The concept of “antifragility” has been a hot topic in the business world since the release of Nassim Taleb’s latest book. A quick overview can be found in this blog post – based on a short video intro by Taleb himself. Dr. Alan Barnard picked up the topic at this year’s TOCICO conference in his presentation “What does not kill us makes us stronger… or not”1,with the aim of showing how the Theory of Constraints can help systems (i.e. organizations, supply system or even individuals) become “antifragile”.
The world is unpredictable
Taleb’s theory of antifragility is a logical development of his previous research on uncertainty and randomness. While Taleb’s experience is mainly rooted in the world of investment banking (where of course the theory of probability is particularly relevant), his concept of the Black Swan (another bestseller) is easily transferrable to other realms. According to Taleb, the world (in economics, nature, politics…) is full of “Black Swans” – highly unlikely events that have massive repercussions.
They are often rationalized in hindsight (“all the signs were there!”), but no one sees them coming before they happen. Their unpredictability is in fact a defining feature. It is only because no one sees it coming that the event can have such an effect: had we been prepared for it, it either wouldn’t have happened (e.g. the financial crash in 2008), or it would have had a much lower impact (as tends to be the case for natural disasters in well prepared regions).
Be prepared for anything
If we accept that our environment is unpredictable – especially our economic environment – it makes sense to prepare our organization as fully as possible to deal with such events. To be clear: there is no point in planning for specific types of events, but rather, we want to improve our organization’s reactions to unexpected events in general. We cannot influence our environment, we can only change how we respond to it. (A concept, incidentally, that will be familiar to Buddhists.)
Never say „I know“
This axiom by Eli Goldratt (which plays a big role in his book “The Choice”) is a sound and solid basis for a volatile, unpredictable world as Taleb describes it. One of the biggest mistakes repeated again and again by managers (economists, political theorists, statisticians and so on) is the assumption that they can make valid prognoses, then basing their decisions on them.
Taleb calls these people “fragilista” – they cause fragility by their belief that they understand and can predict the world. This attitude leads to them being completely unprepared for anything other than their (often wrong) prognosis. Instead, they should at all times expect their assumptions, conclusions and predictions to be proven invalid (or sudden changes in the environment to make them so).
A constant learning process
The Theory of Constraints puts great emphasis on learning from experience – be that successes, failures or near-misses – in order to continually improve. It is this same stance that sets an antifragile organization apart: in a constantly changing environment, it is important to react quickly to changes and reposition yourself in the market. Many useful tips for this can be found in this blog post, based on the very interesting presentation by Steve Holt on how organizations can embrace change. An ongoing process of monitoring internal and external changes must form an integral part of a successful (antifragile) organization.
High gain, low pain
In order to understand the different reactions of fragile, robust and antifragile systems, it is important to understand the “asymmetry of returns” that plays a role in every single event: how much do I have to lose, and how much to gain?
- A fragile system always has a lot to lose (potentially huge damage), but little to gain (even in a best case scenario, little good will come of it). This explains how even very large organizations can be fragile: the higher up you are, the lower you can fall.
- An antifragile system turns this asymmetry around: it achieves maximum returns from a stressful situation, while at the same time protecting itself and reducing potential harm to a minimum.
- A robust system lies between the two, largely in a state of symmetry: it placidly plows on, in good times as in bad, without any big deviations in either direction (little pain, but not much gain either).
From here it is easy to see what must be achieved on the way from a fragile to an antifragile organization:
1. The system must be set up so that (inevitable) failures are absorbed and cause minimal damage.
2. At the same time, it must get maximum payoff from successes.
In other words, it must play with low stakes and high returns.
Minimal damage from failures
How can an organization minimize the negative impact of unexpected shocks or potential risks? As mentioned previously, it must be in a situation where it has “little to lose” – but not in the usual sense of being backed up against a wall. It is simply so well prepared it can absorb failures without major repercussions. Alan Barnard calls these “low cost elements”: the organization can easily afford to lose them. How can this be achieved? There are a number of aspects to this, which the Theory of Constraints has been using for years.
Be it extra time, money or budget – adding a safety buffer into your activities, projects or improvement initiatives will arm you from the outset against a certain amount of volatility. This is one of the basic building blocks of the Theory of Constraints, notably in Critical Chain Project Management (CCPM) and Drum Buffer Rope. It has proven its utility time and time again.
Yet it is all too common in traditional organizations to operate at full capacity at all times. “Everyone must always have something to do” is one of the most harmful – and most widespread – rules of business. An organization that has no spare capacity can never be flexible. Instead of being quick and agile in response to shocks, it will be forced to overthrow its entire schedule in order to free resources to assist with firefighting. In Alan Barnard’s own words: “the pursuit of efficiency itself often causes fragility.”2
How do you improve the chances of your new project not ending in disaster? Through rigorous testing, of course. Again, it is important to remind yourself that you cannot predict with complete accuracy what will happen – the Black Swans will remain undetected even during your testing (that is what makes them Black Swans). What you can do, however, is submit your business to ruthless stress tests and observe how it responds. “What can be measured can be improved”, as Dr. Barnard explains.
If your system reacts differently than desired, you will develop and implement the necessary steps to correct this. The TOC Thinking Processes offer many helpful tools for this: using a Current or Future Reality Tree you can simulate different scenarios, including their undesired effects. This allows you to detect gaps in the system and develop the strategy and tactics required to close them. You will find a detailed article with more tips on this here.
Maximal benefits from successes
Having optimally secured your business against catastrophes, you will need to achieve the second aspect of antifragility: the ability to obtain maximal gains from successes.
Focus on FLOW
Making the most of all situations requires that your business can not only satisfy the average market demand during ‘normal’ times, but also fulfil all orders in times of (significantly) increased demand – within agreed timeframes and expected quality levels. To achieve this, all efforts must be geared towards improving FLOW. This includes:
- Correctly identifying and optimally exploiting the constraint. For this you will use the five focusing steps.
- All organizational policies are checked to ensure they do not impede or reduce the Flow. The Conflict and Lieutenant’s Cloud will help you with this. Replace limiting assumptions with enabling ones (more details can be found in this article, also based on Alan Barnard’s research).
- Constraint management attention: All decisions are focused on Flow and have clear priorities. Managers must know at all times what to do and what not to do. More information is available in this article.
- Coherent global priorities, which are up to date and can be consulted by all employees at all times, lead to fewer conflicts (which management would otherwise be required to solve) and less fire-fighting.
Everything you need is at hand
Further helpful tools from the TOC arsenal can be found in this blog post: Strategy and Tactics to improve flow, or the Change Matrix Cloud to identify and eliminate obstacles (conflicts).
An additional element needed for a flexible, dynamic organization willing to learn is the right culture. Encourage your staff to actively contribute to the organization’s success and maintain their enthusiasm by involving them directly in improvement initiatives. Again, the post based on Steve Holt’s presentation provides many helpful suggestions for this. The importance of harmony for motivated and productive employees was something Eli Goldratt had already highlighted – he developed the concept of the Engines of (Dis)Harmony to tackle the issue.
As you can see, the idea of the antifragile organization is not radically new to the Theory of Constraints; it is merely a new “label” for many of the tools and approaches that have been used very effectively for decades.
1: Dr. Alan Barnard: What does not kill us, makes us stronger or not…: What (conditions / decision rules) can make the difference?, TOCICO 2015