The Powerful Distinction between Incremental and Exponential Change

The following is adapted from Future Ready.

Humans tend to overestimate what we can achieve in the short term, but vastly underestimate what we can achieve in the long term. We’re geared to think incrementally, not exponentially. In an analog world, that thinking style makes sense. In a digital world, it starts to look outmoded.

In the Information Age, many technologies are growing exponentially, meaning that each advancement multiplies the capabilities of the ones that came before. New technologies can exponentially increase capacity or speed, or decrease in price—not just incrementally, but by leaps and bounds. Exponential growth is both deceptive and astonishing, as the doubling of small numbers inevitably leads to numbers that outpace our brain’s intuitive grasp.

This shift is making a huge impact on the way we understand growth. To adapt effectively to the Information Age, it’s important that you recognize the distinction between incremental and exponential processes, and that you move toward the latter.

What Is Incremental Growth?

In all likelihood, you’re already familiar with the processes that create incremental change. For years, many traditional businesses achieved growth by optimizing supply chains and operations. The typical multi-layered bureaucratic organization was built intentionally to de-risk its operations and scale incrementally.

Businesses could grow simply by making slightly better versions of existing products. The goals were to increase top-line revenue, gain market share, and max out the efficiency of existing processes. This method helped cut costs and grow companies for many, many years. This traditional model of what it means to be an organization feels familiar, even comforting.

Unfortunately, it looks increasingly archaic. We no longer live in that incremental world. Technology has shifted the pace of change from incremental to exponential. Exponential change, exponential growth, has mind-blowing potential to increase the speed and scale of the shifts we experience. Our brains, however, are still catching up.

Your Brain on Exponential Change

Consider how your brain understands distance in incremental steps. If you were to take thirty steps across a field, it would be easy for your brain to gauge the distance you crossed. Let’s say one step equals one meter. Okay then: thirty steps will take you thirty meters. Simple.

But what if each of those steps was exponential—if the distance you traveled with each step doubled every time? How far would you go? Five hundred meters? A mile? The human brain has a difficult time understanding the magnitude of the trip. It’s more than 1 billion meters, or roughly twenty-six times around the Earth!

This gap between incremental and exponential is at the heart of why the future is so uncertain and the current pace of change is so surprising. For enterprise organizations, the exponential growth of technology is both scary and deceptive because it accelerates so quickly. The first steps of adopting new technology may seem like slow and disappointing progress. Then, as new capabilities emerge and new platforms enter the market, suddenly the technology accelerates into exponential growth.

The transportation industry provides a clear illustration of exponential change. At the turn of the 20th century, a big leap in transportation technology was from horse and buggy to cars powered by fossil fuels. Today, we’re completely rethinking how to get from point A to point B, and a convergence of technologies—from smartphones and apps to worldwide Wi-Fi—has made it possible for us to move around the world in ways we never expected.

Do you need to own a car? Is a car still necessary to get from one point to another? These questions have led to innovations like the development of Uber Air, an aerial ridesharing service set to debut in 2023 that will enable people to summon a flying taxi through a smartphone app. Honda is taking a different tack on the future of transportation: they’re working on IeMobi, a portable room that detaches from your house to become a self-driving car that takes you where you want to go. We are completely shifting what it means to move around the world.

Digital World, Digital Solutions

Our rapidly changing digital world is enabling us to ask questions and consider solutions that were once limited to sci-fi culture. For example, one solution to the future of business travel may be to reduce or eliminate business travel. Instead of logging thousands of miles on airplanes to attend meetings around the world, imagine turning on an augmented reality (AR) headset to see and hear meeting attendees as if they were in the same room. If holographic images of people could deliver an experience indistinguishable from an in-person meeting, would you need to leave your home office?

Rapidly accelerating technologies like augmented reality and virtual reality (VR) now enable us to have realistic collaborative experiences in a virtual world. More broadly, groundbreaking technologies like AR and VR allow each of us to rethink our entire approach to business challenges. Expand this idea to every individual, organization, industry, and society on the planet, and it gets hard to wrap your head around—let alone predict—the impact of this kind of disruption.

Exponential Organizations

The exponential nature of technology is completely shaking up how organizations must operate to move into the future. Many large organizations were built on operational systems that originated in the Industrial Revolution and are still in use today.

And yet, with the rise of digital platforms, the way organizations create and deliver value has fundamentally changed. Traditional operations have served organizations well for the past one hundred years, but organizations that continue to rely on outdated operations and technology may not survive the next decade.

The old way of building a value chain was to create a product and identify the channels that enable you to distribute that product to consumers. If you manufacture beverages, your goal is to get them on the shelf at Walmart so customers can purchase them. The value chain is straightforward and linear.

Exponential change doesn’t mean that there will be no need for products—we’re not quite at the stage of popping a protein pill three times a day—but exponential technologies already are impacting every part of these businesses. That can be scary, as incremental ways of delivering value fall away. It’s also a huge opportunity. The digitization of every organization is allowing us to imagine and execute completely new ways to create and capture value.

For more advice on incremental and exponential change, you can find Future Ready on Amazon.

Nick Davis is the prior VP of Enterprise Solutions and current Faculty Chair for Corporate Innovation at Singularity University. Nick is a recognized thought leader in the innovation space who specializes in identifying exponential trends that enable enterprise organizations to deliver customer value through new and existing technology platforms. Nick is also a Venture Partner at Bold Capital, which invests in high-growth startups that leverage exponential technologies. He’s previously served as External Innovation Leader for PwC and the Director of Corporate Development for The Anderson School of Management at UCLA.