In my blogpost „Anti-fragility: why systems need to be anti-fragile and not just robust“, I explained in detail why the opposite of „fragile“ isn’t „robust“, but „anti-fragile“. This expression was introduced by Nassim Taleb in order to describe systems, but also people, who not only deal with unexpected events well but even benefit from them. The Theory of Constraints (TOC) should turn an organization into an anti-fragile one.
Here, another expression used by Nassim Taleb becomes important: the black swan. Until the 17th century, it was thought in Europe that there were only white swans, and the expression “black swan” stood for something impossible. But then a Dutch sailor discovered black swans in 1697 in Western Australia. Since then, the expression has stood for something that was thought to be impossible which nonetheless occurs.
For Taleb, all important innovations and events, such as the success of Google, are „Black Swan Events“ – unpredictable events that have such a profound impact that the destroy fragile systems, but actually help those systems which are anti-fragile to develop further in leaps and bounds.
Because black swans are unpredictable, an organization can’t protect against them. Instead, an organization should try to be anti-fragile.
In what follows, I show how you can use the Theory of Constraints to develop an ever-flourishing, anti-fragile organization.
1. How swans are made
In our consultancy work at VISTEM, we are mostly concerned with the „formation of swans“ – we help organizations to build competitive advantages, to derive business from this and maintain these advantages – even if demand rises sharply all of a sudden.
When we want to build a decisive competitive advantage for a company, we look for an unique selling point, an unsatisfied customer demand, which the organization can fulfil more readily that any relevant competitor.
The methods of the Theory of Constraints , such as cause and effect trees and conflict resolution diagrams, help to do exactly this: identify unsatisfied customer needs and solutions for these. Organizations, in this way, can produce results far superior to those of their competitors.
An organization that earns its money through projects, that is, sells these products directly to the consumer (i.e. plant builder, mechanical engineer) can improve their results significantly with the introduction of Critical Chain Project management. However, the implementation of Critical Chain is not enough in itself. The organization might have become more successful, but the most important financial results will only become apparent when the freed-up capacity makes its way onto the market.
Typically, this doesn’t happen by itself. Therefore, our strategy and tactic regarding the second great leap is always to make money out of the competitive advantage that has just been achieved, that is, the operational capacities that are being built up. This take place with the help of sales and marketing activities, perhaps even another business model, which sells the same product, the same plant, the same IT system, but uses a different way of working with the customer. If that is successful, then a better result is guaranteed, because a notably increased volume of work can be produced from the same resources.
This makes the organization more robust, as a financial buffer is created which can be drawn upon in case of trouble in the market. Negative stress coming from the outside no longer harms the organization in the way it did before.
But what about positive stress? Let’s assume a company with 150 million euro annual turnover has existing customers who want to award it tenders of 500 million euro for the next year. There is the danger that the organization is taking on more assignments than it can cope with, with devastating effects: the reliability collapses, the image is destroyed and others in the same market can gain their share.
In order to avoid this, organizations can of course put their foot down and brake robustly, and simply not take on any more assignments. But this is a missed opportunity. In order to take advantage of potential increases in business and continue to flourish, businesses have to build up their operational capabilities and use them to make money, quickly building up their capacity.
Looking downwards, the organization has protected itself from black sheep purely in that it has more money in the bank. Looking upwards, it uses this opportunity to build up mechanisms that mean capacity can quickly be expanded.
2. The Swan Symphony
It often happens that an organization brings in changes and early indications are good, but all of a sudden something unplanned happens and organization returns to its old methods.
In this case, the system was only apparently robust, otherwise it would not have been possible for the organization to revert to the old ways of behaving and thus also to the old structure of results. Thus, we are looking at a new challenge that is not addressed in the standard procedures.
In order to address this phenomenon at its core, Eli Goldratt developed the so-called Engines of Disharmony/Engines of Harmony, which I have introduced in detail in my blog article “Engines of (Dis)Harmony (1): ein produktives Umfeld”.
To summarise briefly: an organization that has created a decisive competitive advantage for itself by means of TOC methods, and can keep itself stable independently of developments in the market in general, is well on the way to anti-fragility. However, in the same organization, there will still be mechanisms that are not in any way addressed by this change initiative – that are, in other words, still from the old world. For example controlling, codes, differences between employee responsibilities and competencies, conflicting goals, old and careworn practices across the board that are followed simply because it has always been done like that. These are not addressed because they aren’t to do with project management and with the introduction of Critical Chain project management described above. However, they are still there.
With the help of the Thinking ProcessesEngines of Disharmony/Engines of Harmony , conflicts can be recognised and disarmed, thus ensuring that an organization can be anti-fragile even when it finds itself in unexpected situations.
3. Recognising the black swan
That which stops us from seeing the black swan – a potentially very useful or alternatively very destructive event, that is happening currently or is about to happen – is over-hasty self-satisfaction. We think we know exactly how everything works after all the successful change we’ve introduced. Right at that point, the black swan flies by and we don’t see him, although for outsiders he’s clear as day.
If we admit to ourselves „I know some things, but there’s still an awful lot I don’t know“, then we can be better prepared for black swans.
When we change something and the result is not what we expected, that means that we might have been working on the basis of false assumptions. Noticing something like that and drawing out conclusions has been described by, Alan Barnard in his project „Learning from Experience“
Eli Schragenheim has introduced the process of “Learning from Surprises” to show how you can analyse events no-one expected with the help of thought tools, find their causes and draw conclusions from it.
In order to do this, it’s advisable not just to follow the elements of the change process right out of the handbook, but additionally to understand them. The Thinking Processes of the TOC are a good basis here. If these are used again and again, it’s a good preparation for the flight of the black swan – you can then analyse what’s happening straight away.
In order to learn how to use the black swan, we need to learn to recognise him in the first place. Then we can analyse these results with the help of the Thinking Processes in order to find the cause and draw consequences from it.
The Theory of Constraints helps to develop anti-fragile, thriving organizations:
1. Build up a competitive advantage, turn it into profit, maintain it – the formation of the swan
2. Resolve conflict with the help of Engines of Harmony/Disharmony
3. Learn from surprises and experiences – recognising the black swan