Innovate organizations instead of only products or business models
Organizations in nearly every industry are facing performance pressure and disruption. As the pace of change increases exponentially, many executives turn to product and business model innovation. However, there is a deeper and more fundamental need to innovate the organizations themselves, as illustrated by what has been recently named exponential organizations.
Wassili Bertoen & Robert van der Heijden - 15 januari 2016
Struggling to keep up in a time of rapid change
Exponential improvements in technology and a global liberalization of economic policy are driving fundamental shifts in the business landscape. We call this the Big Shift at Deloitte Center for the Edge. Many companies that were extremely successful for decades are now struggling to keep up. The one common feature binding all of these companies is that they are structured to pursue scalable efficiency: central coordination of all critical activities to reduce transaction costs and achieve even higher levels of efficiency. While effective in times of relative stability and predictability, centralized governance, rigid hierarchies and long-term planning are extremely inefficient during times of rapid change and high uncertainty.
The opportunity for institutional innovation
Many executives are turning to product and service innovation with new business models and they push their organizations to accelerate innovation. However, ever-shortening product life cycles mean that these innovations only create value for a short period, sometimes even only for a few months. So, executives will need to expand the scope of innovation well beyond products and processes and they will have to look for a more fundamental level of innovation.
To thrive in this exponential business landscape, executives will have to consider institutional innovation. Institutional innovation means rethinking all of the organization’s relationships, structures, processes and models and is all about redefining the organization’s internal and external interactions. It means bringing together capital, talent, and information in new and more effective ways. This will simplify product, process and business model innovations.
Institutional innovation requires embracing a new rationale of “scalable learning” with the goal of creating smarter institutions that can thrive in a world of exponential change. Organizations that can drive accelerated learning will be more likely to create significant economic value. This does not only apply to companies, but basically to all institutions, e.g. governments, schools, and NGOs.
Exponential Organizations – smarter organizations that scale learning
In recent years, we have seen organizations focus on scalable learning instead of scalable efficiency. Exponential organizations such as Google, Kickstarter and Netflix have experienced dramatic growth trajectories and impact (learn more from the book Exponential Organizations). Unlike traditional organizations, exponential organizations use new technology and platforms to leverage the world around them. These companies outperform competitors tenfold and illustrate a way of how businesses may be built and operate in the future.
To scale learning, exponential organizations are both specializing and connecting. They focus on what they do well and rely on others to do everything else so they can evolve their specialization. To connect, they let information flow freely, are open to talents and ideas from wherever they come, and build relationships where all participants profit from. More detailed, exponential organizations are driven by a massive transformative purpose (MTP) that inspires, attracts and challenges passionate people to achieve high aspirations that go far beyond traditional mission statements. The unique elements of exponential organizations can be captured in two acronyms: SCALE and IDEAS.
SCALE comprises the external elements that exponential organizations use:
- Staff on demand: leverage external resources instead of maintaining large employee bases. For example, optimize your organization’s algorithms through Kaggle - the world’s largest community of data scientists that offers a platform to host private and public algorithm contests.
- Community and crowd: build and join communities to achieve rapid scale, e.g. validate and fund ideas through crowd funding.
- Algorithms: as the world turns to big data, excel in the use of algorithms and machine learning. Take for example Netflix’s recommendation engine that uses algorithms to customize the experience for its customers.
- Leased assets: access or rent assets to stay nimble. TechShop collects expensive manufacturing machinery and asks subscribers a small monthly fee for unlimited access to its assets.
- Engagement: techniques such as gamification and incentive prizes are core to the ability to quickly engage markets. For instance, XPrize runs public competitions aiming at using technologies for the benefit of mankind.
IDEAS comprises the internal elements that exponential organizations use:
- Interfaces: configure interfaces for external constituents. Uber, for example, has its own system to manage its drivers and connect them to clients.
- Dashboards: to track and monitor performance, use real-time metrics and performance-tracking techniques like the Objectives and Key Results methodology, e.g. at Google Ventures.
- Experimentation: use approaches such as lean production for rapid experimentation and process improvements through fast feedback loops.
- Autonomy: organize extremely flat, sometimes with no management layers, and distribute decision-making to self-organizing teams.
- Social: file sharing and activity streams drive real-time, zero-latency conversations across the organization, e.g. by using Yammer or Slack.
Is your organization already scaling learning? Implementing four or more of the eleven elements can already significantly improve performances. However, redefining the rationale for an organization from scalable efficiency to scalable learning has far-reaching implications and consequences. This should not be taken lightly, as it requires a reassessment of the entire organizational architecture and the internal and external relationships.
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