Believe it or not…the ‘Digital Era’ of technology is more than half a decade. The mass consumerisation of digital technologies (cloud computing, mobility, social media and big data) has meant that they now pervade every aspect of our private and professional lives. Software is still eating the world and the defining technologies of the Digital Era continue to expand the reach of tech companies into traditional industries.1
Figure 1: Defining technologies over decades
Equally pervasive has been the use of the terms ‘platform’, ‘collaborative economy’ and ‘business ecosystems’ to articulate the success of a new breed of digitally-enabled organisations and the new path to value they have unlocked. Value creation is no longer limited by the physical assets that you own, it is also created by the assets you have access to, the networks you nurture and the way you leverage the voice of the customer. While digital disruption continues to shake up market incumbents, we see it as just the forerunner for the ‘Age of Exponentials’ – an era that will usher in a new dominant class of organisations that are able leverage the exponential development in technology to redefine how problems are solved, how value is created and the nature of competition in the economy.
Exponential technologies are innovations with a rate of improvement that is expected to double every 12 to 18 months2 – a compounding effect that leads to a rapid acceleration in the pace of change.
Figure 2: Exponential technologies
We’ve written about a few of these technologies and their current applications in detail here and here. Exponential technologies build upon the unprecedented increase in computing power over the last two decades to extend the waves of digital disruption into the realm of science fiction. Beyond the Digital Era, technology will not only support humans to connect and share information; it will also help humans ‘do’ and ‘think’ which will have far-reaching implications for every aspect of everyday living and every sector of the economy.
Far from being just the domain of Silicon Valley, there are already examples of early adopters in Australia. In the outer western suburbs of Melbourne, Catch of the Day, operates a stadium-sized warehouse with seventy robots and just four staff. These robots navigate a grid of 25,000 bins, retrieving goods and shifting stock to manned picking stations. This investment in robotics has driven down the cost of supply by doubling Catch of the Days’ capacity, and halving its delivery time3. Similarly, in the mining sites of Western Australia, Caterpillar operates a fleet of autonomous mining trucks fitted with advanced sensors that are drastically reducing the cost of operating and maintaining its fleet4.
Although technology will continue to enable companies to do better, the biggest step change will occur when they leverage exponential technology to think differently about their problems and the prevailing trade-offs in their industry.
Exponential thinking is the recognition of technology’s rapid improvement and the ability to reframe problems (and find solutions) with that in mind5. Humans have a tendency to visualise the future based on our experience of the past. While this has served us well until now, the exponential improvement of technological capability is a game-changer – we can no longer rely on a linear view of the world. For example, the World Wide Web would not have been conceivable to most people in the 1970s when ARPANet was first . Nevertheless, within 20 years, the Web would fundamentally reshape the lives of 40% of the world’s population and large swathes of the economy6. In business, exponential thinking requires us to design solutions to problems by considering what technology might look like with an exponential growth rate (Think: “what would a 10x impact mean?”) as opposed to our linear expectations.
The Age of Exponentials will be marked by organisations that successfully leverage exponential technology and exponential thinking. These exponential organisations (“ExOs”) scale rapidly with smaller teams by externalising vital functions through technology to lower their marginal cost to near zero. Simultaneously, they also leverage technology and growing connectivity to dramatically lower the cost of demand generation7. Far from fiction, ExOs already exist and are challenging the fundamental economics of traditional industries – e.g. the cost of customer acquisition for Airbnb is low given its network and community effect while the cost for additional inventory is magnitudes lower than the Hyatt8. There are many other ‘unicorns’ that epitomise this new organisational concept:
WhatsApp took over the global messaging market by designing an open platform service that leveraged mobile connectivity as a network effect to generate demand for next to zero cost. At the same time, it utilised cloud computing to scale the supporting infrastructure at a fraction of the cost of traditional wireless providers. The result – within 5 years, WhatsApp was handling a volume equivalent to 3 times the global text messaging industry and providing the service for next to zero cost to the consumer. The company had only 55 employees and was purchased by Facebook for $19 billion9.
Waze reshaped GPS navigation and map making markets by using mobile connectivity and the power of the crowd to provide real-time traffic monitoring and mapping. By transforming the GPS in smartphones into traffic sensors, Waze was able to drive down the cost of supply to virtually zero as every additional user or smartphone upgrade improved its service. In contrast, when Nokia decided to enter the GPS navigation and mapping industry, it applied linear thinking that required physical assets to support growth. As a result, it purchased Navteq, a business with proprietary traffic sensors and an army of cartographers and programmers to update its services. Within 2 years Waze surpassed Navteq in number of traffic data sources and, with only 100 employees, was eventually acquired by Google for $1.1 billion10.
So what can incumbent organisations do to identify the threat of ExOs? Peter Diamandis, one of the lead proponents of exponential thinking has put forward the ‘6 Ds’ as the leading and lagging indications of ExOs:11
The Age of Exponentials will redefine what it takes to become a market leader. The leading organisations of tomorrow will be defined by agility not size, access not assets12. Some commentators already believe that 40% of today’s Fortune 500 companies will not exist in 10 years13. With disruption now the norm and the pace of disruption and technological change accelerating, organisations need to start thinking about how to make a ‘10x impact’ (not just a 10% improvement) on what they’re doing now if they hope to win let alone survive.14
 See http://www.businessinsider.com.au/chambers-40-of-companies-are-dying-2015-6?r=US&IR=T for an outline of the steps Cisco has been taking to prepare itself for disruption