Review of Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours.
We’re enthralled by them: Facebook, AirBnB, Snapchat, and many other companies that seem to rocket to astounding market valuations and global impact in no time. Salim Ismail, and his co-authors Michael Malone and Yuri van Geest, call these organizations “exponential”. This brief book makes the case that these sorts of organizations use modern techniques unavailable until now to build their businesses. These techniques qualitatively transform those organizations. Companies that fail to adopt at least some of these techniques are likely to struggle if not become obsolete. The good news is that there are many other emerging firms that aren’t in the news but still are leveraging these same approaches to grow faster and more efficiently than peers or incumbents.
The authors define an exponential organization (ExO) as “one whose impact (or output) is disproportionally large — at least 10x larger — compared to its peers because of the use of new organizational techniques that leverage accelerating technologies.”
The primary mover for ExOs is Moore’s Law, the observation by Gordon Moore in the 1960’s that the density of transistors on semiconductors was doubling every 18 months or so. In this way, the cost of computing is dropping exponentially fast. It turns out that anything that is touched by computing is being transformed, now at accelerating rates. Companies need to understand this and avoid the fate of so many that have failed to see the coming changes.
Computing technology is revolutionizing markets like 3D printing, robotics, drones, solar (and other renewable energy sources), sensors, biotech, nanotech and others. In many of these, costs are collapsing by factors of hundreds if not 10’s of thousands in just a few years. Traditional industries are not just threatened with new competition but with complete destruction. So, what can be done? Enter the Exponential Organization.
First, the ExO embraces a Massive Transformative Purpose (MTP) — an organization’s higher purpose that goes beyond a mission statement. One such example is Google’s “Organizing the world’s information”. Further, ExO’s scale outside their organizations by leveraging people, assets and platforms. In particular, they think outwardly by practicing SCALE:
- S — Staff on Demand. Take advantage of talent that isn’t in your own organization; outsource; use external sources for innovation and creativity.
- C — Community and Crowd. Build your community and use crowds to help make better, faster decisions.
- A — Algorithms. Use AI and machine learning to remove the biases from decisions and processes.
- L — Leveraged Assets. Don’t build what you can rent, including computing resources and other hard assets.
- E — Engagement. Exploit the desires of people to become part of an MTP by engaging them in a higher purpose.
Additionally, ExO’s develop inwardly by practicing IDEAS:
- I — Interfaces. These are the tools and practices by which external SCALE techniques can match up with and help the internal ones. The best interfaces provide friction free collaboration between the external and internal.
- D — Dashboards. Develop easy ways for measurements, progress and insights to be captured and shared within the organization. A useful approach is to use OKRs, Objectives and Key Results.
- E — Experimentation. Use careful iteration with no fear of failure to accelerate the learning process.
- A — Autonomy. Empower people to self-organize and work in a decentralized way. Practice polyarchy.
- S — Social Technologies. Employ sharing and communication tools.
The main implications of ExO’s are:
- Information accelerates everything. As the value added to most products and services becomes more weighted towards information, the power of computing is brought to bear.
- Drive to demonetization. As information becomes more core to products, the marginal cost of products approaches zero. This destroys many legacy business models.
- Disruption is the new norm. No industry remain safe from fundamental threats for long.
- Beware the expert. Instead, data and the data scientist is now king!
- Death to the five year plan. Planning ahead more than a year is an exercise in futility. Embrace an MTP and dashboards instead.
- Smaller beats big. Large, incumbent organizations are at a disadvantage in a dynamic world.
- Rent, don’t own. In most cases, it’s better to rent assets to maintain flexibility.
- Trust Beats Control and Open Beats Closed.
- Everything is Measurable and Anything is Knowable. Because almost all products are information based now.
To become an ExO requires first articulating an MTP. Though easier said than done, the MTP derives from solving the biggest problem an entrepreneur envisions. Next, define the big ExO idea, which should have the following characteristics:
- Achieve a minimum 10x improvement over the status quo.
- Use information to cut the cost of marginal supply (i.e., the cost to expand the supply side of the business should be minimal).
- Pass the “toothbrush test” originated by Larry Page: Does the idea solve a real customer problem or use case on a frequent basis? Is it something so useful that a user would go back to it several times a day?
Use the Business Model Canvas framework to define the business and business model. With that, validating the market, building the MVP, implementing SCALE and IDEAS, creating the organization’s culture and building the platform are the next steps.
Ismail et al. proceed to describe how mid-sized and even large enterprises can incorporate ExO practices into their organizations, for example by using an “explore while exploiting” strategy. The authors also describe how the top roles, the CxO’s are redefined in the ExO. For example, one new role is the Chief Data Officer.
Ismail et al. pull together many innovation and strategy concepts into a compelling, highly readable book that seems ready for immediate use. He leverages time-tested ideas familiar to students of business and strategy like “explore and exploit”, polyarchy, social proof, the Business Model Canvas, and others, in a fast-paced, up-to-date collection of to-do’s. It all seems very actionable. However, when the manager tries to actually implement any of the techniques and recommendations, it’s often a lot more difficult than the authors let on. Writing an MTP that isn’t corny or superficial is quite hard to get right. It goes without saying that Engagement or Community are also not easy things to implement, for either a startup or an existing company.
Sometimes, the authors get a bit swept up in their generalizations; for example, they simplify Moore’s Law and make overly bold claims like “it costs Uber essentially zero to add an additional car and driver to its fleet”. But these are small beer; the big ideas, Ismail et al. have certainly got right. For most companies, information is remaking their industry — to their peril. One thing the authors don’t explore is the industries that aren’t affected — are there any at all? If any, what makes them so? Finally, they don’t explore the societal consequences; is this headlong race to the singularity a fate we should embrace — or fear?
Ismail, S., Malone, M.S. & Geest, Y.V., 2014. Exponential organizations: why new organizations are ten times better, faster, and cheaper than yours (and what to do about it), New York, NY: Diversion Books.