The world we live in is constantly changing. New insights and ideas drive progress and developments that can often change all of our lives. Especially in the last decades, in the information age, new technologies – first and foremost the Internet – have caused profound changes in countless aspects of society.
This change does not stop at companies either. These developments hold the potential for enormous increases in performance and scalability.
This article will introduce you to the model of exponential organizations so that you too can take advantage of this potential. I will explain the difference between a traditional, classical organization as we know it and an exponential organization as Salim Ismail describes it. To do this, I will contrast the principles and characteristics of the two forms of organization in an illustrative way. Since there is not much literature on this subject, I will primarily refer to the book Exponential Organizations by Salim Ismail, but I will also include my own experiences that I have been able to gather so far.
A bit more patience. Before we dive into the world of successful ExOs, let’s first take a look at the classic form of business, which operates according to linear laws. If you want to learn directly what ExOs are, then jump to your desired section.
For a long time, the productivity of a community was directly dependent on its equity. The following examples, which you surely know from your history lessons, illustrates this:
At the dawn of mankind, it was the hunter-gatherers who had as capital only themselves and their own labor. Soon man learned to tame farm animals and to let them work for him. Oxen and donkeys were eventually replaced by steam engines, which made industrial and mass production possible.
Each of these evolutionary steps moved mankind forward, creating greater productivity and prosperity. With each step, the efficiency of production increased many times over. One donkey managed the work of several people in the field, and a single spinning machine at the time of the Industrial Revolution took over the job of a multitude of needleworkers, and that at breathtaking speed.
But although productivity was multiplied with each stage of evolution, the basic principle remained linear.
The performance of a company therefore stands and falls with its material possessions in the form of means of production. Therefore, if a company wants to grow, capital investments and usually also time are necessary. Several years often pass before a new factory is planned, approved, built and put into operation.
Especially in areas that are subject to constant change and development, this can be equivalent to a high-stakes gamble – a risk that you should be aware of. No one knows how your industry will evolve over the next few years. If your company directs its efforts in one direction and it turns out to be the wrong decision, it may be too late. The competition has done better in the meantime, or the whole industry has changed so much that the original business idea is obsolete. Including the capital spent on it. There are countless examples of this.
But what makes an ExO different? What distinguishes it and why is it so important nowadays?
Such lengthy and inflexible plans as I have described above can no longer be afforded by any company today. Due to the far-reaching use of information technology, developments are much faster today.
Gordon Moore established the postulate named after him, “Moore’s Law”, according to which the computing power of transistors and thus also microprocessors doubles approximately every 2 years, i.e. grows exponentially. Although this “law” is only a prediction and not a law of nature, it has by and large proven true in recent decades. The futurologist Ray Kurzweil has taken a closer look at this development and gained important insights that are also elementary for the principle of ExOs:
Using an example from biotechnology, I want to show you how these findings can also bring about disruptive changes in areas other than IT. The Human Genome Project was founded in 1990 with the goal of decoding a human genome. Estimates predicted the project would take 15 years. In 1997, halfway through, only one percent of the genome had been decoded. Experts declared the project a failure and advised that it be discontinued.
After all, if one percent had taken seven years, decoding the entire genome would take a long time. Kurzweil also commented on the problem, but did not see the project as a failure at all. He realized that the speed of decoding was increasing exponentially, and he was right. As early as 2001, even earlier than originally estimated, the decoding was completed. In the meantime, entire human DNA profiles can be decoded for less than $1,000, a fraction of the cost at the time.
To meet the developments and insights described above, modern companies need to rethink. The author and entrepreneur Salim Ismail has studied modern companies and, together with his team, has examined which common principles can be found in successful and fast-growing companies. Using this valuable data, they developed the Exponential Organizations model, which they describe in detail in the book Exponential Organizations.
The book includes the following definition:
The book also sums up the basic principle by which the ExOs work:
According to the standard work, you can identify an (emerging) ExO by at least a tenfold increase in output over a period of 4 to 5 years.
Ismail and his colleagues have identified a number of characteristics that make up an ExO. Using these, you can easily understand the aspects and strategies of ExOs and compare them piece by piece with your own business philosophy and strategy.
The first of these characteristics is the MTP (Massive Transformative Purpose), which provides a certain framework.
You’ve probably heard the slogan “The sky is the limit” . What sounds overambitious at first glance can actually be a driving factor for a successful company.
ExOs need to set high goals. Those who think small usually don’t pursue a strategy that fosters rapid growth. If the scale of one’s business eventually overtakes the business model, a company can lose its bearings and no longer know in which direction to move.
To prevent this problem, successful exponential organizations have high-level goals called “Massive Transformative Purpose.” Examples of such MTPs include
An MTP is the overarching and purposeful meaning behind an organization. A Massive Transformative Purpose is not:
An MTP can also give you a competitive edge. Companies that open new branches (so-called first movers) can differentiate themselves from the competition with a comprehensive MTP. For example, if the MTP is “Make information available to all,” a competitor can only fall short, because a statement like “Make information available to all but better” is unimaginative.
Having a good MTP also helps you be attractive to new talent and other organizations such as affiliates or NGOs (see Community and Crowd; below). The MTP saves effort and cost to get and keep these potential partners on board. Last But Not Least, an MTP also has the advantage of acting as a stabilizing element during periods of haphazard growth, which is very important for exponentially scaling organizations.
Besides the MTP, there are ten other characteristics that you can find in Exponential Organizations. Not every ExO has all of the characteristics, but the more are present, the more scalable it is. According to Ismail and his team’s research, a company should have at least four of these characteristics implemented to be called an Exponential Organization.
The characteristics are divided into SCALE and IDEAS.
Note: When reorienting existing companies, it should be noted that each case differs in terms of the initial conditions. This is why there is no “patent remedy”, but rather an approach must be chosen that fits the circumstances.
If your company’s business is based on information, it has the potential to grow exponentially. The philosophy of Exponential Organizations helps you to better understand and tap into this potential. The key points here are the Massive Transformative (MTP), which provides a framework and direction, and the use of shared assets.
You are in the process of realigning or restructuring your company or even critically questioning your business model? Then feel free to contact us via the contact form or connect with André & Manuel on LinkedIn.
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