Beyond Arithmetic

Today, we still manage and measure ourselves on a linear scale. That is: x amount of work takes y amount of resources; 2x needs 2y, and so on. Although automation, mass production, robotics, and even computer virtualization have altered the slope of this line, it remained linear. If one concrete mixer truck replaces 100 laborers hand-mixing concrete, then two trucks replace 200 laborers. Similarly, much of society is also measured on this basis: the number of doctors per 100,000 patients, class size per teacher, GDP, and energy per capita. Labor is paid hourly, as are legal fees, and housing is priced by the square foot.

In business, the way we build most products and services continues to mirror this linear, incremental, sequential thinking. The classic way to build a product, be it a giant airliner or a plastic toy, is through a template stage-gate process called New Product Development, or NPD. It includes the following steps:

1. Idea generation

2. Idea screening

3. Concept development and testing

4. Business analysis

5. Beta and market testing

6. Technical implementation

7. Commercialization

8. New product pricing

So codified is this process into the DNA of modern business that there is even a designated industry association for it, called the Product Development and Management Association (PDMA).

This linear paradigm also remains pervasive across the world economy, merely taking on different names in its different incarnations. In software development, for example, it’s been called the waterfall approach. And while new development methods, like Agile, have cropped up to short-circuit this approach and parallelize some of its steps, the basic paradigm is still linear and incremental. Whether you are making locomotives or iPhone apps, linear product development remains the dominant paradigm. 

Revisiting COVID-19, let’s note that a pandemic is an exponential problem. Yet for many months, the responses were incremental and linear, and the problem exploded on us. Human institutions largely implement linear solutions because our brains can process and comprehend them.

But as we see from Chapter 1, the world is now operating at exponential speeds. So how have organizations responded? For the most part, they have not. If you attempt disruptive innovation in a traditional organization, it will get attacked by the organization’s internal immune system. One of two outcomes is typical. Either the disruptive idea is rejected outright, or it gets so diluted by consensus-building that all its disruptive aspects are lost. 

As the ExO community has found, many companies let their “innovation departments” put on a show of pursuing radical innovation, mostly to impress customers and shareholders. In reality, however, they are content when those departments contribute nothing—or, at most, incremental, linear advances—to disrupt the status quo. Many teams are actually discouraged from the radically disruptive thinking that might get their company out of its box, much less thinking that might get the company out of the industry within which it’s comfortable. Thus, linear thinking actually reinforces inertia and lack of risk-taking—characteristics that are fatal in an Exponential world. 

The bottom line is this: when you think linearly, when your operations are linear, and when all of your measures of performance and success are linear, you cannot help but end up with a linear organization, one that sees the world through a linear lens. Linear organizations tend to be: 

• Sequential in thinking and operations

• Organizationally top-down and hierarchical 

• Driven primarily by financial outcomes 

• Restrained by budgets that aren’t linked to impact goals but rather short-term outcomes and shareholder return 

• Focused on manageable, incremental growth (10% versus 10x)

• Driven by innovation primarily from within

• Focused on the past when it comes to strategic planning

• Risk intolerant

• Inflexible in process

• Resigned to needing large numbers of employees

• Committed to owning all of their own assets; and,

• Ultimately, massively invested in the status quo.

As noted business author John Hagel once quipped, “Our organizations are set up to withstand risk and resist change from the outside,” rather than to embrace those changes, even when they’re useful. Famed aerospace engineer Burt Rutan (creator of SpaceShipOne) further observed: “Today’s organizations are designed to defend and not to question.”

Not surprisingly, given all of these limiting—and even destructive—characteristics, linear organizations rarely disrupt their own products or services. They haven’t the tools, the tolerance, or the mandate to do so. Moreover, their well-established corporate cultures will actively sabotage such activities.

Instead, what they will do, and what they are built to do, is keep getting bigger in order to take advantage of economies of scale. Scale—but linear scale—is the very reason for the existence of linear organizations. John Seely Brown calls this “scalable efficiency” and maintains that it is the paradigm that drives most corporate strategies and architectures. 

Clayton Christensen immortalized and warned against this type of thinking in his business classic, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fall. Still, the strategy of scale dominates business life throughout the world. Reid Hoffman and Chris Yeh document this quest in their book Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies.