The nature of societal and business transactions, indeed any human interaction, is that there will always be information asymmetry. In simple terms, an information asymmetry is a situation where one party has more, better, or more relevant information than the other and therefore has an advantage in a negotiation or a transaction.
Information asymmetries are everywhere – the 70-80% of all jobs that allegedly are ‘hidden‘ or ‘never advertised‘ but get filled; the insider trading scandals which highlight how a firm’s executives, or indeed others with informal channels into those firms, an unfair advantage over ordinary shareholders for their stock purchase or disposal plans; or even trunk shows or advance sales for a privileged few before hoi polloi begin their scramble for bargains.
Information asymmetry is an essential characteristic of the human condition. But, so is the human endeavour to manage it.
In a conversation last week, a British-Indian entrepreneur and philanthropist recounted how in the late 1970s, India was effectively controlled by a thousand business houses and families, and then there were the great unwashed. The control was maintained impressively as these families chose to transact business and marriages with one another. This was not very different from the marriages of state or consanguineous marriages that commonly took place, and still take place, in Europe and elsewhere for strategic reasons of keeping political and economic control within a small group.
In the new order in India, people who attend the IITs and the IIMs* in India are the chosen ones. They come from all kinds of families, not just rich ones. These institutions have catalysed innovation, and disbursed entrepreneurship and access to the possibilities of making money to many more. Above all, their alumni networks are enviable. Information asymmetries arise through limited privileged access to these networks. In the UK, this privilege belongs to Oxbridge**. ‘Oxbridge is an important filter for Britain’s governing class‘, writes a commentator. Degrees from these institutions are signals to the market of greater inherent value. Some however allege that these institutions have created a new kind of asymmetry – that of intellectual elitism. I think they miss the point of ‘signals’ being an effective tool to counter asymmetries, in these cases, for instance, the hegemony of monied families.
Information asymmetry, I believe, is an essential characteristic of the human condition. But, so is the human endeavour to manage it.
Businesses operate in a constantly morphing environment, with variously manifest information symmetries. The consumer is already exploiting them to her advantage. It would be silly to assume that a small ‘privileged’ group has access to all the ‘privileged’ information. Information is abundant and proliferating through many networks, including those we may not belong to or those we may shun altogether.
Managing information asymmetry for businesses, when the asymmetry does not benefit them, is about active risk management. Here are some ideas on how businesses could do this better.
Businesses can manage information asymmetries better through innovative hiring strategies, understanding and adopting technology, and engaging meaningfully with their publics.
Design and execute a better people strategy
It is easy to recruit people that look like the recruiter, dress or talk like the recruiter, and think like the recuiter. This explains why women or minorities report finding it hardgoing being hired into organisations with a certain ‘type’ of people. But if two great minds think alike, surely one of them is redundant! To compete in a time of rapid change, organisations need fresh thinking, and creative and effective ideas for anticipating and solving problems, not the same-old, same-old.
Certainly, hiring from institutions that have served an organisation well in the past is a safe strategy. But are you keeping track of how, if at all, those institutions are changing to keep producing relevant potential employees for your purposes? Or should you tap new networks, new ideas, new people?
In other words, organisations should review their hiring strategies. People really make the organisation. Their diverse skills aid an organisation in understanding things better, their diverse networks may well get the organisation access to information the privileged ones may not have.
Technology is your friend
In the past few months, a well-known multinational bank experienced a hack – a heist was the sensational term preferred by mainstream media – which cost them a lot of money. While their risk managers got on with cleaning up the mess and working to prevent any recurrence, social communities were abuzz with gossip. Did the bank know about the gossip? From what I heard, it is unlikely they did.
The bank is not alone. They have plenty of company in similar, large organisations that have no idea how to use emergent technologies to keep track of conversations. They deem, wrongly in most cases, that the emerging social tools are the domain of the young and the nerds. In reality, there are more than a few people, neither young nor nerdy, who walk the crossover zone very comfortably.
Clearly, organisations need to identify these people but more importantly, they need to understand how to deploy technology to their advantage to gather information, to process information and – something few are doing yet or doing well – to influence those conversations and discussions to their advantage.
Engage meaningfully with your publics
Above all, organisations need to understand – and not ignore or dismiss offhand – their publics. All publics, not just their shareholders. Shareholders may not get on Twitter and discuss the share price but customers sure will get on there and complain about bad experiences.
Organisations also need to remember that the publics are sophisticated. Ergo, symbolic gestures of ‘engagement’, such as formal customer reviews, may earn them more sneers than plaudits.
Organisations therefore need to engage meaningfully, not cynically, with their publics. There is no better way to tap the emergent intention economy.
After all, is this not the point of a business? Selling goods and services, that serve a need in the market and for which someone is willing to pay? Managing information asymmetries would help ensure that a business is not disadvantaged in the pursuit of its aims.
What do you think? Is this too obscure for management to worry themselves with? Or are we on to something?
JP Rangaswamy’s Musing About Collective Intelligence
JP Rangaswamy on Thinking Further About Syndication
Jeremiah Owyang on Social media adoption in corporations
The Cluetrain Manifesto by Levine, Locke, Searl and Weinberger – the definitive book on conversations, ahead of its time in 2000, but never more relevant than now
To Nikhil Narayanan for his kind help in researching some links!
* Guilty as charged.
** Doubly guilty.