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Slides for lecture on role of information in organizations

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Role of Information
in Organizations


Organizations collect and distribute information.  In the process, they also distort it.  Some distortions are intentional.  Sometimes employees are asked to summarize data and report it to their supervisors.  By definition, summarizing data means leaving some parts of it out. This is one type of distortion that is intentional.  Other times, organizations distort data so much as to changes its meaning and value.  This section describes the importance of information within organization and how information is acquired and changed within organizations.


  1. Describe the difference between data and information.
  2. Define what is information search
  3. Describe the investment of US industry in information processing
  4. Describe the changes in cost structure of information technology
  5. Describe the ways in which employees distort information
  6. Describe barriers to information search within organizations
  7. Describe the role of organization structures in information processing

Data Versus Information

In everyday language data and information are used interchangeably.  For example, the Oxford American Dictionary defines data as: "facts or information to be used as a basis of discussing or deciding something."  At the same time information is defined as "facts told or discovered or facts to be fed to a computer".   In both definition, data and information are assumed to be one and same concept.

But these terms have radically different meanings in the information processing or management literature.  Data are collection of observations, which may or may not be true.  Thus data may not be facts.  Data become information when they are processed.  To process data one needs to (1) clean the data from errors and reduce sources of unreliability, (2) analyze data to make it relevant to decision at hand, and (3) organize data in ways that help understanding. 

In this definition, information is "meaningful data."  Data are the building blocks (the bricks and mortar) and information is the finished house.  The raw materials are useless as a pile but once organized into a structure they become someone's home.   Likewise data are useless for managers unless organized into information. 

Data goes through many distinct steps before it becomes information, including:  

  1. acquisition of data;
  2. classification of data;
  3. storage of data;
  4. retrieval of data,
  5. editing of data;
  6. verification and quality control of process that produced the data;
  7. aggregation of data;
  8. hypothesis generation;
  9. description of data;
  10. test of analysis assumptions;
  11. analysis;
  12. extrapolation of implications of findings;
  13. choice of format for presentation of data;
  14. distribution of reports;
  15. evaluation of effectiveness of reports. 

A datum has to go through considerable amount of manipulations before it becomes meaningful information.  To help derive the distinction between data and information home, here is a simple exercise.

What is Information?

So far we have argued in the negative.  We have said that information is not data.  But what is information and how can we define it?  One of the earliest definition of information was produced by Shannon and Weaver (Shannon CE, Weaver W, 1949.  A mathematical theory of communication.  Chicago University of Illinois Press.).  They defined information as what is known beyond random chance predictions.  In this sense, information must surprise the recipient.  It must reduce the uncertainty recipient has about the state of the world.  Random chance events represent the state of complete uncertainty.  To the extent that recipient can reduce his/her uncertainty, he/she is informed.  If the conclusion of a report is known a priori, then it has no surprise value, and therefore it is not, according to this definition, informative. 

Shannon and Weavers definition is probably too mechanistic and narrow for today's business operations, where information systems play multiple roles.  Some information systems gather data on operations already known to managers.  These systems are not designed to have a surprise value but one of documentation.

Another definition of information is one that relates it to decision making.  According to this definition, information are data that reduce the alternatives available to the manager.  An uninformed manager can do anything, an informed manager is likely to have fewer rational options.  This definition relies on the role of information in changing manager's decisions.  

Still another definition of information is processed or meaningful data about the world we work within.  In this sense, any observation may be considered data and once processed and made meaningful to a recipient it is then defined to be information. 

Definition of Information Seeking

A concept closely related to the definition of information is the behavior of "seeking information."  Information search is any purposeful activity leading to collecting data and processing it to become information.  Thus asking direct questions is information seeking.  So is asking indirect questions.  Gathering information by testing limits of work rules or behaviors is also information seeking. 

Importance of Information

These days computers and information processing are everywhere.  Computers influence what decisions are made, when decisions are made, what information is available at the point of decision and who is asked to decide.  Computers and information processing affects how work is organized and how employees feel about work.   Computers even influence what patients want from health care systems and how patients approach health care organizations.  Information processing and computing is pervasive. 

From our perspective, the essential element of management is information processing and thus computers are expected to heavily influence management.

Investment in Information Systems

The investment in information systems has grown. Since 1965 the investment in information technology (office, computing, accounting, and communication equipment) has tripled in the United States.  In the same time period, the investment in production technologies (engines, turbines, agricultural machinery, metal worker machinery, materials handing equipment, service industry machines, electrical transmission and distribution, and other industrial apparatus) has increased less.  In this regard Charles Jonscher writes in "Information technology and the corporation of the 1990s, (1994, page 26)":

"The United States economy recently reached the point that expenditure on information technology exceeds that on traditional industrial or production technologies.   The fact that business enterprises now spend as much on the equipment that supports the manipulation of business information as on the machinery and equipment on which it has depended for the last century and more for all aspects of industrial production is striking evidence of the central role now played by information processing in the economic system."

The growing investment in information technology has changed what we do at work.   Figure below shows the number of people employed in producing information versus other goods in the United States.  An employee is classified into a production worker if the final product produced by the employee is a physical one.  Such an employee may use information in producing the product but is not considered an information worker.   A surgeon, for example, is classified a production worker as the purpose of his/her activities is to make a physical change.  In contrast, information workers do not produce physical products.  They may produce a memo or an analysis.  A billing clerk primary function is to process information not to produce a product, even though the clerk contributes to production of a product.  A billing clerk is classified as an information worker.   According to the data from United States Bureau of Statistics Series D232-682, the number of information workers has been growing in the last century and furthermore in the US more people are employed to process information than to produce goods.  The growth of information workers documents the importance of information in today's organizations.

Changes in Cost

(Based on Jonscher C.  An economic study of information technology revolution.  In Allen TJ, Morton MSS.  Information technology and the corporation of the 1990s, Oxford University Press, New York, 1994., 5-42)

The massive investment by US firms in information technology has been accompanied with significant changes in the technology itself.  Jonscher suggests four different ways in which information processing costs have gone down.

  1. Processing costs have gone done by 30 to 40 percent per year, since 1950s.  These cost reductions led to new applications for computers including mathematical and scientific applications.
  2. Storage costs have cost have dropped 25 to 30 percent per year, since 1960s.  The reduce storage cost enable many users to save their data on the computer as files.   The use of computers in conducting routine business operations started in this decade.
  3. Transmission costs have dropped 15 to 20 percent since 1970s.  These reduced cost led to use of  networked computers.  Public and private data sources began operating.
  4. In the 1980s personal computing grew rapidly as the cost of input/output devices dropped by 5 to 15 percent per year.  Business use of personal computing grew and central computing costs became lower than the cost of terminals.

These cost reductions show how information technology has changed over time.   To the categories that Jonscher suggests we have added a fifth.  In the 1990s, the innovation in information devices did not lead to changes in cost of equipment but to cost of marketing.   In this decade, the number of home computers grew to a level that it became viable to market products online.  The growth of online markets changed the way work was organized.  Businesses rushed to market products online.

Distortion of Information

(Based on Russo JE, Shoemaker PJH Decision Traps Double Day publishers, 1989)

We think of ourselves as infallible.   If the whole world around us falls apart, we know that in the end we have our own intuitions to make sense of it and to pull us through.  Our intuitions tell us when to ignore reports from information systems and go with our "gut feelings."

We, meaning you the reader and I the writer, think that our intuitions and judgments can show us the right from wrong.  We implicitly trust our intuition.  When we manage people, when we evaluate their work and assess their effort, we may look at data but in the end it is our judgment that we rely upon.   So deep is our trust of our own experiences and judgments, that not doing so will be tantamount to not being ourselves.

Yet there is something wrong with our judgments.  It is not as good as we claim it is.  According to recent data most decision makers commit some type of error in processing information.   Russo and Shoemaker have provided the following summary of the ten most dangerous decision traps:

  1. Plunging in before full examination -- Some mangers reach conclusions without thinking through how they should decide about the issue, on what basis should a judgment be made and whether sufficient information is available for the decision.  Information systems make this worst by hiding the source of data, the process of the analysis and give the impression that a comprehensive evaluation has been done.  The decision maker has little or no understanding of how the decision was made or should be made, nor does the system describe what information should be available which is absent.  It creates confidence when none is deserved.
  2. Solving wrong problems -- Some managers are so busy addressing problems and the latest crisis that they fail to stop and ask if they are solving the right problem.   In the way they have framed their understanding of everyday issues, they fail to see the real problems the organization faces. Information systems make the matter worst by collecting data on what is easily available as opposed to what is needed.  Managers then focus on problems defined by available data and ignore real and perhaps more pressing problems not documented in the information systems.
  3. Narrow view -- Some managers see the problem they are facing in one perspective that limits their creativeness and the solutions they look for.  Information systems make the matter worst by providing more detail in the single perspective and not providing conflicting perspectives of the same data.  Research on framing shows that multiple perspectives of the same problem is important in avoiding biased judgments.
  4. Overconfidence -- Some managers ignore the underlying uncertainties about the future and act as if their conclusions hold under all future scenarios.  They fail to plan for alternative scenarios.  This is most apparent when it comes to evaluating the manager's performance.  They tend to think that their success is because of their skills when in reality it might just be a lucky coincidence.  Information systems make this worst by hiding the reliability of the source data and the assumptions used in the analysis.  Computer printouts project an image of accuracy and reliability that may be false.
  5. Shortsighted shortcuts --  Some managers may rely on rules of thumb to decide critical issues.  They may trust the most readily available information.  They may weight more heavily what is easier to remember.  They may anchor their judgment on the most conveniently available facts.  The more complex the decision, the more likely that managers will short cut their own thinking about the issue.
  6. Shooting from the hip -- Despite complex issues managers face, many insist to arrive at their judgment on their own without any decisions aids.   Data shows that as the decision becomes more complex, intuitions are less likely to integrate various pieces of information and inevitably important information may be ignored.  Some information systems contribute to the problem by providing information but not decision aids.
  7. Equating popularity with accuracy --Some managers assume that because they are involved in the decision or because many smart people are involved then necessarily the decision will be good.  They fail to see the potential that groups of decision makers may fall into traps.  Groups that are very cohesive and social, tend not to question each other's assumptions and may ignore important information.  Information systems can help by highlighting processes used by groups in arriving at judgments.
  8. Fooling yourself -- Some managers fail to learn from their own experiences because they attribute their success to themselves and their failure to others.  In the end, no matter how poorly they have decided, they only see their own success and fail to notice their failures.  Information systems can help by keeping track of outcomes and helping decision makers understand them.
  9. Not keeping track -- Many managers forget their experiences and remember the more vivid events.  Information systems can help by keeping track of the decision makers judgments and events that occurred afterwards. 
  10. Not checking --  Many managers believe that decision making is an art not a science and that they can do it without training.  Hence they do not check routinely to see if they are falling victim to any of the above traps.

The data on human information processing limitations suggests that managers should take several steps to avoid above traps, including:

  • Frame the problem better.  Be cognizant of how you choose a problem to solve and state the problem from multiple perspectives.
  • Gather information more intelligently.  Gather not only the facts needed but be aware of the data missing.  Postpone as long as possible the decisions until more information is available.
  • In complex decisions, use systematic processes to come to conclusions.
  • Seek and learn from feedback by keeping track of success and failures.

Information systems designers should keep in mind how managers may distort facts and provide aids that allow them to overcome these biases.

Information Seeking Behavior

(Based on Johnson JD.  Information Seeking Quorum Books Connecticut, 1996)

There is hardly any management activity that does not involve active or passive information seeking.  Information seeking is the first step in bringing about individual or organizational change.  It helps prepare and lead managers to action.  Even after action, information seeking continues in order to reconfirm the validity of the action taken and give a feeling of control over events.

Managers also need to understand the workers' information seeking behavior.  If the information that a worker is receiving is well understood, the perspective of the worker is understood.  It is then possible to encourage the worker to be more productive.  Historically, managers have been expected to "motivate" workers.  But except for a short period in the late 1960s, when t-groups were used heavily, managers do not try to emotionally engage workers.  Instead managers take a cognitive approach.  They try to motivate workers by informing them and helping them participate. Thus understanding the information seeking behavior of workers is one of the first elements of how one can motivate them.

Workers lack of knowledge of problems faced by organizations is one of the central problems of today's organization.  The opportunities and trials of the organizations are understood in vague general economic terms.  If a merger is contemplated, the reasons for it are not known by most workers until it is reported in mass media.  If employees are laid off, little is known for the conditions leading to this situation until layoffs are announced.  Even the overall profitability of the organization and the nature of competition in the market is not well understood.  Workers are not only unaware of problems faced by the organization they are also unaware of what others do in the organization.  One of the most surprising benefits of cross functional team work in organizations has been that many workers have become aware of what each team member does in the organization.  

In 1975, Walton (Walton E.  Self interest, credibility, and message selection in organizational communication; a research note.   Human Communication Research 1975, 20: 473-501.) studied the effectiveness of downward communication about affirmative action.  Despite intensive effort, only 27% of employees were able to correctly identify key aspects of the program.  Other studies have shown that the level of awareness of employees declines as one proceeds through the hierarchy of the organization.  Policies are best known at the top and least known at the bottom of the hierarchy (Smith RL, Richetto GM, Zima JP.  Organizational behavior: an approach to human communication.  In Budd R, Ruben B. (editors) Approaches to human communication, New York, Spartan Books, 269-289).

Why is there so much ignorance in organized work?  How could we remain organized while ignorant of so many aspects of our organizations?  At some level, many argue that ignorance is bliss.  To know more, would require workers to spend so much time at information seeking that they may not get to do their job.  At another level, managers may wish to control information available.  They may wish to time the release of information to coincide with actions they are recommending.  They may see information seeking of workers as destabilizing the organization.  They may perceive insider information as important in maintaining their position.  

To become more productive and be able to meet the customer's demand more efficiently, organizations create specialized units, managers differentiate work and assign it to specific units of the organizations.  The more organizations are differentiated, the more the need for coordination.  The more controls managers put on information seeking, the less self-coordination can occur among work units and the more central the manager's role.  When information is shared, the burden of coordination is shared.  When information is hoarded away, the burden falls on the manager.  If he fails, if he is sick some day, the entire organization will fail to act in coordinated fashion.

Professionals such as physicians and computer programmers often resist being told what to do.  Professionals are managed easier through self-coordination.  In managing professionals, information systems play a significant role in enabling them to coordinate their work with other professionals and with organizational priorities.  

Formal and Informal Networks

Managers use organizational structures to coordinate activities among various workers.  There are at least two types of structures within an organization:  formal organizational structures as well as informal structures.  An example of a formal organization structure is the organization hierarchy.  Formal organization structures may have downward or upward communications.  An example of downward communication is the organizational policies regarding safe work place.  An example of upward communication is employee appraisals.  But not all information flows through formal organizational structure.  In fact, sometimes the best and most accurate information is not available through formal organizational channels.

Informal organization networks are groupings of employees who are actively and regularly communicating with each other.  It includes both social as well as work related communications.  It includes both supportive and negative communications.   

Both formal and informal organization structures provide stability.  Information structures remain the same while individuals or employees may change.  This enables workers to take some services and activities for granted and focus their activities on their tasks.  

Both formal and informal structures play a prominent role in coordination and  information processing.  These networks can be used to reduce information load on employees, to provide key information to select employees and to coordinate activities across organizational units.  Without formal and informal organizations structures the coordination of work would be much harder.  Policies, rituals and procedures would need to be recreated every time.  Many organizational units may unnecessarily duplicate each others' work.  Every time a decision needs to be made, considerable effort needs to be put into who decides and who should be included.

Barriers to Information Seeking

Data show that search for information may be restricted because of several reasons, including:  

  • Time.  Managers may not have the time to search comprehensively for the needed information.  The more decisions managers have to make, the less time they have to investigate each decision.
  • Decision making characteristics.  Employees often use less than optimal decision making procedures.  Instead of having a comprehensive list of alternatives they rely on a short list.  Instead of postponing decisions until all information is collected, they decide as they go; often breaking the search process before necessary information is collected. 
  • Structural barriers.  Organizations restrict access to some information.  Only specific groups within the organization have access to these information.  This is often done for security purposes.  Sometimes it is done to enable work units to focus their attention on single tasks and allow other units to address other tasks.  Sometimes this is done in order to make some decisions more consistent with organization priorities.  When organization decentralize decision making and remove structural barriers to information, workers have more latitude in decision making and may follow various decision making procedures.  One purpose of restricting access to information is to make sure that the organization applies consistent criteria to similar decisions.  
  • Cultural factors.  Cultural factors draw the line between curiosity and intrusiveness.  These factors restrict information seeking by making some topics taboo or requiring the person to follow particular rituals for getting certain information.  Both the society and the organization affect the culture and milieu in which employees seek information.  Organization cultures that value formal communications, that encourage group consensus, and that enforce hierarchical ranks are more likely to restrict information search and innovation on the part of their employees.
  • Organization policies and rules.  Certain organization policies and rules may restrict information seeking behavior.  For example, policies on privacy of employees restrict access to information on use of employee assistance programs.
  • Individual impediments.  Employees may prefer to remain ignorant about some issues in order to not to have to choose sides on some issues.  Employees may not have the cognitive ability to process large amount of information.
  • Technical issues in search procedures.  Employees may not be aware of sources of information or procedures for access to these sources.
  • Cost of search.  Both the dollar cost of search as well as the cost of thinking (tolerance of uncertainty until some future time) may restrict search for information.
  • "Not part of my job".  Employees may not be motivated to seek information because it is not in their job description.
  • Fear of the unknown.  Employees may not seek information, especially feedback about their work, because the information may be negative.

What do you know?

Advanced learners like you, often need different ways of understanding a topic. Reading is just one way of understanding. Another way is through writing about what you have read.  The enclosed assessment is designed to get you to think more about the concepts taught in this session.

  1. Describe the difference between data and information.
  2. Define what is information search
  3. Describe the investment of US industry in information processing
  4. Describe the changes in cost structure of information technology
  5. Describe how employees may distort information
  6. Describe barriers to information search within organizations
  7. Describe the role of organization structures in information processing



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