Tag Archive for 'knowledge'

The Information Value Chain and its Network

The Information Value Network is an economic theory for Internet businesses, which incorporates my original thinking of the Information value chain. It describes how data openness, interoperability and data portability allows for greater value creation for both service providers and their users. It is proposed by myself, and is inspired by two existing theories: David Ricardo’s 1817 thesis of comparative advantage and Michael Porter’s 1985 concept of the Value Chain.

The theory on information value-chains and networks
Information Value Chain
Figure 1: Information Value Chain

The information value chain recognises the value activities required in the use of information. It represents the cycle of a common information product, with the activities most likely undertaken by one entity.

The activities can be broken down into two components within the value chain.
1) Primary value activities relate to aspects of the chain that are the core information product. They are data creation, information generation, and knowledge application.
2) Supporting value activities relate to aspects of the chain that assist the core information product. They are storage, processing, and distribution.

As an example of the above, a photo can be a core information product — with a single image being “data”. The adding of EXIF data, titles, and tags creates information as it enables additional value unlocked in the context of the core information product (the photo).

Knowledge is created when the photos are clustered with other similar photos, like a collection of photos from the same event. Each of the information products may present their own information value, but in the context of each other, they reveal a story of the time period when the pictures where taken — unlocking additional value.

The secondary activities of storage, processing, and distribution of the information product are integral to it. However, they are merely a process that assist in the development of the product and as such are not to be considered the core activities.

Another point to note is that these secondary processes can occur at any three stages of the information process. Computing processing is required when a photo is taken (data creation), when it is edited with additional information like a title (information), and when it is grouped with other photos with similar characteristics (knowledge). Similarly, cloud computing storage or local storage is required for any of those three stages of the information product, with distribution necessary at any stage as well.

Information Value Network
Figure 2: Information Value Network

Whereas the information value chain describes the activities of an information product, it does not acknowledge the full environment of an information product. Information is an intangible good that is utilised by humans (and with increased sophistication over time, by machines) to assist in their own internal thinking. It does not live in isolation, and its presence alongside other information products and their value development cycles can have a huge impact.

In the diagram above, the information value chain has been extended when looking at the context of multiple entities.

In the network, several entities may agree to exchange information products created through their own respective activities, in order to add additional value to each other. Information and knowledge both derive their value from having as many sources as possible; whether it be data sources, but also processed data in the form of information.

Extending the photo example use earlier, another entity may have created an information product relating to geolocation. It has acquired the geo-coordinates of regions, presented them in the appropriate geo standards, and placed them on a map. The owner of a set of activities that generated the photo, can match their geodata to this other activity process and have the photos mapped by location — as well as analysis or specific types of visualisation that can be can be done due to proximity with other photos.

Background to the concepts supporting the theory
Comparative advantage
The law of comparative advantage in international trade states that, if a country is more productive producing one good over another country, it should focus on allocating its resources to that production. Further, if a country has an absolute advantage producing multiple goods, it should focus only on the one where it yields the most productive capacity.

By specializing in producing the products with the higher comparative advantage — even if they across the board are the most efficient at doing them all — the world can expand total world output with the same quantity of resources due to specialisation.

Value chain
A Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. It is one way of identifying what activities are best undertaken by a business and which are best provided by others (ie, out-sourced).

It helps a company look are what its core competitive advantage is, and segments the activities surrounding its competitive advantage, in order to realize efficiencies and better value creation.

Data, Information, and knowledge
Data can be defined as an object that represents something. Typically data lacks meaning, although it derives meaning when context is added.

Information on the other hand, is what is considered when connecting different data objects — the actual linkages between data objects are what is information. Meaning can be derived through the context of data.

Likewise, knowledge is the extension in this chain of development. That being, the application of information in the context of other information.

Comment on the economic incentive for firms
Industries that operate with the purpose of generating, managing or manipulating information products will benefit by working with other like organisations. It reduces cost, increases engagement, and more fundamentally will increase total value creation.

Cost
By focusing on what an entity has a comparative advantage in and identifying its true competitive advantage, it can focus its resources on the activity that ultimately maximise the entity’s own value.

Take as a case in point a photo sharing website, that is aiming to be both a storage facility (ie, ‚”unlimited storage”) as well as a community site.

  • Feature development: Development resources will face competition to build functionality for the photo service, to cater for two completely purposes. This will lead to opportunity cost in the short-term, and potentially the long term if dealing in a highly competitive market.
  • Money: Any resource acquisition, whether it be external spending or internal allocations, face conflict as the company is attempting to win on two different types of businesses
  • Conflict of interest: The decision makers at the company do not have aligned self interest and face conflict. For example, if a user puts their photos at a pure storage service, management will do what they can to maximise that core value. If the company also does community, management may trade storage value (such as privacy) for the benefits of building the other aspect of the business.

Engagement
In the context of web services, engagement of a user is a key priority. Economic value can be derived by a service due to attention, conversion, or simply a satisfied customer through the experienced offered.

If a service provider focused on their core competency, value can be maximised both for a users engagement and a provider’s margin.

A commerce site aims to convert users and make them customers through the purchase of goods. Commerce sites rely on identity services to validate the authenticity of a user, but it’s not part of their core value offering. In the case of one business, the web designers took away the Register button. In its place, they put a Continue button with a simple message: “You do not need to create an account to make purchases on our site. Simply click Continue to proceed to checkout. To make your future purchases even faster, you can create an account during checkout.”

The results: The number of customers purchasing went up by 45%. The extra purchases resulted in an extra $15 million the first month. For the first year, the site saw an additional $300,000,000.

The significance of this is that by attempting to manage multiple aspects of the experience of their users, this business actually lost potential business. If they integrated their commerce site with an identity site experienced in user login, they may have leveraged this expertise a lot earlier and minimised the opportunity cost.

Value creation
Continuing the example of a photo, let’s assume multiple services work together using the same photo, and that there is full peer-to-peer data portability between the services.

The popular social-networking site Facebook described a technique where they were able to speed up the time they served photos to their users. In a blog post, they state that by removing the EXIF data — metadata that describes the photos (like location, shutter speed, and others — they were able to decrease the load on the servers to produce the photo.

This is fine in the context of Facebook, where the user experience is key and speed matters. But if a person uploaded their photos there as their only copy, and they wanted to use the same photos in a Flickr competition — whose community of passionate photographers puts a different criteria on the photos — they would be at a loss.

In a world that has true data portability, the photos (say the RAW images) could be stored on a specialised storage solution like Amazon S3. The online version of Photoshop could edit the RAW images to give an enhanced quality image for the Flickr community; whereas Google App engine could be used for a mass editing that is computer-intensive, in order to process the multiple RAW photos into EXIF-stripped images for distribution within Facebook. The desktop application Cooliris could access the newly edited photos that still retain their EXIF data, and have them visualised in its proprietary software, which gives a unique experience of viewing the information product.

The significance of the above example is that each service is using the same core information product, but for a completely different purpose. On the surface, all services would appear to be competing for the information product and “lock in” the user to only use it on their service. But the reality is, better value can be generated with their peered data portability. And in some cases, greater efficiencies realised — allowing the web services to focus on what their true comparative advantage is.

Comment on value-creation versus value-capture
This paper makes a explicit explanation on how value is generated. It does not, however, explain how that value can be captured by firms.

It is beyond the scope of this particular discussion to detail how value capture can occur, although it is an important issue that needs to be considered. Web businesses repeatedly have proven to fail to monetise on the web effectively.

This however is more a industry issue than a specific issue related to openness, and this paper makes the case of firms to focus on their core competitive advantage rather than how to monetise it. Instead it suggests that more firms can monetise, which creates total economic output to increase. How the output is shared amongst market participants is a matter of execution and specific market dynamics.

The ‘always-beta’ culture is affecting more than just journalism

always in betaMichael Arrington, one if the world’s most successful bloggers, writes about the latest battle he’s had against the mainstream media. He quotes the progressive journalism thinker Jeff Jarvis who identifies the conflict as a difference between “process” and “product” journalism. This is a brilliant step forward in understanding the evolution of the news media (highly recommend you read both posts), and to validate it, I will share how this very fact is true in other domains (specifically, web2.0 in the enterprise).

How I sold the idea of a wiki at PwC
In 2006, I pitched to senior management at my firm – the world’s largest knowledge firm – that we were failing at how we did knowledge. More specifically, I argued that the systems in place was creating opportunity cost, because the way we viewed “knowledge” was wrong – and the systems we had only supported one type. As a solution, I proposed we implement Web2.0 tools as a way of changing this.

What I want to share more of however, is the actual problem I identified. It was a problem that senior management knew existed but in different words. What I did was give the intellectual justification that created the “ah-ha” moment.

Soft knowledge versus hard knowledge
Central to my thesis was that knowledge had a continuum, and that we have traditionally said knowledge was a product only. The physical output of knowledge in the industrial society has been some published form like a book or a magazine. This output therefore defined the perspective of this product – multiple reviews of the content, close scrutiny of what was being said, and careful consideration of what made the final cut. It was expensive to create a book, and so quite reasonably, we’ve aimed at making it perfect.

However most knowledge within a firm doesn’t exist in a published form. When we talk about sharing knowledge within organisations, we are actually actually referring to having people talk to each other. Human conversation is the most established type of human knowledge transfer, and until the alphabet was adopted by various cultures, was the only way knowledge could be transmitted. This is called “soft knowledge”, and it’s not better or worse than “hard” knowledge, but just a different state on the continuum.

tree roots

Soft knowledge rapidly evolves. It never has a fixed state. Sometimes, it never ever makes it up the line to become “hard” knowledge, or solidified – but this doesn’t make it useless. In fact, when it comes to doing our work, this tacit knowledge doesn’t need a fixed state – it’s a fluid piece of knowledge that will never justify it being published in a hard-bound book. Like a dynamic conversation between a group of people, the ideas are rapidly evolving so fast that trying to lock it down actually ruins the process. Soft knowledge is not so much a product but a process – like rapidly firing electrons remixing towards the goal of a more solid state.

The ‘always-beta’ culture
Technology is enabling us to evolve our ability to communicate. Its gone beyond a one-to-one and one-to-many model that we’ve traditionally been accustomed to, but now allowing a many-to-many model. This new form of communication is allowing knowledge to get better captured in this ‘soft’ state. Categories are no longer useful, even though as a society hierarchies and linearity is how we are accustomed to the world. We need to now become more adapt at analysing knowledge through a network.

When it comes to information (including the news), the value comes not from its accuracy but its availability. If I have an emergency situation on a client, I want all the available options for me to assist in my decision making. As a professional, I can then assess what route to take. Although pre-certification of knowledge has value in accuracy, sometimes full accuracy results in a bigger opportunity cost: inaction.

crushing waves

There will always be a place for news as a product. But what we need right now is to understand blogs do news differently, and potentially for news itself, might be a better model. And whether you like it or not, it’s worked before- after all, we’ve been doing conversation now for close to a 100,000 years. If we never did it, we’d never end up to where we are now.

What is data?

The leading voices in technology have exploded in discussion about data portability, data rights, and the future of web applications. As an active member in the DataPortability Policy group, here is my suggestion on how the debate needs to proceed: break it down. Michael Arrington seems pretty convinced you own all your data, but I don’t think that’s a fair thing to say – and at core is the reason he is clashing with Robert Scoble’s view. For things to proceed, I really think a deeper analysis of the issues need to be made.

1) Define the difference between data, information and knowledge. There’s a big difference.
2) Determine what things are. (is an e-mail address data or information?)
3) Recognise the difference between ownership, rights and their implications.
4) Determine what rights (if that’s what it is) the various entities have over data (users, web apps, etc).

This is a big area and has a lot of abstract concepts – break it down and debate it there.

Some of my own thoughts to give some context

1) Data is an object and information is generated when you create linkages between different types of data Рthe ‘relationships’. Knowledge is the application of information.

  • 2000 is data – a symbol with no meaning. Connect it with other data, like the noun "year", and you have information because 2008 now has meaning. Connect that information with other information, like "computer bug" and "HSBC and you now have an application of that information. That being, there was an issue with the Y2K bug that has something to the bank HSBC.

2) Define what things are

What’s an e-mail address, a phone number, a social graph, an image, a podcast…I’m not entirely sure. I wouldn’t be blogging this if I had all the answers. Once we agree on definitions, we can then start categorising them and applying a criteria.

3) Ownership:

Here is something Steve Greenberg explained to me

– Ownership is relevant when there is scarcity.
РOwnership is the ability to deny someone else’s use of the asset.
– So, if data is shared and publicly available, it is a practical impossibility for me to deny use
Рand if data is available in a form where I can’t control others’ use of it, I can not really claim to own it

Nitin Borwankar has a very different argument: you should have ownership based on property rights. He explained that to me here .

4) Rights over data

I personally think no one owns data (which is inspired by the definition of data being inherently meaningless); instead you own things further down the value chain when that data becomes something with value. You own your overall blog posts – but not the words.

But again, this goes back to what is data?

The value chain for information

Lately, I’ve been doing a lot of thinking about the value chain of information, based on the Porter model of doing a value chain analysis . Given there is an undeniable trend to an knowledge-based economy (that is, if we’re not already there!), it seems pretty valuable that we should at least understand the different facets in the value chain to better understand the information sector.

Below are some thoughts about what I think are the broad aspects of the value system, with some commentary under each to help you understand my thinking. I’ve used common social computing sites to help illustrates the concepts, as everyone can relate to them. Also my definitions for data, information, and knowledge .

value chain is sweet
The value chain
1) Data collection
– value is in the storage
Competitive advantage: who offers the consumers the lowest price for the most storage. You should not just consider this in terms of cost in hosting but also about whether is costs the user their rights to control over some of their data.
Example: MySpace is where you store all your demographic data; SmugMug is where you store all your photos (which I consider data)

2) Data processing
– value is in the ability to manipulate the data
Competitive advantage: The infrastructure to process vasts amount of data at the highest output with the lowest cost
Example: Facebook calculates how many friends you have. The raw computing power to calculate the information requires substantial computing power, which is why Friendster fell when it captured the imagination of the industry as the first major social networking site.

3) Information generation
– Value is in the type and diversity of information. The connection of data (objects) is what generates information. Requires unique ability to understand what data inputs to pull.
Competitive advantage: Ability to access the most data (ie, relationships with the data storage components in the chain), and be able to creatively apply the data in a unique way.
Example: LinkedIn allows me to know that I am two degrees separated from a certain individual. The ability for LinkedIn to do that is a combination of what data they can use as well as the ability to process it. Essentially, the creativity of the company’s management to determine the feature’s value and the relationships with storage vendors or methods of using their own storage. In a DataPortability enabled world, it’s not so much how much data you can store of a user – but how much you can access from the storage vendors ie, relationships with these vendors.

4) Knowledge application
– value is in the application of information
Competitive advantage is on the application of information in a unique way that has not been done before
Example: A network analysis of my social graph. So if a social networking sites can tell me that 48% of my friends are male; and another piece of information that 98% of them are heterosexual; then therefore it is likely I am a straight male. The ability to derive insight, despite the multiple piece of information available, is filtered by those with the unique ability to recognise application of information in certain ways. The determination that I am straight is inference, which is a higher order type value as opposed to just information (which is grounded in hard data and more based on fact).

Implications of the value chain
It is important to note, and why it will be difficult for you to conceptualise the above, is that the Internet industry which is the backbone of the Information Sector of the economy, is still relatively immature. Flickr for example does most of the value chain – they store my photos, they allow me to make changes to the photos and add addition data like tags; they generate information by allowing me to organise my photos into sets (hence giving more value to the photo by putting it into context). And of course, they allow for knowledge application through their community – people passing by, leaving comments, is quite a unique thing that is unique to Flickr.

By better understanding the value chain, hopefully we can also realise that business can thrive by focussing on specific areas and it may not be in their interest to be in all areas. For example, the notion that locking up a person’s user data as being a competitive advantage is silly, if you can offer value through knowledge application.

To put the above in context, MySpace’s recent data availability announcement is a step into the direction of DataPortability (something that will take until the end of this year to finalise at minimum), but whilst Google and Facebook race to offer similar services to ‘lock’ their data, they are in fact missing the point. The value of MySpace for example is the community, and they get value in accessing data and information from as many diverse places as possible to apply that in a unique way. Because they think locking in the data is what determines their business strategy, it forces them to compete in the data storage market – and that is something I would not want to be in given the ability for it to be commoditised, and the massive compliance demands with government and user expectations with their rights. As highlighted by Nitin , data redundancy is a big issue so battling in the storage market puts you at risk if you are solely relying on it as your source for information and knowledge.

As always, I write my blog posts to extend on my thoughts. I’d love feedback and people to challenge the assumptions I’ve made, because I think this can be a very valuable tool in how we view businesses on the web.

Update 1 June 2008: Tim Bull made a video of this posting, which does a better job explaining the concepts presented above

John Hagel – What do you think is the single most important question after everything is connected?

I recently was pointed to a presentation of John Hagel who is a renowned strategy consultant and author on the impact the Internet has on business. He recently joined Deloitte and Touche, where he will head a new Silicon Valley research institute. At the conference (Supernova 2007), John outlined critical research questions regarding the future of digital business that remain unresolved, which revolved around the following:

What happens after everything is connected? What are the most important questions?

I had to watch the video a few times because its not possible to capture everything he says in one hit. So I started writing notes each time, which I have reproduced below to help guide your thoughts and give a summary as you are watching the presentation (which I highly recommend).

I also have discovered (after writing these notes – damn it!) that he has written his speech (slightly different however) and posted it on his blog. I’ll try and reference my future postings on these themes here, by pinging or adding links to this posting.
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