Institutions that can drive accelerated learning will be the most likely to thrive in today’s environment of exponential technology change and market uncertainty. Institutional innovation can allow organizations to rearchitect themselves to scale learning and generate richer innovations at other levels, including products, services, business models, and management systems.

Here is a brief excerpt from an article co-authored by John Hagel III and John Seely Brown for Deloitte University Press.

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Economic history to date is primarily a story of “scalable efficiency.” As infrastructures and technology have improved, companies have grown larger to take advantage of the benefits of scale—producing at greater volume to decrease costs and improve margins. To coordinate the efforts of larger groups of people to service larger markets, some companies create command-and-control hierarchies, rigid silos, and inflexible processes to create consistency and predictability.

Unfortunately, these institutional architectures have a downside: The consistency and predictability they create to promote efficiency also limit an organization’s ability to try new things or change. As such, the scalable efficiency model forces a trade-off between efficiency and the ability to learn. While institutional architectures are effective during times of stability, companies that embrace them will face extreme difficulties during times of disruption and rapid change.

Over the last 40 years, the emergence of new digital infrastructures and a global liberalization of economic policy have increased the pace of change exponentially. Many companies that were extremely successful in earlier times of relative stability are now finding that their relationship architectures are fundamentally misaligned with the needs of their business today. As the pace of change increases, many executives focus on product and service innovations to stay afloat. However, there is a deeper and more fundamental opportunity for institutional innovation: redefining the rationale for institutions and developing new relationship architectures within and across institutions to break existing performance trade-offs and expand the realm of what is possible.

Institutional innovation requires embracing a new rationale of “scalable learning” with the goal of creating smarter institutions that can thrive in a world of exponential change. Through new architectures, organizations can build “creation spaces” that help facilitate (rather than limit) interactions and relationships, allowing organizations to increase the flow of information within and across their organization’s walls to increase learning, adaptability, and downstream product and process innovations.

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John Hagel III, a director with Deloitte Consulting LLP, is the co-chairman of the Deloitte Center for the Edge. He has nearly 30 years’ experience as a management consultant, author, speaker, and entrepreneur, and has helped companies improve their performance by effectively applying information technology to reshape business strategies. In addition to holding significant positions at leading consulting firms and companies throughout his career, Hagel is the author of a series of bestselling business books, including Net Gain, Net Worth, Out of the Box, The Only Sustainable Edge, and The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion.

John Seely Brown (JSB), co-chairman of the Deloitte Center for the Edge, is a prolific writer, speaker, and educator. In addition to his work with the Center for the Edge, JSB is advisor to the provost and a visiting scholar at the University of Southern California. This position followed a lengthy tenure at Xerox Corporation, where he served as chief scientist and director of the Xerox Palo Alto Research Center (PARC). JSB has published more than 100 papers in scientific journals and authored or co-authored seven books, including The Social Life of Information, The Only Sustainable Edge, The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion, and, most recently, A New Culture of Learning.