2.2 The functional value of information

We are currently living in the ‘information age’. Advances in digital and mobile technologies have allowed people to have access to almost any information they want at literally the touch of a button. However, has all this information actually made us any smarter? Is it allowing organisations and governments to make better decisions? Is it creating and expanding value?

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A woman wearing office attire standing by two white flipchart sheets that have been taped to a glass wall. It is a meeting setting.

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These questions do not have easy answers. However, it is important to distinguish data from information. Data is simply bits of information – facts and figures about people and things. Information is the purposeful analysing and contextualising of this data. Put differently, data is the raw material and information is the finished product. In this context, value creation can be seen as the transformation of raw data into valuable information.

The creation of informational value can be applied to different aspects and functions of organisational value. Data can be gathered and analysed about customers, employees, partners, and managers. Likewise, each business function will provide organisations with its own data and information. The table below briefly highlights some of the data and information offered by different business functions.

It is critical for any organisation to properly analyse and contextualise its data, so that it can valuably exploit it. In this contemporary period, many organisations (and individuals!) suffer from what can be termed ‘informational overload’ – where they are overwhelmed by the amount of data and information they have. Putting in proper processes for analysing data, and understanding what information you want from it, is therefore essential in avoiding this problem. New technologies linking digital communication, artificial intelligence, and big data can help organisations use data and information to make better and more valuable decisions – often referred to as ‘business intelligence’.

Activity 4 The functional value of information

Timing: Allow around 30 minutes for this activity

Watch the video interview of Professor Devandra Kodwani (Executive Dean of the Faculty of Business and Law at the Open University) as he talks about the potential of expanding organisational value in the 21st century. As you watch, make some notes about these questions.

1. How does Professor Kodwani create value across business functions?
2. How does he integrate varied information for this purpose?

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Transcript: Video 2 Expanding organisational value

DEVENDRA KODWANI

My ideas of values have evolved over time. I am currently executive dean for the Faculty of Business and Law at The Open University. Also, I am a professor of finance, corporate finance, and governance. So my notion of value goes back to my days as a student when I was undergraduate student, degree in commerce, where you come to understand about the commerce and business, but also, subsequently, when I was doing MBA, that I started thinking about, what is it that we add to from management point of view to any process that adds value to what customers use, service or good?

But there's other intangible side of it that you are creating knowledge. Now, that creates a public good. And that makes me even more passionate about my role, because then you are generating something that will outlast the generations and be of value to other people. And they can pick up that knowledge, use that, critique it, but broadly make society more livable, a society that understands its own place - human kind to understand its own place in nature.

So I think there are very broad, intangible value propositions that academic institutions have. So I think that notion of value is still not very well understood. You can see the debate going on. But so for me, the value as a proposition, as a notion has gone from economic notion of value as a utility to wages, to profits, to returns, to public good.

I think, how you practise value-creating activities, such as any profession - whether you are in information technology or a manufacturing or banker or a bureaucrat in a government - at every place, there is opportunity to create value. So as I have worked most of my life in academic, but also I have been leaders in leadership roles. Back in India, when I worked before coming to OU, I was in charge of a group of institutions and I had five colleges and their principals reporting to me. I was in charge of a small management institute.

And there, I think some of the lessons that I learned in terms of value are worth reflecting on as a practitioner, as well as an academic. One stark, one that stands out from my memory is, we had earthquake in year 2000 in the place where I was working. It was very tragic development, and it happened in front of my eyes actually. I somehow survived, just was 10 feet away from the building that went down.

Now, it was a massive tragedy. And once we were through with what we could do in the aftermath of the event - and literally, we went out and saved people from buildings. I lost number of my students, my staff, and the members of the families of the staff. So for seven days was - we were just running on adrenaline and trying to rescue people. And actually, until third day after the earthquake, we will still rescuing from debris people and animals.

In terms of organisational value, what I see is that, if you are one of those persons who has that sometimes very good experience, sometimes very harsh experience, but how do you internalise that and lead your people based on that internalisation, that you are creating value within? So sometimes the value is not created that actually in terms of students - for example, if I take this example of my role that I am enabler of value creation rather than creator of the value. So that is another thing one has to bear in mind.

So information can add to value creation by helping us analyse and diagnose the situation better, to unlock the value which might be locked somewhere or to create opportunities for creating value somewhere. So in that, information plays a vital role. So you have - I think there can be some information where you zoom into the information to create value, so you are interested in microseconds analytics type of data, how people are interacting with website, and so on. Or you sometimes have to zoom out to see megatrends, and then adapt to create value for the business.

I think smallest thing is equally valuable in terms of final experience. So interdependence between the functions makes it imperative that we don't have a functional view of value. Actually, if you tried to maximise the functional value maximisation, you might be undermining the overall product quality or service quality for the customer.

But I think where the sustainable value is more important, and perhaps a wiser response, is to look at the interdependence of human existence and human needs on rest of the nature. So we have these two dilemmas as leaders and business people or others who are in charge of managing resources: short term versus long-term dilemma and local versus global.

Let me unpack both of these ideas. So firms who are subject to capital market kind of discipline are obliged these days to report quarterly, monthly earnings forecast, and so on, so that creates a sense of pressure for them, that every quarter you are trying to hit the expectations of the analysts and so on.

And I do not know to what extent actually it therefore delivers long-term value because, if you are managing quarterly forecasts, then sometimes the decisions that you take for foreign goods and services give you results only in long term. So that pressure on short-term focus creates tension for the boards, for the senior management to manage short-term performance year-on-year which might be against the long-term interests of the shareholders themselves sometimes.

The other is local versus a global dilemma, where we pay attention to here and now effect of our business and not enough attention to what's the long-term impact on the environment or other things. So there are many examples: when plastics were invented, the petrochemical industry thrived on that product and plastics have invaded the whole planet. Now, we are finding after 30, 40 years how much damage it has done to oceans and everything.

So this point about sustainable value creation is to understand the interdependence between our consumption and production patterns in short term and long term and between here and now and global perspective.

Value challenges for 21st century - I think one of the challenge is that a narrow notion of value will have to give way to a broader notion of value, within which sustainability will be embedded. I think as education spreads to more parts of world, awareness about the climate change increases, more and more customers will be looking for products and services which are beyond the transactional kind of gratification kind of category, but sustainable sources of value. So it will affect, and it will become rational just for people. It won't be any more emotional response to changing climate or care for environment. It'll become rational demand.

So that challenge will come. And therefore, shortcuts to meeting those goods and services demand will be a question and it will create a pressure for those firms who don't respond. The other challenge would be the notion of value itself will come under pressure.

So some of those changes that these technologies will bring as possibilities in terms of delivering value through supply chain would create tensions and transition how humans adapt to them as a consumer of goods and services, and it will take a while for businesses to understand what it means, and therefore adapt their strategy. So that will be another challenge.

And the third challenge which I feel about value is, which is - I don't have a strong view or any clear view on this - but I think it is going to be an issue. Going forward, financial capital is going to be less important than human capital, if I may use the word human capital. Why do I say so? Because a lot of financial capital is needed for building physical capital - machines and so on, so forth. With rise of robotics, nanotechnology, and 4D printing and all that, the investment required for plant and machinery will shrink, and you will have lot more distributed production activity going on, apart from, of course, if you are doing railroads, for example, if they remain very relevant in 50 years' time.

So physical infrastructure that goes into the business, which requires actual capital, will be distributed and not as capital intensive financially. Now, if that changes and balance tilts towards the mental capacity, the talent and human, it will create a very interesting dilemma for businesses. Do they listen to the financial world or do they work differently? And that value, which is at the moment captured by labour and capital, and capital gets more, we know from history, that balance is likely to change in, I think, next 50 years.

And that means value proposition for that - it has serious consequences, by the way, because if large number of people are going to depend on pension funds, living 70, 80, 90 years of age, and we say the returns on financial capital will go down, because the demand for financial capital will go down, it's a very serious social issue. But in business value terms, it is a very interesting thing.

I think innovation and inclusive value creation and sustenance requires quite a bit of organisational adaptation, too. So we'll have to give up this notion of functionally defined set of activities that different people do in the organisations, because increasingly, we would see both on the decision making and the process of delivering value, you'll be working in multi-functional, quite disparate set of people bringing different values from production to marketing to customer service and so on.

And there is no secret about bringing different perspectives on the same problem to generate some high quality solution, because if you've brought only small number of people to bear upon a problem, you are losing out so much. So inclusivity in that sense is important, particularly in global context, because, as we said, the problems, as well as opportunities, are all around globe, in terms of serving and delivering value.

And therefore, to bring perspective on a value proposition from different cultural or national or traditional backgrounds, you need to have organisation is set up for work environment in which people from different cultural backgrounds can work together and be ensured that there are no barriers for them to come together. Where you have diversity, you want to be inclusive, but how do you remove those barriers so that customer or whoever your stakeholder you are serving gets the best value out of it? And start with at home, in the learning environment at OU, and tell us how we could do things differently and take your ideas as students so that we can inform our choices in future.

End transcript: Video 2 Expanding organisational value

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Video 2 Expanding organisational value

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