Here’s a strange thought: Not very long ago, vertical integration was the cutting edge of global business. Indeed, well into the last century, the companies considered to be at the forefront of innovation were those resting atop the largest and most sprawling networks of operation.
Today’s business leaders stake their success on the opposite model of development. Increasingly, “agility” is the determining factor of market competitiveness, “leanness” its new underlying impetus. The fear of being outmaneuvered in the digital age has sent even cumbersome corporate giants like General Electric scrambling to adopt methodologies from the startup community.
One of the last persistent hangovers from the previous mindset is the presumption of scarcity. For businesses operating under the notion that the resources available to them are fixed and at a premium, the goal has been and always will be to control as many stages of production and distribution as possible.
But the shift toward an economy of abundance is already under way. And it is only a matter of time before the broader business community reaches the understanding that the exponential organization not only offers distinct strategic advantages in today’s business world, it may very well come to define it. No one has quite captured the sheer magnitude of change, the reasons and how this change is impacting every industry quite as effectively as Salim Ismail, Executive Founding Director of Singularity University, and his team at Exponential Organizations.
Defining “Exponential”
The term “exponential organization” was first introduced and defined in 2014 by Ismail, Michael S. Malone and Yuri van Geest in their book Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, Cheaper Than Yours (and What to Do About It). The case examples and data provided below are from Ismail and his team’s expert insight and analysis.
Whereas linear organizations are necessarily constrained by limited resources, exponential organizations are governed by an assumption of abundance.
Hyatt, for example, is a typically linear organization — which isn’t to say that it isn’t also hugely successful. With hundreds of locations in dozens of countries, Hyatt is one of the most widely recognized hotel chains in the world.
But each time it wants to open a new location, Hyatt needs to build a new hotel, or buy a pre-existing property. It needs to hire cooking, cleaning and administrative staff. It needs to pay for renovations and maintenance, and any number of other periodic issues that may arise.
Growth is obviously possible within that framework, but it proceeds deliberately and, often, painstakingly, in a roughly linear fashion.
By contrast, Airbnb, the popular short-term real estate rental market, is designed for rapid, almost effortless growth. Its low organizational demands are inversely proportional to its huge business potential. Airbnb doesn’t own any property, but it has already accumulated over 1 million listings in more than 34,000 cities, and has been valued at $20 billion.
To say that Airbnb is exponential isn’t to say that its theoretical revenue literally has no ceiling. Nor does it necessarily imply that its pattern of growth follows an exponential curve in any mathematical sense.
Evolving as an exponential organization … is as much a necessity as it is a choice.
Exponential means that, among other things, Airbnb leverages abundance — in this case, an abundance of real estate. That orientation toward plenty, as opposed to dearth, multiplies everything else about the company’s underlying value proposition.
In the startup world, there’s already a word for this basic organizing principle: scalability. But scalability is a description, and a vague one at that. It doesn’t address the question of why some businesses can hold up under heavier demands and others can’t. That’s where the concept of the exponential organization comes in.
Exponential is a mindset, not an explanation. It’s a choice companies make. And scalability is just one of its natural results.
Why Make The Exponential Choice?
In the vertically integrated companies of the past, technological innovations generally served to reduce labor demands and increase profit margins at different stages of a given production chain.
But the pace and scope of technological innovation today has rendered vertically integrated companies almost entirely obsolete.
According to Exponential Organizations, the cost of 3D printing has dropped by a factor of 400 in the past seven years. Industrial robots cost 1/23 of what they did just five years ago. Drones are 143-times cheaper than they were in 2010, and sequencing the human genome is 10,000-times less expensive than it was in 2009.
Making these types of breakthroughs may still require intense research, development and testing — but taking advantage of them does not. The abundance of ever-cheaper, more powerful technology allows small teams with the right approach to accomplish feats previously only achieved within the province of governments and major companies — and to do so faster and more effectively than their bigger competitors.
From crowdfunding to big data analytics, the tools available to businesses have been diversifying and amplifying exponentially for years now. The incentives for businesses to utilize them have, too.
Uber is a prime example. By leveraging the abundance of available drivers and the power of algorithmic pricing software, the low-cost limousine service is supplanting traditional taxi fleets, with their endless costs and liabilities. And Uber CEO Travis Kalanick is doubling down on the “urban logistics fabric” that Uber is spinning across the globe, hinting at disrupting logistics across all industries, and launching food delivery pilot programs in Chicago and New York City.
But exponential companies aren’t simply more competitive. They’re also, in many cases, the only types of organizations set up for long-term survival.
Technological capabilities may be rising exponentially, but so are the demands presented by the so-called digital revolution. Given the continued penetration of mobile devices and mobile application software, and the advent of the Internet of Things, the sheer amount of available information presents potentially insurmountable challenges for manually dependent big data analytics.
What should be an abundance of data becomes an acute scarcity of actionable business insights within a linear framework. Only exponential organizations are structured in such a way that allows them to realize the full potential of the digitized business economy currently taking hold.
Evolving as an exponential organization, in that sense, is as much a necessity as it is a choice.