Exponential organizations: How to create them and why they spell success

The book Exponential Organizations from Singularity University argues that even though the information-based world is now moving exponentially, our organizational structures are still very linear (especially the larger and older ones). It is time to scale the organizational strategy, structure, processes, culture, KPIs, people and systems to transform the organizations into exponential organizations. The authors describe an exponential company as one whose output is disproportionally large because of some organizational characteristics that leverage information technologies.

The book especially points to the need for:

• A higher aspirational purpose for the organization;
• Real-time performance metrics accessible to everyone in the organization;
• Flat organizations, with self-organizing, multi-disciplinary teams and decentralized authority;
• Rapid prototyping, failure and adaptation;
• Collaborative tools that stimulate transparency and connectedness.

This book remains a clear representation of Silicon Valley beliefs, as summarized by Marc Andreessen: “In the future every company will become a software company.”

In addition, all examples used here refer to businesses selling digital products, internet-enabled services or software, such as Airbnb and Uber. These businesses scale precisely because their products are so scalable.

But what more should we consider to exponentially scale non-software companies?

To become an exponential organization, the authors suggest becoming a flat organization that assesses performance using real-time metrics accessible to everyone. In addition, teams should be self-organized and multi-disciplinary, functioning within a decentralized system. The online retail company Zappos is a pioneer in that respect, recently announcing its intention to become a holacratic organization. Innovative organizational structures also allow for constant experimentation with new ideas and rapid learning loops.

These crucial organizational characteristics could be complemented with installing the right values and style, building deep skills, a smart strategy, and the right incentives. Furthermore, the digitization of business is increasingly turning efficient processes into true learning systems, even within non-software companies. For example, General Electric embeds sensors in its products to constantly monitor performance and gather data for optimization. Most notably, data can be leveraged to get new insights about your customers and products, allowing for continuous improvement in the existing business and big strategic bets where required.

As more and more industries will embrace digitization, embedding intelligence will become widespread.

In addition to creating strong learning systems in both software-based companies and others, the process of digitization supports rapid scaling by increasing access or sharing of people, money, assets and resources instead of owning all these. This means leveraging the community and crowd for ideas, validation and funding; leveraging assets from customers, suppliers and competitors rather than owning these; and staffing on demand rather than from payroll. This is possible when the information on where to find and how to access these resources is available. The application Peerby shows how this can be done, by enabling neighbors to share underutilized items.

Hence, the essence here is not to exploit a so-called new world of abundance, but to exploit underutilized transparency to achieve exponential growth.

This book also discusses digital reputation systems, gamification and incentives that go viral. We would go further and postulate that the new scalable business models are those providing customers with tools and information on how to “Do-It-Yourself”.  Leveraging digitization and allowing for the fulfilment of an increasing customer need through self-actualization, drastically increases the market size. It also makes customers your new brand advocates at no cost to your business. An interesting example is Quirky that encourages users to vote on the design and features of consumer products on an online platform. Digitization creates an opportunity for empowering customers and making them ‘prosumers’ – this appeals to customers by increasing their sense of control and independence and allows for self-actualization.

Exponential organizations are the result of a carefully balanced combination of factors. Nail that balance, and your organization will be ripe for scaling.