Currently I am reading “Antifragile: Things That Gain from Disorder” by Nassim Nicholas Taleb. It is a provoking book. Being active in innovation for the last 30 years, a lot is recognized in daily innovation practice.
Anti-fragile is described by Nassim Nicholas Taleb:
“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better”
Taleb is very much emphasizing that contrast between anti-fragile and fragile, where he personally is very much in favor of anti-fragile behavior.
Anti-fragile sounds very new, but it isn’t. Already Prahalad & Hamel refer to anti-fragile in their book “Competing for the Future”. In my view companies are successful in innovation with demanding customers and creative, dedicated, excellent employees embedded in a culture and an organisation that enables the fastest and cheapest learning loops. Like Taleb, Prahalad c.s. emphasize making mistakes as OK, as long as the cost in time and money is low.
In this blog, I would like to point out that fragility and anti-fragilty are interacting phenomena and together they have pushed our society in an innovation tornado the world has never experienced. My hypothesis is that both behaviors are valuable and interact with each other, and with respect to innovation have a non-linear amplifying effect on each other.
The following steps are discussed below, the anti-fragility loop which gradually transforms into the fragility-loop. The fragile loops makes anti-fragility loops faster, which leads again too more fragility loops and so on. With this increasing speed we run the risk of destabilizing our social systems. Fragile systems are big and complex and lack observability and transparency. Therefore observability and transparency must be enhanced by legal and media bodies in order to keep the system at a sufficient ethical level.
The Anti-fragile Loop
Our anti- fragility loop starts with an unbalance between a challenge and someones’ or organisational or even society’s competences. Step one is to recognize the unbalance before the others do. The mismatch between challenge and competences requires exploring unknown territory. The best way is to decompose the mismatch in a portfolio of small activities. If one activity fails, another one may be successful. Independency and redundancy is build in the approach. Although finding solutions maybe difficult, it is not complex. Each activity is a learning vehicle, keeping cost of mistakes low and re-iterating the loop until each problem is solved.
In the end solutions are generated. In this world one can plan activities, but not the outcomes. Whether solutions are found or not, competences develop. This complete process is anti-fragile behavior. We are only interested in options with a low loss (called learning) and a high potential value or profit.
The world gross product is growing 5% annually. That means that everything that is growing faster then 5% per year is in fact destroying value somewhere, especially if we talk about first of a kind products and that is what anti-fragile systems are supposed to produce. An easy answer is that all inefficient and ineffective value creation is substituted by this above average growth by the first of a kind products. But, especially if power systems are in place and they are, is not necessarily true. The indirect impact of breakthrough solutions is almost by definition unknown and not transparent. Cause and effect relations becomes more clear, once the volume of the business is high enough and the business is more in an improvement then in an breakthrough mode.
In general, the first solution is not the best, so several iterations may be needed to find a real solution that brings satisfactory performance. Now, gradually the second loop, the so-called fragility loop comes in.
Although the unbalance between challenge and competencies is reduced, innovation does not end here. There is a lot to win by eliminating the introduced redundancy. Often in this stage of the industry life cycle several solutions compete to become the dominant design, the design accepted by the industry (Utterback’s “Mastering The Dynamics Of Innovation“.
Gradually cost price becomes a key value driver. On-going cost reduction lead to increasing dependencies and trade-off decisions between the different business functions, optimizing product functionality, production cost, investments and order lead time. Once a dominant design is established, parts of the product may become outsourced in order to leverage learning curve / volume effects for these parts by sharing suppliers across the industry. This will lead to specialization and to decomposing the total system in a network of interdependent and inter-transactional organizations, all adding value towards the value proposition to the end-customer. In cost dominant industries, the control on the interfaces is more and more based on the power balance between the organizations, shifting costs and profits in the interest of the most powerful organizations. The old Michael Porter book “Competitive Strategy” provides an excellent framework to understand the underlying drivers of power in industries.
Squeezing all resources out of the system, the system becomes very sensitive to all kinds of undesired variances, which quickly lead to extra cost and impact margins.The system tries to maintain its’ balance by discipline, planning and powerplay. This is why I call this the fragility-loop. Complexity and structural elimination of resource claims makes the system fragile. The total system / network becomes so large that they are not allowed to fail, since that may have a devastating impact (example: the recent banking crises, failure of electricity supply, the crises in the construction industry).
The Social Loop
The overall network gradually transforms towards a negative sum game. Prices have to go down, one has to grow in volume to make money and if growth has disappeared, it gets tough. The complexity, the power games at the interfaces, the disappearing control and accountability for the overall system behavior transforms it towards an increasing rational, a-moral system. And this is even worse, since the complexity causes transparency to decrease. The customer or citizen is not able to notice that a product is using components from a supplier that uses child labor to save costs. As customer you can not really see how healthy products are. As customer you can no longer grasp the risk profile of different financial products offered by your bank. As customer, you have no idea what happens with all your personal data and what your mobile phone, via apps like Talking Tom is sending to all kind of companies. Therefore external bodies with legal or media power are needed to compensate for the lack of observability and transparency and keep the system within legal and ethical boundaries.
Big complicated systems need people that behave predictable and disciplined (too much variances in behavior will only lead to extra cost). Most people are risk averse and will feel pretty comfortable in these systems (Daniel Kahneman, “Thinking Fast, Thinking Slow“). After enough stability is reached in terms of way-of-working and using standardized technology, expensive human interaction is gradually removed from the system by mechanization and automation transforming the system to higher efficiency, at the cost of learning ability, responsiveness to external changes.
Taleb in his book is rather negative about the fragility world, but I tend to disagree. Although the fragility loop can be perceived as a negative pattern and for sure it has its’ crosses to bear, but our complicated systems, our bureaucracies also have brought a lot of wealth and comfort (for example: a television set for 300 euro) and outsourcing and off-shoring have created opportunities for regions to develop, but this all comes at a price.
More Fragility Leads To More Anti-Fragility
Isn’t it strange, we have gained more and more knowledge and never in the history of human kind, we achieved such a deep understanding of the world and ourselves. But in our perception, and in real life, everybody has an uncomfortable perception of an increasing speed of change in our lives and our environment. The fragile system has made the anti-fragile system learn faster and cheaper, but also the fragile system it selfs learns faster and cheaper. This explains the shortening of industry, organization and product life cycles.
This is leading to an increasing non-linear, chaotic (in the definition of complexity theory) behavior of our total society and our environment, especially now at the brink of a new economy that is based on information.
without growth of our resource demands?
We live in exciting times.
At a society level, fragile and anti-fragile strengthen each other towards more transformational speed. This system runs in my view two risks:
– in the end the whole game is fueled by the sun. We are getting more and more aware of the physical and biological limits of our Earth. Our largest systems have become very fragile and difficult to transform without destabilizing society itself. The transformation to a sustainable society is awesome and if it fails to be on time, it will destabilize the earths ecosystems and it will destabilize our societies being part of the earth’s ecosystem.
– these sustainability issues are addressed too slow by the fact that the economic system described above is fueled by growth. Growth, as we know it, will be limited in the future. The question is if we can establish value added growth without growth of the demands on the eco-system.
– the complexity of our society leads to less transparency, which require a system that maintains ethical boundaries. The model discussed shows that only planned models lead to fragile systems and only anti-fragile systems lead to unacceptable inefficiencies.