Originally posted by Chris Parker April 3, 2015 via ParkerHolland.com
“Exponential organizations are getting 10x performance above their traditional peers, just because of how they organize themselves,” is the observation of Salim Ismail in his recently published book on the phenomena of Exponential Organizations (ExOs). Every organization needs to be aware of organizational concepts, whether an established company trying to survive or a start-up gearing up to disrupt. Something powerful is happening in the market. Salim and his co-authors, Michael S. Malone and Yuri Van Geest, provide a concrete blueprint on how to be a disrupter, instead of being disrupted. In 10 years, it’s predicted that 40% of Fortune 500 companies will no longer exist. Get ready to go exponential.
Salim Ismail was the founding Executive Director of the Singularity University and is currently its Global Ambassador. Prior to that, he was a Vice President with Yahoo and the Head of Brickhouse, Yahoo’s incubator. The concepts which evolved into the ExO framework were first observed in 2009. When the ExO book was published in late 2014, there were many organizations growing exponentially to use as examples. Google Ventures is reviewed, as they go 10x faster through the design process; Tesla has a 30x more market cap per employee than a traditional automotive company; and of course, Airbnb has disrupted the hotel industry like no other force before it.
AIRBNB IS AN EXO
The hotel industry has been disrupted by Airbnb, which is described humbly on their website as being, “a trusted community marketplace for people to list, discover, and book unique accommodations around the world.” This trusted community has grown since its founding in late 2008 to a platform with over a million listings across more than 190 countries. Airbnb is on track to becoming the largest hotelier in the world in 2016, all without owning any assets. Airbnb is an excellent example of the power of the ‘sharing economy’ and how this can have direct impact on traditional business models. Airbnb was ranked #2 on the Top 100 ExO list when initially published on April 2, 2014.
In the book, Salim explains the power of how Airbnb is organized when observing that Airbnb has 90x more listings per employee than their traditional competitors. This is made possible by the interaction of the two sides of their network effect business model. Hosts are motivated by making some money by renting out their couch, apartment or castle. Guests are motivated by finding inexpensive lodging, and more regularly they are seeking an adventure and maybe meeting new friends. Chip Conley, the Head of Hospitality for Airbnb, explains that, “Hosts initially get involved for the money, but they stay for the emotion.”
It is not only hosts, which are motivated by emotions. Guests are also regularly enticed with adventurous promotions, such as staying all night in a gondola, 2700+ meters above the ground, at the Courchevel in the French Alps. IKEA has created some ‘dream homes’ in their stores and have offered contests for people to be able to stay overnight. KLM recently partnered with Airbnb with an airplane which was customized to be an apartment. The room in the KLM airplane comes with some regulations of it’s own, including ‘No Flying’ and ‘Don’t use the inflatable emergency slide.’ Traditional hoteliers will be hard pressed to find more engaging ways of connecting with their guests.
THE EXO EQUATION
Perhaps the single most important characteristic of an exponential organization is the power to create this emotional bond with their community. Salim and his team call this the Massive Transformative Purpose (MTP). There are some popular MTP’s, such as the purpose statement of TED, which is, “Ideas worth spreading.” The MTP of the Singularity University is, “To positively impact the lives of a billion people or more”. Salim puts the MTP in historical context when he mentions the Big Hairy Audacious Goal (BHAG) of the book, Built To Last, by Jim Collins and Jerry Poras. Salim suggests to, “consider that an MTP is a BHAG with purpose.”
Purpose alone, however, is not enough. ExO’s interact with their external world and organize themselves internally in fundamentally different ways than traditional businesses. The external characteristics are how ExO’s work with their staffing, communities, decision making, assets and approach to engagement. Internally, they automate interfacing, have working real-time dashboards, are experimentation experts, have amazing levels of autonomy and rely on social behaviors and tooling to communicate across the organization.
Any organization can rank themselves against these ten characteristics, and every organization is busy with all of them in some form or another. However, according to research with executives, entrepreneurs and visionaries, Salim and his team identified that if an organization has implemented only four of the ten characteristics, then they can achieve the 10x performance of exponential organizations.
ExO = MTP + SCALE + IDEAS
Massive Transformational Purpose (MTP) is the higher aspirational purpose.
SCALE are the five external characteristics that define an ExO:
- Staff on Demand: Leverage external resources to get work done – even for mission critical processes.
- Community & Crowd: Leveraging their community or the general public to scale.
- Algorithms: Leveraging Algorithms, including Machine Learning and Deep Learning to get new insights about their customers and products.
- Leveraged Assets: EXOs access or rent assets to stay nimble.
- Engagement: Use gamification and incentive competitions extensively to achieve scale.
IDEAS are an ExO’s internal mechanisms:
- Interfaces: Customized processes to interface with the above externalities.
- Dashboards: Real time metrics are implemented to track performance.
- Experimentation: Culturally risk enabled and their processes are constantly being tweaked with fast feedback loops.
- Autonomy: Decision making, even in key mission critical functions is distributed to the edges.
- Social: Leverage collaborative tools, file-sharing or activity streams to manage real time, zero latency conversations.
A HOTELIER WITHOUT ASSETS
The foundational strength of Airbnb is how they leverage the assets of others. Airbnb provides the platform, and the hosts provide the properties. Effectively, the marginal cost of a new room to rent for Airbnb is zero. Because they are utilizing the extra capacity of their host’s properties, the host is also providing staff on demand. Airbnb does not clean the rooms after the guest departs, this is all done by the host as part of their service.
The quality of the service and property is also a pillar of Airbnb’s success, and to accomplish this they use traditional methods of having documented Hospitality Standards and now common engagement methods of using guest ratings to give feedback to hosts and future guests. However, Brian Chesky, the CEO of Airbnb, made a specific appointment to his management team in 2011 to ensure that the company continues to evolve from a technology company into a hospitality company. Chip Conley, who founded and managed the Joie de Vivre chain of boutique hotels, became Airbnb’s first Head of Hospitality. ExOs need different types of leadership, and this is a perfect example.
Chip was coming from the traditional hotel industry, in which he was widely successful, however he is hardly a traditional himself. In addition to creating the 52 unique hotels in the Joie de Vivre chain, he has been involved in countless other entrepreneurial activities. He founded and continues to be a member of the Burning Man board and creating the Fest300.com list of the top cultural festivals around the world. He calls the Airbnb hosts “micro-entrepreneurs” that are making a living by opening their homes to strangers. It is his challenge to make sure the Airbnb standards are met by the hosts while still creating memorable, localised experiences.
EXPERIMENTATION & ALGORITHMS
Airbnb is an Exponential Organization. This doesn’t keep them from innovating fiercely. One of the first things Chip did when joining Airbnb was create its Hospitality Lab in Dublin, Ireland. The Hospitality Lab was created to help the company design meaningful interactions between the hosts and guests, and between Airbnb and all their users. The Lab staff provides offline workshops, online webinars and provides various support services. The Lab concept, and the staff at the Lab, will allow Airbnb to continue to experiment with ways to help maintain their hospitality standards and communicate those to their thousands of hosts around the world.
‘Location Relevance’ is a key term for Airbnb, as this is what potential guests are looking for when they search the site. If Airbnb suggested listings which were highly ranked for quality but nowhere near the desired location, the guest might be disappointed. The magic behind the algorithm is a mix of developing a conditional probability curve between location and quality ratings. Each city has its own specific geographic preferences of potential guests, meaning someone looking for a listing in Amsterdam might generally prefer really close to the centre but in Rotterdam anywhere in the city region might be acceptable. Airbnb uses their historical booking patterns of each city to determine how wide the geographic axis of the curve should go, thus increasing the likelihood of the guest finding a perfect listing for their upcoming trip.
THE MTP OF AIRBNB
In mid-2014, Airbnb launched their new brand. The promotional video explained that, “Airbnb stands for something much bigger than travel”, and continues to explain what Airbnb stands for: People, Places and Love.
People, places and love are respectable brand ambitions, however are not a Massive Transformative Purpose. At the time of the brand launch, Chesky elaborated that, ‘the brand shouldn’t say we’re about community, or international reach, or renting homes – it’s about belonging.”
'Giving humanity a place to belong'... that can be considered an MTP which brings people together in an incredibly powerful way.
Another characteristic of the IDEAS internal mechanisms of ExO’s is Autonomy. This means the staff and community of the Exponential Organization has a huge amount of freedom to achieve the Massive Transformative Purpose, including adapting the objectives and goals to meet the needs of the individual along the way. At an executive retreat, it was reported that Chesky asked Chip Conley where he would like to see Airbnb in 10 years. He replied, “I’d love to see us win the Nobel Peace Prize.” When people belong, people are peaceful. Airbnb is organized to help people around the world achieve this.
Source: Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it) was written by Salim Ismail, Michael S. Malone and Yuri van Geest. Published by Diversion Books in October 2014. Available at Amazon.com