Uber, a crowd-sourced taxicab service, has a valuation that is nearing $40 billion—it’s only 5 years old! Uber is changing the rules of the game way too fast, and that is part of the reason why the taxicab industry is up in arms.
Uber represents a new class of companies entering the market, called exponential organizations (ExO). ExOs’ “impact (or output) is disproportionally large—at least 10x larger—compared to its peers because of the use of new organization techniques that leverage accelerating technologies,” according to Salim Ismail, author of Exponential Organizations.
And the way ExOs do business is drastically different from conventional business models. They use the following 5 external characteristics (S.C.A.L.E.) to maximize opportunities: 1) staff on demand, 2) community and crowd, 3) algorithms, 4) leased assets 5) and engagement or gamification.
Staff on Demand
ExOs employ a large proportion of temporary or contract workers. This allows the company to scale quickly, depending on business conditions. One example is Gigwalk, which uses 650,000 smartphone enabled workers to provide market research. “When Proctor and Gamble needs to know how and where its merchandise is being placed on Walmart shelves around the world, it can use Gigwalk’s platform to instantly deploy thousands of people who are paid a few dollars to walk into Walmart and check the shelves. Results come in within an hour.”
Community and Crowd
ExOs also heavily engage a community made up of a core of team members, alumni (former team members), partners, vendors, customers, users, and fans. On the other hand, a crowd is anyone outside of the core community. The idea is that no matter how many smart people there are in your organization, there are always more smart people outside than inside.
DIY Drones is an example of a strong community, with over 55,000 members. Its members were able to collaboratively design a drone that has 98% of the functionality of a Predator drone used by the US military. However, a Predator costs $4M while a DIY drone costs just $300.
Business owners have long been finding ways to optimize business processes. ExOs use algorithms to supercharge their performance. Algorithms are procedures used to solve problems or automate tasks. Google has made billions off of its PageRank algorithm; credit card companies use algorithms to detect fraud; and UPS applies algorithms to optimize its fleet of 55,000 trucks to save hundreds of millions of dollars.
Along with leasing employees, ExOs can rent just about all other assets as well. Not only are many ExOs renting buildings, machinery, “and non-mission-critical assets, they are even outsourcing mission-critical ones.” An interesting phenomenon called collaborative consumption is also taking hold. Airbnb has become the largest hotel chain in the world, and yet it doesn’t own a single hotel. They accomplished this by connecting information-enabled assets (people with vacant rooms/homes) to an abundant marketplace full of renters looking for a cheaper alternative for lodging.
Engagement and Gamification
User engagement is the final characteristic of ExOs. They go beyond the typical sweepstakes, coupons, quizzes, and loyalty cards. “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.”
One incredibly effective way to engage the crowd is through gamification. An ExO will pose a challenge or problem to the crowd and offer a prize to the best solution. Netflix offered a $1M prize to the solution that could improve their movie recommendation algorithm for its customers by 10%. As it turned out, no one team could achieve the full 10% improvement. Since this was an open community, the top three teams collaborated to make a hybrid algorithm that ultimately won the prize.
80% of the executives graduating from Singularity University’s program feel that their industry is in jeopardy of being disrupted within the next 3 years. It is important for everyone to pay attention to potential disruptors and constantly question their existing business models. Although there are many ways that ExOs differ from traditionally-styled businesses, there is nothing to stop business leaders from adopting these methods to stay competitive.