David Espindola - The Exponential Era

Figure I.1Inflection point.

The key is to detect the signals of change and respond early enough, before it is too late. The challenge is always separating the signals from the noise which is often pervasive and distracting due to variations in the data. Startups have to be very good at detecting inflection points and making distinctions between signal and noise in order to survive. Most companies have a difficult time seeing inflection points and positioning themselves to take advantage of the opportunities these changes represent before they become threats. Technology startups tend to be nimbler, closer to the action, and demonstrably more willing to experiment and change directions than their more established counterparts. In the startup world it is very common to pivot to a different business model if the first one tried does not achieve the expected results. But for many legacy companies, it is a lot harder to pivot, partially because of their commitment to past investments, but in some cases also due to their intrinsic belief that what has worked in the past will also work in the future. Many legacy companies are focused on short‐term metrics derived from strategies that yielded results in the past, and their resources are allocated accordingly. However, allocating resources to conduct the necessary explorational experiments intrinsic to growth, but that requires taking some risk, is not common practice in these types of companies.

As of this writing, according to CB Insights, there were more than 400 private companies valued above one billion dollars. 7They are part of the Global Unicorn Club. What is remarkable is that most of these companies are recently formed, technology‐based enterprises. They run the entire spectrum of technologies from Security to eCommerce, Internet Services, Artificial Intelligence, and so on. These are the companies that are able to take advantage of the huge opportunities converging technologies in the Exponential Era represent.

And we are just scratching the surface of what is coming. The economic opportunities to be generated by the creation, rapid adoption, and convergence of emerging technologies is truly extraordinary. According to the World Economic Forum there has been no historic precedent to this current phenomenon, which is also referred to as the 4th Industrial Revolution, in terms of its velocity, scope, and impact on everything in our lives. 8You would have to go back to the late 1800s and early 1900s to see just three significant innovation platforms come together over several decades: electricity, the telephone, and the internal combustion engine.

Today there are at least 10 of these platforms, depending on how you categorize them, that have surfaced in the last few decades: Biotechnology, Nanotechnology, Autonomous Vehicles, Robotics, 3D Printing, Artificial Intelligence, Blockchain Technology, Augmented and Virtual Reality, and the Next Generation Internet. The latter contains several sub‐components such as Mobile Payment, Internet of Things (IoT), Online‐to‐Offline (O2O), and 5G. We will discuss many of these platforms in detail in Chapter 2.

These platforms are generating entirely new ecosystems and multi‐trillion‐dollar economies. Their convergences are creating a combinatorial power that is spawning ever‐increasing innovation and economic opportunities and threats across the globe. For example, today we see China leapfrogging to modern technologies like O2O, machine learning, and mobile payment. The latter has created a cashless ecosystem that has grown to 24 trillion dollars, almost twice the size of China's GDP. When these synergistic technologies with multi‐trillion‐dollar scope start converging and feeding on each other as we see in China, the explosive scale, scope, and speed of the Exponential Era become frighteningly obvious. 9

There are many imminent threats to slow‐moving companies that insist on operating on outdated business models or are incapable of adapting to fast‐moving changes. But there are also enormous opportunities for both incumbents and newly formed enterprises that see the inflection points before they happen. Today's opportunity, if left untapped, can turn into tomorrow's threat, or as we like to say, “the difference between a threat and an opportunity is the time horizon in which you see it.” 10

Incumbents – the current businesses that are growing profitably in their respective markets – need to be able to continue operating with excellence, maintaining their leadership positions, while concurrently seeking new opportunities in current, adjacent, or brand‐new markets. We see them as ambidextrous, able to execute both exploration and exploitation.

These companies are introducing automation, finding additional efficiencies, and seeking to gain additional share in their existing markets while at the same time discovering new opportunities that in many cases are designed to cannibalize currently profitable but eventually poorly performing businesses.

Companies that successfully navigate through the inevitable turbulence in their markets are able to balance the exploitation vs. exploration equation. Their journey is typically marked by a series of consecutive “S‐curves,” characterized by an initial period of exploration, then growth, and eventually a plateau. For instance, IBM moved through several S‐curves in its long history, starting with counting machines and typewriters, then moving into mainframe computing, client‐server software, consulting and services, and finally cloud computing ( Figure I.2).

Ambidextrous organizations are able to traverse several S‐curves, from the plateau of exploitation to the initiation of exploration, because the leadership team can articulate a vision and a set of values of the company that promote a common identity, even if the culture of the exploiting business units is different than that of the exploring ones. These leaders own their ambidextrous strategy and are comfortable designing separate business units that, despite their differences, share common values, and can collectively pursue goals and objectives. They are able to allocate resources and solve conflict, while maintaining alignment with the broader goals of the organization. 11

Figure I.2Series of consecutive S curves.

So far, we have made the case that we are living in a new era where changes are happening at unprecedented speeds, and where the rapid convergence of technology vectors is creating ecosystems imbued with new threats and opportunities that accelerate with astonishing speed. We have identified the importance of seeing the inflection point in exponential curves before it happens in order to benefit from the resulting changes. We have also recognized that culture plays a critical part in a company's strategy and ability to embrace change, and that the leadership team of incumbents needs to have an ambidextrous strategy, exploiting the existing S‐curve, while simultaneously exploring new ones.

This may seem fairly straightforward on the surface, but the reality is that companies struggle to detect the early signals that warn them of an impending inflection point. Even if they see the signals, unless they have a carefully crafted methodology that guides them through their strategic planning processes, chances are they will not take the actions necessary to leverage the opportunities and mitigate the threats of exponential changes.