Mini case 1.1
Census data
The 2001 Census has several significant innovations, including new questions and classifications, postal geography and the use of the web to disseminate data. However, the most radical change is the decision to distribute the statistics free of charge. This will have profound consequences for users and suppliers of value-added services.
In past censuses, commercial companies could only get data from census agencies, which were licensed to supply data on the payment of royalties to the government’s census offices. In addition, there were restrictive licensing conditions, limiting use of the data to a specified number of computers within a company.
Several consequences will flow from the decision to make data freely available. Store location and customer insight teams in large companies, such as Marks & Spencer, Nationwide, Sainsbury and Whitbread, will exploit the full richness of the geograph-ical and subject detail.
Even more significantly, use will be broadened and new markets created. Start-up businesses and many members of the public will discover census data for the first time on the census offices’ websites.
Free data will provide the fuel for the supply of many more software and consult-ancy services.
This is already providing small area datasets for topics such as crime, education and health, which can be related to census counts of population for small areas. Many new datasets, such as estimates of incomes and access to local services, are planned; these will enable better understanding of local communities and markets.
The new policy of making the census freely available is a bold experiment. The like-lihood is that it will illustrate that the benefits to society and the economy of increased use of data will greatly outweigh the costs.
Adapted from: Free data will transform and create markets: Facts and figures at a keystroke By Keith Dugmore
FT.com site: 7 October 2003
Questions
1. List some examples of the data which is collected in Census surveys.
2. Describe how the data might provide useful information for interested parties.
1.1.2 Data processes
Data that is formally handled in a business may undergo complex processing prior to presentation and use as information. However complex, though, the total processing can be broken down into simple steps. The types of basic process are:
n classification of data;
n rearranging/sorting data;
n summarizing/aggregating data;
n performing calculations on data;
n selection of data.
Examples of each are shown in Table 1.1. In as far as these basic processes are governed by rules, they are therefore suitable for a computerized system.
Table 1.1 Examples of types of data process
Type of data process Example
Classification of data Transaction data may be classified as invoice data, payment data, order data
Rearranging/sorting data Data on employees may be ordered according to ascending employee number
Summarizing/aggregating data Data on the performance of various departments may be aggregated to arrive at a summary of performance Performing calculations on data Data on the total hours worked by an employee may
be multiplied by the hourly wage rates to arrive at a gross wage
Selection of data Total yearly turnover data on customers may be used to select high-spending customers for special treatment by sales personnel
1.2 Decisions
Information is data that has been processed for a purpose. That purpose might be to offer the information for sale or could be a statutory requirement, but invariably it is to aid some kind of decision. In order to understand more about the different types of information that are provided in business, it is necessary to look at the area of deci-sion taking and decideci-sion takers and the way that information is used in decideci-sions.
No decision is taken in isolation. Decisions are taken by decision takers who have certain organizational objectives in mind, a certain background, and a certain mental way of processing and appreciating information. Moreover, these individuals have per-sonal interests that may affect the decision-taking process. From the corporate point of view, information needs to be supplied to these decision takers in order that the decision taken will be the most effective in the light of the organizational objectives.
1.2.1 Cognitive style and background
‘Cognitive style’ is a term used in psychology that broadly describes the way that indi-viduals absorb information, process it and relate it to their existing knowledge, and use it to make decisions. Cognitive style and personal background act as filters to the information provided to a decision taker. In outline, one approach to cognitive style (Kilmann and Mitroff, 1976) regards individuals as falling into one of two categories in the way that they absorb information. At one extreme, some people take in informa-tion best if it is highly detailed and specific, often quantitatively based. The various elements of information need not be linked as a whole. The other group absorbs information in a holistic way; that is, in a less concrete way, preferring general facts, suppositions and ‘soft data’ linked as a whole.
After obtaining information the decision must be taken. Once again there appear to be two distinctive styles. One group will involve itself in a high degree of analytic thought in reaching a decision. This group will be capable of providing detailed justifications
often involving quantitative reasons in support of final decisions. The other group will rely more on intuition, experience, rules of thumb and judgement. There will be a con-centration on looking at the situation as a whole rather than parts of it independently.
This group will often find it difficult to provide justification for recommended decisions.
The combination of these information-absorption and decision-taking styles is shown in Figure 1.2.
It is not claimed here that one or other of these styles of assimilating information or making decisions is superior. The point is that if information is presented in a way that is not conducive to the cognitive style of the recipient then it will not be fully utilized in a decision. When information systems are designed the designer, if at all possible, should take into account the range of cognitive styles of those for whom the informa-tion is provided. This important though obvious point is often overlooked or ignored when information systems are designed for business.
The background of a decision taker is also a powerful influence on the way that information is perceived. Differing subject specializations will lead individuals to judge different aspects of information as being more/less relevant or more/less important for making decisions. For instance, accountants will tend to concentrate on numerical information, with which they are familiar. They will require the numerical information to be compiled and presented in a standard manner compatible with their expectations and training. They may ignore details of organizational structure and management styles.
It is quite possible that they may even fail to perceive the information when it is presented. In contrast, the organizational specialist may not understand the import-ance of the numerical, financial and cost aspects of the business organization. This is quite understandable as the specialisms of each only give them a limited model through which to perceive and organize information in a way that is relevant to making decisions.
Personal backgrounds and cognitive styles are not wholly independent of one another. The ability to work best with detailed quantitative information, for example, will not be unconnected with the occupation of an accountant or engineer.
1.2.2 A model of decision making
The process of taking a decision can be described as falling into several stages (Simon, 1965). These stages provide a framework within which decisions can be viewed. To be executed successfully, each of the stages will require different types of information.
The stages, shown in Figure 1.3, are:
1. Intelligence:The decision maker needs to be made aware of the existence of a problem that requires some sort of decision. Information needs to be presented in a manner conducive to this recognition.
Figure 1.2 Four cognitive styles for absorbing information and taking decisions
2. Design:Alternative solutions to the problem must be considered. This involves the recognition of the range of acceptable decisions and the implications of each. At this stage, information needs to be supplied to aid the decision maker in predicting and evaluating these implications.
3. Choice:This involves the choice between the various alternatives investigated in the previous stage. If there has been a full analysis of the options this should be a straight-forward stage. Otherwise, the decision maker may have to choose between incom-plete and perhaps incomparable alternatives.
4. Implementation:The chosen decision is carried out.
The stages are illustrated in the following case. A manufacturing company produces a range of modular kitchen units to supply various retail outlets. These outlets sell and fit the final kitchens for their own customers. The problem is that one of the major retail clients of the kitchen unit manufacturer is becoming dissatisfied with the quality of the delivered kitchen units. There is a problem, which may become a larger problem if nothing is done.
1. Intelligence:The decision maker in the kitchen units manufacturing company needs to be aware that a problem exists. This must be a person of sufficient rank to make an effective decision. One way is to wait until a customer complains before taking any decision. Then there is always the danger that notification of the problem will not reach the right level of management before it is too late. A more active form of intelligence gathering is to formally request information from customers on their view of the service that they are getting.
2. Design:Once aware of the problem, the decision maker can consider a range of possible options. One is to increase the quality of the product by buying in more expensive fitments. Another is to reschedule production and divert more labour resources to quality control and finishing of the units. Yet another is to do both of these things. The option of deciding to do nothing must always be considered. Each Figure 1.3 Stages in making a decision
of these will have implications for costs, profits, the timing of production, what action competitors might or might not take, the order book with the client company, and a range of other areas. The decision maker needs to be able to evaluate each of these.
Some implications can be assessed quite easily with the aid of computer support, especially if they rely on internally held quantitative information. For example, the use of a spreadsheet model will yield a fast, accurate and effective picture of the internal cost implications of buying more expensive fitments. Other options are more difficult to assess. This is particularly true where external and qualitative informa-tion is needed. The response of competitors may require an analysis of the market and the past history of the firms involved.
3. Choice:Once the implications of each of the options have been evaluated, the time will come to make a choice as to what to do. This might not be simple if the design stage is incomplete or has not yielded definite results. Rules of thumb and past experi-ence may be used as a guide for choice. In the case of the kitchen manufacturer, two of the options considered were ‘do nothing’ and ‘buy in fitments of higher quality’.
The problems involved with choice can be seen by further investigation of the kitchen unit manufacturing organization. The ‘do nothing’ option has implications. There will be the possibility that the retail outlet may take its business elsewhere. On balance, this seems unlikely given the long-established trading relationship and the lack of mature competitors for the specific types of unit favoured by this outlet. But then again the retail outlet is advertising for a new purchasing manager. In contrast, the latter decision to purchase high-quality fitments has definite implications for profit and cost, which are to be balanced against the high probability that this will satisfy the customer complaints. Here the decision maker is required to choose between altern-atives that have implications in different areas with different degrees of certainty.
In this organization, the power and responsibility to take the required decision rested with middle to upper management. Other types of decision would have been taken at a lower level in the management hierarchy. The levels of managerial decision are explained in the next section.
The classic model of decision making described above defines a strictly linear sequence of stages. Although these stages are clearly essential in arriving at a decision, a more iterative model may be appropriate, particularly where the business environ-ment is changing rapidly. To respond to, or to anticipate, these changes a decision maker might return to an earlier stage and refine or revise his or her view.
1.2.3 Levels of managerial decision taking
Three levels of managerial activity are important in understanding the way organiza-tions take decisions (Anthony, 1965). These are strategic planning, tactical planning and control, and operational planning and control.
Strategic planning
This is carried out by the most senior management and will deal with broad issues concerning an organization’s development over the long term. The planning may involve, for example, decisions on what markets to move into, whether to diversify production, how resources should be allocated to major functions or departments within the organization, how to structure the company’s finances, or whether to undertake particular major investment projects or accept major contracts with long-term
implications. The determination of organizational objectives is also within the scope of strategic planning.
In order to make strategic decisions senior management needs information. Because strategic planning has a long-term time horizon, much of this information will relate to the future rather than the present. The nature of many of the decisions requires information on the development of market forces, patterns of expenditure and the economy as a whole. This requires information to be supplied on matters external to the company from sources such as market surveys, trade publications, demographic studies, government reports and commissioned research from specialist suppliers. The fact that the information refers to external areas outside the control of the organiza-tion and that it applies to the future means that it is likely to be highly uncertain and will tend to be of a summarized or general nature rather than highly detailed.
Tactical planning and control
This is a managerial activity normally associated with the middle echelons of management.
Tactical planning may involve the allocation of resources within departmental budgets, decisions on medium-term work scheduling and forecasting, and planning medium-term cash flows. Examples of control at this middle managerial level are the monitoring of actual production and expenditure against budgets, the analysis of variances and actions taken in response.
Information for decisions at the tactical level will refer to the medium term, between now and the next few months or a year. It will be mainly generated internally within the organization, although some external information may be necessary. As an example of the latter, it is difficult to set budgets if external raw material prices are the subject of uncertainty or wage rates are set in response to national union negotiations – in both cases external information may be of help. The information will generally be required in an aggregate form – for example, total production for the month of a certain product – though not as consolidated as that for a strategic decision. The internal nature of the information and its time horizon means that it is likely to be subject to less uncertainty than information supplied for strategic decisions.
Operational planning and control
This is concerned with the decisions made in the normal day-to-day operations within a business. Decisions in this area are designed to ensure the effective and efficient use of existing resources to realize budget objectives. These decisions may involve the treat-ment of personnel (for example, hiring and firing), the control of inventory and pro-duction levels, pricing decisions, aspects of credit control over customers and other forms of accounting and cash controls.
Information for operational planning and control is generated almost exclusively within the organization, and it is highly detailed, certain and immediately relevant. For instance, the operational decision as to whether to purchase more of an item that has fallen below its reorder stock level will be based on at least some of the following information:
n the number of requisition orders already placed for the item, the quantities ordered and the expected delivery dates;
n the expected future use of the item, including any outstanding customer commitments;
n the storage and handling facilities available; and
n the range of suppliers of the item, their prices and their expected delivery dates.
Mini case 1.2