On the intelligent organisation
Abstract
An increasingly unknowable world requires a new organisational model. An organisation’s ability to sense what is happening in the wider world and to make decisions and act in a manner that reflects reality is becoming increasingly important.
This is innate to all living systems and might be described as a form of intelligence, ie to behave in a manner that is optimised for viability. This essay argues that organisations will increase their viability, and their value, by embracing living system principles. They need to become intelligent.
The game is up
The traditional model has worked well for many decades. The focus on efficiency to maximise profit is well ingrained into management theory. But this model was designed for a world that was largely stable, where predictability of demand made investing in a factory a relatively negligible risk. Most modern-day organisations continue to embrace factory principles, including process engineering, again with a view to maximise the return on the capital expended.
However an increasingly volatile world has made the world very unpredictable. So having an organisation that is finely tuned for a handful of products and services is at risk if it is unable to detect market changes and perhaps more importantly is unable to act on them.
AI is perceived as the saviour to many ailing business models. In reality, it will expose their weakness in respect of organisational adaptiveness. One cannot turn a sausage machine into a living system by sprinkling it with tech pixie dust or smearing it with ‘brain tissue’.
So the traditional organisation has had its day and no amount of tweaking around the edges will equip it to navigate an increasingly volatile environment.
From efficiency to adaptiveness
This shift from steady state to increasing volatility necessitates a shift from a focus on efficiency to one of adaptiveness. Whilst survival / viability might appear a low aspirational target for the organisation, it needs to be reflected in every aspect of organisational behaviour.
Adaptiveness is a significant organisational challenge. It requires deep surgery. So deep in fact that the organisation may not survive. But there are ways to preserve existing cash flows and go some way to preserving future flows.
One of the reasons transformation programmes fail is because they assume that there is a point B, a point where the organisation is better able to cope with the changing market. Unfortunately when point B is reached organisationally, the market has changed again. Adaptiveness is not a programme its i an operating model.
Organisational intelligence?
One might say that most modern organisations are awash with intelligence. Smart people, copious amounts of data, analytics tools and increasingly AI. But these sources of intelligence are channelled towards making the ‘machine’ work faster or cheaper.
In fact human intelligence is often squandered. Rather than harness the creativity of their people, organisations typically admonish them from deviating from the operations manual. A legacy of the factory model.
Mismatched incentives result in departmental leaders focusing more on the viability of their empire than the ecosystem that the organisation serves. In living systems, every subsystem, every organ and every cell, of which there are typically billions, is focused on the wellbeing of the whole. And somehow these elements manage to coordinate, synchronise and collaborate in a real-time manner. One second the gazelle is basking in the sun, the next it is moving at top speed courtesy of a hungry leopard. Viability is a daily reality for many living systems.
Cognition: Sense → Decide → Act
Fundamentally living systems survive by sensing, deciding and acting in real-time. They can thrive if they can increase their vitality. And with enough vitality they can create value.
Novel situations, of which there will be an increasing number, requires an innovative response. Innovation requires cognition. This innovation can be applied not just to the situation, but also to the manner in which the organisation senses, decides and acts.
One could say that traditional organisations are like a living system that has a brain but no nervous system. Through strings, pulleys and technology the organs and limbs function. In an intelligent organisation there is a brain and a nervous system, and both inform each other.
This interplay between the brain and the nervous system allows the gazelle or the leopard to harness their senses and limbs to live another day.
Cognition is the ability to sense, decide and act in real-time. Acting, ie movement, is a key element of cognition.
The organisation as a living system
At the highest level, an organisation can behave like a living system by optimising its ability to sense, decide and act in real-time and thus navigate what is an increasingly unknowable world. But it is possible to take the idea one step further by replicating the traits that define a living system. The traits that define a living system are generally agreed to be the following:
Structure – Does the system retain its structure when it is put under pressure?
Responsiveness – Does the system respond to signals in its environment?
Metabolism – Can the system efficiently acquire the energy it needs to operate?
Excretion – Does the system efficiently get rid of anything that is hindering its operation?
Growth – Does the system develop new capabilities?
Reproduction – Does the system have the capacity to pass on its DNA?
Homeostasis – Can the system return to its normal state when put under pressure?
Adaptiveness – Can the system change over time to reflect manner in which its environment is changing?
Applied to organisations:
Structure – Can the organisation retain its integrity and continue functioning when placed under pressure?
Responsiveness – Can the organisation sense, decide and act effectively as conditions change?
Metabolism – Can the organisation acquire resources and convert them efficiently into useful energy and value?
Excretion – Can the organisation identify and remove waste, toxicity, obsolete practices and failing initiatives?
Growth – Can the organisation learn, develop new capabilities and increase its capacity to perform?
Reproduction – Can the organisation replicate its capabilities, principles and operating model through new ventures, partners or people?
Homeostasis – Can the organisation maintain operational stability despite fluctuations, shocks and changing demands?
Adaptiveness – Can the organisation change its structures, behaviours and business models as its environment changes?
These are all implementable, but broadly they require structural engineering. In fairness, traditional organisations do several of these well. Unfortunately it is the underperforming traits that are critical to survival.
A new cognitive architecture
Traditional organisations make use of cognition. Decisions must be made. Services need to be delivered. However the cognitive horsepower is usually constrained to the leadership and those that sit within the innovation function. Everyone else just follows the instructions. This is a tremendous waste of cognitive potential.
The arrival of AI has excited leaders in respect of artificial cognition - would not it be great if AI could make the big decisions and orchestrate the work. So cognition is moving centre stage but natural cognition, ie your people, remain as cogs / technology placeholders from an organisational design perspective.
The emergence of agentic AI will require humans to take on a policing role. At least until the agents prove their reliability. But this still does not harness the full cognitive potential of the talent.
The Intelligent Organisation framework encourages leaders to think in terms of a system of cognition. This can be thought of as a fabric that surrounds the traditional systems of record. This system of cognition is the organisation’s nervous system. It provides a mechanism for sensing, deciding and acting (including innovating). It works best when AI is used to augment the cognitive potential of your people.
Distributed intelligence and ubiquitous leadership
If we are to let people sense, decide and act, we are in effect distributing intelligence. This necessitates giving every individual greater autonomy. In this sense this is transitioning the organisation from a centralised leadership approach to one that is more ubiquitous. Everybody is a leader. Of course this requires careful governance, but the emphasis moves away from risk suppression to careful risk acquisition.
A ubiquitous leadership approach enables the organisation to locally respond to threats and opportunities. Your hand does not need permission from your brain to let go of the red-hot poker.
Viability, vitality and value
Viability is clearly an important attribute of an intelligent organisation. Survival is the first rule of intelligence. But vitality enables the organisation to thrive. Vitality can be considered the extent to which your people are fired up and aligned with the organisation’s mission. This in turn enhances the value your organisation delivers to its stakeholders. Intelligent organisations not only survive, they thrive and they matter.
AI has a role to play, but people are critical.
Ecosystems matter
Stakeholder capitalism is ecosystem capitalism. Intelligent organisations recognise that their success is linked to the success of the other actors in their ecosystem. This is much more than transactional supply chain dynamics. This is a group of organisations behaving as one super-living system.
There will be power asymmetries, intelligent organisations will mitigate that risk by reducing their reliance on one ecosystem.
In practice
Intelligent organisations are optimised for adaptiveness, and they do that by being optimised for viability, vitality and value creation. They attract and retain the best people (think high-performance cognitive athletes). They capitalise on both opportunities and threats.
They operate in harmony with their environment. Ignoring it or fighting it squanders resources, including cognition. They embrace AI, but only after they have made the structural changes that can support its intelligent application.
The way forward
The first step is for all stakeholders to see the benefits in taking an intelligent organisation approach. Having decided that this is the way forward, you then need to decide what of the existing organisation must be preserved in the associated transition. These might include stakeholder commitments, ethical boundaries and organisational purpose.
The second step is to assess to what extent the current organisation already embraces intelligence along with what is currently constraining intelligence.
The implementation step involves improving the organisation’s viability, vitality and long-term value. At this point, the organisation is behaving intelligently. The last step is to further boost adaptiveness by no longer being reliant on one business model.
At this point, the systems are in place to ensure that adaptiveness is woven into the operating model. As the world gets more chaotic, even the largest of enterprises will have to operate like a nimble start-up.
The leadership imperative
The Intelligent Organisation framework is not some variant of a technology agenda. It reflects the reality that traditional business models are no longer fit for purpose. Plastering over symptoms is no substitute for the structural and systemic changes that the Intelligent Organisation requires.
This requires thinking beyond the next quarter. It requires leaders to be genuine organisational stewards. That will not sit well with some leaders. It will unsettle many business schools, consulting firms and executive search firms.
Intelligent leaders will do what is necessary because they can see how the macroenvironmental forces at play requires them to reconsider their industrial era assumptions. The game has changed.
Nature approves
The core point is that organisations, public and private, need to evolve from managed machines to adaptive, sensing and opportunistic living systems. Size and pedigree count for very little if the organisation is unable to respond to its environment in a timely manner.
As the world becomes more uncertain and volatile, it makes sense to embrace an organisational model that has had billions of years of field testing in the harshest of conditions.