The Information Value Chain Revisited – A Critical Review and Elaboration May 21st, 2010

1. The Information Value Chain – a Design School model 1.1 The Information Value Chain model Schwolow & Jungfalk (2009: 2) describe their model as “an analytical tool for managers to assess the state of strategic information management in their organisation. It is meant to provide them with a way of decomposing a complex problem into manageable bits, as well as measuring the efficiency of information-related processes and evaluating the impact of actions towards their optimisation”. They argue that information plays a critical role in defining and refining an organisation’s competitive position. Information is an asset that has to be managed properly because of its direct and indirect impact on an organisation’s financial results (2009: 6). Schwolow & Jungfalk (2009: 12ff) describe information as an organisational resource whose inherent constitutive force, which they define as the potential to bring about organisational change, is shaped by the way the organisation derives value from it. They argue that information resources vary with regard to their constitutive force depending on whether an organisation finds them more valuable as a commodity (ie, a tradable good with economic value) or as means of pattern perception (ie, uncertainty reduction through insight). At the end of their discussion, Schwolow & Jungfalk (2009) conclude that properly managed information resources have the potential to create two kinds of competitive advantage – one based on lower information-related costs (cost leadership), and another one based on uncertainty reduction and the creation of information asymmetries (differentiation).

Figure 1 – The Information Value Chain (Schwolow & Jungfalk, 2009)

As shown in Figure 1, the Information Value Chain comprises eight discrete activities.

1.1.1 Information Requirements

“Information requirements set the scene for successful information management (Schwolow & Jungfalk, 2009: 21). The first activity of the Information Value Chain is the information requirements analysis. The activity includes a detailed outline of the organisation’s information needs which “arise from the problems, uncertainties, and ambiguities encountered in specific organisational situations and experiences” (Choo, 2002: 26). Based on the identified information needs, an organisation should then define specific information requirements – ie, determine the information resources required to cover information needs. Schwolow & Jungfalk (2009: 21) argue that an organisation should define what constitutes its information resources and determine precisely how they are valuable for the organisation. Finally, the information requirements analysis comprises a gap analysis that highlights the state as-is versus the desired state (Schwolow & Jungfalk, 2009: 22). In their paper, the authors loosely describe what others have investigated in much greater detail under the headline of “information audit” (Buchanan, 1989; Orna, 2004, 2005).

1.1.2 Primary Activities

Like its underlying model, the Porter value chain (1985), the Information Value Chain is divided into primary and secondary activities. Its primary activities denote “the direct handling of information resources in ways that increase their value” (Schwolow & Jungfalk, 2009: 40). Information Acquisition includes all processes of environmental scanning (both internal and external) regardless of their purpose. Information resources acquired during

environmental scanning are then further refined during Information Processing: “all observable processes involving the modification or synthesis of information resources”. Finally, more value is added to information resources through Information Distribution, ie the dissemination and sharing of information resources (2009: 41).

1.1.3 Secondary Activities

Primary activities are supported by secondary activities (2009: 40). The latter ensure the continuous and efficient execution of the former. IT Infrastructure includes the totality of an organisation’s back-end and front-end information systems (2009: 41). The Human Resources support activity adds value “by selecting and recruiting organisational members that understand the importance of information and fit into the learning culture of the organisation” (2009: 41). It furthermore addresses such issues as training and development, compensation and career management. Information Governance provides the policies and internal guidelines for handling information resources (2009: 42) and Knowledge Management revolves around the exploitation of information resources that exist in the form of “information-as-knowledge”. It comprises “processes with the objective of identifying, externalising, representing and distributing” (2009: 42) such resources.

1.1.4 Linkages between activities

As in the Porter value chain, all the activities of the Information Value Chain influence one another through linkages. The entire value chain itself exists within a value system, ie various other value chains that tie into it and each other in different ways (2009: 37).

1.2 The premises underlying the Design School. The following section examines the assumptions, to the extent they can be discerned, which underpin the Information Value Chain model. The examination utilises Mintzberg’s premises of Design School models as outlined in his 1990 paper “The Design School: Reconsidering the basic premises of strategic management”. Mintzberg’s first premise states that strategy formation should be a controlled, conscious process of thought (1990: 175). He elaborates on this point by writing that “managers ‘know what they are really doing’ only if they make strategy as ‘deliberate as possible’” (1990: 176). His point is summed up in the statement that strategy, from a Design School point of view, is directly associated with intentionality (1990: 176). In their paper, Schwolow & Jungfalk (2009) adopt a strategy definition from Johnson and Scoles (2006) stating that strategy is “the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations” (Schwolow & Jungfalk, 2009: 9). This basic assumption clearly implies intentionality. The definition of long-term objectives and the idea of managing towards them indicates conscious and deliberate effort, as well as the assumption that it is indeed possible to control an organisation’s future direction.

The next Design School premise is that the responsibility for control and consciousness must rest with (…) the strategist (1990: 176). “To the Design School, ultimately there is only one strategist, and that is the manager who sits at the apex of the organisational hierarchy” (1990: 176). Mintzberg writes that determining and monitoring the adequacy of strategy, as well as adapting the firm to changes in its environment, and securing and developing the people needed to carry out the strategy or help with its constructive revision and revolution are primarily the concerns of the general manager and none other. The fact that Schwolow & Jungfalk (2009) developed their model “as an analytical tool for managers (…) working with strategic information management” (2009: 43) points to an understanding on their part that strategy making should be left to managers. While perhaps slightly less rigid than Mintzberg’s notion of the strategist, this view can nonetheless be subjected to one of the major criticisms of the Design School – namely, that “this premise not only relegates other members of the organisation to subordinate roles in the strategy formation, but it also precludes external actors from the process altogether” (Mintzberg, 1990: 176). Mintzberg’s third premise is that the model of strategy formation must be kept simple and informal (1990: 177). He claims that “fundamental to the model is the belief that elaboration and formalisation will sap it of its essence”. Instead, the Design School view that “one way to ensure that strategy can be controlled in one mind is to keep the process simple” (1990: 177). Schwolow & Jungfalk (2009: 43) describe their model as “a simplified or idealised description or conception of a particular system, situation, or process (…), that is put forward as a basis for theoretical or empirical understanding, or for calculations, predictions, etc.” Once again, their basic assumption here fits with the premise outlined by Mintzberg. Furthermore, the fact that Schwolow & Jungfalk refrain from providing an explicit definition of what, for instance, “information resources” really are, instead leaving it up to organisations to find a definition could be construed as leaning towards this third Design School premise. The core of premise number four is that “the Design School says little about the content of strategies themselves, but instead concentrates on the process by which they should be developed” (1990: 178). In other words, Design School models are process models for devising strategies, not actual strategies. In accordance with this premise, the Information Value Chain model is not a strategy in itself, but an approach to strategic information management. Mintzberg also writes that the “process above all should be a “creative act” to build distinctive competence” (1990: 178). This, too, applies in the case of the Information Value Chain. Schwolow & Jungfalk’s view of competitive advantage aligns with that of Barney (1991) where “in business economics, organisations with a competitive advantage implement a “value creating strategy not simultaneously implemented by any current or potential competitor” (Schwolow & Jungfalk, 2009: 13). Another notion taken from Barney (1991) is that information “is a resource that enables the firm to conceive of and implement strategies” (2009: 10). The clear split of strategy conception and strategy implementation, as well as the idea that implementation necessarily follows conception, is evident throughout Schwolow & Jungfalk’s

argumentation. This reflects another premise put forth by Mintzberg: strategies emerge from the design process fully formulated (1990: 178). He explains that “strategy appears at a point in time, fully formulated, ready to be implemented” and that “strategy-making still tends to be equated with (…) the systematic formulation and articulation of deliberate, premeditated strategies“ (1985: 162). Under the Design School strategies are “formulated” before they are “implemented” (1985: 160). Mintzberg’s sixth premise is that strategies should be explicit and if possible, articulated (1990: 178). In other words, “the underlying assumptions of organisational design have been that organisations required articulated objectives, sharp divisions of labour, clearly defined tasks, well-developed hierarchies, and formalised systems of controls” (1985: 160). In their discussion of information requirements, Schwolow & Jungfalk argue for the definition and articulation of a specific desired state as part of the gap analysis (2009: 21). They furthermore introduce formalised systems of controls by stating that “information requirements should be translated into critical requirements and key performance indicators (…) so as to be able to operationalise the strategy in a controlled and sensible manner”.

Finally, in the Design School structure must follow strategy, ie “corporate strategy must dominate the design of organisational structure and processes” (1990: 179). The Information Value Chain as well as the models it is based upon all advocate ways of structuring organisational reality based on selected, predefined goals and objectives. The notion underpinning all of them is that once a strategy has been devised, the organisation must change, adapt to and embrace the new strategy. From the above discussion, we conclude that the Information Value Chain rests for the most part on Design School premises and is thus deeply rooted in this paradigm of strategy formulation.

2. Information Value Chain application in an Adhocracy Why is this a problem? Seeing that the Information Value Chain model is meant to be applied to specific business processes within an organisation, the Design School approach is not in itself a problem – as long as these business processes can be subjected to a high level of standardisation. However, as soon as these processes require different approaches from one case to another, become more project-based and are essentially more “ad hoc” in nature, the Design School approach becomes problematic.

Mintzberg & McHugh (1985) call organisations in which these types of processes are prevalent “adhocracies” or project structures, and claim that they are one of the major contemporary organisational forms (1985: 160). They argue that “no organisation can function with strategies that are always and purely emergent (…). But none can likewise function with strategies that are always and purely deliberate. (…) A viable theory of strategy making must encompass both models.” Based on the statement above the Information Value Chain model alone represents but one end of a continuum in the development of a viable theory of strategy making. In an attempt to improve model, this final section of the paper therefore projects Mintzberg & McHugh’s generic approach to emergent strategies onto Schwolow & Jungfalk’s deliberate model for strategic information management. Section 4.1 discusses the characteristics of an adhocracy and their implications for each activity of the Information Value Chain. Section 4.2 then continues with a final discussion of Mintzberg & McHugh’s grass-roots model and its implications for the application of the Information Value Chain in strategy-making.

2.1 Characteristics of an adhocracy and their implications for individual Information Value Chain activities According to Mintzberg & McHugh (1985), adhocracies are organisations that operate in “an environment that is both dynamic and complex, demanding innovation of a fairly sophisticated nature” (1985: 160). These organisations produce unique and heterogeneous outputs which forces them to engage highly trained experts (1985: 161). Direct supervision and standardisation as mechanisms of control are discouraged along with their supporting organisational structures, such as hierarchy, performance targets and rules. Instead, “because of the complex and unpredictable nature of its work, the organisation relies largely on mutual adjustment for coordination” (1985: 161). As a result, strategy formation potentially involves many people and power is decentralised selectively and spread in uneven ways “subject to availability of information and expertise needed to deal with the issue at hand” (1985: 161). Essentially, adhocracy is thus about “rapid and continuous responsiveness to the environment, with minimal organisational momentum” (1985: 191). This means that adhocracies have to embrace proactively the idea of continuous change in their environment by building structures that facilitate flexible and speedy adjustment to that change. Finally, it is the role of management to design structures that leaves their highly trained staff to exercise their expertise freely and unrestrained by traditional roles (1985: 192).

2.1.1 Implications for Information Value Chain Primary Activities

According to Schwolow & Jungfalk (2009: 13), it is of existential importance for organisations operating in short-cycled and dynamic environments to keep pace with the change that surrounds them. Information is therefore primarily an asset if it provides insight into emerging trends and has predictive capacity. Its value in creating competitive advantage is based on uncertainty reduction and the creation of information asymmetries.

This “pattern perception” is the basis for what Mintzberg & McHugh (1985: 160) call “innovation of a fairly sophisticated nature”: an organisation that can, for example, identify patterns in the way demand for its products shifts over time might find it easier to respond to, preempt or even initiate such shifts through consistent innovation. As a result, adhocracies should therefore calibrate their Information Acquisition activities so as to accommodate a greater emphasis on external environmental scanning activities. Furthermore, the question of variety amplification and attenuation – ie, determining the fine line between collecting exhaustive information versus collecting too much information – has to be viewed in a new light. With environmental scanning activities less constrained, variety attenuation might thus be scaled back to allow for what Van Andel (1994: 640-642) calls “patterns of serendipity” to emerge. Such patterns might be analogies, surprising observations, successful errors, side effects, by-product etc. In other words, patterns that would not be recognised were it for very narrow environmental scanning activities further constrained through steps towards variety attenuation.

This type of extensive exploration (March, 1991) has to be matched with the ability to exploit the value of the information resources acquired. March (1991: 71) defines exploitation as the “refinement, efficiency, reverse production and execution of routines already located in the organisational knowledge base”. This means that newly acquired information resources have to be integrated with existing structures – or, simply put, people have to draw the right conclusions from what they see, thereby turning information into actionable insight. This has important implications for Information Processing. Due to the amount and complexity of information flowing into an adhocracy, such an organisation needs greater absorptive capacity (Soosay & Highland, 2008) than traditional organisational forms. According to Bessant and Boer (2002), knowledge-based organisations need to innovate continuously while being both operationally effective in exploitation and strategically flexible in exploration (Soosay & Highland, 2008: 24). Absorptive capacity “consists of the capabilities to recognise the value of new information, to assimilate it, and to apply it to commercial ends or to evaluate and utilise outside knowledge” (2008: 25). Soosay and Highland argue that an organisation’s absorptive capacity can be considered a potential competitive advantage and is determined largely by an organisation’s existing knowledge stock (Soosay & Highland, 2008: 24). The selective integration of new knowledge with an organisation’s existing knowledge base is not a new concept. The idea of the “learning organisation” has been around for more than two decades. What all the above quotes are merely hinting at is explicitly stated in Peter Senge’s 1990 publication “The Leader’s New Work – Building Learning Organizations”: organisations have to embrace adaptive and generative learning (Senge, 1990: 8). Senge argues that adaptive learning is about coping, while generative learning is about creating – one might also say adaptive learning is reactive, while generative

learning is proactive. This latter mode of learning is based on the ability to see “the systems that control events” (1990: and is related to our earlier discussion of adhocracies and their need to keep pace with changes in their environment, as well as the value of pattern perception in creating competitive advantages by driving innovation and proactive operations. Finally, the implications for Information Distribution essentially revolve around information sharing. The discussion so far has emphasised learning as the path to competitive advantage for adhocracies. The discussion that follows will show that, due to this emphasis on learning, knowledge management plays a much larger role than it might play in traditional organisational forms. The effective distribution and sharing of knowledge is therefore a critical element in creating a successful learning organisation. Information Distribution activities should thus focus on building networks of people and focusing on dialogue between individuals not knowledge objects in a database (Hansen, 1999: 108). (Refer to section 4.1.2 of this paper for further discussion of knowledge management.)

2.1.2 Implications for Information Value Chain Secondary Activities

Since all activities in the Information Value Chain are connected through linkages (Schwolow & Jungfalk, 2009: 38) the specific configuration of a primary activity influences that of one or more support activities. In an adhocracy, two out of the four support activities in the Information Value Chain seem particularly important in ensuring the continuous and effective executability of the three primary activities. The two support activities are Human Resource Management and Knowledge Management. The idea that “people have to draw the right conclusions from what they see, thereby turning information into actionable insight” has a number of implications for the selection of suitable staff. Of course, the intellectual capacity for identifying patterns, drawing the right conclusions and discriminating between useful and useless information is a prerequisite for the learning organisation. More than in any other context, Senge’s proposition of systems thinking – ie, seeing interrelationships, focusing on areas of high leverage, and avoiding symptomatic solutions (Senge, 1990: 15) – is of fundamental importance here. Mintzberg (1985) himself emphasises this by pointing out that adhocracies depend on highly trained staff and experts (1985: 161). Since adhocracies encourage the personal autonomy of its staff members and discourage traditional control mechanisms, such organisations should be careful to select staff that can actually handle the resulting freedoms and responsibilities. While information resources in Schwolow & Jungfalk’s original paper on the Information Value Chain exist mainly in the form of tangible information products (Orna, 2004), the above discussion increasingly referred to information resources that exist as knowledge in people’s heads. Therefore, the Knowledge Management support activity gains in relative importance. According to Hansen (1999: 109), there are two basic approaches to knowledge management strategy: codification and personalisation. While codification

would be suitable in the context of standardised business process, the application of the Information Value Chain to a non-standard business process calls for the use of personification. In practical terms, this translates to person-to-person (rather than person-to-document) communication and, as pointed out before, the creation of networks for knowledge sharing. Finally, in line with the above discussion, adhocracies should consider Information Governance activities that manage the security and confidentiality of its information resources – since information is an “experience good” (Shapiro & Varian, 1999: 22) competitive advantages based on information asymmetries are only sustainable so long as these asymmetries exist. With regard to IT Infrastructure, the emphasis would be on innovation support and the facilitation of knowledge exchange rather than automation and business process support (Schwolow & Jungfalk, 2009: 30).

2.2 Grass-roots model and strategy-making in adhocracies This final part looks at Mintzberg & McHugh’s grass-roots model and examines its implications with regard to strategy-making. These implications are then translated into specific suggestions on how managers should use the information value chain for strategy-making. The following paragraphs thus attempt to synthesise a model of emergent strategy-making with one of deliberate strategy-making. Below, the six components of Mintzberg & McHugh’s grass-roots model are summarised and discussed in three sections: 1. Emerging patterns 2. Pattern proliferation 3. Management in an adhocracy 1. Emerging patterns The first two premises of the grass-roots model (1985: 194-195) explain that it is often impossible to plan strategies or where they will emerge, which is why its is sometimes “more important to let patterns emerge than to force an artificial consistency upon an organisation prematurely” (1985: 194). For a manager using the Information Value Chain as an approach to devising an information management strategy, this seems to indicate that rather than dictating specific guidelines with regard to, for instance, information requirements, the manager should leave it up to his or her employees to define and determine the relevance of information resources. This approach requires the effective selection of employees who are conscientious and responsible in handling the autonomy granted them, and have the intellectual capacity to face the challenges their job entails.

2. Pattern proliferation Patterns turn into strategies when they proliferate across the organisation to become collective and affect the behaviour of the organisation at large (1985: 195). “The process of proliferation may be conscious, but need not be; likewise, it may be managed but need not be” (1985: 195). For the manager these premises indicate that for patterns to proliferate the company’s mechanisms of control have to allow for best practices to emerge from everyday work. However, while conceivable in the context of a relatively small business process with few people involved, this approach is bound to become unwieldy with scale. The more people there are working on a specific business process, the more important it seems that the support activities, ie Human Resources and Knowledge Management are properly managed. Arguably, emergent and informally shaped best practices seem possible on a large scale only if the right kind of people share their expertise and collaborate in tailoring emergent patterns that are something greater than the sum of its parts. The proliferation process itself might be compared with a bottom-up approach of strategy formulation where the “wisdom of crowds” is the catalyst and critical mass the threshold of acceptance. 3. Management in an adhocracy The final three premises of Mintzberg & McHugh’s grass-roots model state that to manage the proliferation process “is not to preconceive strategies, but to recognise their emergence and intervene when appropriate” (1985: 195). Managing in the context of an adhocracy is about creating the climate within which a variety of strategies can grow. Here, it is important for the manager to balance responses to external demands for change with internal stability as the basis of productivity: managers must keep an eye on the cycle of strategic convergence and divergence, “knowing when to promote change for the sake of external adaptation and when to resist it for the sake of internal efficiency” (1985: 196), This means in effect that while granting enough leeway for patterns to emerge and proliferate, managers still have the responsibility to exercise proper judgement as to when managerial intervention is necessary in order to prevent the deterioration of overall productivity due to the uncoordinated emergence and proliferation of patterns. Similarly, on a larger scale, recognising emergent patterns and evaluating their merit within the context of strategic convergence (or divergence) with what the environment demands. For example, the emergence of patterns whose ramifications beyond the individual business process run contrary to what the organisation as a whole requires might be subjected to managerial guidance. Finally, this suggests that managers of adhocracies should strive to be what Senge (1990: 10) calls “Leaders as Designer” who design “the governing ideas of purpose, vision and core values by which people live” and work, while at the same time recognising that “the key is not the right strategy, but fostering strategic thinking” (1990: 11). Link: Conclusion and Final Discussion References

Barney, Jay. “Firm Resources and Sustained Competitive Advantage.” Journal of Management 17.01 (1991): 99-120. Print.

Buchanan, S., and F. Gibb. “The Information Audit: An Integrated Strategic Approach.” International Journal of Information Management 18.1 (1998): 29-47. Print.

Choo, Chun Wei. Information Management For The Intelligent Organization The Art Of Scanning The Environment (Asis Monograph Series). Wylie: Information Today, 2002. Print.

“Data, Data Everywhere: A Special Report on Managing Information.” The Economist 27 Feb. 2010: 1-14. Print.

Hansen, M. T., N. Nohria, and T. Tierney. “What’s Your Strategy for Managing Knowledge?”Harvard Business Review 77.2 (1999): 106-16. Print.

Johnson, Gerry, and Kevan Scholes. Exploring Corporate Strategy: Text & Cases. 7th ed. Harlow, England: Financial Times Prentice Hall, 2006. Print.

Jungfalk, M., and S. Schwolow. “The Information Value Chain: Strategic Information Management for Competitive Advantage.” Bachelor’s project. Copenhagen Business School, 2009. Information Value Chain. 2009. Web. 13 Mar. 2010. <www.informationvaluechain.com/information-value-chain.pdf>

March, J. “Exploration and Exploitation in Organizational Learning.” Organizational Science 2.1 (1991). Print.

Mintzberg, H., and A. McHugh. “Strategy Formation in an Adhocracy.” Administrative Science Quarterly 30.2 (1985): 160-95. Print.

Mintzberg, H. “The Design School: Reconsidering the Basic Premises of Strategic Management.” Strategic Management Journal 11.3 (1990): 171-95. Print.

Orna, Elizabeth. Information Strategy in Practice. Aldershot, Hants, England: Gower, 2004. Print.

Orna, Elizabeth. Making Knowledge Visible : Communicating Knowledge through Information Products. Hants (England): Gower, 2005. Print.

Porter, Michael E. “Changing Patterns of International Competition.” California Management Review XVVII (1985): 9-40. Print.

Senge, Peter M. “The Leaders New Work: Building Learning Organisations.” Sloan Management Review (1990): 7-23. Print.

Shapiro, Carl, and Hal R. Varian. Information Rules: a Strategic Guide to the Network Economy. Boston, Mass.: Harvard Business School, 1999. Print.

Soosay, Claudine, and Paul Hyland. “Exploration and Exploitation: the Interplay between Knowledge and Continuous Innovation.” International Journal of Technology Management 42.1/2 (2008): 20-35. Print.

Van Andel, Pek. “Anatomy of the Unsought Finding. Serendipity: Origin, History, Domains, Traditions, Appearances, Patterns and Programmability.” The British Journal for the Philosophy of Science 45.2 (1994): 631-48. Print