What is "Organizational Intelligence," and how can it be identified?  

Organizational intelligence is the embodiment of a complex adaptive system within a business entity that combines collective assets and efforts to delight customers.

With the term organizational intelligence we name what we want to access at the organizational level - the capacity to sense, make sense, and act in flexible, creative, adaptive ways.  Organizational intelligence is the source of our future - and to get it, we need to think differently, manage differently, and organize differently.

The characteristics of intelligence are:  

  • Non-linearity - state changes, transformations, invention, breakthroughs, and other results which appear like quantum leaps.
  • Distributed phenomena - where the elements cannot be located specifically yet something emerges - like intelligence, teamwork and rapid response abilities.
  • Independent agents - individual elements which make their own sense or meaning, and then make their own choices based on their own interests as they understand them.
  • Emergence - those results which occur without direct, linear action and are unpredictable in detail yet, at least after the fact can be seen as a result of earlier forces combining in new ways
  • Attractors - those elements or principles around which forces move so that detail cannot be predicted but patterns can be seen.
  • Patterns - seeing the connections between things and identifying the "attractors" around which these form, giving access to influence without control.
  • Holistic - taking a view that includes whole systems rather than the parts or even merely the particular focus that is of interest to you.
  • Socially constructed reality - the realization that through language and practices we create the social world that we live in - and we live almost exclusively in a social world that we have emerged from and co-emerge with.

Written by Michael McMaster and shared by Paradigm Shift International

Noted authority William E. Halal, PhD describes it thusly:

Organizational intelligence is the capacity of an organization to create knowledge and use it to strategically adapt to its environment or marketplace. It is similar to I.Q., but framed at an organizational level.

While organizations in the past have been viewed as compilations of tasks, products, employees, profit centers and processes, today they are increasingly seen as intelligent systems designed to manage knowledge. Scholars have shown that organizations engage in learning processes using tacit forms of intuitive knowledge, hard data stored in computer networks and information gleaned from the environment, all of which are used to make sensible decisions. Because this complex process involves large numbers of people interacting with diverse information systems, O.I. is more than the aggregate intelligence of organizational members; it is the intelligence of the organization itself as a larger system.

My work integrates this research into a comprehensive, more effective whole that builds on roughly the same approach used to characterize human intelligence, I.Q. The capacity for human problem solving is composed of several facets, such as "emotional intelligence" coupled with the more traditional form of "rational intelligence." In a similar way, I define organizational intelligence as the problem-solving capacity of an organization created by various subsystems.

These subsystems include organizational structure, culture, stakeholder relationships, knowledge assets and strategic processes, all of which are affected by I.T. in various ways. Each subsystem contributes to O.I. because it serves an essential purpose in the organization's cognitive functioning. What follows are some examples of these subsystems and the impact each has on the organization.

Gifford and Elizabeth Pinchot explored this topic in their aptly named book "The Intelligent Organization" and the excellent article below.

by Gifford & Elizabeth Pinchot

As everybody knows, large organizations today face challenges of increasing complexity. Change is happening faster, everything is connecting to everything else, people and the earth are demanding more consideration, new forms of competition are appearing, computer systems are eliminating the need for whole levels of management˜the list grows. How do we cope? Organizations must grow far more intelligent to deal with so many diverse and simultaneous challenges. The breadth of the gap between what is and what needs to be is so great that many employees more than a couple of levels down from the top perceive their organization to be stupid.

The potential intelligence of organizations is widely distributed because the brains are widely distributed, one per person. To be fully intelligent, an organization must use the intelligence of its members well.

Most members of large organizations we talk with are frustrated that their wisdom˜what they have observed and figured out˜is not being used when plans and decisions affecting the things they know about are made from above. These people have repeatedly watched their organization do foolish and wasteful things. They have become inured to this, as if it were a law of nature that the designated decision-makers of organizations, focussing as they must on "the big picture," cannot think clearly about the smaller everyday decisions, and cannot find ways to give the people ready to deal with more local issues the authority to address them intelligently. If, on the other hand, managers at every level act as if it is impossible to get good decisions out of the average employee, rules and procedures˜vital to organizational effectiveness˜will crowd out equally vital local divergent thinking. The result of replacing the widespread use of intelligence with the intelligence of a few decision makers is mediocre performance˜not anarchy, but not organizational brilliance either.

Today's large hierarchical organizations fail the intelligence test in several ways:

Large organizations are not able to make good local decisions flexibly incorporating local information, creativity and wisdom.

Therefore they respond slowly and expensively to customers' needs and to the needs of their employees and communities, unless those needs are standard.

They tend to prevent the free flow of relevant information and intelligence across boundaries between parts of the organization.

They devote the bulk of their people's intelligence to non-productive activities required for political justification and advancement, rather than finding better ways to serve their customers and their own human needs and values.

Are today's hierarchical systems, which waste the talent of those in them, the best we can build? We doubt it. What a cosmic joke it would be if we were given so much intelligence and potential, but because of flaws in our innate character, or because of inherent human limitations on information processing, most of us will never use our brains effectively at work.

Our premise is that the hooks exist in the human character to link people together in forms many times more productive than seen in most of today's large , hierarchies. Systems based on these capacities for high level cooperation are at work in peak organizational experiences as well as in many tribal societies, in the "informal organization" of most large companies, and in the free enterprise system itself. The pitfall is reliance on the excessive structures of dominance and submission that limit most of our social interactions and preclude intelligent human cooperation.

One kind of improvement available to organizations to coordinate more of the intelligence of their members can be seen in the successes of total quality management systems. The focus on quality has encouraged the formation of empowered cross-functional teams who solve problems at the level of systems thinking; this focus has also pulled attention off politics and on to meeting customer needs. Although the shared goal of quality can somewhat transcend the pervasive concerns of functional turf and hierarchical level, more basic changes in organizational theory and practice are required to fully express and interconnect the intelligence of the organization. The basic traits of intelligent organizations are already known; a few that are on our minds follow, in the hopes of opening a dialog.

Clues in the system to the nature of the intelligent organization.

1) Systems thinking.

We will never build intelligent organizations if we focus our explanations on what is wrong with the character of the people involved˜that we are innately limited with greed or shortsightedness. Too often new people move into large organizations with capacity for wisdom and soon fall into similar patterns of behavior, as if the system is calling for that behavior. In excessively authoritarian structures, patterns of relationships can take over that weigh against individual better judgement, until attention is caught up with fighting the fires and coping with the cyclical crises of the system. The way out of the closed circle begins with leadership˜to pull the focus off finger-pointing and short term fixes, and towards discovering the dynamic relationships in the organization; and then opening the systems to changes that permit the widespread intelligence to emerge.

2) Open access to information.

The intelligent organization lives on the free and open exchange of information, and anything which blocks information must be viewed with suspicion. Financial results kept secret from employees guarantee that they will not play the game of improving them with much understanding or verve. Strategic plans are doomed when they are hidden from all but a few employees: no one else knows what they are working towards. Undervalued intelligence is incapacitated.

3) Freedom of speech and press.

The power that allow one rank of person to silence those below them must be viewed with the greatest of skepticism. Human beings have their limitations, and the worst is usually displayed when they can dominate others without listening to them. Too much power is dizzying, and the tendency to begin believing one's own press is almost irresistible.

Societies lacking freedom of speech and press fall into layers of tyranny, each using the tyranny they experience from above as excuse to pass it on below. Business organizations may lack the power to imprison or kill of totalitarian societies, but managers do have the power to silence dissent, cutting off the intelligence of diverse viewpoints. New rules must open up the system: truth is our primary value; no opinion will be silenced or punished; everyone has the freedom to comment. This will raise the level of the dialog in any human system, as we see happening in the once-closed societies of the Soviet block.

4) Multilayer autonomy.

Intelligent systems are built in layers. The most primitive intelligent systems have a top layer of self-organizing autonomous units, and hierarchical systems below. Our economy, for example, somewhat self-organizes at the top layers, in the open system dance of free firms competing and cooperating to satisfy customers. The next layer below is made up of firms of hierarchical design, each one limiting the contributions of the layers of players below the entrepreneur, yet together outperforming those of a command economy. Within the excessive hierarchies of this next layer, freedom of individuals and groups to use their intelligence towards shared purposes can be as limited as for entrepreneurs in state-controlled economies.

As civilization becomes more complex, intertwining the earth, layers of self-organizing systems must interrelate to produce the behavior we call intelligence. Consider the body: the intelligence to form cells is not found in the brain; rather the intelligence to form the brain is found in each of the cells. Nor is the intelligence of the brain found in the cells: that intelligence is an emergent property of the relationships between cells.

5) Self-organizing systems.

An intelligent complex organization requires too many connections and too subtle a form for any one person or committee to design. It has to be self-organizing throughout the system. The most intelligent organizations are in constant flux, designed on the fly to get things done by the people who are doing them. Life on earth and the emerging global market are self-organizing: in each system the struggle for biological or economic survival favors those who cooperate more effectively . In strongly hierarchical organizations, it is outside the accepted routines, in the "informal organization"˜the emerging patterns of unofficial, self-directed transactions between friends and associates˜that much of the work gets done. Although self-organizing systems require organizing disciplines to guide the process, as survival guides evolution or the requirement of solvency guides business enterprise, an essential feature of self-organizing systems is freedom of choice between alternative ways of doing things.

6) Choice rather than monopoly.

In the free enterprise system, there is choice between alternate vendors, alternate distribution systems, alternate subcontractors, and so forth. Productive organizations are in fact not single companies, but rather networks of companies in which almost every connection has been chosen from alternatives. A major company can only function because it has productive relationships with thousands of vendors who do things the company could not do effectively by itself. The system cannot be planned by government, but is built up from the free choices of individuals and groups which enter into cooperative relationships.

Our society has a peculiar bias in organizational design today. In the design of the economics of nations we believe that freedom of choice tends towards efficiency and monopoly leads to bureaucratic waste and suppression. We laugh at the totalitarian structure of monopolies which have constituted the bulk of the Soviet economy. We point out that having a single electronics firm, the Ministry of Electronics, leads to the expected consequences of monopoly: inefficiency, featherbedding, a glacial pace of innovation, and a focus on internal politics rather than customer needs. Yet in the design of companies we believe internal monopolies of power lead to efficiency whereas free choice invites inefficiency. The structure of a General Motors looks more like the organization of the Soviet economy than like the organization of the US economy. Just as the state hierarchies are breaking apart in the Soviet Union to make room for alternatives to choose between, organizations must contain more alternatives, more diversity, and more freedom to choose internal paths and associations, internal customers and vendors.

Imagine if you can a company with a highly bureaucratic legal department whose reputation is that they delight in saying it can't be done rather than finding a way to do it. Now imagine a courageous CEO who divides the legal department into two teams, each to the degree possible comprised of a fair share of the existing staff with a full range of talents and expertise. Each operating manager must shop for their legal help, choosing for each task team A or team B. It is not hard to imagine that each legal group would grow more responsive to the real needs of the operating companies.

When we propose this alternative organization, it is surprising how often people say it would be too expensive, even if it might be more responsive, since you would need two groups of each specialty˜forgetting that no additional lawyers or staff were hired. If in some cases only one team had a necessary expert, so they retained some monopoly, even then the threat of potential competition might keep the lid on arrogance.

The argument for monopoly is based on a static view of efficiency, assuming identical motivation in both cases. Choice may look less efficient, but over time the motivation to improve can lead to far higher levels of service and productivity.

What will open our organizational systems to learning and change so we may responsibly meet the challenges of our times? To the extent our sense of security, status and achievement has often been based on managing others rather than leading others and ourselves to more responsible actions, building organizations to use widespread intelligence is difficult. The status quo itself has power over us and provides a kind of comfort, strengthening the resistance of organizations and individuals to change even uncomfortable circumstances. Yet we are all beginning to realize our global interdependence, so that we see the direct link between our own welfare and the welfare of all our fellow man and all our natural systems. Our visions of our responsibilities are expanding, and the responsibilities of the organizations which connect us. Having thought through one's values changes one's behavior, not only as a citizen or consumer, but also as an employee. Organizations cannot achieve intelligence without strong ethical character, because organizational intelligence is not stable without ethics. Misinformation, information as power, and egoistic politics prevail in unethical attempts at intelligence, which revert to the politics of domination. Intelligence then chokes on hierarchy.

In the industrialized nations today we see organizations led by strictly financial objectives contracting, while those with the purpose to contribute to society as well as their customers are expanding˜for instance, Anita Roddick's Body Shops. If this trend continues, it promises the evolution of a freer and more collaborative enterprise system that is less selfish and independent. The success of individualism may relate to a hunger for community˜the next step after one has become fully adult in the sense of independent and capable of taking care of oneself.

We have had a century of building organizations whose members were never allowed to fully mature. Many corporate citizens never have the sense of independence and completeness in both independent strength and interdependent community involvement that is the normal achievement of citizens in freedom loving cultures. Just as domesticated dogs may behave like big puppies all their lives as compared to wolves, so too many of us have sold our dignity as adults for the steady wage. The village smithy, shoemaker, and colonial farmer could work together effectively without submitting to much hierarchy. Organizations which learn and apply their secrets of freedom, voluntary interdependence, and community co-responsibility may be the first to attain higher intelligence.

Original Article


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