The Intelligent Organisation report

Introduction

Today is a cause for celebration. As a result of the exponential advancements in technology, today we are witnessing the swiftest rate of growth ever recorded. But on the other hand, it is the slowest day we will witness again. Businesses and governments cannot keep up with how technology, and topically AI, will likely transform the nature of work and society.

Keep in mind that technology is only one of several macroenvironmental forces that are both compounding and conflating to essentially make our world unknowable. Some of these forces are natural, eg. pandemics and weather. Some are manmade, eg. geopolitical tensions and social media. Our societies have never been more complex and unpredictable.

This report highlights the implications of this rapid change. It also explores how our organisations need to evolve in order to ‘stay in play’.

Leaders, aspirational leaders, organisational designers and those concerned about the future of work will find this report of value.

An intelligent organisation, why?

Efficiency idolatry

Organisations today generally operate as process factories, underpinned by Taylor’s scientific management approach, where the system comes first and people second.

At a more fundamental level, efficiency is deified. A focus on efficiency leads to greater profits and in the public sector delivering better services at less cost. Whilst nature values efficiency, it values survival even more. This focus on efficiency leads to a short-termism, gaining benefits today with no provision for what might lie ahead. This was okay during the industrial age, an era when the powers that be managed to cultivate a degree of predictability in society. Putting nothing aside for a rainy day is now a problem, given the storm shows no sign of abating.

Worker shock

We are all in uncharted territory. Leaders rarely have time to step back and reflect on the major changes that are taking place, or on the implications for their organisations. Thus post-Covid, rather than regarding this as a once in a lifetime opportunity to reinvent the organisation, leaders have typically returned to pre-Covid practices. This comfort blanket reaction is now causing organisations to spiral downwards.

Even more concerning is that these leaders believe that by intensifying their focus on efficiency, they can weather the storm, oblivious to the fact that the storm is likely to grow even more fierce.

The consequence of this approach is that it puts inordinate pressure on the workers. They are expected to do more with less resources, including time, and thus we are seeing an increase in mental ill-health.

This is compounded by the fact that many workers used Covid to reassess their relationship with work, in particular what their time was worth. Handsome remuneration no longer offsets the daily grind of the long commute, the lack of autonomy or the loss of freedom in respect of work-life integration. Regardless, a significant portion of what we label as work today is dehumanising, monotonous, procedural labour that fails to utilize our cognitive abilities effectively.

However whilst some workers are reassessing their work-life priorities, there is the spectre of AI and its capacity to do what we do, only better and at less cost. Thus a sense of empowerment, ‘work on my terms’, is tempered with anxiety about the future. Anxious workers unfortunately are often ineffective workers.

Thus we have employer-employee tensions coupled with the anxiety of an unknowable future from a personal economic value perspective. Reduced gym membership and a wellness app won’t address this.

Playing the wrong game

Increasing disruption gives rise to an increasing array of novel situations. Such situations feel threatening, particularly if you have enjoyed a predictable, steady state existence up until now. The industrial era might be classified as a finite game in that the rules were very clear, as was the scoring mechanism. There was typically only one ball, and the pitch boundaries were clearly marked.

Disruption has nudged us into what might be called the Infinite Game. A game where there are no rules and no obvious scoring mechanism. There is an indeterminate number of different shaped balls at any given time and there is no pitch boundary. This is invariably going to be unsettling.

The good news is that this is a game our pre-industrial ancestors played well. We know they played well because we are here.

You might say that the objective of the Infinite Game is to simply stay in the game. We are in fact wired to play the Infinite Game, it is just that the associated capabilities became dormant as a result of industrial society.

The question becomes how we reignite this capability and scale it up to ensure our organisations can similarly play the game well.

Transformation fatigue

There is much talk about transformation. Clearly, we need to transform our organisations, so why are so many transformations failing?

Transformation is both big business and ‘big ticket’ business. The tech vendors want to sell you digital transformation as if sprinkling an old school business model with tech pixie dust will somehow transform it into an organisation fit for an unknowable future.

The HR vendors want to sell you culture transformation, which will magically lead to your people being delighted that they are having to run faster on a meaningless hamster wheel.

These transformations are sold along the lines of – your organisation is at point A (bad) and you need to get to point B (good). The problem is that in a rapidly changing world point B won’t sit still. The vendor may well get you to point B, as commercially agreed, but it no longer represents ‘good’. Neither of these ‘linear’ approaches address how your organisation deals with a rapidly changing world.

Understand what is important

The principles on which the industrial era process model is based are no longer fit for purpose. We must embrace a new way of thinking.

Focus on assets

We have established that a focus on efficiency provides little buffer against an increasingly turbulent world. It would be wiser to focus on growing assets. The beauty of assets is that they are creating value just by their very existence. So assets in effect create perpetual profits.

Balance sheets today split assets into financial and the rest. The former comprising cash or assets that could be easily converted to cash if needed. Everything else is bundled into just one bucket.

Thus recognised assets such as brand capital (eg. why people will pay us more than other organisations for offerings with similar functional benefits) and physical capital (eg. property and land) are bundled together. Products, services and subsidiary companies are also assets, unless they are draining the organisation’s resources.

Human capital, the extent to which our people create value, and data capital, the extent to which we can turn our data into value, are more often than not ignored. Even though these are what will give your organisation the greatest chances of survival.

Let’s explore these:

Data capital

Living organisms survive (ie play the Infinite Game) by sensing what is happening in their environment, deciding what to do based on what they sense and then acting in line with their decision. This is happening continuously. Living organisms operate in real-time. Most organisations typically have a clock cycle of one year or more, which is clearly unsuitable in a chaotic world.

Data is critical to sensing, deciding and acting. The quality of the data will determine how your organisation perceives its environment and thus on the quality of the associated decisions and actions. Similarly, the effectiveness of your AI investment will be determined by the quality of your data. The purported benefits of AI imply the ownership of a pristine data lake, when in reality most organisations have something more akin to a data cesspit.

Cognitive capital

I prefer to think of human capital as cognitive capital. As technology advances, the need for humans to do meaningless process work is diminishing. Our value proposition sits between our ears. The focus today is on artificial intelligence with little regard for the natural intelligence of our people. An intelligence that involved millions of years of programming to ensure we survived in the harshest of environments. An intelligence that was subsequently squandered by the industrial era factory model.

Harnessing this natural intelligence will benefit both the organisation and the individual. Your workers are no longer cogs in the machine. They are cognitive athletes and your workplace needs to become a cognitive gymnasium.

Organisations that wake up to this will:

• Be more likely to survive

• Release a tremendous amount of trapped value

• Attract and retain the best people.

  
  

It is tempting to ignore this and just drift along with the AI hype because the latter, mistakenly, feels like a ‘bolt on’ to the existing model and thus is not too intellectually demanding from a strategic perspective.

I would encourage you to come to terms with the fact that if you intend to play the Infinite Game well, you need to realise that you are in the cognition management business. It’s people and tech. Natural and artificial intelligence.

Embrace innovation

You might be thinking that this all sounds good but are wondering how in practice you apply this cognitive horsepower to the Infinite Game.

Again, we are moving into a more complex world. In the industrial era the link between cause and effect was quite clear. Not so in complex systems. Such systems are unpredictable and, like it or not, unpredictability leads to increasingly novel situations.

Most organisations are rigidly structured around a perceived understanding of the link between cause and effect. If you spend X on marketing, you will receive Y in sales. Conversely if you know there will be a sustained demand for a certain product, then it is worth investing in a factory to make that product.

Fine tuning the associated processes is big business for service providers. Who doesn’t want to maximise profit or do more with less? Unfortunately novel situations require a novel response. Organisations that comprise a collection of hard-baked processes will be unable to deal with such novelty. Eventually the offerings that made the organisation so successful will no longer be required. This decoupling from reality, ie a lack of responsiveness to the environment, will eventually bring about the demise of the organisation.

The solution is innovation. It is how we address novel situations. It requires experimentation, a comfort with failure and a healthy supply of cognition. Whilst technology has a role to play in the running of your existing processes, and people to an increasingly lesser extent, they come into their own when it comes to innovation.

You might feel you have this covered as you already have a research and development function. But we are not just talking about new products and services. There needs to be innovation at the business model level, ie. a diverse array of new products and services in non-adjacent markets, with new financial models and go-to-market approaches.

Imagine you are running a large pharmaceutical company, spending a fortune on innovation. But through perhaps government policy, people are now managing their health more effectively. So they become less concerned about illness and more focused on wellness. Drug dollars are now migrating to healthy lifestyle offerings.

As novel situations outpace business as usual operations, your organisation needs to become more akin to a living organism that continuously adapts to its environment.

This is why we have an innate sense, of curiosity, creativity and courage. It is these traits that kept us alive on the savanna and will continue to do so in this post-industrial world.

This will prove challenging from a governance perspective as innovation requires a revised attitude to risk management.

Rethink leadership

The industrial era leadership model is very centralised. Imagine a living organism where a mere handful of cells wielded authority over the trillions of other cells that constitute its being. There is a good reason why this doesn’t work- thankfully my hand does not need permission from my brain should I accidently pick up a hot poker.

We need a more decentralised approach to leadership. The player closest to the ball (or even balls) is the captain at that point in time. Think organisational nervous system rather than heroic leader. This requires a high degree of trust and a willingness for your people to carry the associated responsibility.

Avoid transformation

You might now be thinking that this makes good sense, so how do we effect this transformation. Stop right there. The last thing you need is a transformation. Transformations typically result in:

• Creating anxiety amongst the work force. It triggers your best people to pursue other avenues, leaving you with the people who are less economically attractive.

• Quite naturally your organisation will have its share of ‘antibodies’. People who are threatened by the change and will do all in their power to thwart it. This serves to further ramp up the anxiety and boost cultural toxicity.

• Threatening your existing cashflow. Whilst there is a possibility that your organisation is on its last legs, it is at least generating cash. Focusing on the shiny future and ignoring today’s operational necessities will accelerate the organisation’s journey to intensive care / demise.

As implied earlier, transformations are sold as programmes. Some organisations, perhaps to show their commitment to the journey, appoint a Chief Transformation Officer. By appointing a CTO, the CEO has effectively abdicated this problem by departmentalising it. This puts it into competition with the other business functions in respect of funding. So such appointees will have to soak up naïve statements such as, “It was a bad quarter, so we now have less money for transformation”.

I am advocating a model that is less about ‘pulling up the floorboards’, and more about salvaging what continues to work and extending it to improve adaptiveness. That stated, it is no trivial exercise. It needs to be led from the top of the organisation.

What does good look like?

Firstly your existing business will run as it has always done. It may continue to do this for many more years, or it may come to an abrupt halt next week. That encapsulates the plight of most organisations today.

However, on the belief that your current business still has some mileage, you press on with your efficiency drive. Thus you continue to digitalise the processes to squeeze out more profit. Whilst people will naturally be concerned about being swapped out for a robot or algorithm, they will feel some degree of familiarity-fuelled comfort. Dying at home is favourable to dying in an unfamiliar location.

Because you now recognise that there is an inherent risk in having only one source of cash or at least in having multiple sources of cash underpinned by one market assumption, you start to experiment with new business models. These models extend the organisation’s reach beyond your current market and into adjacent and non-adjacent markets. Think Taco Bell selling chess sets or Harvard Business School offering spread betting services.

These new models may be acquired organisations – startups, scaleups and / or mature businesses. Or they may be home grown, starting off as an employee idea that evolves via a concept paper and a prototype to a fully-fledged source of cash. Most ideas will never make it to market. That is a natural consequence of experimentation and the innovation process.

Over time these fledging businesses will mature to a point where they are developing their own new businesses. Your organisation is akin to the roots, or even branches, of a tree seeking nourishment. Your organisation is continually seeking ways to create value and that is taking it in directions that could never have been anticipated. This is an intelligent organisation.

You now have a portfolio of businesses generating cash from a diverse array of markets. You no longer have a cashflow single point of failure. Again this requires your organisation to be continuously on the alert for opportunities and acting quickly on the best ones. Sense, decide and act.

You can operate these new businesses in keeping with a more people-centric and agile approach. Some of your existing employees will be baffled by this startup vibe, but some will relish the opportunity to move from process drudgery to a role that make them feel more human. So rather than pushing a transformation onto your people, you have created a pull dynamic.

Let’s get going

Caution

The challenge that most organisations face is that whilst everyone has a sense that things are no longer working, nobody knows how to move forward. This results in one of the following:

• Choosing to ignore reality and just pressing on in the hope that ‘normality’ will return.

• Going all in on AI, digital transformation or any other theme du jour because they see others doing it and hope that this herd approach will protect them.

• Making superficial changes such as introducing hybrid working, 4-day weeks and employee wellness apps.

  
  

These will not end well. Their difference being on the extent to which they accelerate the organisation’s demise.

Step by step

Awareness

Initially we need to ensure that our leaders understand the extent to which increasing disruption will impact their organisations and how it is possible to embrace this disruption.

Exploration

With raised awareness, perhaps via one or more workshops, the leadership needs to consider:

• The implications of this disruption on how the organisation moves forward.

• How resources will be allocated.

• How this will be communicated to the workforce and beyond.

  
  

Education

Ensure everyone in the organisation understands what lies ahead and how that will impact their role. This could be a mixture of briefing and ideation workshops.

Communication

Work with your external communications people to ensure all stakeholders are aware of the organisation’s course of action. It is likely that they will be nervously optimistic and so will need regular reassurance that the approach is working. You need to ensure that your board of directors are not only onboard but are driving this.

Implementation

Build an innovation engine that effectively captures new business ideas and turns them into value either through acquisition or homegrown initiatives. Put processes in place to:

• Acquire talent better suited to a more cognitive working model, ie. they have a startup mindset.

• Share central services with the acquisitions and home-grown initiatives.

• Select ideas for experimentation.

• Evaluate progress and eventually value realisation.

Public sector

Please note that whilst public sector organisations benefit from having a locked-in customer base, they cannot waltz into non-adjacent markets to reduce risk unless it can be shown to be a better use of funds than providing the requisite services.

Nonetheless, this approach can be used to develop a more innovative approach to improving existing services, in particular making them better integrated so that the citizen experience and journey have less friction.

Conclusion

The exercise here is to create a new operating model that can better adapt to a rapidly changing world. Moving from the industrial model to a more living, sensing organism type approach does require a transformation of thinking, but in essence is a relatively simple modification to the existing operating model. Tinkering / transforming what currently works is a recipe for disaster.

Keep in mind that innovation is key to adaptiveness. Natural and artificial cognition are the fuel. This will require organisations to take a radically different approach to talent management.