“Not all the smart people work for us, so we must find and tap into the knowledge and expertise of bright individuals outside our company.”
From "Open Innovation: The New Imperative for Creating and Profiting from Technology", Harvard Business Review, 2003
Open innovation is argued to be one of the centerpieces of enabling exponential growth and many folks find it exciting, but how to actually do this in your organization?
- Expand your current (non-digital) service portfolio with digital services
- Break down the digital services into really small pieces
- Use crowds of developers to build the pieces
- Reduce the amount of human communication with the developers, and maximize automation
Two successful frontrunners
Two recent and very well known examples of organisations that have grown exponentially thanks to the power of the crowds are Uber and AirBnB. A few years ago these two were startups, which means that they were able to become global enterprises with few people and little money -in record time. This is what characterizes them as exponential organizations.
Marriot (17 bn USD): 226,000 employees, owns 1.2 million hotel rooms.
AirBnB (30 bn USD): 2,500 employees, owns 0 rooms but serves 2.3 million hotel rooms.
This year AirBnB is expected to become the world’s largest hotel room provider -without owning one single hotel room. The company currently has 2.3 mill room listings in 191 countries serving a total of 100 mill users. AirBnB employs about 2,500 people and is valued to be 30 bn USD. In comparison, The Marriott International - the world’s largest traditional hotel chain - owns 1.2 mill rooms in 110 countries and territories, serving a yearly total of 164,000 customers. The Marriott employs over 50 times more people than AirBnB with its 226,000 employees, and is valued to be 17 bn USD.
Uber (65 bn USD): 6,700 employees, and engages 1.5 million drivers.
The transportation company Uber engages about 1,5 million drivers who serve about 40 million riders on a monthly basis. Uber employs 6,700 people and is valued to 65 bn USD.
Digitalization for all
With the current digital transformation, it is simple to argue that any and all organizations that want to have a viable market position in the near future should expand their current (non-digital) service portfolio with digital services. To create new digital services you need to develop software. Currently there are about 20 million software developers in the world that have unused production capacity. What if we could connect the people that is able to develop software with the people that needs software, just like AirBnB has done with homeowners and hotel guests?
The key is to create viable digital services with the power of the crowds
Exponential Organizations (aka ExOs) like Uber and AirBnB base their business model on connecting crowds of people that have a need, to the crowds of people that are willing and able to deliver services to cover that need. By crowdsourcing the assets necessary to provide their company’s service, they minimize the amount of owned assets, making them highly cost efficient and nimble. And since their service is purely digital, the growth potential is practically unlimited and scales at lightning speed.
The biggest challenge with outsourcing is the amount of time spent trying to convey the customer’s need to the developers
Connecting these two groups is not a new challenge. For decades, companies have tried to increase their software development capacity through outsourcing, offshoring, and various other loosely coupled alternatives like open source projects and marketplaces. The shortcoming of detaching the software development team from the customer representative is strongly correlated with the software development team’s understanding of the end user’s need, and the efforts needed to ensure that understanding.
Human language is so complex that very few people, if any, understand it and let alone master it fully
The most common -and perhaps the only- tool used to tackle challenges related to understanding is communication between humans: Meetings, specifications, reports, etc. The more misunderstandings between the customer representative and the development team, the more human communication is applied.
Human communication must be greatly reduced to convey the end user's needs and pains to the developers
The quality of the human language, however, is affected by an array of non-verbal elements ranging from tone of voice, personality, amount of sleep, and so forth. On top of that, let’s add the difference of time zones, cultures, and languages.
Often, entire projects or large pieces of software have been outsourced. The bigger the piece of software to be outsourced, the more communication is applied to ensure that the development team understands the customer requirements and delivers what is needed. Companies often place a customer representatives physically in the same place as the software development team, thus reducing the communication overhead. This approach is costly and doesn't allow for exponential growth.
To enable exponential growth in production of software the communication overhead between the customer representative and the development team must be practically removed, and the number of developers at the customer representative’s disposal must be increased dramatically -to thousands.
Verification and testing should be done automatically, with a minimal need of human interaction
Exponential software development is within reach
If we were to apply to software development the same mechanisms that AirBnB has done to provide hotel rooms, we must create a digital platform that connects software developers to the people that need to have software developed.
This can be achieved by fulfilling the following requirements:
- Using machine language to express the software requirements, not in human language in requirement documents like PDFs, docx and excel sheets.
- Reducing the size of the software to be built to functions, so each order only takes a maximum of a few hours or days to complete, and
- Automating the test and verification of what was built.
At Syncano, we are building a marketplace where a customer representative or product developer submits orders expressed in a machine language and where crowds of software developers build piece of software that fits with the order specification. The marketplace itself will make sure that the requirements in the order are met. All with a minimal need of human communication.