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Technological Innovation and its Applications

"Today we live in a world that is global and exponential. The problem is that our brains—and thus our perceptual capabilities—were never designed to process at either this scale or this speed. Our linear mind literally cannot grok exponential progression.""

—Peter H. Diamandis

Linear vs. Exponential Growth

In the fast changing world operating in traditional ways are becoming obsolete. The size, reputation and age of an organization cannot guarantee its survival anymore. More often than ever old companies are getting disrupted by new entrants overnight. The reason is successful implementation of technological innovations. Some companies see technological innovations as a threat, some try to leverage them and fail to do so, and some successfully implement the tech advances.
The organizations which are successful in leveraging technological innovations are called exponential organizations (ExOs). The term was first introduced by Salim Ismail, Founding Executive Director of Singularity University and lead author of the book “Exponential Organizations: Why New Organizations are Ten Times Better, Faster, and Cheaper Than Yours”. He defines ExOs as organizations whose output and impact is disproportionate to their size, their growth is exponential. Instead of using a large number of employees and large physical assets, ExOs are built upon information technologies that dematerialize once physical resources into the digital. These organizations are at least ten times better in terms of efficiency, spread, cost, speed and their impact than their peers, because they integrate accelerating technologies into their core business.

Linear vs. Exponential Growth, The Six Ds Model

The technological innovation is accelerating so fast that it does not fit well to our historical understanding of improvements. Remember the time when you tried to teach your grandparents how to use a smartphone with a touch screen. For someone who used telephones their whole life with actual digits to dial, the idea of smartphones is hard to grasp. In similar ways we at the moment cannot foresee or comprehend the exponential technological changes coming in the near future. Ray Kurzweil calls this process “The Law of Accelerating Returns”. He states that backwards looking data on technological innovations illustrates that exponential growth, despite the contrary feeling of intuitive linearity. Our ancestors expected rather incremental changes from the times of their parents. A son of a shoe maker would pursue his father’s footsteps with slight work adjustments, and he would be ok making his living. But today that is not valid anymore due to technological disruptions. Although the idea of dividing the past into a linear growth period, and present and future into an exponential one is a wrong assumption. As mentioned above, exponential changes have existed since the beginning. But for thousands of years technological innovation was at the early stage where the curve was flat. You can see in Figure 1 that at the beginning of exponential growth due to flatness of the curve it felt like no change at all. Thus the lack of expectations of our forebears about exponential growth was fulfilled. Today we largely expect constant growth, yet cannot see what the future might bring. The future will be far more progressive, exceeding our expectations with accelerating changes. It is obviously not easy to shift our mind from our ancestral linear view to the exponential view.
It became easier for small entrepreneurs and teenagers from their fathers garages to disrupt industries and ride the exponential curve. Giant companies are at the danger of extinction abruptly. Until now they have been leveraging the economies of scope and scale, thus having big assets, hundred to thousand employees in multiple plants. Now it is becoming harder to maneuver those assets and get off the linear curve and hop on the exponential one. Those giants are familiar with the problem and most of them are looking to tackle the problem in their corporations (Ramirez, 2016). Since now we are at the turning point of exponential growth, how can firms leverage innovative technologies in their industries? How can companies jump from linear curve to the exponential curve to realize the disruption depicted in Figure 1.
According to Peter Diamandis, founder and chairman of the X Prize Foundation1, cofounder and executive chairman of Singularity University2, (Ramirez, 2016) companies should take six key steps to realize exponential growth. He calls them the Six Ds of Exponential Organizations: digitization, deception, disruption, demonetization, dematerialization, and democratization.
Digitized: By digitizing products and services companies experience exponential growth. Once information is digitized it can be easily accessed and distributed. If in the past the information travelled as fast as a horse, now it can be shared in the matter of seconds and accessed at the speed of the internet on the other side of the globe. For example, old newspaper publishers could reach only the surrounding audience. But today with the help of digitization it can reach billions of audience simultaneously.
Deceptive: After products, services and information are digitized companies might not see the exponential growth right away. Because the initial state of the growth is deceptive. As we already have seen in Figure 1 above, at the initial phase of the curve the growth is insignificant. For instance, it took decades to advance the first 1956’s IBM 350 disk storage unit with capacity of 3.75 MB and with weight and size of 152 x172x74 cm and 971 kg respectively (IBM, 2021). Today one can purchase a 32 GB card for 10 USD off Amazon, which weighs only a gram and has a surface of 1.5 x 1.1 x 0.07 cm. This deceptive growth process is also called Moore’s Law3, where digits double every year. It takes a long time to double from 0.01 and to reach a whole number. Afterwards 2 becomes 32, and 32 becomes 32,000 very quickly.
Disruptive: New technological improvements are disrupting existing industries. For example, if one can have an unlimited number of songs stored on the phone, why buy CDs? Or if one can take countless picture at the cost of zero, why bother investing in separate cameras, films and photo developers. Here we can see how a mobile phone disrupted CD-music, photo camera industries and more. Companies should be brave and disrupt other industries out of their scope as well as their current ones. We will talk more about disruption in chapter three of this paper using Salim Ismail’s dynamic methods of ExO implementation.
Demonetized: Demonetization happens when money is removed from the equation, or at least it is not the main input of the equation. We observe how software development, or website launch is costing a fraction of the amount it used to cost a decade ago. For instance, today we all can enjoy unlimited number of mobile apps at cost zero. Demonetization is important for companies to expand their business and increase the number of users.
Dematerialized: Thanks to dematerialization we do not have to purchase a separate product that serves only one purpose. So far tech companies have managed to dematerialize news, photography, GPS, shopping, and more into our one pocket device. Democratized: Democratization is when digitized information, products and services are available to the common people. Unlike in the past, today not only large organizations and governments, but also commoners can have access to modern technologies easily. For instance, anyone who has a gadget and internet can access to and spread digital info worldwide (Ramirez, 2016). In a nutshell the Six Ds Model provides important steps for traditional organizations to shift from linear to exponential growth. It gives a general overview how it is possible to align existing goods and services in the industry to an exponential business model. One should keep in mind that the Six Ds is not the only model proposed for companies to leverage innovative technologies. Salim Ismail, in his book, proposed nine key dynamic steps in implications of ExOs:
1.Information Accelerates Everything,
2.Drive To Demonetization
3.Disruption is the New Norm
4.Beware the “Expert”
5.Death to the Five-Year Plan
6.Smaller Beats Bigger
7.Rent, Don’t Own
8.Trust Beats Control and Open Beats Closed
9.Everything is Measurable and Anything is Knowable4 (Ismail, Malone, & van Geest, 2015).
In the following chapters we cover only two of those nine steps: first- Rent, don’t own, and second - Disruption is the new norm. The reason why we do not mention all nine steps in detail is because most of them are in line with the Six Ds Model which is already elaborated in this chapter. Moreover throughout the next two chapters we periodically refer back to the Six Ds Model.

Rent, Don’t Own

This chapter is devoted to examining one of the nine implications of exponential organizations. We forward the idea of renting rather than owning an asset by organizations. As mentioned in the previous chapter this concept is advocated by Salim Ismail and his co-authors. We scrutinize the example of Airbnb and demonstrate how this company excelled in what it did.
Due to the old concept many organizations think of resource scarcity. In the past one could be wealthy by owning and acquiring a tangible asset which is scarce in the environment s/he lived in. Our ancestral brain struggles to capture the idea of abundance in general due to our tribal instincts. In tribes more acquisition of assets meant wellbeing and immense asset ownership required a lot of people to manage the assets. That’s how hierarchy formed amongst our ancestors as a live-survival structure. The same ‘acquire and then expand’ concept translated into current traditional organizations. One can observe many companies with billions of dollars’ worth tangible assets that struggle to adopt and move nimbly in the agile world. As a matter of fact wealth by ownership condition is valid only in scarcity and stable conditions. But we are on the verge of moving from scarcity to abundance, and the pace of change in business is expected only to accelerate (Ismail, Malone, & van Geest, 2015).
Traditional thinkers believe in linear growth: X amount of output requires Y amount of resources. Thus by increasing Y one increases output. According to this school of thought growth always stays linear and increase in output is arithmetic. As mentioned already above exponential organizations’ growth is not subject to arithmetic linearity, it is rather geometric. Because ExOs do not acquire assets rather they rent them when needed. Not owning idle assets but digitizing, dematerializing and democratizing the rented assets creates potential exponential growth (Curtis & Mont, 2020), and gives organizations fixability, agility and cost efficiency (Ismail, Malone, & van Geest, 2015). Salim Ismail quotes “when you access resources and information enable them your marginal cost drops to zero”. Which means if an ExO with rented and information enabled resources would like to increase a number of goods or services by one, that additional unit will cost almost zero.
One of the excellent examples of renting, not owning philosophy is Airbnb. Airbnb is a technology-driven distribution platform where individuals can rent out their available rooms in their apartments where they live as well as complete houses or condominiums to tourists around the world. Although it is only twelve years old it transformed the tourism sector worldwide and has expanded to the unforeseen scale (Guttentag, 2019, p. 815). At the early stage of launch in 2008 Airbnb had a very limited number of users, but from 2011 the company grew rapidly (Airbnb, 2019). In Figure 2 we can observe that initial deceptive state in the beginning and exponential growth from 2012 onward.
Already in 2018 Airbnb had over five million active listings worldwide, which was a bigger capacity than the top five worldwide hotels combined (Hartmans, 2017). According to some scholars Airbnb did not only disrupt the hospitality industry, but also is disrupting communities, since residential places are being transformed into tourist lodges (Guttentag, 2019, p. 816). Worth to mention, yet Airbnb’s community disruption is out of the scope of this paper.
To back up the claims of Airbnb’s exponential growth let us take a look at hard numbers, the number any investor or a guy at Wall Street considers to assess a company. At the time of writing this paper Airbnb’s market capitalization is twice as big as Marriott International, the market caps equalling $82.93 Billion and $43.97 Billion respectively. Unlike Marriott or any other hotel companies Airbnb does not own any property. It neither has to maintain expensive real estate and employees, nor deal with heavy local regulations. During slow as well as busy seasons the cost of business maintenance is almost zero for Airbnb. Which is unrealistic for hotels with thousands of employees all over the word and in advance fixed cash outflows for the real estate they own. If a location becomes unattractive, those giant hotel companies have little to no ability to adapt or adjust to the situation. They cannot get out of long term lease contracts or sell out the property they own in the unprofitable location. For traditional companies both fixed and marginal costs are a huge problem Meanwhile Airbnb manages to reach 200 Million guest arrivals in a year all over the world without owning a single asset (Toolbox, 2021). Airbnb’s business model is purely digital. It provides the platform where guests and hosts can meet. Airbnb fits perfectly into the description of rent, don’t own model according to Salim Ismail. It takes necessary resources from the resource owners around the world (Curtis & Mont, 2020, p. 9). This rent-not-own model is expanding the trend of collaborative consumption and the sharing economy. There’s less and less need to own property, assets and tools. Instead of investing, building and owning actual property all over the world, it simply “rents” the property of commoners when there is a demand. Having one guest arrival less or more does not affect the fixed and marginal costs of the company. Under the condition of rent, don’t own Airbnb has no limits in the number of guest arrivals and locations. The supply of Airbnb services can increase or decrease depending on demand in the market, without financially damaging the core business. No internal damage, but potential growth is what makes Airbnb an exponential organization (Ismail, Malone, & van Geest, 2015).
Usually these kinds of disruptive innovations come from outsiders and start-ups, rather than the actual industry players. Most big industry players try to hinder those disruptors. For centuries that was an efficient technique to dominate the market, but it is not anymore. With the help of digitalization, democratization and dematerialization today small entrepreneurs are able to beat the giants. Small agile organizations are using the momentum and the weight of the big industry players against them. Salim Ismail believes that Marriott was supposed to be the Airbnb. Obviously cannibalizing or disrupting one’s own industry requires an exponential vision and courage. Indeed Marriott failed to see a disruption coming and also could not disrupt its core business. We will talk more in detail about disruption in the following chapter.
In the nutshell, one of the ways to shift from linear growth to exponential one is to rent, and not to own expensive assets. Renting resources on demand gives organizations flexibility and agility. In the fast changing world immense asset ownership can create a burden on companies. Innovative technologies have changed the business dynamics, thus it is time for organizations to shift from scarcity thinking to abundance. To join the ExO club companies should learn to leverage others resources with the help of innovative technologies.
Yet one should keep in mind that it is not always the case that ExOs rent and don’t own an asset. This model is optimal in the abundance scenario. There are some exponential organizations that own strategic property. For example Tesla has its assembly line, and Amazon owns warehouses. But that is not because they do not want to rent, and strictly believe in owning the property. They do so partially due to supply scarcity. If there is another company that can offer a better assembly line for a cheaper price, or a warehouse where they are more efficient, these two companies could potentially adapt the rent, don’t own model too (Ismail, Malone, & van Geest, 2015).

Disruption is the New Norm

This chapter is devoted to exploring another implication of exponential organizations, disruption is the new norm. As the previous concept of renting, this concept is also advocated by Salim Ismail. We scrutinize how organizations can use modern technologies to disrupt traditional industries. To have a solid idea of disruption we exemplify Matternet and demonstrate how it revolutionized multiple industries with the help of drones.
Unfortunately disruptive technologies are not always welcomed by organizations. Not all entities are embracing the advances that technology can offer. Let alone governments which try to resist technological innovations rather than finding a way to regulate them. Most governments’ and organizations’ first reaction to those changes is to ban or restrict technological innovation. That’s what Salim Ismail calls the immunity problem. He says that every business enterprise and government have immunity like humans. Once it is introduced to a change the immunity attacks and tries to resist the change. The problem is many such organizations and governments perceive disruptive technologies as a threat due to the immunity problem (Ismail, 2018).
One of the great examples I would like to mention here is a drone. For instance countries such as Uzbekistan, India, Saudi Arabia, Morocco, Slovenia, Argentina and more have outright bans according to Jones (2017, p. vii). Outright ban means that commercial drones are not allowed to be operated at all times. As reported by the same paper many more countries have effective bans. For example Egypt, Colombia and Belarus. These counties have formal procedures to license commercial drones. Yet the requirements are impossible to meet or simply licenses are not approved.
One of most effectively disruptive implementation of drones has been by Matternet in humanitarian purposes. Matternet was founded in 2011 at Singularity University. It uses drones to deliver medical aids to save time and increase efficiency. When the company was a still a start up at Singularity University it had test runs in in Haiti, Lesotho and the Dominican Republic during aids outbreak. The drones transported the necessary laboratory samples across the countryside. Usually in poor countries the transportation and the whole infrastructure system is not in place. By using drones to deliver medical help from point A to B in countries with poor infrastructure the company achieved the10 so called “eureka” moment. One of the founders of Matternet Andreas Raptopoulos says that up until now 85% of roads in sub-Saharan Africa are not fit for transportation during the wet season. The roads turn into swamp and leaves people disconnected from the medical help on the other side. He also states that despite the fact that initial drones were constructed and invented for military purposes throughout 1935 to 2006, Matternet replaced the military purpose of it to the humanitarian (Hickey, 2014).
Since then the application of drones has improved and expanded globally. Deployment of drones as urban logistics by Matternet was approved in Switzerland after 1,800 safe drone flights were recorded. Urban drone logistics system supplies blood and laboratory results between hospitals. Life of a patient arriving at ER with severe injury can be saved with the help of drone logistics. Without drone logistics if blood transfusion is required and the ER runs out of the necessary blood type for the transfusion, a patient has to wait for the blood to be delivered by a courier or sent via taxi from a different hospital. Delivery trucks and taxis have an immense disadvantage compared to drones, unlike drones they cannot fly the shortest route and disregard traffic (Straub, Dorrier, Ramirez, Gent, & Rejcek, 2019, p. 11).
According to the web site of Matternet at the moment the drones can operate in the rain safely, have automatic safety parachutes, and an anti-collision alarm system. The fully automated flights can go as far as 20 km range and up to 70km/hour. Matternet is also expanding from the USA and Switzerland to Asia in cooperation with Japan Airlines (Matternet, 2020).
At this point we can observe the disruption of logistics in health care, potential disruption of traditional posting and shipping. In fact Amazon drone delivery was inspired by Matternet. In my personal opinion drones can also revolutionize film and media industries. Disruption is the new born, and any organizations that do not want to be disrupted should embrace it. Disruptive innovations rarely come from a status quo. Big industry players are sometimes trapped in the past experiences and status quo. Today in this situation the outsiders and start-ups have the advantage. Since they do not have any structure and legacy to follow, they can leverage the democratization of information and technology to disrupt the main players. Because of linear thinking, traditional organizations get disrupted from directions they expect the least. The newcomers into the industry have the advantage of agility, and are able to attack almost any market with the help of information-enabled technology (Ismail, Malone, & van Geest, 2015).
To be disrupter rather than disrupted, organizations should be ready to disrupt their own existing business when needed. We can bring here a short example of Amazon: how it cannibalized its own book sales by introducing Audible. Amazon could foresee that if they did not do it, someone else would.
Salim Ismail (2015) notices some consistent actions around disruptive ExOs. Disruptive organizations information-enable their domain by digitizing, and democratizing the access by making it available to commoners worldwide. The whole process of expanding with democratization and digitalization expands the user base, yet dropping marginal costs exponentially.
In terse, disruption is unavoidable. Either organizations disrupt their business model, or soon enough there will be new entrants that will disrupt the existing organizations as well as the whole industry. Embracing disruption takes an immense effort. Firstly, the entity striving to be a disruptive ExO should be aware of its immunity that will try to resist any kind of change. Secondly, disruption requires digitalization, information-enabling and democratization. However once the disruption efforts are implemented properly the organization will enjoy the exponential growth. Worth to note that the disruption process is not a one time process. It takes iterative efforts from trial and implementation to disruption.

Summary

Throughout the paper we try to elicit that technological innovations are changing the name of the game in many industries. The environment, requirements, standards are changing faster than ever before. A lot of organizations are struggling to keep up with the pace of change. Yet some scholars believe that the current speed of change will seem insignificant in the near future. So in this ever accelerating world how some organizations are managing to emerge overnight and disrupt dominant players in the industry? The answer is they leverage innovative advantages the technology can offer today.
In this paper we attempt to answer how organizations can leverage technological innovations to shift from linear to exponential growth. The key is to see technologies as a tool to excel rather than a threat. Of course not all organizations are threatened by technological advances. In fact many try to leverage them but are not very successful at it. There are multiple steps suggested by some scholars, how organizations should integrate innovative advances into their business. Firstly organizations should shift from linear thinking to exponential one. Linear thinkers advocate that X amount of output12 requires Y amount of resources. Exponential thinkers believe in abundance. ExOs deploy information enabled resources and do not limit themselves with limited physical resources. Secondly we advocate the Six Ds Model by Peter Diamandis for organizations to leverage digitization for exponential growth.
Furthermore, in this paper we study two dynamics of nine ExO implications with real life examples. From the nine implications of ExOs proposed by Salim Ismail we scrutinize two concepts: first - rent, don’t own, and second - disruption is the new norm. Renting and not owning assets gives organizations flexibility and agility. These organizations leverage external resources to reach their objectives in a fast and nimble manner. Meanwhile, the second concept states that disruption is inevitable. Thus organizations should use available technologies to disrupt other industries as well as their core business when needed.
In essence, for organizations reaching exponential growth is not an easy one time process. They should take multiple and iterative steps to succeed and be the leader in the industry. It is necessary for organizations to leverage technological advances to stay alive in a fast changing world, yet the right deployment of innovative technologies takes courage, immense effort and far sighted vision.