David Espindola - The Exponential Era

Keep in mind that this company was the undisputed leader in its industry. They continued to experience year‐over‐year net revenue growth and healthy margins, rewarding investors with solid dividends, and repurchasing a significant amount of stock shares. The repurchase of shares might have been a sign of uncertainty about the company's prospects and an attempt to boost the share price in the short term. However, the leadership team displayed nothing but total confidence in the company's ability to stay competitive and grow.

What had us concerned, despite the company's position as a category king in its market, was the potential for disruption. For many years this company had operated under the following conditions:

1 Thousands of employees

2 Legacy culture, infrastructure, and profit pools

3 Relatively slow to move

The enormous size of this market and the potential for profits were very attractive to potential disruptive entrants with the following contrasting characteristics:

1 Access to cheap technology

2 A low‐cost infrastructure that could be rented

3 Fast‐moving

Indeed, what we found is that there were several exceptionally well‐funded, fast‐moving technology companies that were entering their markets.

It would be very disconcerting for any company to have its market leadership challenged by the likes of Amazon, Google, Uber, or other highly capitalized fast‐moving companies. No one wants to be in that position.

The number of companies that have been “amazoned” is legendary. 1An entire industry has been “uberized” due to Uber's unrelenting long‐term investments in technology. Now, imagine being in the unenviable position of potentially being susceptible to competition from both Amazon and Uber at the same time – that is the threat level that this company was dealing with.

Our research had also revealed that the convergence of several emerging technologies could completely alter the market landscape that this company operated in. We leveraged Artificial Intelligence algorithms to mine patent databases and discovered, for example, that several large companies like Walmart and Amazon were investing in the ability to manufacture products on demand and on the move. The confluence of 5G, Internet of Things (IoT) and GPS capabilities, and the convergence of 3D printing with autonomous vehicles, is just one of many possible technology‐driven disruptions on the horizon that could completely change their industry.

This additional background information helped us understand what might be driving the CEO's quest for knowing “when.” Despite all their successes, this was a company in the eye of a storm, faced with disruptive forces and competitive pressures unlike any they had experienced before. It was vital for this company to get ahead of the inflection point. They needed to be nimbler and more aggressive than their competitors in targeting converging technology investments. They needed to overcome their history and get their entire culture ready for the disruption and transformation of their entire business.

The CEO was absolutely correct in his thinking as he sought to answer the question of “when.” Bringing an innovative idea to market too early can be just as fatal as being too late. Think about Apple and the Newton personal assistant device. 2Or Lady Florence Norman who introduced the motorized scooter circa 1916. 3These were all great ideas, as proven by Apple's eventual success with the iPhone, and the motorized scooter craze we see around the world these days – they were just timed incorrectly.

Not too long after our discussions, the company announced that it was committing a significant amount of dollars in technology investments over the next five years.

This announcement was a positive sign. It showed that the company understood the challenges ahead. The fact that the CEO was seeking answers to the question of “when” told us he had a significant level of awareness that time enriched decision making is of the essence. However, as we will see in future chapters, we have witnessed and studied several companies that, notwithstanding full awareness and willingness to invest, were unable to make timely decisions, change their culture, and stay apace with the disrupting forces they faced.

The key point in sharing our interaction with this Fortune 500 company is to emphasize that any company, no matter how big or successful, can be subject to the disruptive forces of the Exponential Era. Newly formed ecosystems, powered by easy access to converging technologies, can provide the fuel to rapidly dislocate stagnant or poorly managed companies and industries. Our first word of caution is: do not be deceived by your success.

In the Exponential Era, it is very easy to be caught off guard, because what may look like calm seas, can quickly turn unexpectedly. If you can't foresee a major storm coming and can't prepare for it, it may be fatal.

As we will explore throughout the book, technology investments alone are not sufficient to achieve a successful adaptation to the speed and scale of change. The most challenging aspect of getting companies ready for the fast changes that characterize the Exponential Era is transforming the culture.

As Lou Gerstner said in Who Says Elephants Can ' t Dance? “Successful institutions almost always develop strong cultures that reinforce those elements that make the institution great… When that environment shifts, it is very hard for the culture to change. In fact, it becomes an enormous impediment to the institution's ability to adapt.” 4

Sometimes the only way to achieve a change in culture is by making a change at the CEO level, as was the case with the successful turn‐around experienced by Microsoft. Before Satya Nadella, Microsoft's culture was often characterized as internally competitive and hostile. It prized showing that you were smart, even at the cost of creating hostility and preventing teamwork.

Microsoft was unable to keep up with the fast beat to which it was expected to dance. The company's prospects were quite dire for a while. It lost the mobile operating system war and almost failed to get traction in the cloud. It took bringing in a CEO that understood and emphasized culture to completely turn the company around. “There is something only a CEO uniquely can do, which is set that tone, which can then capture the soul of the collective. And its culture,” said Nadella. 5

“Predictions are hard, especially those that pertain to the future.” This comical proverb was allegedly first expressed in Danish, but the author remains unknown.

Given the difficulty in making predictions, how do you deal with the uncertainties of the Exponential Era? How do you stay on top of all the emerging trends and converging technology factors? How you do spot inflection points in business before they happen? Rita McGrath has written an excellent book titled Seeing Around Corners , that expands on this subject. In the book, she contends that inflection points, though they may seem sudden, are not. 6In an exponential curve, there is a long period of time in which the curve is basically flat, before the inflection point. Then it hits the elbow and goes straight up (see Figure I.1). It is during this flat period and the beginning of the elbow that, armed with the right perspectives and tools, smart leaders can anticipate changes and leverage them to create competitive advantages. Please note that we are using the exponential curve here for illustrative purposes only and not in its precise mathematical sense. For a more extensive discussion on this subject, please refer to the Appendix.