“All ExO’s leverage collaborative tools, file-sharing or activity streams to manage real time, zero latency conversations across the enterprise”

Summary
▪ Exponential Organizations (or ExOs) are able to achieve performance improvements of 10x or
more compared to their peers
▪ ExOs leverage one or more externalities (described below) to achieve this scale
▪ This phenomenon is only 4-5 years old and we have identified about 40 such organizations

For hundreds of years, traditional business structures have put an organizational/legal boundary around an asset or a workforce and ‘sold’ access to that scarcity. However, just In the last few years, a new breed of organizational structure is emerging that is able to scale at unimaginable rates – we call these Exponential Organizations (ExOs). These new organization structures are leveraging a newly available set of externalities like big data, community, the crowd or accelerating technologies and by doing so, are performing 10x better than their peers in the same space

This democratization combined with the reach and collaboration from mobile and internet technologies has resulted in a new organizational form that we call Exponential Organizations. These new org structures are scaling at unprecedented rates – the benchmark we’ve found for an ExO is that it’s able to achieve at least a 10x performance improvement to its peers. For example, it takes Proctor & Gamble about 300 days to go from a new product idea to a Walmart shelf. Quirky, an ExO, achieves that same result in 29 days. In our three years of research, we have identified about forty ExOs operating on these benchmarks and that number is growing (exponentially).

 

Eleven key attributes of ExOs

The first is a Massive, Transformative Purpose (or MTP). XPRIZE’s mission is ‘Radical breakthroughs for the benefit of humanity’; TED’s is ‘Ideas worth spreading’; Google’s ‘Organize the world’s information’. An MTP provides a glue and common context that binds fast-moving elements of an ExO.

Along with an MTP, ExOs leverage five key externalities, represented by the acronym SCALE:

  1. Staff on demand. Rather than ‘owning’ employees, ExOs leverage external resources to get work done – even for mission critical processes
  2. Community & Crowd. Most ExOs are leveraging their community or the general public to scale. TED uses its community to run TEDx events – over 8000 have been held in just five years
  3. Algorithms. As the world turns into data and information, ExOs are leveraging Algorithms, including Machine Learning and Deep Learning to get new insights about their customers and products
  4. Leased Assets. Rather than trying to own assets, ExOs access or rent assets to stay nimble. Uber doesn’t own its cars, AirBnB doesn’t own hotel rooms.
  5. Engagement. A critical mechanism to scaling their workforces, gamification and incentive prizes are extensively used by ExOs to achieve scale

To manage these externalities and maintain order, ExOs use the following five internal mechanisms to harness the scalability of the external SCALE elements. They are represented in the acronym IDEAS:

  1. Interfaces. When implementing the above SCALE elements, ExOs use customized processes to interface with these externalities. For example, Quirky has custom processes to manage its community of 600,000 inventors. Uber has unique ways of managing all its drivers
  2. Dashboards. In order to track and monitor an ExO, real time metrics are implemented to track performance. Internally, many ExOs track individual and team performance using the technique Objectives & Key Results (OKRs). This discipline is used by Google, Twitter, LinkedIn and many hyper growth organizations
  3. Experimentation. To keep constantly tuned to the external world, ExOs use the Lean methodology or other techniques to constantly experiment with new ideas and processes – they are culturally risk enabled and their processes are constantly being tweaked with fast feedback loops.
  4. Autonomy. ExOs devolve authority to an extreme level of decentralization. In many cases, a member of the community has full ability to act on the behalf of the core organization (e.g. TEDx organizers). Decision making, even in key mission critical functions is distributed to the edges of an ExO
  5. Social. All ExOs leverage collaborative tools, file-sharing or activity streams to manage real time, zero latency conversations across the enterprise.

Our research indicates that ExOs can achieve the 10x scalability benchmark by implement a combination of four or more of the eleven attributes.

The key economic basis of an ExO is as follows: When running a business, you are constantly optimizing the cost of generating Demand and the cost of managing Supply. The internet, for the first time ever, allowed businesses to drop the cost of demand generation exponentially via online marketing and referral marketing – in fact, if you achieve a viral loop, your acquisition cost goes fully to zero.

For the first time ever, ExOs are dropping the cost of supply exponentially. Uber has very low marginal cost to add a new car to its fleet. AirBnB can add a hotel room for almost zero.

Google’s marginal cost to running an extra search query is almost zero. Waze has reached 50 million users solely by word of mouth and accesses each one’s GPS to provide accurate traffic prediction.

The question then becomes, how do large organization juxtapose with ExOs? How do you compete with a startup that has no marginal cost of supply and can outperform you 10x? The book is about that. The first half describes ExOs and their attributes. The second half is a how-to manual. How do you build a startup with ExO principles? How do you apply it to a mid-market company? And how do you retrofit this thinking into a large organization?