People are known to make decisions based on the actions of others. Indeed, when required to make a decision in a given situation, one might observe the decisions made by others in a similar situation and conclude that if all your predecessors made the same decision it most likely is the right one. As one person follows the example of his forerunner, an ever-increasing number of people will follow the behavior of the first few decision-makers. Essentially, if twenty people are driving down the same road, unsure of where they’re supposed to be going, and the driver in front takes a left, chances are that everyone else will also take the left. Observing this behavior has led three economists, Sushil Bikhchandani, David Hirshleifer and Ivo Welch, to develop a theory known as an information cascade: a situation in which every subsequent actor, based on the observations of others, makes the same choice independent of his or her private signal.

Information cascades can have wide organizational, societal or economic impact. The unprecedented economic downturn of 2007-2009 may well indeed have been the result of an information cascade. In an article titled ‘How a Bubble Stayed Under the Radar’, published on March 2, 2008 in the New York Times, professor of Economics Robert J. Shiller exemplifies how an information cascade caused the real-estate market bubble: “even if houses are of low investment value, we may […] have two people who make purchasing decisions that reveal their conclusion that houses are a good investment. As others make purchases at rising prices, more and more people will conclude that these buyers’ information about the market outweighs their own.” He proceeds to state that “It is clear that just such an information cascade helped to create the housing bubble. And it is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.”

Within an organization, an information cascade may very well prevent change and maintain the status quo.  Processes and tools once instituted by a few are now followed and used by many. Indeed, the way things have always been done may seem the way to go. Information cascades, however, are fragile. As Sushil Bikhchandani, David Hirshleifer and Ivo Welch point out, “A little bit of public information (or an unusual signal) can overturn long-standing informational cascades. That is, even though a million people may have chosen one action, seemingly little information can induce the next million people to choose the opposite action. Fragility is an integral component of the informational cascades theory!”

The economic woes of the last couple of years have impacted IT operations in many ways by increasing the pressures on CIOs and their teams and accelerating the need for IT organizations to change, to reduce IT costs and deliver more value to the business. Could the worst international economic crisis since the Great Depression be the ‘unusual signal’ that will cause the ITSM information cascade to crumble and instigate change within IT departments?

The answer is no. Instead, within an organization, business users must gain insight into their ITSM processes and use that insight to broadcast the signal that will ultimately enable IT to reduce cost and deliver more value to the business. Westbury’s Service Management Intelligence solution enables business users to do just that. With a powerful reporting solution in their own hands, business users can battle information cascades and instigate change that will continuously strengthen the value of IT.

Arnon