Academic journal article Research-Technology Management

Smart Organizations Perform Better

Academic journal article Research-Technology Management

Smart Organizations Perform Better

Article excerpt

The "high-IQ" organization has almost five times the chance of being a top performer than its low-IQ counterpart

In the early 1990s, we conducted a benchmarking of best practices for strategic decision making in R&D (1). A result was the identification of 45 best practices. But we were perplexed by the difficulty some seemingly excellent organizations have adopting practices, even when they know that those practices will lead to better results. This led us to study implementation issues more deeply, in cooperation with the Industrial Research Institute (2). Our studies led to two perplexing questions: why companies that aspired to implement best practices often failed to do so, and how to measure the ultimate performance implications of best practices (3).

Further research identified organizational characteristics that generally determined whether companies were successful in adopting best practices. We call these characteristics the "nine principles" of the smart organization, and made them the subject of our book, The Smart Organization (4). Left unanswered, however, was the bottom-line question: Do smart organizations--i.e., those that conform to the nine principles--perform better than the "not so smart"? To answer that question, we developed and introduced a test capable of measuring an organization's conformance to the nine principles. We have now accumulated about 1,000 IQ surveys from individuals in several hundred organizations. Each survey includes the respondent's assessment of the organization's performance.

As we examined this new data, we found strong evidence that smart organizations do perform better. Entities in the top quartile of organizational IQ had about a 45-percent chance of also being in the top quartile of financial performance, while those in the bottom quartile of IQ had only a 10-percent chance of being in the upper quartile of performance (see Figure 1). The converse was also true--i.e., those in the bottom quartile of IQ had about a 45-percent chance of being in the bottom quartile of performance and only a 10-percent chance of being in the top quartile. By chance alone, all of these numbers would be 25 percent. Our conclusion: smart organizations perform better.

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Further study brought us to the realization that the adoption and effective use of best practices comes about from deeply seated organizational attitudes and habits, which are measured by organizational IQ scores. The actualization of best practices, then, is a consequence or symptom of organizational intelligence. Lower IQ organizations may go through the motions of best practices, but fail to gain the full benefits. This is why tying best practices to performance is so elusive and adoption so difficult.

Nine Principles of the Smart Organization

We have always wondered why some companies are so much more effective at making decisions than others. When they reach a major fork in the road--when they must decide between alternatives clouded with uncertainty--some companies manage to sort out the risks and opportunities associated with each alternative. If they are unsatisfied with the alternatives on their plates, they encourage employees to discover new ones. Their methods of choosing are relatively apolitical and objective. Other companies, in contrast, do not deal with risk effectively. They either move forward oblivious to risk, or scrupulously deny strategic risks and the opportunities that go with them.

The nine principles of a smart organization (Figure 2) provide the organizational context that facilitates best practice implementation. These principles are often subtle and work at many levels, influencing the way people think and act. They determine whether people are excited or cynical about adopting a new best practice. Ultimately it is the accumulation of many best practices, all done in the right spirit, that produces the business results. …

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