Dead end information overload in credit management
“I know that I know nothing” is the almost 2,500-year-old insight of the Greek philosopher Socrates, which has now established itself as a winged word. According to Cicero (see his work “Academica”), the Athenian uttered this sentence in his defence speech, which he gave as a defendant for for of the gods in 399 BC before the People’s Court. In doing so, he is aiming in particular at his lack of knowledge or wisdom. To what extent he judges his actual lack of knowledge or the impossibility of human possession of knowledge is still disputed in science today. Contrary to earlier assumptions, Socrates probably did not claim that he knew nothing. Rather, it is now considered more likely that he is questioning what people think they know with his statement. For the supposed knowledge is in truth only an unproven basic assumption, which on closer inspection turns out to be an unsustainable illusory knowledge. In this respect there is no such thing as secure knowledge; instead, it is a matter of long or short existing convictions. At this point, however, the paradox arises that the knowledge of not-knowing is a knowledge of which one can know with certainty. Or is it not?
Well, dear reader, are you already experiencing perplexity? That’s exactly how I reacted. Let us therefore not go into further detail here about the interpretations of our ancient Greek scholars regarding the phenomenon of knowledge. But its relevance is undisputed. Both for the individual person and for organisations. Nowadays, knowledge is regarded as the fourth, elementary factor alongside the three classical production factors (labour, land and capital) and is estimated to contribute to at least 60% of the total value added of a company. This applies to the company as a whole as well as its respective departments and teams. Knowledge of actual or perceived risk indications of payment defaults or delays as well as long and medium-term sales potential of existing and new customers is the essential prerequisite for success, especially in credit management. In our article “Alternative sources of information for better credit management”, we have already dealt with the large number of classic and alternative sources of information available to credit managers in order to gain valuable insights for their operational activities and strategic decisions and thus expand their knowledge. In this article, the necessary management of existing knowledge in credit management is considered in particular. It also examines the risk of information overload, together with practical tips on how this can be avoided or at least reduced in practice.
Knowledge management – a discipline that is quite a challenge.
What is my client’s limit? How high are his current outstanding receivables? What payment terms have been granted to him? Who are my contacts in this company? The answers to these and many more questions are part of the credit manager’s daily business. These require information that must be made available at the right time, in the right place, in the right format, to the right people. The operational and strategic activities contained in this can be summarised under the term ‘knowledge management’. From a business management perspective, this discipline can be viewed in theory in three dimensions:
- The human being is promoted by an open corporate culture that encourages the exchange of knowledge and supports a continuous transfer of knowledge.
- The organisation includes the development of methods for knowledge acquisition, knowledge storage and knowledge transfer.
The technology includes powerful information and communication systems tailored to the needs of the company to support the management of knowledge.
It is not just a matter of passing on information, but of promoting and structuring the exchange of knowledge. In the operational context, the aim of knowledge management is to be and remain innovative. But also on a personal level there is a decisive importance: It is about avoiding stress or anxiety, blind obedience, even a certain powerlessness in people who have to make decisions relevant to the company again and again in the course of their activities. Because – and at this point we would like to quote a special philosopher, in this case from China: “To know what one knows and to know what one does is knowledge” (Konfuzius)
Would this mean that in practice the only thing to be done is to ensure that decision-makers are provided with all the information they need, to a greater or lesser extent, to take their decision? For the credit manager, this would mean using internal data, simple address data, creditworthiness information, ratings from trade credit insurance companies, information from payment experience pools, web crawling data, geopolitical or climatic data, insofar as they are relevant to business, and of course also findings from social media monitoring, in order to conscientiously pursue his or her everyday activities. But no, of course it is not that simple. Because in addition to the cost aspect (the collection and use of data, as far as it is not done internally, can cost a lot of money in practice) there is a great danger that individuals and teams are confronted with “information overload”. The intention to maximise knowledge can thus quickly lead to the creation of uncertainty.
The Information Overload phenomenon.
An information overload occurs when the information for the individual is not filtered and prepared according to his or her needs and criteria. In this case it cannot be converted into valuable knowledge. The information overload and its consequences were already part of the first scientific studies in the 1960s. It was the then seemingly endless supply of books and television channels that demonstrably caused attention disorders in some people. In the meantime, computers, PCs, the internet and new technologies such as RFID, ambient intelligence, smartphones and the ever-increasing presence and use of social media applications such as blogs, forums, Facebook and Twitter have been added to the list. Although the amount of incoming information increased immensely and the characteristics of information overload became more visible in society, the symptoms remained basically the same: the feeling of being overwhelmed and not being able to process information. Reasons for the data overload directly at the workplace include communication via electronic mail, internet and intranet. Paradoxically, it is precisely these means that are supposed to make work easier and more rewarding. Once again, it seems to be a question of the right way of handling data.
What are the concrete dangers of information overload? On a personal level, information overload not only affects the mental and physical health of the employee, but also his decision-making behaviour. Too much data increases the complexity of a decision-making problem. One consequence is time delays or even classic wrong decisions. These have a negative impact on the organisation, which in turn poses further risks. Employees spend a great deal of time trying to find the information relevant to them from the hodgepodge of information. This is accompanied by tensions among colleagues and dissatisfaction at work. It is estimated that the resulting employee productivity and declining innovative strength lead to an annual loss of over one trillion (!!!) US dollars in the USA alone. Of course, it is not possible to quantify this exactly.
The dilemma of obtaining and evaluating as much information as possible to evaluate debtors and to determine current and future risks/potential in the context of receivables management, on the one hand, and taking precautionary measures against information overload, on the other, is also a central challenge for the credit manager. In this context, the extent to which credit management is undergoing change must be determined once again. In one of our previous articles we have already described the effects of digitisation on the credit manager. Whereas it used to be no easy task to obtain a lot of relevant information about one’s customers, relevant data can now be collected much more easily and in great abundance – just think of the possibilities offered by alternative sources of information, of which, for example, social media monitoring, web crawling and new types of credit agency scores only represent a small part. The problem here is not necessarily the vast amount of information that is theoretically available, but rather its correct use – this includes defining, prioritising, sorting, filtering and evaluating data. For the purposes of efficient data procurement management, it is necessary to first take a close look at which external sources of information in conjunction with internal data allow the best possible conclusions to be drawn for one’s own business. Innovative credit management solutions are capable of evaluating and interpreting automatically provided information. On the basis of the relevant parameters, a numerical evaluation results, which can lead to a decision (e.g. limit allocation) or workflow (e.g. order placement).
The correct handling of information – and the world can be that simple.
If predictions of future events already appear possible in many areas of a company and new chances of success arise, why shouldn’t it also be possible in Credit Management? Theoretically, there is nothing to be said against it, but in practice, experience shows that a number of problem areas arise. Like any strategic project, the establishment of knowledge management requires a clearly defined target picture as a first step. In credit management, the objective could be that, if relevant information is used cost-efficiently, the risk of non-payment or indicators of delay and the future potential of new and existing customers should be predicted as accurately as possible. For this formulated goal, the commitment of all departments and areas involved is now required – not only Credit Management, but also IT, Purchasing, Sales, Accounting and even the management must swear to this. Different opinions and developments lead to redundancies already at this stage. Another well-known problem is the diverse data silos that are associated with inflexible IT architectures. Last but not least, the acceptance of the individual is essential to get involved in new innovative ideas and solutions in dealing with information and knowledge. This willingness can be ensured by an appropriate culture and constructive communication.
These problem areas are well known and it is possible to overcome them. “What I don’t know won’t make me hot” has been promoted to “What I don’t know won’t make me rich”. The companies possess the resource knowledge in abundance through their employees. Efficient use and process-oriented application make the difference. The winners will be those who succeed in transforming the flood of information into knowledge that is decisive for them. It is all about the ability to handle information in a self-determined, sovereign and responsible manner. It is about information competence.
Did the article make you curious?
Download practical tips – both for the organisation and for the individual employee – on how to prevent information overload.