Exponential Organizations is a new way of being in business that redefines what it means to be successful in today’s innovation-driven economy.
The concept of the Exponential Organizations developed by Salim Ismail is a holistic framework for achieving dramatic performance improvements and rapid innovation. It is based on the premise that today’s businesses must constantly grow and innovate to survive.
To make this happen, Exponential Organizations need to have an MTP (a massive transformative purpose) and need to take on SCALE and IDEAS attributes seeking growth opportunities; empowering innovation; leveraging disruption; aligning with purpose; embracing exponential technologies; building exponential teams; engaging customers/users/stakeholders in new ways.
In October 2014, Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it) was released. In 2015, OpenExO and its community undertook an Exponential Quotient (EXQ) assessment for the Fortune 100 companies. The approach was validated by the Hult Business school and thereon published in the form of a Fortune 100 ExQ list. ExQ examined these companies in terms of their exponential thinking and doing (irrespective of whether they have been making the exponential moves on their own, OR by getting inspired by the ExO framework OR in fact with the active support of the OpenExO community). You can get your ExQ score here.
With the updated version of Exponential Organizations being released in the Fall of 2022, the top-ranked Exponential Organization and their bottom non-exponential peers amongst the Fortune100 companies were assessed vis-a-vis the latest Fortune rankings and their financial performance over the years. Leading the efforts to compile the data and with the assistance of the community was Chander Nagpal, ExO Coach, and Trainer.
The list of companies assessed is the aggregate of Fortune 2021 and Fortune 2014 listings. There have been obviously a few companies who were part of the 2014 listing but not anymore in Fortune 2021 top 100 rankings, and also a few new entrants. A total of 120 companies were assessed. The results highlight that becoming and staying exponential has an extraordinary impact.
In an interview between Salim Ismail, best-selling author, founding executive director of Singularity University and Co-founder and Chairman of OpenExO, and Peter H. Diamandis, best-selling author, founder and executive chairman of the XPRIZE Foundation and executive founder of Singularity University, they discussed the release of the Fortune 100 data and their insights on what the data means.
Salim: Our research indicates if you're an existing big company and you fully implement at least four out of the 10th attributes, you get a radical performance improvement in your organizational structure. Pretty much every organization, every nonprofit, every government department, and every impact project will be organized in this fashion.
And if you're not, you just won't be able to extract as much value. Therefore the imperative becomes how do you apply these principles? I think the data that we've just uncovered, ratifies it.
At the end of this decade, if you're not operating off these principles, you just won’t survive.
Peter: There's a new species of companies out there. Companies like Tesla, Space X, Apple, and Facebook that are operating 10-fold or more, have higher performance than their competitors.
So Salim let's begin and talk about the data that is just now being released around Exponential Organizations. What are we announcing? When did this start? Ultimately, what does it mean?
Salim: When we wrote Exponential Organizations, we conceived of this model and interviewed the top 200 unicorns around the world to see how were they scaling so fast? The fundamental thesis being we can now scale an org structure as fast as we can scale technology.
We came up with a set of 10 characteristics for the core model, along with what we call a massive transformative purpose, which you use a lot with your Abundance 360 group and other teams. The model consists of five externalities like staff on demand and community and crowd and leveraged assets and AI and algorithms and five internal mechanisms like the lean startup methodology and decentralized org structures, use of OKRs, and dashboards to really manage the internal culture and drive the control framework inside the company.
When we launched the book, we created in the book, a survey called the exponential quotient (ExQ). It asked 21 questions on a one to four scale, roughly two questions per attribute to get a one out of a score of 84 on how flexible, agile, scalable, and purpose-driven is your actual organization. It's designed to provide organizations with a quantitative metric for understanding how flexible and adaptable they are when faced with disruptive innovation, emerging technologies, and exponential change.
When we launched the book, I went on CNBC SQUAWK Box and we announced a ranking of the fortune 100, ranked by their ExO score.
You can see this list here.
You could see a lot of technology companies at the top, which naturally had grown up using these characteristics of small teams operating semi-autonomously very purpose-driven, et cetera.
At the bottom, you could see a lot of typical resource-oriented companies, which worked okay at the time, because if you're shipping natural gas across the county, you don't need a lot of variety in your org structure. You're just doing the same thing repetitively, right? But as storage and solar energy are coming along to disrupt you, you'd better figure it out.
The core thesis is that as the external world becomes more volatile, your ability to adapt will drive market value. So that was the original presentation of the fortune 100 ranked by their ExQ score.
Peter: When it comes down to how these original ExO 100 companies have performed, there's new data to share, can you give us the latest research and the significance?
Salim: It's kind of incredible what we've seen. We just did an eight-year trailing analysis going from 2014 through to 2021 as to how did they do.
What we found was that the market cap of the top 10 started off at five times the market cap of the bottom 10. But seven years later, the market cap of the top 10 is 16 times that of the market cap of the bottom 10, which is kind of incredible results just in the Fortune 100.
The next thing that happened was that one of our community members, Chander Nagpal who has worked with UBS and other financial institutions globally said, “look, Salim, it's great that you crawled the market cap of Apple. Let me run it through a proper financial database.”
So he took the fortune 100 database and reran the same analysis and came up with numbers that really surprised us. The first is that the top 10, outperformed the broader stock market (S&P500) by about 2.1 times, which is quite a remarkable result.
Then comparing the top 10 to the bottom 10 he found three other metrics. The first was the top 10 outperformed the bottom 10 by 2.6 times in revenue growth. The second was the top 10 outperformed the bottom 10 by 6.8 times on profitability. The third was the top 10 outperformed the bottom 10 by 11.7 times on asset turnover.
Really the most remarkable one was shareholder returns or compound annual growth rate CAGR as they call it. The top 10 outperformed the bottom 10 over eight years by 40X over that eight-year period between 2014 to 2021, which is kind of an unbelievable number. In fact, we were so surprised by this outcome. We actually did an R-squared analysis to make sure there was statistical significance.
And we found an R Square score of 0.82, indicating a strong statistical correlation between the ExQ score and the stock market performance.
Salim: If you add all of this up, we're in the decade of the Exponential Organizations (ExO), by the end of this decade, if you're not operating off these principles, you just won't survive.
We think that the ExO model now becomes the prevailing business organization paradigm for at least the next decade.
Peter: My friend, it is the decade of the ExO. And so if you're starting a company, you know what you got to do. If you're running a company and you want to survive this decade, I think you know what you gotta do.
Catch the rest of this interview to hear insights about F100 companies, the ExO Model, leadership, culture, entrepreneurs, case studies, mid-market companies, and more.
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