In the next 10 years, 40% of all S&P 500 companies will be wiped out from the index list. The cause? Digital disruption. The age of Information Technology has well and truly settled in to accelerate all aspects of the business world, at rates never before seen. An unprecedented shift in terms of size and impact, information is remaking industries, to the peril of most companies.

With the era of digital transformation upon us, everything is becoming digital across all industries and business areas, from Sales and Services to Marketing, Supply and Operations, Product Manufacturing and Logistics. Today, these organisation departments and their structures mostly respond to a linear world – they are hierarchical, centralised, closed and top-down, with several functional heads and various silos of subordinates beneath them.

But the linear approach is already under some strain as the information-based world moves exponentially. And the trend is to grow.

Those companies that cannot evolve to keep up with this extraordinary transformation will become irrelevant. Worse yet, many of them will disappear altogether.

Examples such as the prominent downfall of movie-rental chain Blockbuster – which took little heed of the threat of digital transformation – and its journey from greatness to decay demonstrate how new organisations (in this particular case, the likes of Netflix) have remarkable powers of disruption.

Entrepreneur and strategist Salim Ismail, along with his peers Michael S. Malone and Yuri Van Geest, call these new companies “Exponential Organisations”, in the book subtitled “Why new organizations are 10x better, faster and cheaper than yours (and what to do about it)”. The authors reviewed 60 classic innovation books, from authors such as Clayton Christensen, Gary Hamel and Eric Ries, interviewed C-suite executives from dozens of Fortune 200 companies and researched the 100 fastest-growing companies in the world.

Their goal was to pinpoint exactly what makes exponential organisations (known as ExOs) so extraordinary.

While companies do not necessarily have to incorporate all the features identified by the authors, those that fail to adopt at least some of these crucial elements are likely to struggle, if not become obsolete altogether in a decade’s time.

 

What are ExOs and what makes them so transformative?

In the 1960s, Gordon Moore observed that the density of transistors on semiconductors was doubling every 18 months or so. What became known as Moore’s Law still stands nowadays, with the complexity of computer processes rising while the cost of computing continues to drop exponentially fast. Leveraged by all this computing power, the authors define an ExO as “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”.

For examples of this, we need look no further than organisations such as Netflix, Google, Facebook, Snapchat and Airbnb. Each one exemplifies how new technology can change an idea into a billion-dollar business in less than a decade, disrupting others along the way.

Using modern techniques that have shown to qualitatively transform their organisations, they appear to rocket to astounding market valuations and make a global impact in no time at all. What they all have in common is a competitive edge, according to Ismail, Malone and Van Geest: specifically, a Massive Transformative Purpose (MTP), the higher aspirational purpose of an organisation to transform the planet.

Within that MTP are 10 specific attributes that reflect the mechanisms that ExOs leverage to achieve exponential growth. They are represented through the acronyms SCALE (reflecting five external attributes) and IDEAS (five internal attributes). The authors chose the metaphor of the two hemispheres of the brain to frame these ExO attributes:

 

Each attribute is explained clearly in the book (and we recommend you read it), so we won’t go into detail here. Yet, broadly speaking, ExOs look both outwardly and inwardly:

On the left side of the brain, they look inwardly through IDEAS:

• They activate Interfaces to provide friction-free collaboration;
• They use Dashboards for easy measurement;
• They Experiment with no fear of failure;
• They empower people and give them Autonomy;
• They adopt Social technologies and employed sharing and communication tools.

And outwardly, represented by the right side of the brain, through SCALE:

• They invest in having Staff on Demand;
• They create a Community and Crowd;
• They develop Algorithms,
• They Leverage Assets;
• They promote Engagement.

 

As information accelerates all aspects of business and life in general, and disruption becomes a norm, gone are the days of the strategic five-year plan. Its value nowadays is being questioned, as the long-term plans of organisations often become outdated before they have even reached completion. Instead, agility, adaptability and flexibility are key to anticipating change and allow companies to keep moving forward.

These attributes lay the framework for companies to not only achieve this but also thrive, by adopting new organisational structures that are a departure from the traditional linear approach, and instead leverage exponential technologies and shift their business mindset.

But even if you decide to take this on board and invest in becoming exponential, does every company have the padding necessary to transform itself into an ExO? It’s a daunting task, but it is achievable, as we look into next.

Diana Neves de Carvalho, Exago’s CEO
Gustavo Machado Silva, Exago’s Sale Executive

 

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