February 24, 2016

“Exponential Organizations” – Provocative New Models for Scaling Impact?

Businesses like Amazon and Tesla aren’t just building better mousetraps. They’re taking fundamentally different approaches to achieving results, often by leveraging 21st-century technologies and paying close attention to how people use them. In Exponential Organizations, authors Salim Ismail, Michael S. Malone, and Yuri Van Geest of Singularity University highlight how these and lesser-known innovators are rapidly scaling and generating value. While their stories might not seem immediately germane to the social sector, several key characteristics of these entities hold lessons for leaders pursuing social impact at a transformative scale.

The Hilton Worldwide hotel group took nearly 100 years to build or acquire 700,000 guest rooms. Airbnb added that many new accommodation listings in just the past year. Similar challengers to dominant companies have emerged in industries ranging from transportation, to encyclopedias, to foreign language education. Far from just “building a better mousetrap,” these disruptive new entrants are succeeding thanks to fundamentally different approaches to producing value and organizing human activity—approaches that take advantage of 21st-century technologies and our socio-technical context.

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“What we’re witnessing is a new breed of organization that is scaling and generating value at a pace never before seen… and all with a minimum of resources and time,” write Salim Ismail, Michael S. Malone, and Yuri Van Geest of Singularity University in their fascinating book, Exponential Organizations. Drawing on deep research and dozens of examples (including household names like Amazon, Tesla, and Wikipedia, as well as lesser-known innovators like Kaggle, Quirky, and Shapeways), the authors identify several key characteristics of these new entities. While such Silicon Valley darlings may not seem immediately germane to many in the social sector, Bridgespan’s work with pioneering leaders pursuing social impact at transformative scale suggests that a number of these lessons may be quite relevant indeed.

Four ideas in particular stand out:

Aim really high

Most exponential organizations aim at a “massive transformative purpose”—a highly ambitious and meaningful mission that forces the organization to think big, and which can also “capture the hearts and minds—and imaginations and ambitions—of those both inside and (especially) outside the organization.” Examples include Google’s “organize the world’s information,” Khan Academy’s “provide a free, world-class education for anyone, anywhere,” and Singularity University’s “positively impact one billion people.”

For leaders pursuing social impact at a transformative scale, anchoring on the ultimate goal in this way can fundamentally shift one’s approach and resource allocation decisions. It tends to increase a leader’s focus on how to most powerfully contribute to the broader field or ecosystem, may provide a compelling platform or umbrella “brand” under which many can rally, and often introduces “scalability” as a fundamental design goal.

Exponential growth can be almost invisible—until it explodes

Early on, traditional linear growth outperforms exponential growth, but then gets left behind, as illustrated in the accompanying chart. The authors cite the Human Genome Project as an example. In 1997, halfway through what was supposed to be a 15-year, $6 billion effort, the team had only sequenced 1 percent of the genome. Many experts called the project a historic failure. However, a few saw it differently. Ray Kurzweil, head of engineering at Google and a giant in the field of artificial intelligence, declared that 1 percent meant the project was halfway done. What he observed that others missed was that the project was on an exponential growth curve, not a linear one. And indeed, the project successfully completed in 2001, ahead of schedule and under budget.

Exponential Growth - Linear vs. Exponential graph chart

This kind of trajectory is enabled by the compounding effects of information-enabled technology (see Kurzweil’s extension of Moore’s Law), as well as the ability of many exponential organizations to develop business models in which the marginal cost to serve an additional customer approaches zero. Yet, it may also point to another truth: although it is harder and may take longer, solving for both efficacy and scalability at the same time can offer extraordinary payoff to social sector leaders.

Harness untapped and underutilized resources

Many exponential organizations achieve incredible results by putting untapped or underutilized assets into play. Airbnb, Uber, and Wikipedia are classic examples cited by the authors.

Are there opportunities for social sector organizations to do more of this? With at least 2 billion more persons projected to come online and plug into the global economy by 2020, it certainly seems likely. Many interesting efforts are already underway. MUrgency, for example, is working to bring emergency medical response services to the billions of people globally who lack such access. A kind of mash-up of LinkedIn and Uber, the service uses a smartphone app that connects those experiencing a medical emergency to the nearest doctor, nurse, paramedic, or EMT. BRAC’s Primary Education Program applies the same principle in a low-tech way, equipping rural women who have not finished high school to deliver quality primary education to 1.1 million of the poorest children in the hardest-to-reach parts of Bangladesh.

Empower and guide, don’t dictate and control

Finally, exponential organizations trend toward an internal structure consisting of “self-organizing, multi-disciplinary teams operating with decentralized authority,” rather than the a conventional top-down hierarchy with specialists clustered in siloes. The authors cite Valve Software, a game company with some 330 employees and the highest revenue-per-employee of any gaming company. Valve has no classic reporting lines, organizational structure, or job descriptions for its employees. Instead, its people self-organize, joining projects they find interesting or starting new projects themselves.

What might this look like in the social sector? In some cases, there is the trend toward looser, more informal organizing structures that allow for rapid expansion of movements such as #BlackLivesMatter, Occupy Wall Street, and the Tea Party. Wikipedia’s self-organizing community of millions of volunteer contributors offers another high-leverage model that is extremely adaptive and timely.

Funding Remains a Challenge for Nonprofits

Of course, for all that the social sector might learn and adapt from these exponential organizations, one key ingredient remains missing—money. While investors pour billions into these for-profit “unicorns” in hopes of huge financial reward, no such capital market exists in the social sector. The Omidyar Network is one stand-out among the limited number of innovative social sector funders in this space. Building on its founder’s legacy at Ebay, it has supported numerous “exponential organizations,” including three in the authors’ Top 100 list—Wikipedia, Kiva, and DonorsChoose.

For those leaders interested in pursuing social impact at transformative scale, Exponential Organizations may provide insights and help to spark ideas for new ways of working to solve critical social challenges. At the very least, this book stretches the boundaries of our classic management and strategic thinking.

(Note: For more on this topic, see Bridgespan and Omidyar’s past blog series on FastCompany’s Co.Exist platform. Other provocative thinkers in this domain include John Hagel III and John Seely Brown, Peter Diamandis, Jeremy Rifkin, Marshall Van Alstyne, and Mark Bonchek.)

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