This blog is posted by: Dennis Rose
What is your organization's IQ (intelligence quotient) ? By this I do not mean how smart it is, but how aware it is and how it operates in its own, unique environment. Do customers find it easy or difficult to do business with your organization? What type of feedback does your company receive from its business partners? What about you? Do you find it easy to get things done within your organization or does everything simply seem more difficult than it needs to be?
The concept¹ of organizational IQ traces back to research work done at Stanford University and is defined as a measure of how organizations assimilate information and put together their decision and information architectures. Much like a personal psychological IQ, an organizational IQ relates to how an organization can take in information, process it, makes decisions based upon that and then put those decisions into action. However, a company therefore regarded as smart or dominant in their particular market segment does not necessarily have a high organizational IQ.
I once worked for a small start-up that focused on optical character recognition technology based scanners. Their one and only product scanned typed paper pages, converted the words into text streams that were then fed into word processing software or databases. The productivity savings for law firms, hospitals, government agencies and just about anyone who had to re-type a lot of paper documents into computer systems was significant and made the product very successful. The company had a gifted technical leader and generally the core technology of the firm was considered leading edge at the time I joined them. The management style of this company, however, was very centralized and a bit parochial. People outside of the headquarters location were treated as “doers” (e.g. go get the order, go do the repair) rather than as team members. It was surprising, even after factoring in that it was a start-up, that the product marketing manager was also the marketing communications manager and the events manager and the technical publications manager. Even if she had wanted to, she didn’t have enough time left in her schedule to seek out any input from the field or to review what we voluntarily chose to send her. There was little to no collaboration between HQ and the field. The executive team rarely met with customers, analysts or the trade media, as they were more concerned with the engineering road map. Most of their external relationships went no further than a few professors at the renowned engineering university that the chief technology officer had graduated from.
These factors led to a near absence of being in touch with what the market wanted and market shift in packaging of OCR scanners that would soon have a large impact on our business. Two competitors introduced smaller desktop scanners with the ability to easily support more type styles at a lower price, as they standardized their scanning engines on commodity PC class chip sets. All at once, we had competitive offerings that were more easily connected to the rapidly growing base of PCs being adopted for the first time by customers, while also being less expensive and more versatile than our company’s product. To make matters worse, our company failed to react to the new competition, refusing to supply the field sales and SE personnel with competitive analyses for these new products or to suggest selling strategies designed to protect our market share until we could respond. The engineering leadership of the firm even dismissed the competitive desktop models as a “passing fad”. In the end, my employer lost significant market share and ran out of cash before they were able to bring a new product to market. They subsequently went out of business.
In this situation, the company had no functioning process in place to ensure sufficient awareness of external information such as changing market preferences, the shift of word processing from mini-computers to desktop PCs and threatening competitive movements. Having external information awareness is a critical element of an organization’s IQ. A company cannot possibly expect to be able to react to changing events if they do not know that events are indeed changing. Yet, we see numerous examples of companies with stove-piped or blocked communication channels lose growth momentum and market share – or sometimes go out of business altogether – because their internal structure, process or culture prevented them from seeing “the big picture” in their market.
In addition to external information awareness, it is critical for an organization to then disseminate or share that information. Information has no value unless it is shared with the people who need it. Many of us have encountered at least one person in our careers that initially seemed to be the smart “go-to” person that knew everything. Unfortunately these people sometimes turn out to be information hoarders that hurt the organization more by holding back useful knowledge instead of proactively sharing it with others that could benefit from it. I worked with an IT manager many years ago that was the proverbial “keeper of the keys” in terms of any knowledge about IT systems, processes, operations, forthcoming IT initiatives, etc. He bathed in the glory of being the only one who knew what was going on with our IT systems. Finding out the most basic information about scheduled down times, desktop rollouts, application fixes and even printer network path names was difficult. As a result, line managers invested time and budget into systems that were inexplicably taken offline or retired, costs were duplicated when the field offices bought low-value assets like laptops not knowing the IT manager had a room full of them that he had told no one about. As the company grew (I sometimes wondered how!) the “drag effect” he created became intolerable and his behaviour was called into question and he was eventually fired. The region I worked in, however, had a lot of catching up to do as compared to the other international regions where the IT leadership had been open, sharing and highly collaborative at both a strategic planning and tactical execution level to help drive the business forward.
Assuming an organization does have external information awareness and also shares the information that it gathers, it still needs to be able to process that information to make meaningful and effective decisions to run the business. The decision architecture of a company has a lot to do with its culture. Organizational culture will often determine whether decision-making authority or empowerment is highly centralized, entrusted to the people with the best first-hand knowledge to make the decisions or whether it lands somewhere between these two scenarios. An effective decision architecture allows people who have the relevant information to act on it without having to waste time relaying information up and down the hierarchy². If executive management is involved in deciding tactical issues such as product names, launch dates, where the 100% Club trip will be held and the like, then they are not doing their jobs. Their primary role is to develop a vision and strategy for the company and to develop the organization’s overall ability to execute to that plan. Micromanaging disempowers people and eventually leads to a breakdown in accountability within middle management and their teams and devalues the roles of people who really ought to be making those decisions. In many cases, good people leave under these conditions. Companies with poor decision making structures and practices tend to then suffer from not only attrition and the costs that go with it, but also an inability to react quickly to changing market conditions. As the second half of 2008 has shown us, things can change rapidly – very rapidly.
If an organization is able to remain aware of what is happening externally, share that information with all relevant team members and then make decisions efficiently, then they are likely to be in a position to focus on their core business objectives. Without any of the preceding three conditions being achieved, focusing becomes difficult as an organization struggles with incomplete information, the inability to collaborate across teams and uncertainty over who should make decisions in reaction to changes or better yet, in anticipation of them. With the conditions set for increased organizational focus, it becomes easier for teams to prioritize, to avoid distractions driven by process ambiguity and to become more decisive in the face of changing market conditions.
The final principle of organizational IQ is continuous innovation. The ability to constantly examine and reinvent products, services and processes is a hallmark of successful companies. McDonald’s expansion into breakfast foods, Nike’s success in expanding their market share with teens, tweens and Generation Y consumers through their “design-your-own shoe” NikeID offering and Toyota’s similar “design-your-own-car” Scion product line are examples of established companies that seek to listen to the market and reinvent themselves. These types of companies tend to proactively disrupt their established markets to either expand them or reinvigorate growth and profitability within them.
A company that is able to orchestrate external information awareness, information sharing, effective decision making , organizational focus and continuous innovation is likely to achieve a high organizational IQ. Research studies at Stanford University³ have shown that organizational IQ is a key success factor for businesses. This research, which studied hundreds of companies during the 1980s and 1990s showed that organizations which exhibited high organizational IQ had higher, sustained growth rates than those who did not. Many of the firms which were measured to have low organizational IQ and did nothing about it went out of business or were eventually acquired by stronger companies.
Clearly, all of us would like to work in an environment where there is high organizational IQ. Organizations with these characteristics tend to be market leaders that succeed in reinvesting in their operations and people, thereby creating broader career opportunities for their team members. All of us have an opportunity to contribute to the five principles of external information awareness, information sharing, decision-making, focus and continuous innovation. We can approach this through shaping the culture of our organizations and through building and using systems and processes that help to facilitate it. A lot of it starts with basic communication skills....becoming an effective listener and then sharing information in a collaborative sense to make the team more effective. Unlike an individual’s psychological IQ, which experts say can only be increased to a limited extent in adulthood, an organizational IQ can be increased to a great extent and more quickly. As you think about your own employer, or perhaps a prospective one, assessing and contributing to their organizational IQ is perhaps one of the greatest opportunities you will have with them. Doing your own assessment of your organization’s IQ, or perhaps leading one with your team, is a good place to start.
¹ = Haim Mendelson and Johannes Ziegler in their book Survival of the Smartest
² = Ibid
³ = Ibid
