of computer-based information systems also raises concerns in relation to security. In view of this, one might suggest that a further attribute of information quality is that the information provided should be appropriate to the recipient’s activities. This might restrict information from being supplied if it is of a confidential nature or beyond the duties or responsibilities of a person’s role.

The past decade has also seen an increased emphasis on finding new ways to exploit the huge quantities of information available to organisations. Many of the tools and techniques developed use technology to analyse information automatically. In order to do this effectively, it is necessary to store the information in a form that makes it easy to process by machine. In this way, we can say that information often needs to be formatted correctly, according to its intended use. Data to be processed by computer often needs to be placed in a specific format – usually following one or more standards – before it can be used. We see many of these standards in use every day. On the Internet, for instance, web pages are formatted using the HTML specification. The formats and standards used by an organisation can be its own internal ones, or can follow national or international standards. Internal data formats are often described as being proprietary while national and international standards are usually defined by official agencies. In the UK, for instance,

Form dimension

Characteristics of information quality related to how the information is presented to the recipient.

proprietary

related to an owner or ownership

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Part 1 INTRODUCTION TO BUSINESS INFORMATION SYSTEMS14

official standards are usually set by the British Standards Institute (BSI). International standards are often set by the International Organisation for Standardistation (ISO).

The semantic web is often used to describe information accessible via the Internet that is meaningful to computers. This allows computers to deal with information more like human beings by understanding the meaning of the information and its associations with other pieces of information. One of the ways in which information can be made more accessible to machines is by including metadata. We can think of metadata as ‘data about data’ meaning that it is used to provide information about the content of a given item. A word processing document, for instance, will c

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