All entries for Sunday 27 May 2012

May 27, 2012

Asymmetric Information in Organisations

Globalisation has changed the way we live and interact, and more people being able to easily access all types of information. To this end, information technology has increased the amount of information to organisations compared to others, and therefore one of these organisations can take advantage of the other organisation’s lack of knowledge in any contractual relationship, this is referred to as “asymmetric information”. This area is considered as a branch of economic theory or contract theory. This situation occurs where there is imperfect knowledge, or in other words where there is an inequality of information between two different parties in a contract or business arrangement.

For an instance, in an employment contract as an applicant and a company, at the start of the employment contract, the two different parties have less information about each other. The employee or new comer knows more about his/her abilities and his/her commitment to stay in the company than the company knows. On the other side of the coin, the employee has some perceptions about his/her organisation which might be partly true or partly false as contrary to the employer. Or in organisational decision making where organisations need as much information and knowledge to make a robust decision making in different organsitational aspects.

These examples give a clear understanding of how asymmetric information is important to be understood by organisations. Applying this area of contract theory to different aspects of organisational operations and functions such as employment, procurement and logistics, training and development, etc. are crucial for the organisational success, and thriving in this tough competitive world of business today.

Sharing Knowledge Vs Sharing Information

When we say that people within an organisation share knowledge, do we mean that literally or are we actually trying to say that people share information. From my own perspective, most of the time people share information rather than sharing knowledge, and often, when we say that we share knowledge we are actually saying that we are just sharing information. I think sharing knowledge is much more a complicated process than sharing information.

I have tried to search for some articles or literatures about the differences between these two terms on the internet but I didn’t find anything which could help me out in this regard. However, if we go back to their original meanings in the Cambridge and Oxford dictionary we could reckon the difference as the following:

  1. Knowledge has been defined by Cambridge and Oxford dictionaries respectively:
  • “Understanding of or information about a subject which a person gets by experience or study, and which is either in a person's mind or known by people generally”.
  • “Facts, information, and skills acquired through experience or education; the theoretical or practical understanding of a subject”.

2. While Information has been defined by Cambridge dictionary as: “facts about a situation, person, event, etc”.

In this regard, one aspect of knowledge is information, but in this case information is being processed within our minds by the learning or education we go through, whereas information is just facts and numbers, etc. knowledge is processed information within people’s mind, it is not just raw data stored in their minds, but rather it’s more of an experience they went through a situation or an event.

With this in mind, it is a learning process and an experience rather than just storing data in the head of employees. Organisations must ensure that the learning taking place in organisations is not just from one side, but it’s a two – way process by which they engage and involve employees in the learning process, and apply tools to ensure that the value of learning and money invested in learning is maximised.

I think most of the organisations share information, meanwhile they pretend that they are sharing knowledge; in fact they are just sharing information. This transition for organisations to move ahead from sharing information to sharing knowledge is one of the big challenges faced by them nowadays.

May 2012

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