Why CEOs need an Exponential Organization (ExO) Mindset?

What is Exponential Organization (ExO)?

Let’s be clear about ExO definition first. Salim Ismail defines ExO in his book as

“An Exponential Organization (ExO) is one whose impact (or output) is dis-proportionally large—at least 10x larger—compared to its peers because of the use of new organizational techniques that leverage accelerating technologies”

In short, an ExO can do more, produce more and dominate its market niche with less people or resources when compared to a non-ExO company.

Key Characteristics & Attributes of ExOs:

ExOs are experts in adaptation. Asset-light, agile and market-responsive. These companies are part of a new business paradigm, in which competition doesn't necessarily mean heavy hitters based in a huge economic hub. On the contrary, competing companies may come equally from a start-up based in a garage.

ExOs are often (but not always) at their Core a software company, leveraging algorithms, external assets, rapid experimentation, on-demand talent, communities, real-time monitoring and digital interfaces to their advantage in a highly scalable manner. Imagine, if we consider Tesla not as an automobile company, but as a software company offering an App with 4 wheels, where the App is updated almost every other week. 

Drivers of Exponential Growth:

Fourth industrial revolution is a name chosen by the world economic forum. But there are many other names that one might have read. e.g. second machine age, industry 4.0 or many others.

There are certain technologies, enabling the fourth industrial revolution i.e. artificial intelligence, blockchain and cryptocurrencies, biotechnology, augmented and virtual reality, drones (actually, a big drone can also be called a flying car which are advancing forward), solar energy and energy in general especially renewable energies, quantum computing, digital manufacturing, self-driving cars and robotics.

Interestingly, all these technologies are yielding, all at once. One might remember, Gutenberg, when he came with a printing press, it completely changed how we as society and humanity disseminate knowledge. And we now have the equivalent of 20 Gutenberg moments happening all at once. Therefore, it’s fair to say that the world is changing faster than anyone has predicted.

One of the key reasons for this growth, is actually the underlying dynamic behind those technologies and why they are growing so fast. These are Exponential Technologies because they are all powered by information technology and information science. This means Moore's law applies, which showed us that for more than 50 years the performance value of microchips doubles roughly every 18 months.

Hindsight for CEOs of Traditional Businesses:

Exponential progression and doubling pattern are very deceptive as it grows very slow for a very long time and then suddenly explodes.

Let’s understand it through a thought experiment - If I ask you now to stand up and go 30 steps, you know pretty much where you're going to be at any point of the journey. At the end you will be 30 meters in the direction you choose, and you can estimate very well where you will be at any given point of the journey. You can estimate where half-way will be, where two thirds is, etc. Linear progression is quite easy to understand and is predictable.

However, if I ask you to take 30 exponential steps, one, two, four, eight, 16 (this is one kind of exponential progression – doubling at every step). You will reach billion meters which is roughly an equivalent of being 27 times around the Earth. This is quite different to the linear progression.

But what is most shocking around this is that it is impossible to predict where you're going to be halfway through or elsewhere because our minds are not used to think in that way. Traditional forecasting & projections cannot be simply and easily applied here.

Now here is the AHA moment: If you take 15 steps, which is normally halfway to the final destination, you won’t even reach 0.01% of your total distance. Actually, the last five steps account for 97% - almost all of the final result. It means innovation take a significant time in incubation before becoming disruptive. Till that time, it’s anyone’s guess.

A similar example is a bamboo growth. When we plant it for five years, nothing happens. We don't see anything. But something is happening, underground. It's just that we can't see it. After five years in the ground, it then starts growing and in five weeks it actually grows to be 25 meters. For five years, nothing. And then in five weeks, it is the fastest growing plant on the planet.

This is the element of deception & surprise. A similar pattern exists with every Exponential Technology and baffles most CEO’s before they take defensive measures to protect the core of their businesses.

Unpredictable nature of Exponential Technologies:

Exponential Technologies have been developing quietly for years, sometimes decades but all of them are hitting the knee of the curve now or in the next few years. And that will change our world in fundamental ways and shape our future.

However, there is one more thing happening. While each of these technologies is disruptive on its own, because many of them are hitting the knee of the curve just about now, their Convergence is what creates an unprecedented and previously unseen pace of change. It is exactly what makes future of enterprises, less than predictable.

Ray Kurzweil famously said we are about to experience 20,000 years of technological progress in just 100 years. That’s basically from agricultural revolution 10,000 years ago to the present moment twice within the next century. Very, very fast.

Implications - Need of ExO Mindset & Challenges for CEOs:

As these technologies around us are progressing at exponential pace, we need to also look at whether our organizations are structured well to capitalize on them.

Also, CEO’s need to look-out for the early signs of disruption of their own industries and business models. I would argue that this should be the focal point for the corporate strategy function in any enterprise – as it poses serious risks to its short-term profitability and long-term sustainability.

When a CEO adopts ExO mindset, he has to deal with inevitable evolving challenges from different domains, in a very dynamic manner. Some of the salient challenges are as follows:

• How to innovate the core business model, continuously?
• How to disrupt the core business model, at the right time? Deploy innovation/scouting team at the edge?
• How to manage the co-existence of the 2 operating models and cultures i.e. innovation at core and disruption at edge
• How to improve the leadership talent and employee engagement, given the increasing complexity of ExOs and an environment where leadership may not necessarily be subject-matter expert on the disruptive technologies?
• Innovation-pace (speed of experimentation) needs more Creativity. How to tap into Creative capabilities of human potential available to organization?
• Which aspects of ExO Attributes and Technologies should be leveraged and to whic extent ?

Summary - Disrupt or Be Disrupted

So, the bottom-line is countless industries will digitize sooner or later and the digital revolution and all the digital transformation initiatives so far are just the tip of the iceberg and more of a beginning of a digital economy. Every company is or will evolve into an information-based entity. Unlike their traditional predecessors, “Exponential Organizations” (ExOs) thrive on abundance, not scarcity. ExOs grow quickly because they have little restrictive infrastructure. Rather than owning assets, ExOs borrow or lease them at little or no cost – like Uber, Airbnb and Google. ExOs remain agile, rent employees and use cloud computing. Small and midsize organizations should implement many of the principles of good ExOs to be more defensible. It is challenging but it is essentially riding a wave of change, going through a natural metamorphosis.

It is an imperative that CEOs must take responsibility for transforming their firms into ExOs. Post-Covid era will see a sharp acceleration in the ExOs growth.

Sources: (1) "Exponential Organizations" written by Salim Ismail with Michale Malone & Yuri Geest. (2) www.openexo.com (Open ExO is a platform to orchestrate ExO community with the mission to transform the world (3) Title Image Courtesy: marchmeena29 | Getty Images )