Here are two trends that all CXOs need to know: First, the shelf life of an enterprise’s competency is declining rapidly, down from 30 years in 1984 to just 5 years in 2014. The second is that while most CXOs are committed to digital transformation, studies indicate that many are struggling to align investments, organizational adjustments, and priorities. Yuri Van Geest, the founder of Singularity University in the Netherlands, believes that only exponential organizations (ExOs) can truly reap the rewards of the new digital paradigm.
Notably, more than half of the Fortune 500 companies in 2000 ─ entrenched market leaders with years of experience and expansion under their belts ─ have disappeared from the list, either permanently or else they’re reemerging on the peripheries of their vertical with a complete strategic overhaul, like Blackberry and Nokia.
Typically, these types of companies fell short in one or more of the following areas: anticipating customer trends, the agility to quickly change business models, a top-down commitment to a digital future, or implementing the right technology strategies at the right time.
That’s why millennials know names like Netflix but not Blockbusters, Instragram not Kodak, and Amazon instead of Sears.
According to Van Geest, “An exponential organization is a new kind of organization that’s at least 10 times faster, more efficient, or more effective than a classic linear organization.” An ExO’s impact is disproportionately large because it adopts an organizational design that’s lean, asset-lite, decentralized, and non-hierarchical, as well as exponential technology accelerators to scale up quickly and expansively.
IDEA and SCALE: The 10 key features of exponential organizations
The structural shift in organization that Van Geest advocates requires a significant change in mindset, especially for larger incumbents hoping to thrive under economic models such as XaaS and the shared and platform approaches, “First, you have to revitalize the core – it's hard, but possible,” he says, “But more importantly, you have to disrupt yourself on the edges.” By this, Van Geest supports a decentralized approach based on small, self-organizing teams with “the decentralized authority to make decisions.” Haier – the home appliance and consumer electronics giant – is a good example of this, having stripped away its middle management layer, reorganized its teams in China into 2,800 self-organizing units of seven employees, and focused its corporate culture on entrepreneurship and platforms, including letting customers take part in front-end design. In just three years, the company has increased its market capital from US$20 billion to today’s figure of US$60 billion.
Previously, vertical integration was the pinnacle of enterprise development; now it’s leanness and a much flatter structure that comprises one management layer rather than several. After all, self-organizing teams don’t require deep management hierarchies.
This structure also enables an enterprise to scale more rapidly through a staff-on-demand approach, expanding or contracting to meet real-time business needs with focused, target-oriented teams.
“These small teams will attack and complement your product and sales, and even disrupt your whole organization on the edges. That becomes your new mainstream business over time, your core,” Van Geest says.
In terms of enabling this level of transformation, Van Geest believes that a partner like Huawei can revitalize the core and “facilitate the backend and the growth and scalability of the small teams on the edges using its technologies - five to seven people at first.” Then, he says, “You become more successful, you globalize it, you scale it.”
The basic premise under which an ExO operates is an economy of abundance: Airbnb and Uber are classic examples, respectively leveraging an abundance of houses and drivers, without either company owning a property or fleet of cars. Both companies are in a position where they can scale up with resources and staff on demand, without needing to invest in, maintain, and run new properties or vehicles.
But, says Van Geest, this approach “requires a fundamental rethink [that’s] experimental at all the levels of the organization and all departments…which means new organizational structures, cultures, KPIs, employees, systems, and even processes. Let's say more AI-driven.”
AI algorithms are the key technology that Van Geest believes are at the heart of the exponential approach, both streamlining operations and providing an unprecedented level of service. For example, AI is a major ingredient explaining the success of the office software startup Slack. The company uses machine learning to optimize the communication, teamwork, and productivity its software offers. It has emerged as a growth juggernaut, attracting more than 1.7 million users, including 480,000 monthly US$8-15 subscriptions, in less than two years since its inception in 2014. And all without employing a single salesperson ─ referrals explain 97 percent of Slack’s customers.
“Engagement is a big part of an ExO’s DNA,” says Van Geest, “You connect with your extended crowd, from customers, to staff-on-demand, to detractors. You invite them to share creativity, ideation, validation and even funding.”
GitHub, a version control system for developers, is a prime example of the crowd and engagement approach in software development, with 14 million coders able to collaborate on 25 million repositories, jointly powering a company with a market capital of US$2 billion.
While AI sits as the core accelerating technologies for ExOs, Van Geest also emphasizes the importance of neuroscience, nanotech, quantum computing, and energy.
A crucial factor that has let ExOs flourish is the rapid advancement of these accelerating technologies, says Van Geest, with them “doubling in capacity every 18 months, lowering price and cost.”
Exponential technologies have become affordable in astonishingly short timelines
Lower costs in turn lower the entry barrier to markets, enabling startups with lean systems to use exponential technologies to provide products and services that previously only major players could deliver. And they’re often quicker. This is great news for consumers and innovation, but not so much for enterprises that are used to old business models and profiting from past trends – they’re now competing with faster, leaner, and younger startups.
It’s time for enterprises to rethink what they know and embrace a forward-looking vision that enables a fast, flexible, and scalable response based on the right technologies, mindset, and organizational structure.