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Notes on Organizational Intelligence (December 1990)

Notes on Organizational Intelligence (December 1990)

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Published by RichardVeryard
I found these notes when clearing out some old files. Slight reformatting and footnotes added February 2010.
I found these notes when clearing out some old files. Slight reformatting and footnotes added February 2010.

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Published by: RichardVeryard on Feb 23, 2010
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Research Note

Organizational Intelligence
Richard Veryard Written December 1990

Document Note
I found these notes when clearing out some old files. Slight reformatting and footnotes added February 2010.

1. Definition
We start with a definition of what we mean by organizational intelligence.

Organizational intelligence: the combined force of human intelligence and artificial intelligence exerted by an organization that deploys and coordinates human brainpower with advanced computer software. Takehito (Bill) Matsuda offers three related definitions of organizational intelligence (OI). • • • The interactive-aggregative complex of human intelligence (HI) and artificial intelligence (AI) / machine intelligence (MI) in the organization. The collective problem-handling (broader than problem-solving) capability of the organization as a whole. The collective information-value augmenting and utilizing (for problemhandling) capability of the organization as a whole.

2. Motivation
Business strategy – to increase intelligence of organization. One of the hot questions for business will be “How can I make my business organization more intelligent?”

3. Components of Organizational Intelligence
According to Matsuda, organizational intelligence has five main components:

My definition of organizational intelligence has evolved somewhat, and I no longer define the whole in terms of the intelligence of the components (human and software).
Main text © Richard Veryard 1990 Footnotes © Richard Veryard 2010 Page 1

Organizational Intelligence • • • • • Cognition – attaining a shared image of the environment, and of the organization itself within the environmentii Memory – retaining iiiknowledge and experience within the organization Learning – this may be stimulated by external or internal events, and includes self-referential learning (i.e. about the OI processes themselves) Communication – between members of the organization, as well as exchange of information with the environment Reasoning – collective thinking and decision-making

4. Intelligence Quotient
In principle, organizational intelligence can be quantified. Just as we measure the amount of intelligence possessed by a person (via IQ tests), so we can measure the amount of intelligence possessed by an organization (OIQ).iv We compare the intelligence of individuals by testing their ability to manipulate verbal, numerical and graphical patterns. The result of this test is expressed as Intelligence Quotient (IQ). IQ tests are often criticized for their cultural bias. Another criticism of IQ tests is that they only measure a subset of an individual’s reasoning and pattern-matching abilities, and completely ignores his/her communication, memory retrieval and, above all, learning abilities. Organizational intelligence also needs to be measured. This is not simply a question of measuring the personal IQ of each of the members of the organization. There may be no correlation at all between personal IQ and organizational IQ. • • An organization consisting of 100 talented people, each with an IQ of 130+, may be thoroughly stupid, because it makes each mistake 100 times. Whereas an organization consisting of 100 ordinary people, with IQ < 115, may be clever, because it only makes each mistake once.

So somehow we need to find measures of organizational intelligence quotient (OIQ). These should be behavioural – i.e. they should be derived from observations of how the organization behaves in certain “test” situations – and should be as far as possible culturally neutral. Thus although we might speculatev that Japanese companies might, in general, exhibit a higher OIQ than European companies, this should not be a foregone conclusion. We expect that individuals and organizations with higher IQ or OIQ will exhibit more creativity, rationality, innovation … vi

I now prefer to subdivide cognition into observation and sense-making, although I accept this is not a clear-cut subdivision. There is also some overlap between sense-making and reasoning (especially if we follow Vickers’ account of appreciation and judgement). So it is probably better to call these capabilities rather than components.
iii iv

Memory involves storing, retaining and retrieving stuff.

As stated below, while I see IQ as a flawed test of human intelligence, I still believe it is possible in principle to define some kind of measure of organizational intelligence.

This speculation was written at a time when Japanese management (or at least a superficial understanding of it) was very fashionable in the West, thanks in part to people like William “Theory Z” Ouchi. This fashion has somewhat abated in the past 20 years. Wikipedia points out the irony that this so-called “Japanese” style of management had in any case been strongly influenced by Deming.

Creativity is not wholly dependent on intelligence, and intelligence may be manifested in ways that are not primarily creative but valuable for other reasons.
Main text © Richard Veryard 1990 Footnotes © Richard Veryard 2010 Page 2

Organizational Intelligence IQ is only a rough guide to the abilities of an individual. OIQ is therefore only likely to be a rough guide to the abilities of an organization. Although wide differences between the OIQ of two organizations is probably significant, small differences may be the result of the unavoidable inaccuracy of the measure itself. However, increases in the OIQ of the same organization over time are probably significant, even if small. This justifies strategic intervention designed to increase Organizational Intelligence. vii

5. Individual  Team  Organization
At some stage in human history, people got accustomed to working alone – as intellectuals, inventors, designers, writers or craftsmen. Since the industrial revolution, craftsmen have been forced from workshops into factories, either to make larger and more complex products than they could make individually, or to increase production efficiencies. The individual inventor of the nineteenth century (e.g. Edisonviii?) has given way to the R&D lab. Scientific research is nowadays mostly team-based; the PhD is often awarded for participation in someone else’s research. In industry and the armed forces, the autocrat gives way to the coordinator. When we think of intelligence, we may have an image of an individual thinker. People often regret the passing of individualism, where each person’s creativity could be individually recognized, and each person could survive on his own efforts. But this individualism was an anomaly of history.ix Why is man intelligent in the first place? Intelligence developed to enable teams of hunters to catch and kill animals that were faster and more powerful than themselves. To kill a mammoth or a wild boar, you need both strategic thinking and communication / coordination. Alternatively you need a gun. But the gun itself is the end-result of a complex series of human activities. The gun doesn’t obviate strategic thinking and coordination, it merely relocates it. A common characteristic of such technology is that the teamwork that produced it becomes disregarded.x So the man with the gun can cherish the fantasy of independence, no longer needing to belong to a team. Similarly, the academic or problem-solver may cherish the fantasy of intellectual independence. But a real genius always acknowledges (privately, if not openly) the debt to the previous generation.xi Thus organizational intelligence, the social intelligence of teams, is older and more “natural” than isolated individual intelligence.


Assuming that intelligence is valuable, and that small increases in intelligence are selfreinforcing, this suggests that even small increases in intelligence are valuable.

Hero inventors like Humphrey Davy and Edison did of course have teams to support them.
ix x xi

Quirk of history or outright myth? Albert Borgmann calls this the device paradigm. As a description of the behaviour of geniuses, this is probably an overstatement.
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Organizational Intelligence

6. Conceptual ancestry of organizational intelligence
6.1 Corporate-wide quality controlxii
“Corporate-wide quality control (CWQC) is a strategic tool/concept, whose competitive leverage has been little appreciated and grossly misunderstood. … Its power stems from its scope – it is corporate wide and applies from the top of the corporate hierarchy to the bottom. It is a problem-solving philosophy aimed at preventing errors and improving performance.” CWQC has three main elements • Market information-gathering and sharing between intra-organizational business functions (e.g. sales; marketing; accounts; R&D) and interorganizational linkages (e.g. just-in-time systems; links between buyers, manufacturers and suppliers) A problem-solving approach, founded on factual analysis of business operation A corporate culture which encourages admission of sub-optimality, supports a concern with continual improvement, and encourages the workforce to be critical of operational performance, with a view to improving it. This is key to facilitating a cost and quality based competitive stance.

• •

To implement a CWQC philosophy as the basis for competitive advantage requires sophistication in management practice as well as in IT. IS of a higher order coupled with rapid and flexible communication technologies (e.g. electronic mail, electronic notice-boards, teleconferencing) are the requisite facilitating tools. The orientation of these tools needs to be on data collection, processing and dissemination on the basis of the value of results of business activity and not just organizational structure, as is the case with majority of IS implementations. Instead of aggregating the results, as is the case with most MIS, the data will need to be factored to a fine detail to be of utility to each individual / team / unit. Not only is such fine level data not available to managers, but very few if any IS have been implemented, capable of capturing, analysing and presenting this level of data, in the most appropriate form. [source: Bhabuta 1988]

6.2 Organizational learning
Elofson and Konsynski point out the wide variety of definitions of organizational learning that have been proposed. Their paper concentrates on the support offered by IT for organizational learning, in scanning the environment, and in what they call “knowledge caching”. • • • • • • •

Congruence over strategy, structure and technologyxiii Adapting to environment Recognizing and avoiding errors Improving actions through knowledge and understanding Improving decision-unit effectiveness Preventing crisis and coping with change Re-evaluating premises

This stream would later become known as Total Quality Management or Business Excellence.

In other papers, I have defined “maturity” in terms of this kind of congruence. Maturity models provide one (limited but sometimes useful) perspective on organizational learning.
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Organizational Intelligence • • • Acquiring new routines and procedures Abandoning obsolete knowledge Constructing an institutional memory

[source: Elofson & Konsynski]

6.3 Permanent design
In some cases, a creative change of use of an existing system obviates the need to redevelop the system itself. This raises the following practical question: can we build systems that allow or encourage creative changes of use.xiv If we see an information system in broader terms than the computer software, and if we take advantage of the opportunities offered by new systems development tools, we can move towards a state of Permanent Design, in which every use of the system changes the system and is therefore a creative act. The desired state is that each use of the system generates new insights about the system, or about the business, which leads to new interpretations of the system’s outputs, new ways of using the system, and thus the system takes on a new meaning [source: Veryard & Bhabuta 1989].

6.4 External intelligence
One sense of the term “intelligence” is derived from military intelligence. This involves obtaining information about allies, enemies and neutrals, and their environments, and then processing this information to identify patterns and trends. This is likely to be one element of any Organizational Intelligence system. Small organizations perish quickly if they fail to keep in touch with their environment, and even large monopolistic organizations slowly lose their power if they become too self-centred. Competitor /business intelligence is a systematic collection (external) and directed (internal) dissemination of publicly available data on the strength, weakness and strategic moves of competition, customer purchase patterns, government regulatory decisions, shifts within industrial sectors and so forth. It is guided by pre-stated corporate informational needs, coupled with analytic processing and interpretation of the data into business knowledge, to enable proactive strategy. It thereby differs from the ad-hoc, informal and incidental information gathering that all companies engage in and occasionally employ in reactive strategies.xv IT can assist in the collection, storage and dissemination of competitor / business intelligence, but does not offer any magical means for filtering and transforming raw data into useful business intelligence. An organization needs an appropriate structure and culture for taking advantage of the intelligence available, and IT alone cannot provide or stand in for this. But with a structure and culture that is conducive to information collection and exchange, the use of IT can be a very effective weapon in the arsenal of competitive mechanisms. The collection and retrieval of information are not the most difficult aspect of setting up a competitor intelligence service. The most critical and difficult is the state preceding collection – planning and direction of effort, defining what to collect and to what end. Unless

This idea was taken from a paper we wrote on computerized information systems, and the reference to systems development tools is software-related but the question should be understood to refer to human activity systems generally.

The dividing line between formal/systematic and informal/adhoc has become much less clear-cut since this was written.
Main text © Richard Veryard 1990 Footnotes © Richard Veryard 2010 Page 5

Organizational Intelligence this is done and revised continually, an organization can be swamped which can result in paralysis of decision-making. [source: Bhabuta 1988]

Competitive strategy
Static model In Michael Porter’s model, the competitive situation of a firm can be understood by considering three/five things: • • The level / ferocity of existing competition Its market bargaining position vis-à-vis • • • • • customers suppliers new competitors (market entrants) alternative products

Its product position vis-à-vis

Porter then prescribes strategies of cost leadership or quality leadership, based on this analysis. What this model fails to acknowledge is the rapid rate of change of all of these competitive factors. By the time your business strategy starts to take effect, the assumptions upon which it was made may be out-of-date. Dynamic model In the future, the competitive advantages obtained from the Porter model will be short-lived.xvi To survive and thrive, an organization must maintain a constant stream of innovation. Strategic advantage results not from creating and implementing a single good idea or solution, but from creating an organization permanently capable of generating and implementing ideas and solutions. These ideas and solutions may open new market opportunities, leapfrog the competition, streamline production, exploit undervalued resources, and so on.

Static modelxvii The level / ferocity of existing competition Market bargaining position (customers/suppliers) Product position (market entrants / alternative products)

Dynamic modelxviii Production tactics (quality/cost) Marketing tactics Negotiation tactics New product ideas (market/R&D)

This is why it is worth increasing the intelligence of the organization. Because it is intelligence that enables an organization to learn effectively and efficiently.
xvi xvii xviii

When this prediction was made in 1990, we were thinking of the 1990s. I now refer to this as a positional strategy.

I now refer to this as a relational strategy. This table only shows a few selected issues, specifically chosen to contrast with the issues featured in Porter’s model.
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Organizational Intelligence

7. Technical platform
7.1 Technological ancestry of organizational intelligencexix
Why didn’t we have organizational intelligence before? We did, but the technology wasn’t yet ready to provide a solid infrastructure for systematically enhancing organizational intelligence. In recent years, various technological developments have converged to enable much more sophisticated attempts to coordinate and develop collective knowledge. • Software for storage and retrieval of textual databases have been available for more than a decade. Recent enhancements in storage and retrieval include: easier to use query languages; report generation utilities; improved performance of DBMSs and storage devices; the ability to combine text, voice and image. Telecommunications networks have made dissemination faster and more sophisticated. Analysis of information still relies on human interpretation, but this has been aided by decision support systems (DSS) which process and structure data, summarize results, provide historical trend analysis, forecast trends, and test of alternative hypotheses. Some DSS allow the definition of a “personal interest profile” template, by which data can be screened, thus targeting appropriate soft and hard data to key decision-makers. By examining these profiles, users of such a system can find out about other individuals who may be interested in particular intelligence and/or may be able to augment/interpret available data. The technology for acquisition of internal data has been commonplace for more than two decades. For most of this time, however, the focus has been on the management and monitoring of routine and exceptional business activities (e.g. inventory management, personnel details, accounting systems, etc.). There is a growing number of specialist electronic databases containing a wide variety of industrial, commercial, financial, governmental reports and data, which can be obtained via public/private networks. The ability to select the required subset from these databases on adhoc or routine or event basis, and to process the data through specialized DSSs, has substantially reduced the volume of unnecessary data. The last few years have seen the launch of software for structuring text hierarchically. “Hypertext” packages (available on several personal computers) permit reports to be structured so that only a limited amount of detail is displayed initially. There exist reference “buttons” within the text, the selection of which reveals additional detail associated with the particular text/sentence/paragraph, which in turn can contain further reference buttons. Utilities of this type further ease the problems of information presentation and comprehension by taking account of human cognitive capabilities.

7.2 Examples of IT support for organizational intelligencexx
In the past couple of years, professional service firms (such as tax accountants and lawyers) have made serious attempts to create shared knowledge bases. • Price Waterhouse UK tax practice maintains a knowledge base of clientoriented hints and tips relating to the current version of tax legislation [source: TRO].


This section contains a sketch of the technological state-of-the-art in 1990. While there have been a lot of relevant developments since that date, and some of the technologies discussed now look fairly primitive, there were already some early signs of what was to come.

Some early examples of corporate knowledge management.
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Main text © Richard Veryard 1990 Footnotes © Richard Veryard 2010

Organizational Intelligence • • • United Research (US) maintains a text base comprising all proposals and other client documentation [source: TRO]. Peat Marwick McClintock management consultants have spent £1.85 million on an integrated consultancy office network [source: Remenyi]. Arthur Andersen & Co has an electronic bulletin board to let any professional send out a query to the entire system to find useful solutions or knowledge that any other individual in the company may have for special problems [source: Quinn & Paquette].

8.Research Issues
Here are some of the issues that need practical thought and experimentation. • Technology implementation and assimilation. This can be seen at the level of implementing individual technological products, or groups of products, or at the level of general technological change within an organization. It can also be seen within one organization or across many. For example, word processing and photocopying are now practically universally available within Western offices. Expert systems and expertise – professionalization or not? Closed skills or open responsibility? Elite or public? Strategic management – how can we make organizations more intelligent, innovative and creative? Permanent design – how can we make work more intelligent, innovation and creative? Complexity and coordination within change.

• • • •


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Organizational Intelligence • Organizational intelligence requires humans to set/critique goals and preferences. Computers can help explore the consequences of these decisions, and make preference calculations and deductions. To the extent that an organization is itself a machine (adheres to the organizational paradigm), organizational intelligence becomes an example of machine intelligence and requires human steering. Machines, all technology, may display emergent properties – i.e. not predicted or intended by human designers. These properties must be discovered and questioned and, if necessary, corrected.xxi Change requires human intelligence to set direction – but only if we define change as any human-initiated “reprogramming” of the organization-machine. This has limitations which are probably equal to the limitations of the machine paradigm itself. How do we define change according to the other paradigms? Dialectic change = resolution of contradiction, which probably reintroduces contradiction, but at a higher level. (What does higher-level actually mean here? More abstract? More correct?)

Love Bhabuta, “Sustaining productivity and competitiveness by marshalling IT” in C.K Yuen and G.B. Davis (eds), Information Technology Management for Productivity and Competitive Advantage. Proceedings of IFIP TC-8 Open Conference, 7-8 March 1988, National University of Singapore, 1988. Love Bhabuta and Richard Veryard, “Relating IT/IS Planning and Strategic Management to Organizational Effectiveness” in A Milton Jenkins and H. Sarece Siegle (eds), MIS and Organizations: An International Perspective (Wm Brown, Dubuque IA, 1990) Gregg S. Elofson and Benn R. Konsynski, “Organizational Learning in the Extended Enterprise”. CECOIA 2 pp 193-198. Takehito (Bill) Matsuda, Organizational Intelligence: Coordination of Human and Artificial Intelligence. CECIOA 2 pp 323-326. James Brian Quinn and Penny C. Paquette, “Technology in Services: Creating Organizational Revolutions” Sloan Management Review, Winter 1990, pp 67-78. Richard Veryard and Love Bhabuta, “Innovation in Office Work: Retrospect and Prospect”. IFIP WG 9.1 Working Conference: Information Systems, Work and Organizational Design, Berlin July 1989.

CECOIA 2. Conference on Economics and Artificial Intelligence, Paris July 1990 ISBN 2-9036780-3. Selected papers were republished in Paul Bourgine and Bernard Walliser (eds), Economics and Cognitive Science, Pergamon 1992. Page numbers here refer to the original conference proceedings. TRO. Conference on Text Retrieval in the Office. (Quadrilect Ltd, London, 26th-27th November, 1990).


I should not wish to imply that emergent properties are always to be deprecated. Sometimes it is the emergent (unexpected) outcomes that are the most exciting. The task of organizational intelligence is to appreciate these outcomes properly.
Main text © Richard Veryard 1990 Footnotes © Richard Veryard 2010 Page 9

Organizational Intelligence

Contact Details
http://organizational-intelligence.wikispaces.com http://www.linkedin.com/in/richardveryard

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