INFO RM AT IO N DE CAY
media, companies are increasingly tapping
multi-channel data sources to better understand the moments of truth in the customer
lifecycle. They are tapping into these newer,
richer sources for better customer insights,
and in the process the information value of
surveys is diminishing.
The “efficient information hypothesis”: In finance, the efficient market hypothesis posits that the prices of traded
assets reflect all the available information.
As the access to information increases, its
value decays. This information decay is accelerating at an unprecedented rate, thanks
to technology.
A case in point is competitive pricing. Once upon a time, not very long ago,
competitive pricing strategies kept scores
of managers busy in organizations. And
then came the Internet and with it, website scraping, which has given organizations the ability to track real-time changes
to competitor prices. Big data technologies allow multiple retailers to dissect
every price change in the ecosystem in
near real time, sucking away any possible
arbitrage opportunity. In other words, the
Internet has accelerated the information
decay rate of competitive pricing.
Another situation that is all too familiar
for city dwellers is traffic information. As
real-time information about traffic flows
(or more likely snarls) becomes available, this triggers a bandwagon effect
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of redirecting the traffic to the hitherto
unclogged routes, sucking them to the
gridlock as well. The value of the traffic
information comes down, and the speed
with which this information is distributed
determines its rate of information decay.
The “observer effect”: One of the
more esoteric concepts in quantum physics, this refers to the changes that the very
act of observation cause when any phenomenon is being observed. This is well
known in stock markets – often, the very
act of an analyst initiating coverage of a
relatively unknown stock brings attention to
the stock. And more eyes on the stock can
change the dynamics of the stock, altering
the information decay of the stock price.
Until, of course, the efficient market hypothesis kicks in and brings the stock back to its
natural levels.
WHY DOES INFORMATION DECAY
MATTER?
Data is the “new oil” of the 21st century, and companies are fast accumulating
data assets. Organizations need to invest
in extracting the true value from data by
institutionalizing a culture of data-driven
decision-making. As they embark on this
journey, managers would do well to recognize that the value of data, like any asset,
depreciates over time.
To begin with, any data governance
process should have a strong data value
W W W. I N F O R M S . O R G