BRAINBOARD

Exponential organizations: going fast and furious

Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)
Frost & Sullivan’s 2014 Growth, Innovation, and Leadership Book of the Year.

In business, performance is key. In performance, how you organize can be the key to growth.

In the past five years, the business world has seen the birth of a new breed of company―the Exponential Organization―that has revolutionized how a company can accelerate its growth by using technology. An ExO can eliminate the incremental, linear way traditional companies get bigger, leveraging assets like community, big data, algorithms, and new technology into achieving performance benchmarks ten times better than its peers.

Three luminaries of the business world―Salim Ismail, Yuri van Geest, and Mike Malone―have researched this phenomenon and documented ten characteristics of Exponential Organizations. Here, in EXPONENTIAL ORGANIZATIONS, they walk the reader through how any company, from a startup to a multi-national, can become an ExO, streamline its performance, and grow to the next level.
event-berkeley-startup-cluster-berkeleystartupcluster-dot-org-2012-02-14-salim-ismail-singularity-university-singularityu-dot-org-global-ambassador-conversation-1Linear growth won’t do any more. The future calls for something agile, something innovative. Something exponential! Learn about the Exponential Organization and how to turn yours into one.

Algorithms aren’t as scary as they sound. Search algorithms (a set of automated operations) made Google the world’s leading search engine. For ExOs, whose greatest strength is information, algorithms are important components of business.

If you are planning to start a company in the next few years, I cannot think of a more important book to read than Exponential Organizations: Why New Organizations are Ten Times Better, Faster and Cheaper Than Yours (and What to Do About It). If you look it up, you’ll see my name appended to it; but trust me: this book is the achievement of its primary author, Salim Ismael. The vision is his, the examples are his and the diagnostics are his…I was merely along to bring some industry memory and editing chops.

Salim, as you may know, is the former CEO of Singularity Institute, that Silicon Valley think tank/incubator created to realize inventor Ray Kurzweil’s dream of the ultimate merger of man and computer—but ultimately has specialized in thinking about the Next Big Thing in technology, culture and organizational theory. Lately, Salim has enhanced his reputation by becoming a very popular consultant to major institutions and governments around the world.

On the one hand, you can see exponential organizations as a radically new model for how businesses should organize and compete in a world of social networks, global broadband, the Cloud, Big Data and 3D printing. On the other, the book is the direct descendent of a long line of books about technology and business organization dating back four decades, beginning with Theory Z and Good to Great in the ‘80s and ‘90s, including The Virtual Corporation (by Bill Davidow and me) and, most recently, my The Future Arrived Yesterday (the reason Salim asked for my help) about the “protean corporation.” In each case, these books, and the organizational models they promoted, tried to find the balance point between the current demands of Moore’s Law and rapid technological (and ultimately cultural) change with those features of human nature—loyalty, pride, competence, personal contact—that survive through any external change. With each passing year, finding that point becomes an ever-greater challenge.

For Salim Ismail, this challenge is more difficult than ever. These days, companies are born with little more than an idea, assemble almost overnight among strangers, introduce new products and services without time for prototyping or field testing and can sometimes scale up to 10 million users before they can put a proper sign out front of their tiny headquarters or get business cards to their employees (who may only total to a couple dozen people even at this point).

In Salim’s view, these are not just very fast-growing companies, but something fundamentally new: exponential enterprises, built (if that is even the proper term anymore) to grow at 10X that of their competitors. That’s impressive enough; but when you consider those competitors, particular in tech, are already among the fastest growing companies on the planet, the notion becomes mind-boggling. Yet, Salim not only believes this can be done, but fills the book with examples of companies, such as Uber and Airbnb, that are doing just that. Moreover, rather than dismissing large, established companies as being incapable of keeping up with such a blistering pace, Ismail points out how, even if they can’t totally change, they can certainly do so in key operations—such as by crowdsourcing product design. His examples include such corporate dinosaurs as General Electric and Coca-Cola that are experimenting with radically new business models.

True exponential organizations have to accelerate in every way, so that no component of their operations slows them down—otherwise, they will never reach that 10X goal.

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How do they do it? Simply put, they virtualize or leverage everything. That is, they rent or hand off or enlist outsiders to do every traditional task that requires either more employee overhead or more invested capital.

You’ve heard much of this before, but not to this extreme. Manufacturing? The world is full of DIY shops with state-of-the-art equipment—use them, instead of buying your own. New product development? Engage your user community through incentive prizes and gaming to do the creative work for you. Marketing? Apply machine learning and algorithms to analyze and predict, and build powerful dashboards to track progress. Employees? Staff on demand and distribute authority. Growth? Grow the company through your community, not through hiring.

If that sounds a bit crazy, so did management by objective and flattened org charts when Hewlett and Packard first introduced them and so did global virtual workteams when Intel and Cisco first tried them. What Salim understands is that new technology never exists in a vacuum: ultimately it creates a social imperative, which usually has its first and greatest impact on industry and work. When one billion people can sign on to a new web-based service with the tap of a finger, and then build entire lives and personas on that service (i.e. Facebook) by their own efforts using tools provided by the company (itself smaller than a machine shop of a century ago), all the rules we know are pretty much out the window, whether or not we want to admit it.

Exponential organizations are real, says Salim, they are already forming around you. So why not embrace the concept wherever you can? It’s that or wait until one runs over you on its way to market leadership. And if you are starting a company, like many readers of this magazine, why not build from the start toward this new model rather than using the increasingly obsolete tools and rules of the past?

Is Salim right in his predictions? I think for the most part, yes. There will always be unexpected turns of history—new technologies are a big one—that will modify his model in the years to come. Davidow and I thought the virtual corporation would take at least ten years, until the arrival of the internet made it happen in less than two. But it is hard to disagree that the technological imperative will drive progressive businesses and other organizations towards something like this, and in the very near future. And that means you should at least have an idea of what’s coming.
Needless to say there is a lot more in the book than can be explained in a single column. But let me leave you with nine of Salim’s key points that underlie the arrival of the exponential organization:

ExponetialOrganizations

1. Information Accelerates Everything—Just wait until the Internet of Things enters daily life.
2. Drive towards Democratization—Trust your employees, empower them, and reward their success.
3. Disruption Is the New Norm: Moore’s Law continues to accelerate; everything will continue to change ever faster.
4. Beware the “Expert:” In times of radical change, experience is not necessarily an advantage.
6. Smaller Beats Bigger: The old rule of mass no longer applies; nimble now triumphs.
7. Rent, Don’t Own: You can no longer afford to be tied down by fixed cost.
8. Trust Beats Control and Open Beats Closed: The tighter you hold anything the more likely you are to lose it.
9. Everything Is Measurable and Anything Is Knowable: Not entirely true, but a good philosophy to build your company by.

Sources:
+ Michael S. Malone is the author of the Intel Trinity, named the best business book of 2014 by 800ceoread, a major reviewing service.

+ Read more about what make ExOs the wave of the future and what makes them tick in Salim Ismail, Michael S. Malone, and Yuri van Geest’s The Exponential Organization.