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MANAGEMENT
MAKING DECISIONS
“Information” vs “Communication”: The Battle to Influence Decision Making
MAKING DECISIONS
“Information” vs “Communication”: The Battle to Influence Decision Making
Peter Burgess COMMENTARY
Peter Burgess
FrontiersInterview
April 05, 2016
Raffaella Sadun (Harvard Business School), interviewed by Frieda Klotz
Harvard Business School professor Raffaella Sadun explains how two traditionally connected technologies may appear to pull organizations in opposing directions
MIT SMR FRONTIERS ... This article is part of an MIT SMR initiative exploring how technology is reshaping the practice of management.
Information and communications technologies (ICT) have revolutionized the way we work. But do we really understand their organizational impact?
In recent research, Raffaella Sadun, Thomas S. Murphy Associate Professor of Business Administration in the Strategy Unit at Harvard Business School, argues that, in spite of the shared acronym, the effects of information technologies and communication technologies should not be lumped together. In fact, their influences within the enterprise not only differ but actually diverge. Better communication pushes decision making up the organizational hierarchy while better information decentralizes and pushes decisions down, giving greater autonomy to workers.
Sadun talked to MIT Sloan Management Review about whether a more nuanced understanding of these transformative changes should make us rethink how we view ICT, and the role of leadership in harnessing its value.
Let’s begin with the relative roles of information and communication technologies. If more information pushes decisions down and better communication pushes decisions up, is it desirable to focus on one rather than the other?
This is something that was initially studied by Luis Garicano. We tend to conflate technologies that have very different effects on the allocation of decision making authority within the firm. But if you look more carefully at what these technologies do, you will find very different effects on decision making and where it happens in a company.
Let’s begin with information (or knowledge acquisition) technologies: The easiest starting point is to think about the technologies that help front-line workers and functional managers gather knowledge that would otherwise be inaccessible to them. In manufacturing, enterprise resource planning (ERP) software is a good example. It’s a technology that gives the plant manager a tremendous amount of visibility about what happens elsewhere across the firm, from the supply chain to operations to customer relations and so on; this information enables them to act much more autonomously.
So to the extent that you can find the skilled employees who complement the technology, and that managers at the top of the hierarchy are time constrained, it shifts the decision making down in the hierarchy. This is what we consider the empowering effect of knowledge-acquisition technologies.
Now let’s look at the communication aspect of these new technologies. Think about the role of foreign diplomats before communication was cheap. Countries would send representatives to foreign territories with a tremendous amount of autonomy. Ambassadors would routinely make decisions that their headquarters — their countries of origin — wouldn’t necessarily have been able to validate on a daily basis because communication technology was tremendously expensive and very slow. The diplomat was the only representative of the country who could really understand what was happening on the ground, and thus, they were empowered to respond quickly and independently to events. They were almost like mini-kings.
But now that need-to-know information travels instantaneously across the globe, diplomatic autonomy is an anachronism, and ambassadors have evolved into intermediaries rather than decision-makers.
When communication becomes fast and cheap enough — and right now we are working in a world of instantaneous communication that is virtually free — we reach a point where it’s more efficient for headquarters to monitor and engage directly.
This is something that has also happened in firms, of course. Think about how cheap and easy it is right now for headquarters to tap into the technologies that monitor what’s happening at a plant on a day-to-day or even minute-by-minute basis. Senior executives can observe the factory floor in real time if they wish. If they want that information, it’s right there, and they can access it without needing a human filter to relay it to them.
How do these apparently opposing trends play out in practice inside organizations?
The interesting thing is that the two trends — information technologies moving decisions down and communication tech shifting them up — are not really in conflict. Everything is happening at the same time. Certain types of decisions will now be located lower in the organization, while others will be pushed to the top.
If that plant manager now has the information available to make certain operational decisions about product development (we’ll assume that he or she has the skills to make that decision correctly), that decision is going to be made right then and there on the factory floor. It would be a replication of effort for the CEO to express a preference about the product.
This means the CEO will be able to do something else instead. It may mean ultimately having more time to spend on complex, strategic decisions — perhaps to do with coordination of the different businesses — that only the CEO can address.
What are the implications for people inside companies?
Think about the skillsets you have traditionally sought in the people hired for certain positions and how those may need to evolve. That plant manager we talked about: Yes, he needs to be able to direct all the elements of the manufacturing process, just as he always has. But now he also needs to possess the skills and training to understand and make independent decisions using a massive amount of new information available to him via technologies like ERP. That’s a pretty dramatic change.
There are also implications for the C-suite. It’s faster, cheaper, and easier for executives to access information than ever before. But leaders need to be able to understand and evaluate this information — and, you know, we are all cognitively bounded [laughs]. So access to data has important implications for people at the top of the hierarchy; they must have the skills and wherewithal to interface effectively with what the technologies convey.
You have said the term “ICT” is problematic because it lumps quite different technologies, which have distinct impacts, together. Do you think that we should make a greater effort to view these technologies separately?
I think what’s more important is to be aware of the fact that technologies can have very complex effects on the organization. This goes back to the early stages of the ICT revolution: People were saying, “We don’t see productivity effects of these new technologies,” and some were arguing that perhaps the technologies were not that productive after all. But if you look closely at how organizations use these technologies, you realize that the productivity effect comes once you not only plug a computer in the wall but also understand the different skill needs and resource allocations required — how you want employees at different levels to change what they do based on the impact of these technologies and whether you need to hire more or fewer of one type of worker as a result. You need to think about technology as something that complements skills and complements the different levels of authority within the firm.
Looking ahead, what do you think are going to be the interesting questions about how technology will further alter the management landscape?
The more I look at these challenges, the more I think they are especially salient for people in leadership positions. When we see technology not improving productivity and efficiency, we pay a lot of attention to the skill needs of middle-level and frontline employees. What I’m coming to realize is that the effective use of technology also requires very different aptitudes and skill mix at the top of the organization.
The biggest challenge for C-suite managers is to make sure that their years of experience and personal opinions can effectively complement the ability to conduct more automated processes and acquire more and more data. Some leaders may resist these changes: If everything is suddenly data-driven and more objective than it was in the past, where does their unique expertise fit in?
That’s very interesting. It sounds as though leaders need to hone the ability to understand data at a deep level so that they can evaluate it within the big picture of what they know is happening more broadly across the industry or at their firm?
Yes. Today's leaders may feel overwhelmed by data. And I think there are two main risks when that happens. One is that executives give data pride of place, allowing it to drive decisions without understanding the information thoroughly. And the second is that they simply ignore the data, trusting their gut feelings instead. I think, personally, this is really fine balance; how much should leaders rely on data, and to what extent, rather than on their subjective view of the world.
Looking ahead, my sense is that top managers may be able to overcome these challenge by shifting towards a different leadership model, one in which they systematically rely on the judgment of other, perhaps more technically oriented staff to help them make sense of the data. You’ll need to make yourself a person who creates value by understanding data and making decisions based on both objective information and a multitude of perspectives rather than by simply imposing your individual views on the world. Not all managers are able to make that shift.
ABOUT THE AUTHOR
Frieda Klotz is a journalist who writes about technology and healthcare.
TAGS: Communication, Decision Making, ICT, Information
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