This posting on the Exponential Organisation is taken from the book on the new organisations by Salim Ismail.
Here is a classic tale of disruption:
- Jan 2007: Steve Jobs releases the first Apple iPhone.
- Two months later: Nokia buy Navteq for $8.1 billion. A high tech road mapping and tracking system with in-road sensors, software and communication tools.
- 2006: Ehud Shabtai initiates “FreeMap Israel”, a crowd-sourced project, to create a community-based map of Israel with free content, update and distribution.
- 2008: FreeMap Israel is commercialised as “Waze”.
- In two years Waze collects as much road info as Navteq.
- In Four years Waze has 10x as much data as Navteq. While Navteq carry the cost of maintaining and upgrading sensors, Waze leave the cost of upgrades to iPhone users who regularly upgrade to the new version offered by Apple.
- Even acquiring Trapster which used smartphone information to warn users of the location of speed traps cannot save Navteq.
- Waze is acquired by Google in 2013 for $0.996 billion plus 1.2 million for each of the 100 employees.
- Microsoft acquires Nokia In 2014 for $7.2 billion.
- Navteq becomes a collector’s item (sort of).
Waze is a good Exponential Organisation story.
According to Salim Ismail, an Exponential Organisation is one whose impact or output is disproportionately large (at least 10x) compared with its peers due to the use of new organisation techniques that leverage accelerating technologies.
In StrategyWorks we have found Strategy Map to be an excellent tool to create, document and update the strategy or operating plan for an organisation. It seemed therefore to be a good idea to show the characteristics of the Exponential Organisation as entries on a Strategy Map. The one-page version looks like this:
Financial Targets in the Exponential Organisation
The exponential organisation contributes massive long-term shareholder value through growing revenues from repeat business from existing clients as well as exponential growth of the client base. At the same time the strategy for leveraging rather than owning assets and automation of processes reduce the cost per transaction as the number of transactions increases.
The Offer of the Exponential Organisation
The Exponential Organisation offers the following characteristics:
- Low Price: There is a drive to demonetise each transaction.
- High Value: The value makes the choice easy for new and current customers.
- Ease of business: Customers find it really easy to transact.
- High flexibility: As the offer matures, customers experience more clarity and greater scope in their offer.
- Focussed functionality: Customers are clear on the functionality they are offered.
- Inspiration leading to a self-sustaining community: The offer is so inspiring that a community grows around the offer. The community takes ownership of the brand.
- A brand which owns the purpose and continues to grow: The brand name enters common usage. We hear “Google it”, “take an Uber” “You must listen to the TED talk on … ”.
Internal process of the Exponential Organisation
The areas of performance required to present the offer are as follows:
Operations: Leveraged assets – part of procurement
the Exponential Organisation shares, rents and leverages assets. They don’t own assets. This has created an industry in which companies such as TechShop in Silicon Valley offer the use of High-tech equipment, just as we use the equipment at a gym. TechShop collects expensive manufacturing machinery. Subscribers pay a small monthly fee for unlimited access to these assets.
Operations: Dashboard based management
Management is based on self-organising teams who manage themselves and record key measures on their team dashboards. The dashboards are established as a component of the Information Capital described below.
Customer management: User Engagement
Users are engaged through focussed, information-enabled, elaborated and socialised loyalty tools. Engagement is now a highly paid and focussed industry. Companies of “Attention Engineers” focus on how to hook customers using gamification and the promise of the next dopamine hit.
Innovation is driven through an agreed process for scanning the environment, reflecting on new information, creating and implementing new offers. Zappos CEO, Tony Hsieh says, “A great brand is a story that never stops unfolding”. Experimentation is an agile process through which companies take on the risks to leapfrog the industry. Successful steps are banked and failure is used for learning.
Regulatory and social: ** No Key areas of performance **
There are no intentions specified under this theme covering good corporate citizenship. This is not to say that companies do not have their own governance but recent upsets in the social media world perhaps make this a significant omission.
Learning and Growth in the Exponential Organisation
Human Capital: Staff on Demand
In the past, successful organisations hired staff, held them tightly in stifling hierarchies and paid them for their time. Performance was evaluated by supervisors. These days are over. The half-life of a skill used to be thirty years. Now it is more like five. A permanent, full-time workforce, with lagging skills management requirement is fraught with peril for today’s responsive organisation.
Diverse, mobile staff cut costs for delivery and bring fresh ideas.
Organisations such as Gigwalk, oDesk and Roamler are emerging to make staff available to the Exponential Organisation, as and when they are needed.
Human Capital: Community and Crowd
The Exponential Organisation builds online communities around their offer. These ‘trait-based’ communities share intent, belief, resources, preferences, needs, risks without depending on physical proximity. Chris Anderson has built a community called DIY drones who have been able to design and build a drone, very (98%) similar to the Predator drone used by the US military. The Predator costs $4 million and the DIY drone $300.
This layered skill structure has at its core, teams and personal networks and how they work with the rest of the community. These are not simply transactions but peer to peer engagement. The crowd is everyone else who can be drawn into the endeavour.
This new approach to supplying skills to the organisation requires new models of leadership to hold people accountable for delivery without any authority over them.
Information Capital: Algorithms
Running core interactions on algorithms rather than human intervention allows organisations to scale dramatically. With machine learning organisations perform new, unseen tasks based on known properties from historic data. Deep Learning algorithms running on neural networks learn patterns through discovery and self-indexing. These Deep Learning algorithms can play video games by identifying rules and optimising performance. In a recent test two chess novices won a chess tournament against teams of machines and teams of chess masters by using Deep learning programmes to assist, rather than specify decisions.
This strategy is supported by organisations such as Algorithmia where companies can present their algorithms for improvement by external teams.
Information Capital: Interfaces
Communities may number over a million people, spread across the globe. Collecting and collating data, then ranking and directing tasks to the community is done though automated interfaces. These workflows may begin as manual processes but are gradually automated to the point where no manual intervention is required.
Google AdWords is a fully automated, multibillion dollar business. Uber manages an army of drivers. Airbnb manages the rooms. TED manages strict guidelines to help franchised TEDx events maintain a consistent quality.
Information Capital: Dashboards
Exponential organisations create a real time dashboard showing the key measures they use to manage their business. These dashboards are based on data-collection and reporting algorithms. Measures are specific, precise and given in real-time rather than annually or quarterly.
Walmart launched its own geostationary satellite to track inventory and supply chain transfers in real time In other words they know exactly what stocks are at what levels on shelves, stock-rooms, hubs and in transit. And no doubt, they have algorithms calculating rates of sale and requirements for replenishment. As a result of this technology Walmart outperformed other chains by 15%, which in retail is staggering.
Information Capital: Social Technologies
Exponential organisations are using social technologies to:
- Bring the collection and, collation of data closer to the decision making processes using this information.
- Make information part of a process rather than looking up reports.
- Leverage the community to develop ideas.
Organisation Capital: Autonomy
Exponential organisations have removed the hierarchy and operate using self-organising, decentralised, multidisciplinary teams. Companies such as Valve, Morning Star, Zappos.com and FAVI have no hierarchy or personnel department. The overall outcome is more flexibility, a greater response to market changes and higher revenue per employee.
Organisations adopting this approach include W.L. Gore and associates, Southwest Airlines, Patagonia, Semler, AES, Buurtzorg and Springer.
Clearly the Exponential Organisation depends heavily on Information Capital. And Exponential organisations have a whole new approach to engaging the skills they draw in to carry out the essential processes. If you are not on the exponential journey it may be worth asking yourself why not. Then you may wish to glance over your shoulder to see who is coming to tuck into your breakfast.