What do The Guardian, Apple, TED, Zappos and Google all have in common?
They are listed in the top 100 exponential organizations, a new breed of company identified by Salim Ismail, Yuri van Geest, and Mike Malone in their book, Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it). These exponential organizations (ExO) are based on transparency and abundance and use technology to accelerate their growth.
“An Exponential Organization is one whose impact (or output) is disproportionally large – at least 10 x larger – compared to its peers because of the use of new organizational techniques that leverage accelerating technologies.”
ExOs digitize the physical, using technology instead of depending on large numbers of people or physical plants to grow or move quickly.
According to Salim Ismail, a typical consumer packaged goods company like Proctor & Gamble takes about 300 days to go from a new idea to a product on the shelf but Quirky – an ExO – does this in only 29 days.
Traditionally, businesses have been built using a scarcity model. Consider a restaurant with a world-class chef: the restaurant is limited by its number of seats, a chef is a person with limited availability. The business essentially sells access to the scarcity. But ExOs are turning this model upside down.
The basics of business mean that companies need to factor in the cost of generating demand and the cost of managing supply. Thanks to the Internet and online marketing, the cost of demand has dropped exponentially. ExOs are taking that one step further, and are dropping the cost of supply exponentially – either by tapping into the crowd or accelerating technology, or both.
For example, if Airbnb – an ExO – wants to grow, it has almost no marginal costs to add a new hotel room. But a traditional company like Hyatt would have to build or buy a whole new hotel. This difference – having both a low cost of demand and a low cost of supply – means that a business can really take off and explode, like it has in the case of Airbnb.
How to become an ExO
Salim cautions us: “You cannot take a big traditional organization and turn it into an exponential organization. It’s too radical a change.”
But all is not lost. Salim offers six pieces of advice for large organizations:
- Educate and transform leadership: Your leadership needs to be aware of the potential for major disruption in your industry. Educate your senior leadership – and make sure you include your board in this. “The board has to give the CEO cover to navigate this new world.”
- Inspire ExOs at the edges: Find the disruptive changemakers that already exist in your organization, take them to the edges and let them build and scale there.
- Invest/partner with ExOs: “In a world where startups are going to be the disrupters, if you’re a large organization you had better find those organizations and buy them, partner with them, copy them, invest in them or whatever. But figure out what they’re doing because they will eat your lunch otherwise – or get acquired by people who will then eat your lunch.”
- Leverage or expose data: Turn your business model into a data-oriented model. For example, banks can provide a large number of insights via machine learning to the outside world.
- Hire a Black ops team: Hire people to disrupt you to find your flaws. IDEO set up a team to disrupt them and the result was OpenIDEO, a marketplace for design ideas.
- Set up a GoogleX equivalent: If it’s good enough for Google… Use disruptive technologies (e.g. autonomous cars, Google Glass) and attack other marketplaces with it or create new markets.
Salim says some large companies are starting to embrace this new type of organization in interesting and surprising ways. For example, Amazon has created a new policy called “the institutional yes,” where the default answer to any new idea within the company is yes. If a manager wants to say no, they must write a 2-page paper justifying their decision and publish it publicly.
Another example: ING Direct in Canada has moved to a decentralized system with no management meetings, no reporting lines and no job descriptions. Instead, multi-disciplinary teams work together and do what’s needed when it’s needed. The result? While most banks in Canada manage about $10,000 in deposits per employee, ING Direct is managing $40,000 deposits per employee.
Linear, hierarchical organizations may have worked well in the past, for companies based on a scarcity of resources, but ExOs are operating in new ways that allow them to scale and find success.
“The communications abilities we have today, and the sharing and collaborative technologies via the Internet, allow us to operate in this new way and achieve extraordinary benefits as a result,” says Salim.
Curious to know more about Exponential Organizations? Come and listen to Singularity University EVP Carin Watson during Intrapreneurship Conference Silicon Valley.
Based on Carin’s work with large organizations at SU Labs, she will share the latest tools, techniques and organizational models that are helping even the most complex enterprises thrive in an exponentially changing landscape.