Enhancing Organizational Intelligence Thought Effective Information Systems Management

1[Keynote]

Enhancing Organizational IntelligenceThrough Effective Information Systems
Management
From an Address Delivered at EDPA '88, The Asia Pacific Conference on Information Systems Audit

Takehiko Matsuda
PrefaceDr. Matsuda's fine presentation, Enhancing Organizational Intelligence through Effective
Information Systems Management, covers many areas which are often neglected in the auditors
assessment of information systems. He considers the various factors which affect organizational
learning, intelligence, information handling performance, and resource allocation. Dr. Matsuda
points out that organizational decision making is really based on “bounded rationality” in thatorganizations normally have neither the time nor the resources to make decisions based on all theinformation but in fact have limited information which "satisfies” the organization’ s objectives.
He proposes that auditing expand its role to examine selected strategic points related toenhancing the organization's overall intelligence. This includes looking at opportunity costs.
Assuredly, improving organizational intelligence should improve market share and profitability.
I suggest that to meet Dr. Matsuda's proposal, the whole organization must support therecommended new role of the audit function. Further, the audit staff needs to develop an indepth
knowledge of the business including business opportunities. Organizations are notorious formaintaining their status quo long as they are meeting their expectations. Those organizations
whose culture supports change and innovations are probably the best candidates for Dr. Matsuda's
suggestions.
Jules B. DuPeza
Director Of Information Technology
Executive Office Of The President Of The United States
My paper will cover the following elements:
First, an overview as to what sort ofphenomena might take place in the future
informationalized society is presented, by way
of providing the general perspective formanagement and, in particular, for systems
audit in an organization of the coming age.
Second, a brief discussion of what I call"organizational intelligence" is given. It is notwhat CIA or espionage agents might connote（Wilensky[6]）, but is the collective intellectual
capability of an organization, crudely
analogous to individual human intelligence, inhandling its problems.
Third, what I mean by effective information
systems management is proposed and it isthen related to improvement and innovationof the management of an organization due to2

Journal of Systems Audits

advanced organizational intelligence.
Finally, some new concepts that might beuseful for the future systems audit areproposed, especially with their contribution to
management in mind.
1. Some Aspects of the Highly
Informationalized Society
1.1 Information Superabundance
As we have already been experiencing, adeluge of information surges these days. Threetypes of problem would seem to be awaiting
solution.
（1）RelevanceSome filtering is necessary to distinguishwhat is relevant from what is irrelevant.
（2）Consistency
Appropriate collating is required among
possibly inconsistent, or even contradictory,
multichannel information.
（3）Manageability
Some condensing mechanism is essential
to reduce the quantity of information to behandled to a manageable size.
1.2 “Time-Space”Revolution
Informationalization is revolutionizing thenotion and the meaning of time and space.
（1）Runaway Advance in Information
Technology
Nobody seems to know how far it isgoing and how diversified it will be.
（2）Value of a time Getting Critical
A momentary delay could be fatal to anorganization. On the other hand, seizure of
the moment might bring a favorable
opportunity.
（3）Shrinking Space
Developing telecommunication technology,
in addition to the progress of means oftransportation, is making the world smallerand smaller.
（4）"Cost" of Being Left Behind Getting Grave
This "cost" is not recorded and measured
within the ordinary framework ofaccounting. It is an “opportunity cost” .

1.3 Networking Revolution
As the information technology（computerand communication）advances, decision points
are getting more and more interconnectedboth intra-and inter­organizational ways.
（1）Global Networking
As the operations of organizations
become more and more international andthe telecommunication technology advances
so far and fast, information networking
takes on a global scale.
（2）Security
For any global information network,
serious difficulties foreseen are computer
crime, circuit breakdown, fire, earthquake,and so on, and sufficiently preventive
measures are indispensable.
（3）Control
Needless to say, it is definitely required
for any information network to preserve thespecified conditions of operation, and someappropriate control mechanism must be
built in.
（4）Privacy Protection
This is essentially a part of the security
problem, but it would seem to be creatingsome social problems of its own.
（5）Evaluation
The global information network would
seem to be posing some new types ofproblems in case of any breakdown
accidents such asa．Responsibility sharing, andb．Opportunity loss evaluation.
1.4 Information Disparity
Although information is rich and even
abundant in the informationalized society, it
may not be evenly distributed.
（1）Maldistribution of Information
Even if the overall volume of information
becomes larger in any informationalizedsociety, useful information may be very
partially distributed. For instance, limitedgroup of people within an organization mayEnhancing Organizational Intelligence Thought Effective Information Systems Management

be monopolyzing the important, key type of
information.
（2）Information Gap
As information technology advances,difference in terms of both quality and quantityof information would seem to tend to be larger
between informationally advantageous anddisadvantageous groups in an organization.
（3）Information Alienation
Such an informationally disadvantageousgroup would experience the feeling of
information alienation, and this in turn willcause loss of motivation and consequently
low performance.
（4）Power Concentration
On the other hand, power within an
organization may concentrate in the hand of
the informationally advantages group, andthis may create undesirable power politics
in the organization.
1.5 "Sentimental" Aspect of Information
The Japanese expression, " jo-ho" for theterm "information " contains the following two
aspects:i．"jo", which represents the tacit and"sentimental" aspect, andii．"ho" which represents the articulated and"factual" aspect.
（1）Prevalence of "Factual" Information
Systems
Most of the formal information systems
in an organization, inclusive of thecomputer systems, are almost exclusively
concerned with the "factual" kind of
information. Such information is being
handled with higher and higher precisionand faster and faster speed. The level ofsophistication of "factual" information
systems would seem to be constantly being
elevated.
（2）Existence of "Sentimental" Type ofInformation
There is, however, another type of
information of great importance; namely,
the tacit and sentimental type.

3

This includes information on value, opinion,
feeling, and so forth, which would usually
be handled by informal systems, mostly inthe form of face­ to-face communication,
soliloquy, facial expression, etc., andnaturally escapes from the formal networkof factual information.
（3）Possible Winning Trick for Management
The important point is that in theJapanese organizational situations the vitalmanagerial decision such as to affect thedestiny of an organization would sometimes
seem to be made on the basis of the very
informal, tacit, sentimental type of
information. Now that the information
technology has been so much advanced andthat anyone if he wishes could have accessto sophisticated factual information, the real
winning trick for management might
possibly consist in the wise use of tacit,
sentimental information.
2. Organizational Intelligence in the
Information Era
2.1 Organizational Intelligence
Provisionally Defined（1）Problem-Handling Orientation
By analogy with an individual human
intelligence, organizational intelligencemight provisionally be defined as thecollective, intellectual problem-handlingcapability of an organization as a whole.
Then, organizational intelligence might
be interpreted to manifest itself throughout
the problem-handling processes（Fig. 1）
such as:i．Problem cognition
ii．Problem formulation
iii．Problem-solving
iv．Solution implementation
More concretely, it would be observed ingenerating every endogenous behavior（demonstrated byin Fig.1）in the
problem-handling process.
Effectiveness of information systems
management will affect the functioning ofJournal of Systems Audits

4Strategic
environment

Pressuresensing[Problem Cognition]

Felt
pressure
Crisissensing

FrustrationFelt
crisisOpportunity
searchLocal problem
awareness

Opportunity
information

Crude strategic
problem

Problemorientation

Quasi strategic
problem

Performance
evaluation

Resource
relevance identification
Implemented
outcomes[Problem Formulation]
FactualpremisesValue
premises

Problemgeneration
Organizational
implementation

Strategic
problem[Solution Implementation]

Proposed
implementablesystems

Problemstructuring

Organizational
climateModel

Solutionsearch[Problem Solving]

Proposedsolution

SystemsdesignFig.1 Cyclic Process of Strategic Problem-Handing

each elemental endogenous behavior.
（2）Technological Progress Orientation
In the face of this information era withtremendous progress of information
technology, organizational intelligencemight more properly be defined as theinteractive-aggregative complex of human
intelligence and machine intelligence in an
organization.
As a matter of fact, my motivation forresearch in organizational intelligence hasbasically been stimulated by the seeminglyEnhancing Organizational Intelligence Thought Effective Information Systems Management

prevailing estrangement between human
intelligence and machine intelligence as
information（computer and communication）
technology advances so fast in suchdiversified directions.
Executives and managers in organizations
do not seem to be able to pertinently
position and appropriately evaluate
information technology, and consequently
information systems, within theorganization. Therefore, it would appear
that we definitely need a "paradigm", so to
speak, that might enable us to coordinate
human intelligence and machine
intelligence under one roof in theorganization. I propose the concept oforganizational intelligence as such aparadigm.
Particularly important at this point may
be the advent and such fast development of
networking technology. It would appear tobe forcing us to extend the concept oforganizational intelligence onto even interor super­ organizational intelligence as theinformation networks take on the global
scale.
2.2 Basic Organizational Intelligence
The most basic components of organizational
intelligence in the framework of problemhandling orientation would appear to be thefollowing, which simply originate in the crude
analogy with the individual human
intelligence.
（1）Organizational Cognition
This is the capability of an organization toperceive the situation in which it functions.
Namely, it is the organizational capability toidentify the actuality and detect thepotentiality of problems, threats, andopportunities in botha．external environment andb．resources availability（which might beconsidered the organization's internal
environment）.
It is very important to comprehend that5

an organization would appear to have a"model", or a cognitive strategy, for filtering
information coming from the external andinternal environments. It might have aspectrum ranging from very vague problem
consciousness to a sophisticated formalm o d e l p r o v i d e d b y, f o r i n s t a n c e ,management science.
Such a cognitive model or strategy is notn e c e s s a r i l y f i x e d . R a t h e r, i t m a ydemonstrate a very dynamic, fluid shift as
the problem-handling process of theorganization proceeds.
（2）Organizational Memory
This is the organization's capability topreserve and utilize the information on its
e x p e r i e n c e a n d h i s t o r y. I t m i g h t b eclassified into the following two categories;
namely,a．human memory, andb．machine memory.
Ordinarily, organizations institute such asystem as the filing system to supplementhuman memory. In addition, operating
standards, systems and procedures, etc.,
could also be interpreted to be the auxiliary
to human memory in the organization.
Recent advances in computer technology
would seem to be making a variety ofmachine memory such as, for instance,i．databaseii．knowledge base, andiii．model base feasible.
In order to guarantee the effective
utilization of machine memory, it isessential to devise the following:① reliable "truth" maintenance（updating）
system and② efficient retrieval system.
（3）Organizational Learning
As an individual human learns fromexperience, we might draw analogy from it
for an organization. And since there would
seem to be enormous accumulation ofscientific findings concerning humanlearning mechanism, we might find some

6

Journal of Systems Audits

useful clues for studying the learning
mechanism of an organization by careful
examination of individual human cases.
At any rate, two types of organizational
learning would appear to be observed;
namely,i．Organizational learning on the basis of
its own experience.
An organization might be interpreted tobe equipped with a large number of
feedback circuits of its own experiences.
Such circuits certainly could generate
effective organizational learning.
ii．Organizational learning on the basis ofother organization's experience.
This would mean a completely different
learning mechanism from the above. Thatis, the organization must heavily rely upon
the external information which it tends tomake slight of, compared with the internal
information.
（4）Organizational Reasoning
An organization, collectively, makes
various kinds of reasoning for the purposeo f a c h i e v i n g i t s m a i n t a s k ; n a m e l y,organizational problem­ handling. Suchorganizational reasoning may be classified
into the following types:
i．Common sense rule-following typeii．Precedence-following typeiii．Procedure-following typeiv．Goal-oriented typev．State-driven type（starting from theexisting state of things）
vi．Dual-direction type（iv+v）
vii．Analogy type（e.g. inventory control
and database updatings）
viii．Association typeix．Conception typex．Actuality-denial typexi．Stirring-up type（introducing controlledchaos）
Needless to say, each reasoning type would
require different kind and system of
information.

2.3 Practical Organizational Intelligence
On the foundation of basic organizational
intelligence as explained in 2.2 , each of thefollowing types of practical organizational
intelligence would seem to manifest itself in
the actual organizations. And each type wouldin turn require specific type and system of
information.
（1）Operative Organizational IntelligenceThis is the intellectual capability of anorganization to realize what has been
determined to be done. It would require avery short-run feedback system of auditingtype information. That is, information on
the discrepancy between the standard andthe actuality of operation must timely be fed
back to the control mechanism of theorganization.
Incidentally, the Japanese organization isobserved to be excellent in manifesting thistype of intelligence.
（2）Restorative Organizational IntelligenceThis is the kind of organizational
intelligence which would function wheneversomething abnormal has occurred or isforeseen to occurr.
Two types of information would appear
to be necessary and useful for suchorganizational intelligence: namely,
i．Auditing typeThis is to indicate where the abnormality
exists and, preferably, how it might beremoved.
ii．Preventive typeThis is to detect, in advance, any
abnormal symptom and hopefully tosuggest some preventive measure to it.
（3）Preservative Organizational IntelligenceThis is essentially combination of'operative intelligence（l）and restorative
intelligence（3）and is for maintaining theorganization after the organizational goalhas “somehow” been determined.
Naturally, its inclusion of restorative
intelligence would mean that both theEnhancing Organizational Intelligence Thought Effective Information Systems Management

auditing and the preventive types of
information play a very vital role in its
functioning.
The Japanese organization shows rather
high level of organizational preservative
intelligence due to the successful
application of various management
technologies such as industrial engineering（IE）, statistical quality control（SQC）,
value analysis/engineering（VA/NE）, andso forth.
（4）Planning Organizational Intelligence
All（l）,（2）and（3）have to do withorganizational intelligence when a goal is" g i v e n " . N a m e l y, i t i s t h e t y p e o forganizational intelligence with rather low
level or autonomy.
When an organization can for itself
decide upon a goal to aspire for, it is said topossess planning organizational intelligenceand it is said at least to satisfy the necessary
condition for an autonomous organization.
（5）Autonomic Organizational Intelligence
An organization may be said to posses
autonomic organizational intelligence
whenever it has combination of planningo r g a n i z a t i o n a l i n t e l l i g e n c e （4） a n dpreservative organizational intelligence（3）.
It is then said to be endowed with higherorganizational intelligence by one order thanthe one with only preservative organizational
intelligence（3）.
As was already pointed out in（3）, theJapanese organization, even in its researchand development（R&D）activities, would
seem to tend to be satisfied withpreservative organizational intelligence（3）.
This means that it would tend to be content
with a research theme or development
subject that is determined outside （forinstance, in the U.S. or in Europe）. And
unless the Japanese organization learns toacquire autonomic organizational
intelligence（5）in R&D, Japan would neverdeserve the name of a technologically“great” nation.

7（6）Ameliorative Organizational IntelligenceThis is to stimulate an organization forimprovement in a certain sense. It would
appear to be excited by either or both of thefollowing two types of information: namely,i．Unsatisfactory past performanceThis is typically provided by systems
audit, especially that is based upon
accounting information scrupulously
recording the errors of commission by theorganization.
ii．Overlooked opportunity
This is not usually recorded by theconventional accounting informations y s t e m . H o w e v e r, i t w o u l d i n c u r a nopportunity cost（a missed profit which is
caused by the errors of omission by theorganization）.
So, such an information system thatwould include both types of information
would seem indispensable for due
functioning of ameliorative organizational
intelligence.
Here too, in addition to systems audits,such management technologies as IE, SQC,
VA/VE, and so on, would make usefulcontribution.
（7）Innovative Organizational IntelligenceThis is to induce a certain quantum or
discontinuous change in the organization,that is, an organizational innovation.
The clue to such innovation may be one
or more of the following:i．Foreseen threat
This may be either
a．external threat, i.e. pressure fromoutside, orb．internal treat, i.e. crisis inside theorganization.
ii．Foreseen opportunity
This also may be either
a．external opportunity, orb．internal opportunity.
In any case, the cognitive capability ofthe organization would seem to be the key
factor in organizational innovation.

8

Journal of Systems Audits

The Japanese organization might be said
historically to be very resilient against any
external threat and somehow to survive
such crisis by innovating itself. In otherwords, the Japanese organization would
seem to demonstrate high "extrinsic"
innovative organizational intelligence understrong outside pressure.
On the other hand, however, the Japaneseorganization would seem to have rather low“i n t r i n s i c " i n n o v a t i v e o r g a n i z a t i o n a l
intelligence. Put in another way, there seemto be only few cases in the Japaneseorganization where organizational innovation
really springs out of the organization inside.
（8）Creative Organizational Innovation
This is to provoke organizational
creation, namely to bring about something
completely novel in the organization.
Such creation may be caused by thefollowing types of thinking.
i．Organizational dialectics
This is to reach an "elevated" statethrough sublation of actuality andactuality-denial.
ii．Novel conception
This is to hit upon a completely new
idea for running an organization.
iii．Controlled chaosThis is to once stir up the organization
by introducing a "chaos" with the hope thatsomething novel might be generated. But
since my uncontrolled chaos might end up
with nothing but a confusion, somemechanism for somehow controlling thechaos must be built in the organization inorder to achieve something constructive.
In any case, manifestation of creative
organizational intelligence would always
appear to be excited by some newly created
information. Therefore, such information
system that would perform "informational
creation" would seem indispensable fororganizational creation.

2.4 Theory and Engineering of
Organizational Intelligence
Theory means the proposal for mechanismof explanation of intelligence phenomena in
the organization. Engineering, on the other
hand, means the proposal of policy forenhancement of organizational intelligence.
The term “engineering” is used in its original
sense; that is, the verb “to engineer" originallymeans "to dispose something cleverly". So,
n a t u r a l l y, e n g i n e e r i n g h e r e s e e k s i t s
theoretical foundation in both natural andsocial sciences.
（1）Human Intelligence Aggregation
Organizational intelligence is, bydefinition, a collection in some sense ofindividual human intelligence of theorganization's members. However, we do
not yet seem to know about the mechanismor process of intelligence aggregation fromindividual human to organization, via
human group.
Especially important here is thegeneration of group intelligence. The
Japanese organization is known for its high,subtle group intelligence. The best example
may be the now world-known "quality
control circle". There, each member does
not appear particularly impressive, but thegroup as a whole achieves something
fantastic. We have to develop a groupdynamic theory explaining this phenomenon
and a design technology to further heighten
such group intelligence.
When groups become larger andinterconnected one another, they areformalized into an organization. In
accordance with its cultural and historical
tradition, the organization develops its
characteristic problem­ handling system; forinstance, the from-the-bottom-up
accumulation（typically exemplified in the"ringi"）system observed in the Japaneseorganizations and the from-the-top-downlayer-by-layer translation system typicallyEnhancing Organizational Intelligence Thought Effective Information Systems Management

seen in the U.S. organizations. We would
seem to need some analytical tools to
explain the performance of each system andsome design methodologies to still enhancesuch organizational intelligence.
（2）Ambiguity-Handling Intelligence
Ambiguity is considered to be somethingevil in the U.S. organizations and something
to be excluded. Instead, precision must be
built in as much as possible whenever asystem is designed, a team is organized job
specification is instituted, and so forth.
However, in the Japanese organizations,ambiguity is sometimes even intentionallyintroduced into the organization in one ormore of the following forms.
i．Structural redundancy
ii．Operational implication
iii．Iridescent decision
iv．Dual-facedness, with “in principle” and“in practice” dichotomy
v．Operative tolerance
vi．Fuzzy contract（e.g. service above andbeyond contract）
In some cases such ambiguity would
seem to preserve and enhance groupintelligence. Typically, any group in theJapanese organization is usually very roleambiguous; that is, each member's role andauthority would be rather loosely specified.
But each member has considerably highmotivation and, owing to the life-longemployment practice, has a fair long-term
p e r s p e c t i v e . M o r e o v e r, e a c h h a s“contextualistic" rather than “individualistic"
disposition, and a favorable social network
would appear to be very easily and quickly
self-organized. So, in consequence, if any
threat for group performance for instanceoccurs or is foreseen to occur, somebody
immediately rushes to the spot and does
something to recover the situation. And yet
no problem of authority bordertransgression takes place since each one's
role is ambiguous from the beginning. This
would seem to be the manifestation of fairly

9high, subtle group intelligence withintended ambiguity.
（3）Machine Intelligence Aggregation
As computer and communication
technologies advance, machine intelli­gencein an organization would seem todemonstrate the possibility of higher andhigher degree of machine intelligenceaggregat ion in an organizat ion. Su chaggregation would tend to take thefollowing two directions; namely,i．Network formation
Already observed is the fast developmentof PC-networking within and outside of theorganization.
Another example is the global computer
networking, whose auditing is the central
theme of this conference.
ii．Hierarchy formation
The advent of powerful and yet lowpriced PC's has made the hierarchicalcombination of such PC's with the series ofcomputers with larger and larger capacity,
all way up to the mainframe computer,feasible.
Thus, decentralization and recentralizationof information systems for organizational
problem-handling have been madepossible.
（4）Interaction of Human Intelligence andMachine Intelligence in the Organization
The history of computer application in
the organization would show theadvancement of computer aid to human
intelligence. Each stage along the line ofdevelopment such as EDP-EDPS-MIS-OA has
shown its character­istic human-machineinteraction. In parallel with suchdevelopment, the fabulous progress ofcomputer technology has greatly
contributed to the fast and diversified
advancement of OR/MS, which was
originally introduced into the organization
as the means of enhancing humanorganizational intelligence.
Recent advancement in technologies for10

Journal of Systems Audits

machine intelligence aggregation as
exemplified in networking and hierarchy ofvarious kinds of computers would seem toopen up another dimension of usefulinteraction between human intelligence andmachine intelligence in the organization.
Such interaction would take place at all
the levels of human intelligence aggregation;
namely, individual, group, and organization.
We have already seen the infiltration of DSS（decision support system）and ES（expert
system）at each level.
Unfortunately, however, human intelligencein the organization would seem to belagging a Jong way behind machine
intelligence as indicated in 2.1,（1）.
All in all, I propose the concept oforganizational intelligence as "theinteractive-aggregative complex of human
intelligence and machine intelligence in theorganization". It is hoped that in this way
we might be able to duly position bothhuman intelligence and machine
intelligence within the organization anddiscover a way of enhancing organizational
intelligence with some means of effective
integration of human intelligence andmachine intelligence.
3. Effective Information Systems Management
3.1 Information-Value Augmentation
Processes in Organization
The object of information systems
management is the information-handlingprocesses in the organization as shown in Fig.
2. It should be noticed that each stage of theseprocesses is supposed to augment the value of
information to the organization in "some"sense.
（1）Information Acquisition
This is the process of taking into theorganization such information that may beprovided by the organizational
environment, which should be divided intoa．External environment andb．Internal environment.

The former would mainly relate to threat（pressure）and/or opportunity which might
exist or be suspected or expected to takeplace outside the organization in the future.
On the other hand, the latter would mostly
concern deficiency and/or potential in the
management resources within theorganization.
Information acquisition process may
further be divided into the following
four types; namely,
i．Environmental scanningii．Positive search
iii．Passive sensing
iv．Systematic collection
Essentially, information acquisition- hasto do with the problem of interface between
the organization and the environment.
（2）Communication
Needless to say, this is a very important
process of information-value augmentation
process in that（i）it relates to all the information-value
augmentation processes,（i i）i t c o u l d i n c r e a s e t h e v a l u e o f
information but, on the other hand, it
sometimes could decrease or evenannihilate the value of information, and,（iii）in the worst cases, it could completely
distort the meaning of information andthus become harmful to the organization.
Therefore, it might be said that both
quality and quantity of information would
be strongly affected by the characteristicsof the communication process. Suchcharacteristics would in turn be
determined bya．characteristics of the sender,
b．characteristics of the receiver, andc．characteristics of the sender-receiver
relationship, including their
sentimental interaction.
Particularly important here would by
the role of tacit and rather
11s e n t i m e n t a l11 c o m m u n i c a t i o n o f
informal information. Many importantEnhancing Organizational Intelligence Thought Effective Information Systems Management

11

Strategic
environment

Pressuresensing[Problem Cognition]

Felt
pressure
Crisissensing

FrustrationFelt
crisisOpportunity
searchLocal problem
awareness

Opportunity
information

Crude strategic
problem

Problemorientation

Quasi strategic
problem

Performance
evaluation

Resource
relevance identification
Implemented
outcomes[Problem Formulation]
FactualpremisesValue
premises

Problemgeneration
Organizational
implementation

Strategic
problem[Solution Implementation]

Problemstructuring

Proposed
implementablesystems

Organizational
climateModel

SolutionsearchSystemsdesign[Problem Solving]

ProposedsolutionFig.2 Stages of Information-Value Augmentation Process

matters, either vital or fatal to theorganization, might be decided upon thebasis of such information.
（3）Information-Processing
Since all the stages of informationhandling processes deal with processing insome sense of information, what is dealt
with in this section might be called
information-processing in its narrowest

sense.
Such information-processing should beclassified into the following two categories.
i．Preliminary processing
This is to facilitate the subsequent stageof processing. It would include suchoperations as for instance;
a．Filtering（to select out the relevant
information from the irrelevant）

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Journal of Systems Audits

b．Condensing（to reduce superabundant
information to a manageable amount）
c．C o l l a t i n g （t o c o o r d i n a t e m u l t i channeled, possible inconsistent, oreven mutually contradictory lines of
information）
ii. Structuring processing
This is the central part of theinformation-value augmentation making
use of the high-level machine intelligence
and would include such informationprocessing as required for① preservative（operative+restorative）
organization intelligence.
② a u t o n o m i c （p l a n n i n g + o p e r a t i v e）
organizational intelligence,③ ameliorative organizational intelligence,（e.g. IE or QC calculation）, and④ innovative organizational intelligence,（e.g. OR/MS computation）.
（4）Information Distribution
This is the process of transmitting theoutput of information-processing to theappropriate demand points
i．within the organization andii．outside the organization.
Naturally, therefore, it would seem very
importanta．to grasp the information demand ateach demand point, and alsob．to design the distribution network ofnecessary information for each demand
point.
The latter would derive from the design of① the system of problem-handling
activities within the organization, and② the interface between the organizationand the environment.
（5）Information Storage
This process is to increase and improve
the organizational memory, andthe following measures are required:
i．Information-updatingThis is essentially the mechanism fortruth-maintenance of information. Here,the balance between information-value

deterioration as time passes and the cost of
information renewal and supplement
should be considered.
ii．Information-retrieval
This is the design of storing, indexing
and accessing systems for quick andeffective use of pertinent information. As
informationalization of the society
advances, importance of this process
would become greater and greater.
（6）Information Utilization
This is the process of putting information
for final use, and, in order to assure
information-value increase, sufficient careshould be taken for the following
subprocesses.
i．Information Representation
This process should be very carefully
designed for matching with the demand of
the users. Technological progress in thisarea, such as computer graphic display,must be fully utilized.
ii．Informational Education
One of the wrong assumptions sofrequently postulated in the design of
information systems is that executives/
managers know how to use information
whenever it is presented to them. This
simply is not true. Considerable educationand learning would seem necessary forwise management utilization of
information.
iii．Usage
In addition to the management
education on the use of information,
frequent interaction between executives/
managers and the informational staff isvery important. In short, rather than justshowing the menu of dishes（what thecurrent information system could do）,
asking the management just to try one andgetting feedback on it would seem by far
more valuable in making the information
system practically useful.
（7）Information Disposal
This is somewhat off the mainstream ofEnhancing Organizational Intelligence Thought Effective Information Systems Management

information-value augmentation but
important as the complementary process.
For, it is sometimes disadvantageous oreven dangerous to insist upon wrong andoutdated information. Therefore, there
would seem desirable to devise somediscriminatory mechanism to detect uselessor harmful information within theinformation system.
This is a part of organizational intelligencethat might be called organizational
11unlearning'', which is essentially the
antithesis of organiza­t ional learning. It
might enable the organization to free itself
from the fetters of old, fixed idea and excite
its innovative organizational intelligence.

3.2 Systems Thinking for Effective
Information Systems Management
At the basis of any systems management
lies systems thinking. Some of its aspects
especially relevant to our current discussion
may be as follows.
（1）Priority-Ordering
Systems thinking may be interpreted
along the following line.
i．A s y s t e m m a y b e d e f i n e d a s a ninteractive complex of multiple elementswith the common objective.
ii．The objective, of course, may be multidimensional dimensional.
i i i．T h e r e i s a u n i q u e c h a r a c t e r i s t i cmechanism defined by theinterconnection of elements.
iv．With such a characteristic mechanism
as the medium, each element is uniquelyconnected with the overall system.
v．A n i m p a c t , e i t h e r e x o g e n o u s o r
endogenous, is exerted upon a set ofelements.
vi．Such an impact propagates throughout
the system, generating various elemental
behaviors.
vii．Totality of such elemental behaviors
generates the overall system behavior.

13

viii．Judging from the overall systemevaluation measure（s）derived from thecommon system objective, each element
can comparatively be evaluated.
ix．Thus, priority-ordering among theelements can be achieved.
Such systemic priority-ordering would
indicate where to allocate the restricted
management resource（e.g. information
resources）in the organization. This, in turn,would enable the organization to achieve its
economy.
（2）Composite-Eyed Systems Thinking
The term “total system" is rather frequently
used in connection with information
systems management. Under the systems
thinking, any system has two-sidedness inthat on the one hand it is a subsystem ofsystems above it, but on the other it is asuprasystem of systems below it.
The term “total” would suggest that such
system has a precise, hierarchicallyinterconnected “order” , starting from the“total” all the way down to each element
via various subsystems.
It would appear to originate from themonotheism systems thinking whichprevails in the Occidental world. It is strictly
founded upon the monotheism with a
precise order with the God at the top.
The "total" system could be very
vulnerable to any abnormality in an element
or a subsystem. Such trouble would easily
propagate throughout（or at least over alarge part of）the system, and recovery fromit may be rather difficult.
The Japanese organizations operate in
the Oriental society where the polythetic orthe composite-eyed systems thinking would
seem to prevail. There, a number ofsystems, instead of one, would seem to be
put into the perspective. And in contrast to
the precise hierarchy of subsystems, what
are observed may be juxtaposition of a setof systems which are perhaps
heterogeneous and loosely-coupled with one

14

Journal of Systems Audits

another.
This would seem due to wisdom in oursociety which realize .the limitation of ourorganizational intelligence that falls longway short of rightly constructing a "total"
system and properly operating it.
（3）Non-Precise Systems Integration by
Loosely-Coupled Networking
In the previous section, vulnerability ofthe too tightly coupled "total" system waspointed out. And, furthermore, prevalenceof the loosely-coupled systems in theJapanese organizations was indicated.
Merits of such loosely-coupled
networking may be as follows.
i．Easy designability
Separate design of each system plus
loose coupling design would seem to beeasier and less costly than interconnectedsubsystem design.
ii．Damage localization
Even if a subsystem may incur abreakdown, damage can be made limited
because loose coupling keeps propagationof effects of damage local.
iii．Fast recovery
Since the damage of a breakdown islocalized and the restorative operations areneeded only for the broken-down
subsystem, quick recovery can be
expected.
All in all, loosely-coupled networking
would provide non-precise, non-rigid,
flexible set of systems with high resiliency（capability to recover）.
3.3 Advanced Organizational Intelligence
We may say that an organization isendowed with advanced organizational
intelligence whenever it has high and reliable
intellectual capability of organizational
problem-handling with appropriate decision­
making. Requirements for such advanced
organizational intelligence in relation to
information systems management may be thefollowing.

（1）Systems Orientation Revisited
Already the systems thinking basis for
effective information systems management
was somewhat elaborated. Therefore, only
some supplementary remarks follow.
i．Systemic perspective
This is essentially the perspective fromthe holistic viewpoint. In other words,
instead of the detail-oriented point of viewwhich tends to pay all­ round attention to"all" details, the system-oriented
perspective tries to pay concentrated
attention to the priority point which isdesignated on the basis of comparativeevaluation（in light of the objective）as towhich detail is really important.
ii．Structural thinking
Instead of considering each element
separately and independently, attention
should be paid to the structuralcharacteristics of the interconnection ofelements. The system structure would
essentially be determined by the identified
set of causal and equilibrium （dualdirected causal）relations, and this would
specify the static configuration of thesystem,iii．Dynamic thinking
This is to focus attention upon thegeneration of the overall system behavior
as the structurally-connected totality ofelemental behaviors in response toexogenous and endogenous）impacts thesystem. Sensitivity, stability and resilienceof the system would be the major concern
in such dynamic thinking,（2）Resources Orientation
It is essential to have appropriate
resources on hand in order to effectively
manage information systems. Of course,
both quality and quantity of resources
concern here.
Especially pertinent to the discussion
here is the information resources whichmight be classified into the following
categories:

Enhancing Organizational Intelligence Thought Effective Information Systems Management

i．Human resources,ii．Financial resources,iii．Computers and related technologies,
iv．Communication technologies, andv．Organizational intelligence.
For effective information systems
management, adequate information
resources management over the following
processes would seem to be indispensable.
① Procurement of information resources,② Maintenance of information resources,③ Improvement of information resources,④ Allocation of information resources,⑤ Evaluation of information resources, and⑥ Renewal of information resources.
Of course, one of the important roles ofsystems audit would be to contribute to（5）especially, and all the other processes
indirectly.
Particularly pertinent in this connection
would seem to be the problem of security
and control of computer network resources
and their component facilities.
（3）Rationality in Information Resources
Allocation
In the previous section, the resourcesoriented aspects of effective information
systems management was treated. Now, theperformance­ oriented aspects of suchactivity must be dealt with.
i．Organizational intelligence premises for
optimal information resources allocation
In considering the “effective” information
systems management, we very frequently
refer to the term "rationality". Rationality
here may be tentatively defined as "thepropensity to reduce the opportunity loss
as long as it exists."
The extremal rationality which logicallyassures the state of no opportunity loss
may be called optimality, and such state
the optimum In other words, the optimumis the state guaranteeing that there is no
more Opportunity loss or, what is the samething, no better chance overlooked.
Optimal organizational decision-making

15

that is so often referred to in economic
theory and OR/MS, presupposes very
advanced organizational intelligence orvery high informational capability
generated therefrom. Such premises may
be summarized as follows.
① Deep insight into the range of actionalternatives② Precise prediction as to whatconsequences follow each alternativeenvironment interaction.
③ High evaluative capability over eachpossibly multi-dimensional
consequence,④ High computational capability to makethe best choice from among theevaluated consequences in accordancewith the stipulated preference-ordering.
ii．Reality of organizational intelligence
Organizational intelligence postulated
for optimal organizational decision-making
would appear to be what the omniscient
God has. In this sense rationality
underlying such optimization might betermed omniscient rationality（Simon[5]）.
I n a c t u a l s i t u a t i o n s , h o w e v e r,organizational intelligence would seem tofall a long way short of what suchomniscient rationality asks for, mainly due
to the limited organizational intelligence.
And since the organization knows, or isconscious of, this fact, it would haverecourse to a different type of rationality －bounded rationality.
iii．Bounded Rationality in Information
Resources Allocation
Due to serious limitation in organizational
intelligence, effectiveness of information
systems management must heavily depend
upon bounded rationality in information
resources allocation.
Here is, however, a mutual amplification
relationship. Namely, it would seem
possible to raise the level of bounded
rationality by heightening organizational
intelligence. Especially pertinent here

16

Journal of Systems Audits
would be some effective measures ofbettering and expediting the organizational
learning process.
Conversely, it could be expected that
advanced organizational intelligence might
be brought about by realizing effective
information systems management, as thetitle of the present article suggests. As thedegrees of effectiveness（rationality）isheightened., the more advanced
organizational intelligence might begenerated.
Such mutual positive amplification may
bring quasi-optimality or even real
optimality in information systems
management.

4. New Concepts for Future Systems
Auditing for Management
Some proposals might be made concerninga set of new concepts that could be useful insystems auditing in the future, especially when
information for organizational innovation is inmind.
（1）Process Auditing
Instead of insisting upon auditing theoutcome of working of the organization, as
the conventional systems auditing does,
auditing the process itself might be addedor placed in the central position.
Of course, auditing all the processes
would be infeasible due to the resource
limitations. Therefore, proper selection ofstrategic points would be vital, anddesign procedure which would adequatelybalance the error of commission and theerror of omission must be developed. The
design of statistical sampling scheme insampling inspection trying to establish abalance between the producer’ s risk andthe buyer’ s risk, might provide some hint
for this purpose.
（2）Experimental Thinking
An experiment, mostly carried out in thenatural science areas, is used to establish a
causal relationship between variables byintroducing variations into one（cause）
variable and observing changes in another（effect）variable.
This is essentially the same with thespirit of contingency planning, and whattakes place there is a logical（in contrast tot h e " p h y s i c a l " i n n a t u r a l s c i e n c e s）
experimentation using a logical model.
Logical experimental thinking inmanagement has recently been madefeasible due to the introduction andprogress of mathematical thinking andcomputer technology. It would enable theexecutives/managers to experiment withvarious ideas of theirs, starting from theauditing information, to see what they mightbring up to the organization.
In this way, they might be able toartificially cultivate their feeling of, andinsight into, their own jobs. In the past, thiswas done using their own organization as
an experimental laboratory, under the risky
conditions where a failure could be fatal tothe organization.
（3）Opportunity Loss
This concept was already introduced
earlier. It is essentially a loss incurred byoverlooking an opportunity or by not doing
what should be done.
In whatever we do, we carry with us thepossibility of two types of error; namely,
i．Error of commission - doing what should
be not be done, andii．Error of omission - not doing whatshould be done.
In a baseball game, the former issomething like swinging at a ball andmissing for a strike called, and the latter isoverlooking a strike ball.
In the usual accounting and financial
information system, an error of commission
is very strictly recorded in the form of an
actual cost, whereas an error of omission
which is in the form of an opportunity cost
is not recorded. Consequently, the former
becomes the object of conventional

Enhancing Organizational Intelligence Thought Effective Information Systems Management

auditing, whereas the latter slips out.
Opportunity loss or cost would indicate
where a breakthrough for organizationalinnovation might exist. Therefore it is a very
useful and important trigger for the
innovative organizational intelligence.
Specification and measurement of an
opportunity loss or cost, however, may not
be easy, because it is defined strictly inconnection with a particular “system” . So,
a very clearcut system specification ispreprequisite.
At any rate, future systems auditing must
deal with the concept of opportunity loss oropportunity cost, if it is to somehow
contribute to organizational innovation andstill further to management in general of the
future organizations.
（4）Disposition for Optimization
In view of the very limited organizational
intelligence in reality, most of the decisionsin actual organizations, and in actual lives
for that matter, would seem to be made on
the basis of the satisfying criterion; that is,human motivation for making a gooddecision is high until a certain "satisfactory"
aspiration level（a goal）is achieved（orf o r e s e e n t o b e a c h i e v e d）, b u t s u c hmotivation is lost as soon as the prospect ofgoal attainment is seen. This is perhaps thereality of organizational decision- making.
Disposition for optimization, namely
attaining optimality, would ask for further
effort beyond the attainment of the for-thetime-being satisfactory goal. Here, theconcept of opportunity loss comes in. Thatis, disposition for optimization always
assumes the existence of opportunity loss;
in other words, it is always unsatisfied, until
the optimality is achieved.
In reality, however, organizational
intelligence is not so high. Therefore, it isdifficult to carry out real optimization. But
as was stated earlier we might be able toadvance organizational intelligence byimproving and expediting organizational

17

learning and thus enhance organizational
adaptation of the organization. Thus, wemight reach the state of “quasi-optimation”
Of course, if the situation permits, we canapply the OR/MS methodology toorganizational problem-handling. And we
may be able to inlay a number of
optimalities here and there in a system, forthe totality of which we may be satisfied
with the quasi-optimality.
（5）Post-Optimality Analyses
If we are lucky enough, we may be able
to employ a certain powerful OR/MS
technique such as linear programming（LP）.
And if we are further lucky, we may havean organizationally viable model which has
obtained a reputation to be reliable anduseful. In such a fortunate case, we cancarry out a number of interesting
experiments.
i．Sensitivity analysis
We may try a set of "if-then" typequestioning by introducing all sorts ofvariations into the model and observe
what happens to various points in themodel.
ii．Opportunity auditing.
For instance, let us suppose that an oil
refinery product-mix planning has beensuccessfully incorporated ted into a linearprogramming model, and that the optimal
production plan has been calculated
toward the objective of profitmaximization.
The usual auditing procedure would
compare the actual performance at the endof the period, say a month, against theplan, which may be termed the ex anteo p t i m u m（F i g .3）. T h e d i f f e r e n c e ,however, would seem to contain two errors
mixed; namely,① Error in predicting the demand,
committed by the planning division, and② Error caused by inappropriate measuresin operation, committed by the refinery.
Thus, the divide of responsibility

Journal of Systems Audits

18

between the planning function and theo p e r a t i n g f u n c t i o n i s n o t c l e a r, a n dconsequently, familiar mutual blaming.
Now, we propose the new concept of theex post optimum（Fig.4）. It is calculated
by substituting into the LP model in theactual（observed）values instead of thepredicted values used in the ex ante
optimization. It would mean that, eventhough the environment was more severe
than predicted, this much could have beenachieved if the refinery had functioned
properly. That is, the difference that wasprovided by the conventional auditing could
be divided into two; namely,
a．Difference between the ex ante optimum

and the ex post optimum: responsibility（due to prediction error）of the planning
function, andb．D i f f e r e n c e b e t w e e n t h e a c t u a lperformance and the ex post optimum:
responsibility（due to operation miss）of
the operating function.
In a word, the ex post optimum would
provide the divide of responsibility
between the planning function and theoperating function.
iii. Repercussion Study
Even though the optimality derived
from an OR/MS model is the mostdesirable for the system which the model
represents, when the result is introducedPlan㻌 =

ActualPerformance
ActualPlan㻌Ex=Ante
Optimum
Ex AnteOptimum

Performance

Total
Difference

Total
Difference

Fig.3 Conventional Auditing Scheme

Plan㻌 =Ex AnteOptimumPlan㻌 =Ex AnteOptimum

Ex PostOptimum

ActualPerformance

Ex PostOptimum
Difference
due to Planning㻌
Responsibility

Difference
due to Planning㻌
Responsibility

Difference
due to Operating㻌Responsibility

Total㻌
Difference

Difference
due to Operating㻌Responsibility

Fig.4 Auditing Scheme Using Ex Post Optimum

Total㻌
Difference

ActualPerformanceEnhancing Organizational Intelligence Thought Effective Information Systems Managementin the organization, something undesirable
might happen somewhere in theorganization. In this kind of case, very
careful post­ optimality analysis must be
made by tracing through the repercussion
effects within the organization in responseto the impact of introducing the model
result. And due judgement must be madeas to whether introduction of such a
locally optimal system is, from theviewpoint of the overall system, reallyadvantageous or not.
This caution should be taken in any caseof introducing a new system into theorganization as the outcome of systems
auditing.
Concluding Remarks
Orientation of systems auditing in the present
paper has been that of "for management oforganization" throughout. In consequence,technicalities of the subject have largely beenslighted.
It is firmly believed that the concept oforganizational intelligence is of great use bothin organization theory and in management
practice. It is proposed to rewrite organization
theory, so to speak, which may be interpreted
as the theory and policy of intelligenceaggregation of human and machine. It is also
proposed to enable executives/managers tocomprehend the functions of human andmachine and so to duly position and evaluate
information systems in their proper and useful
relationship with human employees in theorganization.
Systems auditing in this era of global
networking should be able to specify andmeasure such kind of opportunity loss or costthat may incur in the cases of breakdown, forinstance, so that the criteria for responsibility
sharing and the breakthrough points for future
development and improvement may beclarified.
It is essential to point out in this way whereorganizational innovation may be possible for19

the future leap of the organization. Indeed, itis the royal road of enhancing organizational,
and furthermore, interorganizational andsupra· organizational intelligence.
***
Takehiko Matsuda is President of Sanno
College in Kanagawa, Japan and President of
the Japan Society of Systems Audit. He hasadvanced degrees from Tokyo Institute ofTechnology and Carnegie-Mellon University.
References[1] M a t s u d a , T. : T h e J a p a n e s e Wa y o f
Management, in: Haley, K.B.（ed.）, OR'78（North-Ho11and, 1979）, pp. 747-761.
[2] Matsuda,T.: Strategic Informatics andOrganizational Intelligence, SANNO College
Bulletin. Vol.8, No.1（1987）, pp.1-15.
[3] Matsuda,T.: OR/MS, its Interaction withand Benefit from Japanese Organizational
Intelligence, OMEGA（The International
Journal of Management Science）, Vol. 16,
No..3（1988）, pp. 233 -241.
[4] Matsuda,T.: OR/MS and Information
Technology for Higher Organizational
Intelligence, OPSEARCH（Journal of the
Operational Research Society of India）,
Vol.25, No.1（1988）, pp. 3-28.
[5] S i m o n , H . A . : M o d e l s o f B o u n d e dRationality: Behavioral Economics andBusiness Organization, Volume2, The MIT
Press（1982）.
[6] Wilensky, ,IlL: Organizational Intelligence,
Basic Books（1967）.