An “exponential organization” as defined by Salim Ismael is a business model that is poised to take advantage from the digital revolution. It leverages the abundant nature of information goods to transform business models of any sector, even physical, manufacturing or brick & mortar based sectors.
Even traditional companies can harness the power of the digital revolution, change their direction and tweak their organizational structures in order to propel their business forward – instead of viewing the digital revolution as a threat, a head wind.
They can use it by changing their organization, their course and flexible exploring where customer value is – they can harness the power of the digital storm and sail.
Here is how.
The exponential business model
Salim Ismael and Yuri van Geest in their 2014 book “Exponential Organizations” suggest to adjust the business model by looking at 10 different drivers of the digital revolution. Each of these 10 drivers can and should be used by companies to adjust or revolutionize their business model.
Source: Salim Ismael and Yuri can Geest, 2014.
Massive Transformative Purpose
But before getting into the details of the 10 drivers, companies need to find one thing first: A massive transformative purpose (MTP). The use of each of the 10 drivers is negotiable and subject to the situation a company is in, but the need for an MTP is universal and mandatory.
A MTP is the higher, aspirational purpose of an organization, capturing the hearts and minds of those both inside (and esp.) outside the organization
A MTP gives the organization a common purpose that every action will be measured against. Examples:
- Red Bull: “Gives you wings”
- TED: “Ideas worth spreading”
- Google: “Organize the worlds information”
- Tesla:” Accelerate transition to sustainable transport”
MTP provide the “power of the pull” to companies. It provides an “emotional salary” to every one working for or doing business with the company.
A MTP is a variation of a “mission statement” or a “vision”: It stresses transformation and purpose in a very condensed statement, thereby being memorable and allowing emotional attachment. It is a tool to create common purpose even in outsiders of the organization.
A MTP allows a company to attract missionaries. An organization without an MTP will only attract mercenaries.
SCALE – the external 5 factors of exponential organizations
The first 5 factors focus on the way the organization is interacting with the outside. These factors help the organization to cope with external uncertainty (Staff on demand, Algorithms and Leveraged assets) or to create ideas (Community & Crowd, Engagement, Staff on demand) and enable growth by being able to scale.
Staff on demand seems not very appealing and even in contradiction to an organization based on a high minded “Massive transformational purpose”. Part time workers, mercenaries, recruited just for certain tasks, this smells like outsourcing: It might be efficient for certain tasks, but is it vital to an exponential organization?
It is, if the organization needs to attract very rare and specialized skills for critical, yet limited tasks. Without the capability to attract staff on demand, the organization will end up with second or third best skills or face high, fixed personell costs with a bad utilization of capacity. The thesis most companies are currently working on is described in a paper on the Future of work of the Aspen Institute in 2014:
The best way to harness human talent is through full-time, exclusive employment relationships where people are paid for the amount of time they spend at a common location. They should be organized in stable hierarchies where they are evaluated primarily through the judgment of their superiors, and what and how they do their jobs is prescribed.
This might not be true.
Community & Crowd
Given a Massive Transformative Purpose, the organization should get engaged with the outside. The smartest people do not work for you, they are out there and need to be engaged. If you capitalize on the “cognitive surplus” that a communicated MTP gives an organization, if you do things in public, people will find you.
Data is out there, to be used by the organization. An organization should rely on more data based, automated decisions by machines. Utilize Force 3: Big data.
Non ownership of assets might be the key to owning the future, as these assets can be scrapped and upgraded more easily – if they are available in the market. A prime example for a leveraged asset is Apple’s outsourcing of production to Foxcon. On the other hand, if assets are too scare in a market, ownership might still be better model, e.g. Tesla’s owned “gigafactory” of Lithium Ion batteries.
“Do something good and tell the story” is no longer enough. The customer/community/ crowd needs to be made an active contributor to the story so that the companies message is really coming through as it should: Not as a marketing message, but as a purpose.
IDEAS – the internal 5 factors of exponential organizations
With all the external engagement going on, internal stability, control and order is needed: When so much external activity is going on, the internal organizational structures must be set-up to remain in control and orchestrate this activity.
An ExO needs platforms to interact with the outside. For a traditional fashion retailer, for example, this might need access of customers to designs to give feedback or even to suggest new designs. All this feedback needs to be…
- delivered through a platform
- using standardized algorithms and API’s
- embedded in standard processes
This underpins the traditional case for a solid business backbone of standardized processes and systems, esp. one central ERP core delivering a source of truth for all transactions.
An interactive layer to customers without the capability to transact real business transactions is nice, but very limited in its impact on a company- see my earlier posts on Play the right game, IT! and Innovation-ready-IT: The way forward for IT.
In the example above, a customer suggesting a design is much more gratified by being able to order products influenced by his design then just a “thank you for participating” message.
All the informations gained by interacting with the outside world needs to be measured and analyzed in ever shorter cycles. Even more important, it needs to be acted upon. Salim Ismael argues to get rid of traditional goal seeing or annual reviews by implementing a technique for briefing and evaluating personell based on Objectives and Key results (OKR).
“Fail fast, fail often, while eliminating waste” is the credo of the lean startup movement. This scientific, data driven, iterative and highly customer driven approach to practical innovation is a corner stone for every company.
As hierarchical, tayloristic organizations are too slow and lack in innovation, new methods of organizing work is required – see my earlier posts: Tired of hierarchy? Try this or 9 reasons why your organization might be left behind.
In order to supplement hierarchical, vertical communication with horizontal communications from person to person, no matter which organizational unit or rank, social technology needs to be used. This is basically a sine qua non for team based, autonomous organizations.
Most people think of social technology as a bill board displaying personal info and posting and commenting contents, i.e. face book, linkedin etc. But in a business environment social technology is much more: According to J.P. Rangaswami (chief scientist of Salesforce):
Social technology has three objectives:
- Reduce the distance between obtaining information and decision making
- Migrate from having to look up information to having it flow into your perception
- Leverage community to build out ideas
Therefore social technology is not only a “business face book”, but a design principles for Information Systems.
Comparing traditional and exponential enterprises
Not every of the ten characteristics of exponential organizations is needed to succeed by every organizations. Some will succeed with just – say – 6 characteristics addressed, depending on their business model and sector. But the more SCALE and IDEAS characteristics are addressed the more they act together to enforce themselves, integrating and re-invigorating the company over time again and again.
That leaves the question: How can a large company in a traditional sector transform to an exponential organization?
Alas, this question has been answered in an earlier post: You are playing the wrong game! Learn to zone. A company needs to recognize which zones they are looking at. Not very stable part of the business needs to be disrupted for disruptions sake. However, management needs to learn different leadership styles- including a classical, hierarchical style to manage stable parts of the business and a dynamic, entrepreneurial style to successfully manage disruptive, exponential organizations.