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. i

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 problem-
handling) 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:
i
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).

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 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

ii
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
Memory involves storing, retaining and retrieving stuff.
iv
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.
v
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.
vi
Creativity is not wholly dependent on intelligence, and intelligence may be manifested in
ways that are not primarily creative but valuable for other reasons.

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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.

vii
Assuming that intelligence is valuable, and that small increases in intelligence are self-
reinforcing, this suggests that even small increases in intelligence are valuable.
viii
Hero inventors like Humphrey Davy and Edison did of course have teams to support
them.
ix
Quirk of history or outright myth?
x
Albert Borgmann calls this the device paradigm.
xi
As a description of the behaviour of geniuses, this is probably an overstatement.

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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 inter-
organizational 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

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

xiv
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.
xv
The dividing line between formal/systematic and informal/adhoc has become much less
clear-cut since this was written.

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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
• Its product position vis-à-vis
• new competitors (market entrants)
• alternative products
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 Dynamic modelxviii

The level / ferocity of existing Production tactics (quality/cost)
competition
Market bargaining position Marketing tactics
(customers/suppliers)
Negotiation tactics

Product position (market entrants / New product ideas (market/R&D)

alternative products)

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
When this prediction was made in 1990, we were thinking of the 1990s.
xvii
I now refer to this as a positional strategy.
xviii
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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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 client-
oriented hints and tips relating to the current version of tax legislation [source:
TRO].
xix
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.
xx
Some early examples of corporate knowledge management.

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• 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

Practical
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.

Theoretical

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• 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?)

References
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).

xxi
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.

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

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