More effective use of information

2010

Companies in every sector all over the world are confronted with growing complexity. Not only are relationships with competitors, customers, and suppliers becoming more complicated and involved, but internally, many companies have complex processes, diverse business units, matrix structures and a diverse employee base. How do some deal with complexity better than others, and thereby outperform the competition?

Effective information management requires a company to encourage proactive information behaviors and values among all employees about using and sharing what they know with others, develop information-processing practices linked to business strategies and external market realities, and invest in IT for management and innovation support, not just for running processes and operations.

The difference in how companies are able to deal with complexity is directly related to how well they manage and use information, people knowledge and information systems.

The IC Optimization Effect
High-performing companies have systematically developed information capabilities (IC) over time. With the right quality and quantity of information, knowing how to use it appropriately, and operating more efficiently and effectively than the competition, these companies successfully sense, manage and proactively react to any potentially complex situations – internal or external.

With today's digital capability to access information anywhere, anytime, many companies substitute good information management for the movement of people, paper and products across geographical areas, time zones, markets and organizational boundaries. Physical processes have been replaced with electronic ones, and rigid organizational structures with more flexible virtual people networks.

This is called the IC Optimization Effect and it happens when a company uses information capabilities to eliminate inefficiencies and achieve cost savings as well as add value.

There are five key areas where optimizing the use of information in a business can provide cost and value advantages.

1. Organizational structure
Information capabilities can play an integral role in eliminating redundancy or unnecessary layers in an organizational structure. By streamlining processes, minimizing management layers, facilitating communication and improving monitoring, IC can help create more agile and flexible organizational structures.

2. Processes
Companies are continually looking at ways to make their processes more efficient and ultimately more effective. Processes include manufacturing products, processing orders, delivering products, customer servicing, as well as creating new products, and dealing with back-office processes, such as accounts payable and receivable, payroll, expense reporting and recruiting.

Not only can IC reduce costs by streamlining processes and replacing physical processes with electronic ones, it can also boost operational effectiveness by coordinating similar tasks across functions and disparate channels so that everyone in a company is working together towards a common goal – such as serving the customer.

3. People
Companies can also optimize people resources by investing in information capabilities. With the right people, technology and processes, companies can reduce the number of people needed to achieve the same desired business results. In addition, IC makes information processing less costly by creating common "social conventions" and standardizing ways of collecting and communicating information. This allows for more efficient management of projects and control of functional tasks.

Using people efficiently is just one part of the equation. IC can also enhance people's jobs by increasing communication, coordination and access to information and knowledge. By providing tools for continuous online training, a company can improve people's performance and understanding of the business. This helps create a shared culture where people work together, learn from mistakes and leverage the expertise of fellow employees.

4. External relationships
External relationships with customers, partners, suppliers, joint ventures and/or alliances have increasingly become important in creating a competitive advantage by pooling knowledge and expertise inside and outside the company and by being able to reach global markets. Forming a close supplier relationship is critical in the retail world where out-of-stock occurrences can severely damage margins and profits.

IC can play an integral part in improving communication and coordination between a company and its external partners, thus decreasing the costs related to overproduction or underproduction.

Companies with mature IC are able to collect and analyze customer data efficiently and quickly, enabling them to act on that information effectively by providing customers with tailored products or services – creating value and brand loyalty. Companies that can provide a more personalized interaction with customers generally have higher customer satisfaction and retention rates.

5. Financial management
The more efficient companies are at collecting cash or at avoiding excess inventory, the more cash they can generate. Companies that effectively manage information are most often the ones that evaluate investment risks, achieve optimal returns, leverage their global wealth, and manage the balance sheet better than the competition.

By making operations more efficient, companies can liberate liquidity that has been tied up in inefficient resources and use it to create value and invest in new opportunities. The ones with the right cash flow information can focus on how to make their cash management more efficient, ultimately increasing their bottom lines.

CEOs like Jamie Dimon of JPMorgan Chase understand the value of information, and have focused on developing and maturing their IC – people, information and IT. This investment has allowed them to leverage the IC Optimization Effect and operate their businesses efficiently and effectively, enabling them to deal with complexity and outperform the competition in difficult markets.

About The Author

Donald A. Marchand
Donald A. Marchand

Donald A. Marchand is Professor of Strategy Execution and Information Management at IMD. His special research and teaching interests include how organizations and leaders use information and knowledge to collaborate and compete, and how leaders create organizations where people can fully share and act on what they know and discover what they do not know to learn and change closer to real time.