From Confusion to Creativity, Becoming Wise

There is a well-known hierarchical model called the "DIKW Pyramid". If you're unfamiliar, "DIKW" stands for: Data, Information, Knowledge, Wisdom. Its hierarchical nature suggests that each subsequent level is both higher in rank, yet dependent upon its predecessor.

Often times you will see the model taught in Computer Science courses, as it lays a solid framework for understanding the "how" behind the "what", but it can be used in broader contexts. That being said, let's take a look at its components.

First up, Data:

Think of data as the random distribution of various signs, symbols, values, characters, etc. At this level, we have an abundance of data points, coupled with a lack of organization. Here's an example: 90.P0$5R T E4E0N1X

As you can see, not much is gained by looking at unorganized raw data. We need more. We need to have our data organized in such a way that it becomes meaningful, which brings us to level two.

Information:

At this point, someone or something has created order from chaos, dispelling confusion. Information is data that has been arranged in such a way as to become useful. Here's an example of the above data after being properly sorted: RENT EXP $14,950.00

Now we're beginning to understand some things. We now know that the company has rent expense just shy of $15K, but questions remain. Is that a monthly expense? Most likely, unless something was booked improperly, putting two months' worth of rent expense in one reporting period. Is that for one location? Two? Three?

As wonderful as Information is, it's important to note that the pyramid does not stop at the second level, so neither should we.

Knowledge:

Knowledge is a crucial step in the ultimate goal of becoming wise. Here, the transition is made from performing work to analyzing work that was performed. As we accountants like to say, here is where we begin to drilldown.

So let's say we do our drilldown, and discover that the $15K was indeed on month's worth of rent, and that it covered three different locations. Is that enough? Should we stop here? We verified that our data and info were reliable, and we answered some questions, gaining a little more insight.

You could stop here, but I think that would be a mistake. To prove my point, let me give your first half of a famous quote, “Knowledge is understanding that a tomato is a fruit…”

Wisdom:

We’ve now reached the top, the apex, the apogee, the zenith. Wisdom is the ability to take the knowledge gained from information, and apply it to its appropriate ends. To put it another way, this is where creativity thrives. It sits at the top of the pyramid not only because it's the last step in the process, but also the most difficult. That fact alone often causes people to gorge on knowledge and call themselves wise, again, a mistake. Still don't believe me, here's the second half of that famous quote, “wisdom is understanding that you don’t put it in fruit salad.”

So how does one become wise? You can go it on your own, learn through trial and error, or you can make a wise decision and seek the counsel of those that have already walked where you're trying to go. If you ask me, it's much better to learn not to put tomatoes in your fruit salad via simple instruction, as opposed to firsthand experience.

In Conclusion:

You might be wondering how this relates to accounting/finance/business in general? Consider this, if you know you have a problem, but you can’t quite put your finger on it, try running it through the pyramid. Maybe you have a rock solid data entry person, but the reporting features in your software are terrible, depriving you of valuable knowledge. Maybe the opposite is true and your software is great, but your data entry person is careless. Or maybe all is well in levels one through three, but you just need another person to bounce ideas off of.

Whatever situation you find yourself in, assuming there is a problem you're dealing with, know that the longer it festers, the more difficult it is to fix. And while not common, it is possible for an accounting system to pass the point of no return, and have to be rebuilt. I highly recommend avoiding that if at all possible.