Antifragile – strengths and boundaries from the TOC perspective

Antifragile is a term invented by Nassim Taleb as a major insight for dealing with uncertainty. It directs us to identify when and how uncertainties we have to live with can be handled in our favor, making us stronger, instead of reducing our quality of life. Taleb emphasizes the benefit we can get when the upside is very high while the downside is relatively small and easily tolerable. Actually there is a somewhat different way to turn uncertainty into a key positive factor: significantly increasing the chance for a big gain while reducing the chance for losing.  A generic message is that variability could be made positive and beneficial when you understand it well.

While it is obvious that the concept of antifragile is powerful, I have two reservations from it. One is that it is impossible to become fully antifragile.  We, human beings, are very fragile due to many uncertain causes that impact our life.  There is no way we can treat all of them in a way that gains from the variability.  For instance, there is always a risk of being killed by an act of terror, road accident or earth quake.   Organizations, small and big, are also fragile without any viable way to become antifragile from all potential threats. So, while looking for becoming antifragile from specific causes adds great value, it cannot be done to all sources of uncertainty.

The other reservation is that finding where we gain so much more from the upside, while we lose relatively little from the downside, still requires special care because the accumulation of too many small downsides might still kill us. Taleb brings several examples where small pains do not accumulate to a big pain, but this is not always the case, certainly not when we speak about money lost in one period of time.  So, there is a constant need to measure our current state before we take a gamble where the upside is much bigger than the downside.

The focus of this article is on the impact of the concept of antifragile, and its related insights, on managing organizations. The post doesn’t deal with the personal impact or macroeconomics.  The objective is to learn how the generic insights lead to practical insights for organizations.

There are some interesting parallels between TOC and the general idea behind antifragile. Goldratt strived for focusing on directions where the outcomes are way beyond the inherent noise in the environment.  TOC uses several tools that look not just to be robust, but to use the uncertainty to achieve more and more from the goal.

A commercial organization is fragile, first of all, by its ability to finance the coming short-term activities. This defines a line where the accumulated short-term losses are allowed to reach before bankruptcy would be imminent. Losses and profits are accumulated by time periods and their fluctuations are relatively mild.  Sudden huge increases in profits are very rare in organizational activities.  It can happen when critical tests of new drugs or of revolutionary technologies take place then the success or failure has a very high and immediate impact.  As developing a new product usually involves long efforts over time, it means very substantial investment, so the downside is not small.  The gain could be much higher, even by a factor of 10, even 100, but such a big success must have been intended early in the process with only very low probability to succeed.  So, from the perspective of the organization the number of failures of such ambitious developments has to be limited, or it is a startup organization that takes failure to survive into account.

Where I disagree with Mr. Taleb is the assertion of unpredictability. The way Mr. Taleb states it is grossly misleading.  It is right we can never predict a sporadic event, and we can never be sure of success.  But, in many cases a careful analysis and certain actions raise the odds for success and reduce the odds of failure.

One of the favorite sayings of Dr. Goldratt, actually one of the ‘pillars of TOC’, is: “Never Say I Know”, which is somewhat similar to the unpredictability statement.  But Goldratt never meant that we know nothing, but that while we have a big impact on what we do, we should never assume we know everything. I agree with Taleb that companies that set for themselves specific numbers to reach in the future, sometimes for several years, shoot themselves in their foot in a special idiotic way.

Can I offer the notion of ‘limited predictability’ as something people, and certainly management of organizations, can employ? A more general statement is: “We always have only partial information and yet we have to make our moves based on it”.

There are ways to increase the probability of very big successes against failures and by that achieve the right convex graph of business growth while keeping reasonable robustness. The downside in case of failure could still be significant, but not big enough to threaten the existence of the organization.  One of the key tools of evaluating the potential value of new products/services/technology is the Goldratt Six Questions, which have appeared several times in my previous posts on this blog.  The Six Questions guide the organization to look for the elimination of several probable causes for failures, but, of course, not all of them.

Add to it Throughput Economics, a recent development of Throughput Accounting, which helps checking the short-term potential outcomes of various opportunities, including careful consideration of capacity. Throughput Economics is also the name of a new book by Schragenheim, Camp and Surace, expected to be published in May 2019, which goes to great detail on how to evaluate the possible range of impact on profit of ideas and the combined impact of several ideas, considering the limited predictability.

Buffers are usually used to protect commitments to the market. The initial objective is being robust in delivery orders on time and in full.  But, being able to meet commitments is an advantage against competitors who cannot and by that help the client to maintain robust supply.  So, actually the buffers serve to gain from the inherent uncertainty in the supply chain.

But, there are buffers that provide flexibility, which is an even stronger means to gain from uncertainty. For instance, capacity buffers, keeping options for quick temporary increase in capacity for additional cost, let the organization grab opportunities that without the buffer are lost.  Using multi-skilled people is a similar buffer with similar advantage.

So far we dealt with evaluating risky opportunities, with their potential big gains versus the potential failure, and try both to increase the gain and its probability to materialize. There is another side to existing fragility: dealing with threats that could shake, even kill, the organization.

Some threats are developed outside the organization, like sanctions on a country by other countries, a new competitor, or the emergence of a disruptive technology. But most threats are a direct outcome of the doings, or non-doings, of the organization.  So, they include stupid moves like buying another company and then finding out the purchased company has no value at all (it happened to Teva).  Most of the threats are relatively simple mistakes, flaws in the existing paradigms or missing elements in certain procedures that, together with a statistical fluke (or “black swan”) cause huge damage.

How can we deal with threats?

If management are aware of such a threat then putting a control mechanism that is capable not only of identifying when the threat is happening, but also suggests a way to deal with it, is the way to go. This handling of threats adds to the robustness of the organization, but not necessarily to its antifragility, unless new lessons are learned.

But, too many truly dangerous threats are not anticipated, and that leaves the organizations quite fragile. The antifragile way should be to have the courage to note a surprising signal, or event, and be able to analyze it in a way that will expose the flaw in the current paradigms or procedures.  When such lessons are learned this is definitely gaining from the uncertainty.  The initial impact is that the organization becomes stronger through the lessons learned.  An additional impact takes place when the organization learns to learn from experience, which makes it more antifragile than just robust.

A structured process of learning from one event, actually learning from experience, mostly from surprises, good or bad, was developed by me. The methodology is using some of Thinking Processes of TOC in a somewhat different form, but in general prior knowledge of TOC is not necessary.  The detailed description of the process appears as a white paper at: https://drive.google.com/file/d/0B5bMuP-zfXtrMy1XanRDbi12ZUU/view.

The insights of Antifragility have to be coupled with another set of insights that are adjusted to managing organizations and have effective tools of making superior decisions under uncertainty. The TOC tools do exactly that.

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Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

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