The value of information is the level to which it can extend our ability to sense our environment over time and place.

Idea in brief

In this third post I explore a complex question: ‘What is the value of information?’ I have come to the conclusion that to answer this question we have to use the philosophy of Aristotle. More specifically, I discovered that the value of information is the level to which it can extend our ability to sense our environment.

Drawing from my experience as the founder of a digital media company in the 90’s, being an information consultant in the 00’s and working with today’s big data, I first explore the reinvention of the value of information throughout the last three decades. I find that existing theories s do not provide a sufficient answer. The fundamental value of information is not in its application. Rather, the economic theory about ‘making decisions’ reduces the value to choosing between preset options and the business case theory only explains that we have to find value, not how to find it.

To find the value of information I dive deeper into what it means to be a human being. By discovering that Aristotle defines the human soul as a ‘natural sensory body’.,as a result, the value of information is the level to which it can extend our ability to sense our environment of time and place. Applying this theory to existing uses of information, ranging from paper documents to accounting systems, I come to the conclusion that this not only provides a much better explanation of what the value of information is, but that it also gives us a new way in getting more value out of new technology.

The reinvention of the value of information in the 90’s, 00’s and 2010’s

Every decade the industry of Information Technology reinvents the importance of ‘the Value of Information’. When a new paradigm is introduced there seems to be a great need to put meaning to this new technology.

I began my career in 1994 by starting a digital media company, which was a common thing to do for teenagers in the 90’s. The book, Information Rules, written by Carl Shapiro and Hal Varian in 1998 completely captures the ideas about the value of information in the dot com economy. Rereading this book made me long for the wonderful years of the late 90s in which people, including these authors, believed the use of information would erase poverty.

A decade later I made a career change to the field of Business Intelligence. Often very vague and full of consultancy buzzwords ‘the Value of Information’ was the central theme of many pitches to potential clients. Mad Men’s Don Draper wasn’t around yet to explain all the details, but the belief that we had to sell to a client’s need instead of selling product features was already there.

Starting in 2010, the rise of big data and its related technology has again raised the question: ‘What is the value of information?’.More and more articles and blog posts are questioning the added value of this new technology instead of writing about the technology itself.

My career started in the 1990’s, but the question regarding the value of information existed before that. Actually it existed before the invention of modern Information Technology. A great example of this is the Book Wheel (Figure 1). For which I have to give credit to my wife for introducing it to me. The Book Wheel, an invention of the 17th century, was a solution to the information overload created by the book-press. Information was so valuable that a solution had to be found so people were able to take in more.

All this time I do not believe that a sufficient answer has been given to what the value of information actually is. Before I give my own ideas about this topic and introduce the help of Aristotle, I will look at three existing theories and explain why these do not to provide the right answer. These are the application of information, economic theory (making decisions) and the business case.

Why existing theories do not provide the right answer

1. The fundamental value of information is not in its application

As a consultant I have been part of many discussions trying to find best definition of the value of information. In many of these discussions there was always someone who would say that the value of information is in the application of information. This is in my opinion not a valid answer.

The philosopher who lends his name to this post gave us a great way to use analogies to dispute this theory. Saying that the value of information is in the application of information is like saying the value of a brick is that it provides a roof over our head because with a brick you can build a house. And the house provides a roof and shelter. But the brick has value to the house and it is the house that in turn provides the roof. So the value of the brick is that it provides structure, stability and easy application and not that it provides shelter.

Now lets use a better billing process as an example for the value of information. Following the analogy of the brick and the house, better information improves the billing process. This results in better paying clients and an improved cash flow. In this scenario it is the improved billing process that improves the accounts payable. The value of information is to the billing process not to the cash flow. Or stated differently, the value of information is the value it can bring to its application, not the application it self. To find the value of information to the improved billing process we have to use Aristotelian philosophy, which will be explained below.

2. The economic theory about ‘making decisions’ reduces the value of information to choosing between preset options

The economic theory behind the value of information is about ‘making better decisions’, which is the fundamental concept behind many of the existing ideas around this topic.

This concept is often presented in the abstract. Two months ago I attended a conference, officially about Business Analytics, but given the current hype the words Big and Data were used more often. The keynote speaker’s main argument was that the starting point of crating value from information were the many ‘little decisions’ made by operational employees instead of ‘better management decisions’. He did this without clarifying either of those decisions.

The very concrete example presented in box 1 clearly shows the fundamental aspects behind this theory, even if people use these aspects in a more abstract way. The scenario presented in box 1 describes a decision that has to be made about whether or not to introduce a new product. The value of information is that it indicates if the product will be a success or not before the product is introduced. As a result you will not incur a loss of 2 million dollars if the product happens to be failure.

The problem with the economic theory of decisions making is twofold. First, it reduces the value of information to making choices between-often only two-preset options. Now there might be situations like this, in which information can very valuable, but it does not do justice to the value that information can bring. For example in the scenario presented in box 1 the use of information is reduced to choosing whether or not to introduce the new product. Information, however, can be even more valuable when designing the product in the first place. Using information to design the ‘right’ product is more valuable then asking yourself weather or not to introduce it. Or perhaps tweaking the product a little and introducing it in market B instead of A is a much broader decision than the two options presented in box 1.

Second, the economic theory sees people, both in their private and their professional life, as continuous, conscious decision makers. My experience as a consultant is that the reluctance of people to adopt information systems is that they do not agree with this worldview. I believe they are right. People are, when taking actions, most of the time unaware that they’re making a decision. More important (related to my first argument), information can be more valuable in knowing which decisions you have to take instead of making the decision itself.

3. The business case theory only explains that we have to find value, not how to find it.

I can be short about the business case because it only gives us a meta model. The business case theory explains that we must find what the value is, but it does not explain how to find it.

There have been attempts to make this search for value, or benefits, more concrete. For example the benefits logic model, created by the consulting firm Capgemini, connects solutions to outcomes called benefits and defines concrete value areas that it tries to quantify. Within the benefits logic model, however, the definition of value is often left to expert judgment leading to a false sense of security.

More important, the benefits logic model, like the business case, sees the use or applications of information as a source of value and not the information itself. As explained above, the fundamental value of information is not in its application.

Aristotle on the value of information

When spending a considerable amount of time on the value of information, I was at first disappointed that existing theories where not sufficient. This changed when I remembered what Aristotle believes is the definition of the human soul and realized how this relates to the use of information. It’s as if the finding the essence of being a human being also defines the essence behind information.

Aristotle states that the soul is a ‘natural sensory body’. In one of his major works, On the Soul, Aristotle explains the nature of living things. In his work he spends a considerable amount of time on the difference between plants, animals and humans. The essence of the soul, including those of humans, is the possibility to take action based on sense-perception.

What does this mean for information? How does the theory of Aristotle on the Soul explain its value? If the essence of being a human being is the possibility to use sensory input, the value of information is that it extends this sense-perception. Information allows us to extend our sensory input in two ways: time and place. These are the two dimensions that, according to another great thinker, Albert Einstein, define our universe. Information extends our possibility to sense our environment in these two ways.

The value of information is the level to which it can extend our ability to sense our environment over time and place.

Take for example the case of an historic document. This document allows us to see something that happened a long time ago and we can no longer see. It thus extends our sensory input over time. Another example: management information. Management information allows leaders at the top to see what happens in various parts of the organization without actually being present at that location. It thus extends their ability to sense their environment over place. The third example shows the extension over place and time. I promised to come back to the example of the improved billing process. In this case, information allows us to see how a specific transaction took place both in a different place and a different time. And although we now can no longer see that transaction or are at a different location, information extends the sensory input as if it was happening right now.

Seeing the value of information as the level to which it can extend our ability to sense our environment over time and/or place has great implications. Most of all it means we have to take an individual approach to using information instead of a top down corporate approach. Box 2 gives a brief explanation of how this new theory can be applied to big data. The individual approach is further explored in my next post: the consumerization of information.