By: Salim Ismail

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Salim Ismail wrote the book Exponential Organisations to teach us how companies whose impact is at least 10x larger than their peers and how their thinking is different than most others. 

Angel investor David S. Rose once said, “Any company designed for success in the 20th century is doomed to failure in the 21st.”

This is your roadmap towards preparing your business for what’s to come...

Understanding Moore’s Law and its Corollary

What is Moore's Law?

Moore’s Law basically states that the performance of computation will double about every eighteen months. This has held true for the last six decades.

Best-selling author, pioneering inventor and futurist Ray Kurzweil noticed an interesting corollary to this law, in that the doubling pattern applies to any information technology. Meaning when you shift to an information-based environment, the pace of development jumps towards an exponential growth curve, much like Moore’s Law.

The challenge in the business environment is that most experts will project growth linearly in times of exponential change. This becomes a problem in an environment where everything is information enabled, including your industry. The good news however, is that information-enabled environments deliver fundamentally disruptive opportunities.

There are two fundamental drivers of this change:

1. Some aspect of the company’s product has been information-enabled and thus, can take on the doubling characteristics of information growth; and
2. Thanks to the fact that information is liquid, business functions can be transferred outside of the organisation - to users, fans, partners or the general public.

So...what do we do about this transformation?

Have a Massive Transformative Purpose

One common finding in each of the Exponential Organisations was the presence of a Massive Transformative Purpose (MTP), which is also know as the aspirational purpose of the organisation. The authors use examples such as TED, whose MTP is “Ideas worth spreading,” and Google, whose MTP is “Organise the world’s information.”

The most important thing to keep in mind is that your MTP should be something that creates what organisational researcher John Seely Brown calls, “ The Power of Pull.” The Power of Pull is the ability to create a movement around the work that you do.

External Characteristics: SCALE

There are five external characteristics of an Exponential Organisation, which when you put together creates the acronym "S.C.A.L.E."

1. (S) Staff on Demand.
In an information-enabled business, a large internal staff seems increasingly unnecessary, counterproductive and expensive.

Freelancers and contractors used to be difficult to find and manage, but since the cost of finding them and tracking them now falls near to zero, no argument can be made against using them. You can get almost anything done in your business through a combination of "on-demand" platforms such as oDesk, Elance, TaskRabbit or any others that exist today. Also, consider this - by 2020 the world will have five billion people online who are available to work via smartphones, tablets or at Internet cafes, whenever and only if you need them.

2. (C) Community & Crowd.
Chris Anderson, the former editor of Wired Magazine and now the head of a community called DIY Drones (with 55,000 current members), points out, “If you build communities and you do things in public, you don’t have to find the right people, they find you.”

According to the authors this book, there are three steps to building a community around an Exponential Organisation:

• Use your MTP to engage early members, all of which will have similar passions.
• Nurture the community. Anderson spends three hours every morning attending to the DIY Drones community. This includes listening and giving back.
• Create a platform to automate peer-to-peer engagement. For example, Github has users rate and review each other’s code, while Uber has drivers and passengers rate each other.

The people you will attract will include employees, customers, vendors, partners, users and fans. If these are the people in your community, the people in the crowd is everybody else. One of the most obvious use cases for the crowd is to get those people to work for you. As Silicon Valley visionary Bill Joy famously said, “The smartest people in the world don’t work for you.” Ultimately, this will lead to an organisation that is not only much more agile, but better at learning and unlearning due to the diversity and volume of the flexible workforce.

3. (A) Algorithms.
Machine learning may sound scary, but it’s the future of business.

Google revenues in 2002 were less than a half-billion dollars. In 2012, they were generating that much every three days. At the core was the PageRank algorithm, which ranks the popularity of web pages.

There are two types of algorithms that are driving the next wave of growth:

(1) Machine Learning: the ability to accurately perform new, unseen tasks, built on known properties learning from training or historic data, and based on prediction.

(2) Deep Learning: a new and exciting subset of Machine Learning based on neural net technology. It allows a machine to discover new patterns without being exposed to any historical or training data. It operates in much the same way that a baby first learns sounds, then words, then sentences and even languages.

Deep Learning algorithms can even play video games by figuring out the rules of the game and then optimising performance. What’s coming is the disruption of white collar jobs that will eventually be replaced with machines.

Don’t believe it? Well, an analysis conducted by the American Psychological Association of 17 studies on hiring practices found that a simple algorithm beat intuitive hiring practices by more than 25 percent in terms of successful hires.

4. (L) Leveraged Assets.

The main idea here is to own only what’s critical to your business, and outsource the rest.

One of the biggest examples is Amazon Web Services, which allows companies to lease on-demand computing that scales on a variable cost basis. This completely transformed the technology landscape in ways that were previously unimaginable.

Right now there are competitors to your business springing up that previously would have needed hundreds of thousands of dollars just to begin operation. Now, they can easily start-up for a few dollars charged to a credit card.

The most famous example is Uber, which doesn’t own any of the mission critical assets it employs. All of the cars used to transport millions of riders around the world are owned by the drivers themselves.

Non-ownership is the key to owning the future, except when it comes to scarce resources or assets. When the asset in question is rare or extremely scarce, then ownership is a better option. But, if your asset is information-based or commoditised, then accessing it is better than owning it.

5. (E) Engagement.

User engagement techniques like sweepstakes and airline miles have ben around for a long time. But now that these techniques have been information-enabled and socialised, the power of engagement is being multiplied.

The key attributes of any engagement program include:

• Ranking transparency;
• Self-efficacy; 
•  Peer pressure;
• Eliciting positive rather than negative emotions to drive long-term behaviour change;
• Instant feedback;
  
• Clear rules, goals and rewards; and
  
• Virtual currencies or points.
  

These types of programs can be used to engage all of your stakeholders - including employees, your community and the crowd.

Internal Characteristics:

There are 5 internal characteristics of an Exponential Organisation, which when you put together create the acronym I.D.E.A.S.

1. (I) Interfaces.

These are algorithms and automated workflows that route the output of SCALE externalities to the right people at the right time internally.

For example, Uber uses interfaces and automated workflows to manage its army of drivers. Most critically, it’s algorithm matches the best/closest driver to a user location to ensure the best possible customer experience.

The best way to think about Interfaces is that they help to manage abundance. When you have to manage tens of thousands (or even millions) of external partners, you need a way to manage everything so it doesn’t fall apart.

Without these interfaces the Exponential Organisation cannot scale.

2. (D) Dashboards.

Now that there is so much information available, you need a new way to measure and manage the organisation. Ideally, this would be accomplished using a real-time, adaptable dashboard with all essential company and employee metrics, accessible to everyone in the organisation.

Scientific studies in neuroscience, gamification and behavioural economics have shown the importance of both specificity and frequent feedback in driving behavioural change and having an impact.

So, tracking the critical growth drivers of your business in real-time is critical to your success. This allows you to minimise exposure from error because of short feedback loops.

Sears/Kmart and Walmart are great examples of how shortening feedback loops can impact your business. In the early 1990’s, Sears and Kmart would batch up all point-of-sale transactions on a daily basis, and the results would only find it’s way to the head office after several weeks. Walmart, on the other hand, built a real-time inventory system that delivered this information much more rapidly. Ultimately, Walmart crushed Sears and Kmart and they never fully recovered after that. 

3. (E) Experimentation.

As John Seely Brown notes, all corporate architectures are set up to withstand risk and change. All corporate planning efforts attempt to scale efficiency and predictability, which means they work to create static.

In order to get to ideas that can help shape the future of your organisation, you need to fail fast and fail often, while eliminating waste.

Basically, you research the needs of your customers, and then conduct an experiment to see if a proposed product meets those needs.

As best-selling author Eric Ries says, “the modern rule of competition is whoever learns fastest, wins.”

For example, Adobe uses a corporate innovation process called the 5x5x5x5 method. Five corporate teams with five complementary team members compete for five weeks (one or two days per week), spending no more than $5,000 to produce one innovation. After that time, each team presents their product and findings, and the most promising projects move on to get more funding.

4. (A) Autonomy.

Give your employees room to do their best work. Teams with autonomy are self-organising, multi-disciplinary and operating with decentralised authority.

Valve Software is a great example of "teams with autonomy." They have a staff of 330, but no classic management structure, reporting lines, job descriptions or regular meetings. Instead, the company hires talented, innovative self-starters, who decide which projects they wish to join. They are also encouraged to start new projects, as long as they fit within the company’s MTP.

A growing trend in Autonomy is called Holacracy, which is a system of organisational governance where authority and decision making are distributed through self-organising teams rather than being vested in the top of a hierarchy.

A famous example of this is Zappos.com, which has 4,000 employees and is an online retailer geared towards shoes and clothing. Everybody in the company is encouraged to make decisions on their own, and to always make them with the best interest of their customers in mind.

5. (S) Social Technologies.

J.P. Rangaswami, the chief scientist at Salesforce, views social technology as having three key objectives:

1. Reduce the distance between obtaining information and decision making;

2. Migrate from having to look up information to having it flow through your perception; and

3. Leverage community to build out ideas.

The authors view social technologies as having seven key elements: social objects, activity streams, task management, file sharing, telepresence, virtual worlds and emotional sensing.

While it might be a daunting task to figure out how all of these pieces fit in with your current and future business strategy, the business benefits you can expect from these elements are faster conversations, faster decision cycles, faster learning and the stabilisation of your team during rapid growth.

Conclusion

There is an enormous shift occurring right now, and you and your entire industry will be transformed by it. It’s not a matter of “if," but “when.” Learn what you can now about how Exponential Organisations are making the change, so that you can end up on the right side of history.