Why Teaching Exponential Mindset is a Must to Thrive in The 21st Century
Universities are struggling with accreditation: once a program or course is approved, then only minor changes are possible. To include major shifts, the painful process must be re-done.
Universities are struggling with accreditation: once a program or course is approved, then only minor changes are possible. To include major shifts, the painful process must be redone. On the other hand, technology develops exponentially, unlocks abundance overnight, and enables disruptive innovations to happen in a flash. To align these irreconcilable differences, I started an experiment just before the outbreak of the COVID-19 pandemic. At the University of Pécs, Hungary, I injected the tutorial course called Startup Development with the Exponential Organizations methodology. The result: not only did the course survive the experiment, but it ended up in big success. In the last three years, with the help of the OpenExO community and my students, I further refined the vaccine and achieved even more.
The clash of centuries
The Dutch East India Company is regarded as the first “modern company” since it issued its first stock certificates in 1602. In the upcoming 300 years, companies managed to start, build, grow, and scale without formally trained executives. The 20th century brought a blossom for enterprises that demanded well-trained managers. The first MBA degree ever was issued by Harvard University to fill this need and bring repeatability into education while creating standards in the curriculum: accounting, finance, strategy, operations, HR, and law. It also means that formal management tools are about 100 years old. [Blank – Dorf, 2012]
Today's practice of pairing venture capitaland startup entrepreneurship arose in its modern form only some decades ago, and the startup industry they fostered has been exploding ever since. As the development has happened exponentially, no success formula for repeatable startup success has emerged. That is why founders of new ventures had to continually adapt the “big business” tools, procedures, and methods – taught in business schools, suggested by their consultants, and expected by their investors. The result is that in case the startup fails to execute “the plan”, investors are shocked, but they usually forget that no startup executes its business plan. It also means that the today's general knowledge and curriculum about running large companies do not work for startups, nor in times when the pace of advancement and change is accelerating. More and more experts, entrepreneurs, and investors are learning the lesson that startups are not simply smaller versions of large companies. [Blank – Dorf, 2012]
Established companies execute business models where customers, their problems, necessary product features, the market, and the competitors are all evidence. On the contrary, startups operate in search mode, seeking their scalable, repeatable, and profitable business model – and this activity requires dramatically different tools, methods, rules, skills, and roadmaps for minimizing risk and optimizing the chances for success. And to the contrary: big companies are not larger versions of startups. A company is a permanent organization to execute a repeatable and profitable business model.
There has been a lot written about how these (large and established) organizations need to be more innovative and monetize the development of technology, but very little about what stops them from doing so. By definition, companies trying to do so face a riddle: every internal plan, policy, or procedure that makes them efficient in execution stifles innovation. [Blank, 2014a]
The processes by which an organization transforms labor, capital, materials, and information into products and services of greater value are called technology. The advancement of technology follows an exponential curve, which implies that companies need continuously to pay attention to it. A paradox is that, at first glance, there seems to be no pattern when disruptive changes overtook established and well-managed companies. An explanation is that once great but failed firms were as well-run as one could expect a firm managed by mortals to be – but that there is something about how decisions get made in successful organizations that sows the seeds of eventual failure. [Christensen, 1997]
The fierce and global competition makes enterprises deal with innovations. As they feel their competitors’ breath on their necks, they want innovation to happen inside their organizations. As they see that startups are successful in this field, they want themselves to be like them. But paradoxically, despite their seemingly endless resources, they experience innovating inside an existing company is much harder than inside a startup. Most of them feel that innovation can only happen by exception and not by design. The question is: why? [Blank, 2014a]
A general answer could be that established companies are designed for executing a proven business model. Their employees are also acting in execution mode. They take the business model as a given, and measure their success on metrics that reflect success in execution. And so, what is rewarded is also efficient execution. Another question could be why execution policies and processes have become impediments to and are antithetical to continuous innovation.
The past 100 years of management practice and science have elaborated tremendous numbers of tools to assist companies in executing. These tools brought clarity to corporate strategy, operations management, and finance. Examples could be BCG matrix, strategy maps, or the Stage-Gate method. But all these tools have an underlying assumption that the business model is known, and the only task is to execute it. [Kristóf, 2016]
As the systematic process of execution needs to be repeatable and scalable, staff functions developed Key Performance Indicators (KPIs) and business processes to plan, measure and control execution. These KPIs and processes make companies efficient in execution, but paradoxically they are the root cause of corporations’ inability to be agile and responsive innovators, and every time a new execution process is introduced, innovation dies a little more. “The conundrum is that every policy and procedure that makes a company an efficient execution machine stifles innovation.” [Blank, 2014a]
Since technology is advancing exponentially, the organizations absorbing these changes logarithmically need new approaches, tools, and mindsets to keep themselves in the race in profitability and growth.
Linear vs. exponential
According to Moore’s Law (the exponential growth of computing power) and Metcalfe’s Law (exponential value of interconnections on expanding networks), the exponential advancement of technology has become a generally accepted phenomenon in the last decades. Futurist Ray Kurzweil has identified this exponential technological progress on many fronts as part of a law of accelerating returns. The driver fuelling this phenomenon is information. Once a domain, discipline, technology, or industry becomes information-enabled and powered by information flows, its price/performance begins doubling approximately annually. [Ismail, 2014] This is shown with a sharply rising blue curve on Figure 1.
Figure 1: The change in technology and organizations
Source: Brinker, 2013
But organizations and companies absorb changes logarithmically – shown with a much slower rising red curve. It takes time for people to alter their thinking and their behavior. With groups of people where there are existing structures, processes, incentives, and cultural momentum, it takes even more effort to turn the ship. The larger the group, the greater the institutional resistance.
The great management dilemma of the 21st century is the relationship between these two curves: technology is changing faster than organizations can absorb change. Providing appropriate answers is the crux of innovation management.
Based on the time horizon we want to make a significant impact, there are multiple possibilities to solve this conundrum. For established companies, one possibility is to engage in the so-called 10-week ExO Sprint, which aims to start a mindset shift by flexibly executing a pre-defined set of steps. This affects only one organization, which start initiatives to make the core more resistant to external threats, and parallel to this, disrupting on edge. But what should we do if we want to have a much wider impact?
Option to make a difference
Another option to make a significant difference is to renew higher (business) education and bring exponential tools and mindset directly to the next generation of future business leaders and decision-makers. This is exactly what Soledad Llorente and Diego Soroa – both experienced ExO coaches – did in the MBA programs at IE Business School (Spain) 6-7 years ago. Based on their examples and using my coaching and teaching experiences, I created content for master students and approached multiple business schools in Hungary to launch a full-semester course focusing on exponential mindset and disruptive innovation. The University of Pécs Faculty of Business and Economics was open for collaboration in 2019. (Besides, Corvinus University of Budapest also hired me for a 1-week intensive block seminar.) After several meetings and discussions, we could align the accreditation criteria with the business requirements. We also had to somehow hack the system: there was a new course titled “Tutorial: Startup development” we could use as a host subject. We started the first cohort with international master's students (in entrepreneurship and business development) in February 2020. Yes, just one month before the global Covid-19 lockdowns…
Despite we started the course in-person in mid-March, we quickly switched to fully online. Although the pandemic was a harmful and negative global phenomenon, it created tremendous business cases about and around why constant and accelerating change is inevitable and why even universities must equip future leaders with adequate mental models and transformation methodologies. Furthermore, the pandemic boosted the transformation of higher education globally. Also, at the University of Pécs we only required two weeks to change to a 100% online format. Prior Covid-19 this was inconceivable.
In the first year, we focused on action learning, pushing students out of their comfort zones and getting them out of the classrooms. This was demanding not only for the participants but also for me: university students are usually accustomed to hearing lectures and reading textbooks they have to learn by heart, and during examinations, they have to reproduce what they learned. My course was rather a mindset change, questioning the status quo of how teachers teach, students learn and perform, and are graded. Furthermore, switching to online allowed guest speakers from the OpenExO community around the world could show up easily with certain topics. Using these “spices” allowed me to cook something interesting, forward-looking, and completely new. But one part was still missing: how do we combine management practices with university requirements, aka how to implement the ExO methodology for a master program semester?
An ExO Sprint covers ten weeks. A university semester is 14 weeks, in my case, 14*150 minutes of class every week, plus weekly assignments with an average workload of 4 hours/student. This meant that we had four extra weeks to traverse key topics and – similar to sprints run with multinational companies – have awake and align sessions to hand over the basics of Exponential Organizations and start changing student mindsets immediately at our first contact. The shock and awe scenario was planned in detail: showing the students the big picture, where we start and where we intend to end, how their learning journey will look like, and how we will maximize learning and gaining experience. This was a completely new method: no formal exams, no assignments, but a lot more action-learning, experimentation, getting into unknown situations, and failing in a safe environment. Furthermore, getting familiar with a hands-on methodology and experiencing the fundamental differences between linear and exponential: not just technologies but also mindsets.
The result was as expected: some indignation, many questions, concerns, and comments that it won’t work since it is so much different from what they were getting used to during their bachelor studies – regardless of where they have done it. We had 25 students from 20 different countries, 30% with different prior studies than business or economics (e.g., engineering, biology, humanities, etc.). That showed me that I’m on a good track! But I also had to provide reasonable answers to them. Every start is difficult, but applying my knowledge and experience gained with the ExO methodology helped me to overcome these difficulties in a planned way. The methodology works!
ExO sprint applied
This is how we started our 14-week journey (back in 2020). As mentioned above, we followed a slightly modified version of the 10-week ExO sprint edge stream. First, the students got familiar with the basics of exponential technologies, disruptive innovation, global grand challenges, and utmost with the Exponential Organizations' methodology and framework. Right from the 2nd week, we switched to experimentation and validation mode: in the first five weeks identifying and validating problems were in focus. In the second 5 weeks, building (minimum viable) solutions became primary. Week by week, they received some new content and were briefed on the next week's assignment and expected progress, and they presented their achievements, discussed their experiences, and shared their insights. Having switched to an online format enabled me to invite ExO experts and speakers from any part of the world. The OpenExO community was extremely supportive of this, and global sought-after strategists have shown up on the screens and shared their experiences working with the ExO methodology.
During the ExO sprints, we always run weekly feedback sessions using surveys. This is how we gather data about the progress and how participants feel themselves. This is used to make minor modifications and interventions while reducing risks and maximizing sprint outcomes. I applied the same with students – week by week, I asked them how they felt, what they learned, what was going well, and which parts could be further improved. The below figure shows the week-by-week schedule of the sprint, while the red line represents the students’ mood. This is similar to real sprints: at the beginning, everything is nice, the expectations are high, and people selected to the sprint teams are highly motivated. But kickstarting the sprint, immediately turns out that transformation is not only painful, but it does not happen overnight. Changing approaches and mindsets though, requires leaving our comfort zones. Furthermore, running experiments and validation happens only outside of the office buildings. Getting into inconvenient and uncomfortable situations, meeting and talking to unknown people, and doing daily activities they are not used to quickly results in a rapidly falling mood. The bottom is usually reached right before and during the so-called disrupt session, where external disruptors (usually ExO experts) come and ask unpleasant questions and suggest killing some of the beloved initiatives.
Figure 2 The format of our 10-week ExO sprint and how the students felt
The disrupt session is not only a watershed for the initiatives, but it also means the low point in the mood. After this, everything starts to get better and better, week by week. The second 5 weeks show many similarities with the first five weeks: building MVPs, designing experiments, and launching validation sessions is already partly known to the participants. Exactly the same was experienced with the students. Furthermore, they also started to feel that the big day, their final presentations, was coming. They have to be ready because part of their grades will depend on this.
And yes, the grading was also critical. I was keen on grading the learning journey and not how successful the students were with the initiatives they were working on during the semester. You can imagine: in many cases, failure brings more learning than being successful with something. And this was the rule we wanted to follow. At the beginning, I felt from the students that this was strange for them. Therefore, I emphasized every week that I don’t care if they will fail with their projects (and neither if they are extremely successful). What counts is the amount of learning. And this is achieved by investing their only asset: their sweat capital.
My students passed significant learning milestones week by week. They got familiar with the ExO methodology, heard educational stories from experienced ExO coaches, and finished their studies with extraordinary insights. Out of the six student teams, one performed outstanding: they stayed together and applied for various pitch competitions and even won one prize. One performed great, two performed well, and two teams were lagging behind.
More to come
This was an introduction to a long story in short. Based on the success of the first year, the Faculty decided to keep the course, refine it with the experiences and even bring it to the next level. In the 2nd part of this article, I’ll talk about how the OpenExO community contributed, and what were the results of the 2nd and the 3rdyears. Additionally, I’ll also write about my insights working with MBA students from Corvinus University of Budapest. Furthermore, I’ll detail the ongoing 4th cohort and tell you how we will grow the university credit value of this course by 50% in 2024. Finally, I’ll provide a guide for other university professors about how to engage with, plan, and start an ExO-based course at the master's or MBA level. Stay tuned!
My acknowledgments go to:
· Peter Fehér: my Ph.D. supervisor, who supported me when I got deeply engaged with disruptive innovation.
· Soledad Llorente & Diego Soroa: senior lecturers at IE Business School, who were pioneering and creating the first-ever ExO class for MBA students.
· Zsolt Bedő: associate professor at the University of Pécs, my co-lecturer, who was outstandingly supportive with launching the master course with ExO content.
· Chander Nagpal: head of OpenExO Research, who supported and encouraged me in writing this article (and even more).
About the author
Peter Kristof Ph.D., an award-winning innovator, transformation consultant, and researcher, was a management committee member of Ulyssys and CEO of Ulyssys Serbia, a software conglomerate in CEE. Previously he worked in the largest digital transformation program in Hungary, advising the board of directors. He helped create various technology-based governmental strategies (industry 4.0, 5G, startup nation) in Hungary. He supported exponential transformation programs for multinationals in the US and EU. Peter was also chief information and innovation officer at the University of Pécs and advisor to the European Innovation Council and European Institute of Technology and Innovation.
Peter is a seasoned advisor, lecturer, conference speaker, researcher, and specialist in disruptive innovation, exponential technologies, and company transformation. He spent many years helping startups get early and later-stage funding. He himself was also a co-founder of YourAnastomosis, a surgical education startup. As a former basketball player, he brings team spirit, collaboration, and perseverance to his work.
Peter is passionate about developing individuals, teams, and organizations by harnessing the power of technology innovations, and scientific research with the purpose of making a positive and scalable impact.
Find him on LinkedIn: https://www.linkedin.com/in/peterkristofhu/
Blank, S. G. : Search versus Execute. http://steveblank.com/2012/03/05/search-versus-execute/. Access: 30-04-2023.
Blank, S. G. [2014a]: Why Companies are Not Startups. http://steveblank.com/2014/03/04/why-companies-are-not-startups/. Access: 30-04-2023.
Christensen, C. M. : The Innovator’s Dilemma. When New Technologies Cause Great Firms to Fail. Harvard Business School Press. Boston, Massachusetts.
Ismail, S. : Exponential Organizations. Why New Organizations Are Ten Times Better, Faster and Cheaper Than Yours. Diversion Publishing Corp, New York. ISBN: 978-1-62681-358-8.
Kristóf, P. : How Established Companies Can Master Disruptive Innovation Like Startups? Achieving innovation excellence and disruptive ability. PhD dissertation. Corvinus University of Budapest. Access over ResearchGate.
 The very first venture capital-backed company was Fairchild Semiconductor in 1959.
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