Sunday, August 22, 2010

The 5 stage hierarchy

Russell Ackoff describes the 5 stages of the human mind using the data-information-knowledge-understanding-wisdom hierarchy in
• Ackoff, R. L., "From Data to Wisdom", Journal of Applied Systems Analysis, Volume 16,
1989 p 3-9.
The framework is powerful in a number of ways.
1.It helps evaluate the current state of a company's IT systems.
It turns out that a lot of IT systems are still in the information stage or halfway through the
knowledge stage.

Here's an example -
1.Data - Cost of goods sold is X million $ and average inventory for the period is say Y million $.
2.Information - Inventory turns is X/Y , say 5 .
3.Knowledge - Inventory turns are low compared to the industry averages for this sector.
4.Understanding - We exactly understand what parts are contributing to the low inventory
turns and why. We know the characteristics of those parts , their historical consumption rates and future demand.
5.Wisdom - We still need to hold on to these parts because manufacturers have already obsoleted them and our valued customers are likely to order them in the future. This might mean carrying inventory of slow moving parts but the decision is in the interest of our most profitable customers. It is therefore a wise policy to keep stock of obsolete parts although it might impact the inventory turns metric.

Data,information and knowledge are representations of events that have already happened.
While data and information are tangible , knowledge is not, although knowledge can be tacit or explicit. Data and information are "real" objects that can be stored, accessed , retrieved,copied,transmitted,received,destroyed. Tacit knowledge is the stickiest one and lies in the expert's head while data and information are either already public or can be accessed at least privately. Wisdom provides the behavior necessary to react to future events and includes the ethical and moral elements . Nation's policies represent wisdom (or the lack thereof) while data , information and knowledge govern processes. Understanding lies between knowledge and wisdom and is about "internalizing" knowledge. I know does not mean I understand. Knowledge is often theoretical while understanding is experential. Hence the Chinese proverb , "I read, I know. I do, I understand". No wonder why MIT , my alma mater is ranked one of the best engineering institutes in the world. It is the institute's philosphy of "mens et manus" which literally means hands and mind to reinforce both knowledge and understanding. Finally though, it turns out that highly knowledgeable people with great understanding of the system may be unwise.

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