Wednesday, December 1, 2010

Data vs. Information

What is the difference between data and information?  Data are dormant.  Data are passive.  Data are numbers, words and phrases.  Alone, data don’t mean anything (John Smith, MA, 21, orange).  Information is active, insightful and can drive action and decisions.
A structured collection of data may describe the characteristics of an object of interest (client name: John Smith, client state: MA, client age:21, client favorite color: orange).  This collection for a single subject is called a record.
Data become information when they are put into a context.  A context can be defined within a point of reference (a list of customers that like orange), or as an aggregation (percentage of customers that like orange).  When data are transformed into information with a context, it may be used to make relevant and evidenced based decisions. 
The process of transforming data to information may be generalized as analytics.  Analytics can be a simple aggregation (total number of clients that like orange), or sophisticated statistical processes (character profiles and clusters of the best customers).  Analytics are not trivial, and are best applied by resources that are trained in quantitative and statistical techniques, yet have a strong business acumen and knowledge of business objectives and constraints (how can we best change the way we sell to our current customers such that sales are maximized, yet fit within the current – or a different – sales resource and commission structure?  How can data inform this?).
The field that offers a structured methodology to this approach is called Business Analytics.  Business Analytics is not simply “data analysis”, but is instead a holistic perspective that aims to understand and define the people, processes, tools and data that are necessary to support informed decision making for particular business objectives.  Only with this broad perspective can the right quantitative techniques be applied to the business objective at hand.
The process converting data through analytics to information is a powerful tool that enables smart, evidenced based decisions.   This approach allows for the transformation of an organization from one that is managed reactively on gut feel, to one that succeeds with proactive and informed decision making.
Next BLOG: Trends in Business Analytics