Sunday, October 4, 2015

Exploiting externalities exponentially



How can we ensure that exponential activities don't create and exploit  new and old negative externalities?

A while back I finished reading the book ”Exponential Organizations”.

If you haven’t read Exponential Organizations the “slide version” is here, and slide 32 is the one-slider that summarizes the concept:
To me the most fundamental part of the concept is on the next slide:

Instead, this post is about a passage on the very first page of the book, in the foreword:


Salim has studied and interviewed CEOs and entrepreneurs whose companies are leveraging a newly available set of externalities and, as a result, scaling their organizations at many times the normal rate of typical companies.
The key phrase is "leveraging a newly available set of externalities".

Even though externalities can be both positive and negative, the most infamous set of externalities are the negative ones. Like getting rid of waste by dumping it somewhere.

A few days ago I read a post by "the undercover economist", Tim Harford. That post also touches upon the potential externalities that a multi-sided, peer-to-peer, market with exponential characteristics may cause and explore, on both of the market sides.

Tim Harford further more hints on a way to view such markets; as an arbitrage game where the price differences in a specific market (and thus an inefficient market) are exploited.

But he also indicates the positive values for a broader community that peer-to-peer markets creates; the activity adds fluidity (and thus a more efficient market is the result) and it creates a mechanism that can take care of peaks, eg on the demand side.

However, the question around externalities remains. A near zero-marginal cost society will create more exponential businesses. And a key component in exponential activities is to leverage externalities.

How can we ensure that exponential activities don't create and exploit  new and old negative externalities?

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