David Townsend, a professor of history, once told his class that history wasn’t just “one damn thing after another,” but is a set of linear, intermingled stories of those who came before us.  He wanted his students to remember that history was about people and events that were shaped by other people and other events.  The way he looked at it, following a single event or person through history misses the grand nature of the historical narrative.  Peter Diamandis, co-founder of Singularity University and futurist, would say that for most of history, humankind was local and linear, sort of one damn thing after another.  But as history unfolds, we see the beginnings of the exponential world.

At some point, we humans began to get better.  We built tools that helped us build tools, concepts and theories to help us build other concepts and theories and so on.  After a bit, the rate of change of our progress wasn’t just one foot in front of another, but each step yielded more progress than a similar step did in the past.  In short, not only were things changing, but the rate at which they were changing was also increasing. We think of this as an exponential growth curve.

Exponential Growth

One of the most commonly used examples of exponential growth is called Moore’s Law.  Gordon Moore, one of Intel’s co-founders, estimated that because of improved technology and processes, the number of transistors that could fit on an integrated circuit would double every 18 to 24 months.  Others used this same notion to discuss the value of networks as they grew (Metcalfe) or the bandwidth or capacity of networks (Gilder) such as the coming 5G network.  We can see the slope of these curves in this graphic:As time moves forward, the slope of the line becomes more and more steep.  Although humans built these exponential artifacts, we are, individually, still linear beings.

Morningstar is an investment research and management company that has created an index fund that specifically focuses on the disruptive nature of exponential technologies.  Some of the technologies they are following with their index include: big data and data analytics, nanotechnology, hyperconnected networks, robotics, and financial services innovations such as cybercurriencies.

So how to we map our lives and our companies to fit into an exponential world?  Here’s three things you should think about.

Don’t Think Like an Intermediary

If we look at the value chain of an industry, we can see points along the way where Company B takes the products or services from Company A and does something that adds value to what Company A is doing.  For example, Company A might manufacture a product that it sells in bulk and Company B takes that product and repackages it for sale to consumers.  This is a value adding activity that allows the consumer to purchase the product in quantities (and at prices) smaller than Company A produced.  In this case, Company B is an intermediary and makes money for the actions it performs.

If a change in the way Company A interacts with its customers happens and Company A markets and sells directly to consumers, consumers will pay lower prices and Company B will be out of the loop.  The internet in general and exponential technologies in particular are making it tough on intermediaries.  Blockchain, for example, is making it easier to bypass traditional intermediaries such as brokers.

In your industry, are you an intermediary?  What value do you add to the product or service in the eyes of the end consumer?  As exponential technologies advance, the role of the intermediary will change and, perhaps, ultimately vanish.  Take a look at the taxi cab business in New York City.  Uber has caused a disruption in the taxi business by cutting out the intermediary, the taxi cab company.  To operate a cap in New York, you have to have a taxi medallion.  In 2013, one of those was worth about $1.3 million.  Today, it’s about $160,000 as Uber ridership surpasses Yellow Cab’s.

If you’re an intermediary, take a look at the value adding activities you provide.  If you provide things like convenience, transparency, or risk management you need to add other value to what you do before technology takes the value of what you do out of the value chain.

Digitize What You Do

To add more value, we often have to change the way we look at our products.  A commonly used example in Blockchain revolves around the area of conflict diamonds.  A conflict diamond is s a term used for diamonds mined in a war zone and sold to finance a war or other violent activities.  It’s not unusual for miners to work under horrific conditions, often as slave labor.  When someone is buying a diamond ring for that special person in their life, the value of the diamond is based upon well established characteristics of cut, color, clarity and clarity among other things.  So, two diamonds with the same characteristics can be easily compared for price.  However, if the pedigree or provenance of a diamond is known, the customer might be willing to pay more for assurance that the diamond was not mined with slave labor.  By digitizing the diamond’s physical characteristics and tracking them throughout its production and life via blockchain, the value of the diamond might be viewed differently.  In short, value is added to the diamond.

Take a look at the products and services you provide.  Are there any that can be enhanced by capturing or otherwise adding digital information?  Would this be something your customers would be willing to pay for?  If your competition found a way to digitize their product, would that differentiate the product enough in your customer’s eyes to lose their business?  There are two different approaches that companies can take to add digital value to their products:  digitize and analyze.

The conflict diamond example is one about digitizing a product.  By thinking about a product or service as a digital good, it changes the way we think about manufacturing, delivery, storage, packaging and pricing.  Allowing, for example, a customer to use an online tool to customize a product is adding digital content to the sales process.  As Tesla is doing with their vehicle, being able to update the car’s software while it is in the driveway is another example of making a product digital.

The analyze approach takes information and data that is already being collected or embedded in the product or service and making it more valuable by adding insight, experience, trend or other data.  An accounting firm, for example, while in the process of taking care of a client’s books, could look for ways to help their clients improve business operations or better understand business activity.  The use of machine learning and artificial intelligence are busy here as is the trend of data analytics.

Take a look at the data you already have about your customers and products.  Are you squeezing all of the value out of that?  If you added one or two more pieces of data to what you already have, would that make it a lot more valuable?

Design Around Time

The whole notion about exponential curves is the interaction between time and performance or potential.  As time moves forward, we are able to do more, or, looked at differently, are able to do the same thing we were doing more quickly and less expensively.  Take a look at your processes.  Which ones are the most time sensitive?  How would things change if the amount of delay was halved?

Retailers are struggling with young consumers’ demands for digitally augmented shopping experiences, customized to their tastes.  Over 90% of Generation Z shoppers (people born from the mid-1990s to the early 2000s,) don’t want human assistance while shopping even though less than 20% of retailers are also to do this.  Generation Z make up 25% of the U.S. population.  Just in time hiring, just in time training, just in time distribution, just in time finance, instant purchase, instant ownership changes, instant product customization, etc.  Amazon Prime, Netflix and the coming 5G cell networks are making it pretty clear, that customers want very quick response times, very quick delivery and very quick interactions.  It’s not hard to imagine the notion of the “long sell” being radically transformed, but what else will be?  New product development life cycles and particularly the market research that drives them are changing.  Companies harvest social media to get ahead of trends.  Other areas will change if we put “just in time” or “instantaneous” in front of them.

Not all delays negatively affect business, so figuring out which one to focus on and how to do it can be tricky. Changing business processes can be really disruptive, so making sure you pick the right process and make the changes in the right way takes some thought.

Do you need help thinking through the steps to make your business exponential?  GLOCPAs has strategy, data analytics and technology experts who can sit down with you and walk you through the steps to get your company ready for an exponential world.

Dennis Adams, PhD