Exponential Organizations – Salim Ismail

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

4 Observations of : • Moore’s Law applies to any information technology: Law of Accelerating Returns • Once any domain, discipline, technology or industry becomes information-enabled and powered by information flows, its price/performance begins doubling approximately annually • Once the doubling pattern starts, it doesn’t stop • Several key technologies today are information-enabled and following the same trajectory: AI, robotics, biotech and bioinformatics, medicine, neuroscience, data science, 3d printing, nanotechnology, energy

At each point of exponential growth in mobile phones over the last decade, the world’s top prognosticators predicted largely linear change.

An information-based environment delivers fundamentally disruptive opportunities.

Instad of making a massive capital investment in in-road sensor hardware, the founders of Waze chose instead to crowdsource location information by leveraging the GPS sensors on its users’ phones to capture traffic information. The cost of adding each new source was essentially zero, not to mention that Waze’s users regularly upgraded their phones- and thus Waze’s information base. In contrast, the Navteq system cost a fortune to upgrade. In June 2013 acquired Waze for $1.1 billion. At that time, the company had no infrastructure, no hardware and no more than one hundred employees. What it did have, however, was 50 million users.

New Product Development includes the following steps: 1. Idea generation 2. Idea screening 3. Concept development and testing 4. Business analysis 5. Beta and market testing 6. Technical implementation 7. Commercialization 8. New product pricing

The cost of distributing a product or service, particularly if it can be converted almost entirely to information, has dropped to almost zero. It used to require millions of dollars in servers and software to launch a software company. Thanks to Amazon Web Services (AWS), it now costs just a tiny fraction of that amount. Similar stories can be found in every department in every industry of the modern economy.

1 www.steven-e.com We have even found a simple metric that helps to identify and distinguish emerging Exponential Organizations: a minimum 10x improvement in output over four to five years.

Based on our research, we have identified common traits across all ExOs. They include a Massive Transformative Purpose (MTP), as well as ten other attributes. We use the acronym SCALE to reflect the five eternal attributes, and the acronym IDEAS for the five internal attributes. Not every ExO has all ten attributes but the more it has, the more scalable it tends to be. Our research indicates that a minimum of four implemented attributes will achieve the ExO label and have you accelerate away from your competition.

IDEAS Interfaces Dashboards Experimentation Autonomy Social

SCALE Staff of Demand Community and Crowd Algorithms Leveraged Assets Engagement

When we look at the position statements of existing ExOs, we encounter statements of purpose that might have seemed outrageous in years past: • TED: “Ideas worth spreading.” • Google: “Organize the world’s information.” • : “Bring about radical breakthroughs for the benefit of humanity.” • Quirky: “Make invention accessible.” • : “Positively impact one billion people.”

This, then, is the MTP- the higher, aspirational purpose of the organization. Every ExO we know has one. Some aim to transform the planet, others just an industry.

The MTP is so inspirational that a community forms around the ExO and spontaneously begins operating on its own, ultimately creating its own community, tribe and culture.

Staff on Demand • For any company today, having a permanent, full-time workforce is fraught with growing peril as employees fail to keep their skills up to date, resulting in personnel in need of greater management.

Community and Crowd • Throughout human history, communities started off as geographically-based (tribes), became ideological (e.g. religions) and then transitioned into civic administrations

2 www.steven-e.com (monarchies and nation-states). Today, however, the internet is producing trait-based communities that share intent, belief, resources, preferences, needs, risks and other characteristics, none of which depend on physical proximity. • Typically, there are 3 steps to building a community around an ExO: o Use the MTP to attract and engage early members o Nurture the community o Create a platform to automate peer-to-peer engagement

Algorithms • In particular, there are two types of algorithms that are at the frontier of this new world: Machine Learning and Deep Learning o Machine Learning is the ability to accurately perform new, unseen tasks, built on known properties learned from training or historic data, and based on prediction. o Deep Learning is a new and exciting subset of Machine Learning based on neural net technology. It allows a machine to discover new patterns without being exposed to any historical or training data. • We use AI and algorithms to mitigate and compensate for many of the following heuristics in human cognition: o Anchoring Bias – tendency to rely too heavily, or “anchor”, on one trait or piece of information when making decisions. o Availability Bias – tendency to overestimate the likelihood of events with greater “availability” in memory, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be. o Confirmation Bias – Tendency to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions. o Optimism Bias – Tendency to be over-optimistic, overestimating favorable and pleasing outcomes. o Planning Fallacy Bias – Tendency to overestimate and underestimate costs and task-completion times. o Sunk-cost or loss-aversion bias – Disutility of giving up an object is greater than the utility associated with acquiring it. • To implement algorithms, ExOs need to follow four steps: o Gather: The algorithmic process starts with harnessing data, which is gathered via sensors or humans, or imported form public data sets o Organize: The next step is to organize the data, a process known as ETL (extract, transform and load). o Apply: Once the data is accessible, machine learning tools such as Hadoop and Pivotal, or even (open source) deep learning algorithms like DeepMind, Vicarious and SkyMind, extract insights, identify trends and tune new algorithms o Expose: The final step is exposing the data, as if it were an open platform.

Leveraged Assets • Non-ownership, then, is the key to owning the future- except, of course, when it comes to scarce resources and assets. As noted, Tesla owns its factories and Amazon its own warehouses. When the asset in question is rare or extremely scarce,

3 www.steven-e.com then ownership is a better option. But if your asset is information-based or commoditized at all, then accessing is better than possessing.

Engagement • Engagement is comprised of digital reputation systems, games and incentive prizes, and provides the opportunity for virtuous, positive feedback loops- which in turn allows for faster growth due to more innovative ideas and customer and community loyalty. • To be successful, every gamification initiative should leverage the following game techniques: o Dynamics: motivate behavior through scenarios, rules and progression o Mechanics: help achieve goals through teams, competitions, rewards, and feedback o Components: track progress through quests, points, levels, badges and collections

Interfaces • Interfaces are filtering and matching processes by which ExOs bridge from SCALE externalities to internal IDEAS control frameworks

Dashboards • Given the huge amount of data from customers and employees becoming available, ExOs need a new way to measure and manage the organization: a real-time, adaptable dashboard with all the essential company and employee metrics, accessible to everyone in the organization • Many ExOs are adopting the Objectives and Key Results (OKR) Method as the answer to two simple questions: o Where do I want to go? (Objectives) o How will I know I’m getting there? (Key Results to ensure progress is made) • Some characteristics of OKRs: o KPIs are determined top-down, while OKRs are determined bottom-up o Objectives are the dream; Key Results are the success criteria (i.e. way to measure incremental progress towards the objective). o Objectives are qualitative and Key Results are quantitative. o Objectives are ambitious and should feel uncomfortable

Experimentation • Experimentation is the implementation of testing assumptions and constantly experimenting with controlled risks. • The traditional waterfall approach to product development is a linear process that uses sequential steps such as idea generation, screening, product design, development and commercialization. This process not only burns up a great deal of precious time but, more importantly, increasingly results in new products that don’t fit- or, because the market is changing so quickly, no longer fit- the needs of the customer, culminating in a product no one wants. Inevitably, even more time and money is

4 www.steven-e.com spent adapting the product to fit the customer, a process that once again takes too long as the market moves on. • As Nassim Taleb explains, “Knowledge gives you a little bit of an edge, but tinkering (trial and error) is the equivalent of 1,000 IQ points. It is tinkering that allowed the Industrial Revolution.”

Autonomy • We describe autonomy as self-organizing, multi-disciplinary teams operating with decentralized authority. • Autonomy is a prerequisite for permissionless innovation.

Social Technologies • Social technology is finding fertile ground because the workplace has become increasingly digitized. It started with email, which provided asynchronous connectivity; next came wikis and intranets that provided synchronous information sharing; today we have activity streams that provide real-tmie updates through organizations. • When it comes to advancing your business, J.P. Rangaswami, chief scientists at Salesforce, views social technology as having three key objectives: o Reduce the distance between obtaining (and processing) information and decision-making o Migrate from having to look up information to having it flow through your perception o Leverage community to build out ideas

Implications of Exponential Organizations 1. Information Accelerates Everything 2. Drive to Demonitization 3. Disruption is the New Norm 4. Beware the Expert 5. Death to the Five-Year Plan 6. Smaller Beats Bigger (aka Size Does Matter, Just Not The Way You Think) 7. Rent, Don’t Own 8. Trust Beats Control and Open Beats Closed 9. Everything is Measurable and Anything is Knowable

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