The Four Degrees of Understanding

If people are connected by six degrees of separation, then I contend that raw data and true IT wisdom are connected by four degrees of understanding.  Let me explain. (And this won’t involve Kevin Bacon at all. Promise.)

For the past 25 years I have implemented ERP systems that essentially are a historical picture of what transpired.  For most of that time, I have challenged people to make your accounting data predictive, not historical.  I recognize that you must always look back to report your results, but using “data” to predict what is about to happen, and then knowing how to react is a whole new ballgame.  Some would say that is the role of BI.  Maybe it is. At some point, data should do you the favor of becoming information.

So, I explain four degrees of understanding this way:

  1. If you have a set of numbers, but you don’t know what they represent, you have data.  For example 23,000 and 25,000.  They are meaningless until you know what they represent.  Your systems have tons of data, but how do you use it?

  2. The second degree is called information.  If I tell you what those numbers mean, then you have some understanding of what you are looking at.  For example, if I tell you that they are Daily Sales, then you can start to analyze that data to make some judgements.  Sales went up? Maybe.

  3. The third degree of information is knowledge.  Knowing what the data is and knowing what to do with it gives you knowledge.  In this scenario you may ascertain that sales went up, and that might provide meaningful insight.  For example, the “buy one get one free” incentive raised sales for the day is something you might ascertain from that information.  With that knowledge you can make judgments about how effective the program was.

  4. The fourth degree of information is wisdom.  Being able to take that knowledge and predict in a meaningful way how you should react to certain situations is the wisdom that makes many men (and women) respected leaders.  Does it make you visionary?  Maybe.  Does it make you a genius? Sometimes.  Does it earn you the respect of your peers? Usually.

There are thousands of examples every day of how people use the wisdom they have accumulated after years in business to make educated decisions.  Not all of these are accurate decisions, but most are not done “by the seat of your pants.”

I try every day to lead customers to understand how accounting “data” can be used to generate wisdom.  It is never easy, and it usually leads to more questions than answers, but understanding the roadmap to move data to create wisdom is a great place to start.  Having the ability to act on that wisdom and see the results is empowering.  What is holding you back?

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