Antifragility de-mystified - How to win under turbulence

Crises and surprises are bad for business. They reduce profit and fire-fighting ties hands away from growth and other priorities. Even the risk of crisis requires keeping expensive buffers like inventories. And a business that is likely to suffer from crises is less attractive to investors, and they require higher returns on riskier investments.

But what if crises would not be something to fear, but instead something to wait for? Something that brings the best out of business, opens opportunities to capture growth upsides and boost margins. 

What would it take to build a business that is ready to capitalize on surprises and crises? 

Under business-as-usual times it is tempting to focus on efficiency and leave responsiveness under turbulence to lower focus when developing business. When optimizing for efficiency under times of calm and ‘mature’ business it is tempting to overlook weaknesses that become bottlenecks for responsiveness under turbulence. 

Fragile businesses are built upon the passive assumption that business is stable and ‘mature’, and there cannot be surprises that would require preparations. So, these companies see that the best way to profit is via lean efficiency. Recent events like pandemic and war have been wake-up calls for many, proving that some active way to deal with surprises would have been good to have in the back-pocket even if the business had appeared to be ‘mature’ for decades.

  Robust businesses accept that surprises are possible. They take a reactive approach and build buffers and plan-B:s to help them work their way around the problems. So, to them the best way to long-term profit is to accept the necessary evil of investing into preparations (inventories, 2nd sources, buffer capacity, alternative logistics…) that are beyond what would be optimally lean and efficient if everything went as planned. The weakness of this approach is it’s reactiveness: it only sees surprises as nuisances to deal with, but does not seek to benefit from them e.g. via sales upsides.

 Antifragile businesses acknowledge that they are in a business where surprises happen frequently, and there is no way to ever get rid of them completely.  They view surprises proactively as opportunities to boost margins and gain ground from competitors who are less prepared to deal with surprises. So, to them the best way to long-term profit is to capitalize surprises by investing into the readiness to respond faster and better than competition. The dilemma of this approach is the needed groundwork and preparations that might not bring immediate and steady value, but which is too slow to build if you only start when you would already need to have it ready.

   In principle, it’s simple. Deceptively simple.

First, you need to observe and notice that something has changed. If you don’t, you’re just flying blind and doomed to hit a wall sooner or later.

Second, you need to decide clearly on how to respond. If you don’t, nothing changes, or different parts of the company do different and conflicting things.

Thirdly, you need to execute the change. If you don’t you are just running a fragile business that passively observes when force majeures wreck havoc on the business. 

    Many struggle to capitalize on crises and surprises. Being able to ‘observe’, ‘decide’ or ‘do’ are the tips of icebergs that can, and do, go wrong in many different ways. 

First step towards ‘observing’ is to have people who are making an attempt to see what’s going on and what’s changing outside the company. Under stabile times it’s tempting to focus too much on what’s going on inside the company or with current customers, and neglect scanning more broadly for signs of changes. Companies can themselves make this worse by recruiting, training and assigning people to too narrow job descriptions, where it’s not even expected do anything else than to repeat yesterday blindly.

Second, there needs to be something for these people to work on to help them see the status and changes, data. The need to have reliable, detailed, up-to-date and comparable data across the entire business is often seen as bureaucratic inconvenience that gets easily neglected under ‘real’ business priorities. 

Thirdly, to avoid getting lost in all possible things to observe, there needs to be a clear focus to intentionally look for signs of surprises and crises. It means setting up a network of light but sensitive sensors to spot anything that looks like a surprise, and having the capability to dig deeper when & where needed, instead of just writing the surprises off as ‘variance’.

Relevant specialties: Data management, data quality and maintenance, business analytics, business intelligence, training

When business gets bigger, faster and more complex, making good decisions on how to run it gets more and more difficult. These difficulties evolve gradually over time and people quietly get used to things being hard. It’s deceptively easy to continue using old decision-making practices that were developed when the business was very different. Few companies intentionally take a step backwards away from daily urgencies and ask “What would be the best decision-making set-up to answer all the different questions that are needed to run the business?”. If there is no clear set-up, the danger is to end up with one-size-fits-all practice, where long-term decisions (e.g. product portfolio) are done along short-term decisions (e.g. production allocation), or decision-making that’s good for slower businesses (e.g. B2B whole-sale) is used also for faster businesses (e.g. B2C web sales). 

Once the decisions that are so different that they require different ways to make decisions have been split to groups, these groups need to be organized to fit well together in the bigger decision-making puzzle. Each part needs to have a crystal-clear purposes & handovers:

What decisions are done here, and nowhere else?

What’s needed as inputs from others, and what’s needed as outputs to others?

If purposes or handovers are unclear, there will be gaps and overlaps on what is decided and where, as well as frustrating inefficiencies as people don’t have what they need to do their parts.

Once the decision-making puzzle is structured, each part needs to fulfill it’s required purpose. A common trap is to pursue one objective too far, and ending up causing more problems elsewhere, e.g. seeking sales by offering so high service levels that it cannot be provided with reasonable costs or risks. To avoid falling into this trap, the decisions should always be made under balancing objectives, that allow spotting if you are overshooting in chasing one objective. Not all sales is good sales. Not all savings are good savings.

Finally, but critically for companies aiming to capitalize on surprises, the decisions should be done efficiently. Decisions should require minimum amount of time and work. When surprise or crisis hits, you need to have time and bandwidth to go the extra mile to coordinate actions across functions to respond faster and better than competitors.

Relevant specialties: Decision-making set-up, S&OP, S&OE, operative planning, life-cycle management, process efficiency

Ability to execute responses to surprises starts from the very core, business model: is it ‘carved in stone’ with all bets permanently placed long in advance? Or is it built intentionally to enable changes when things don’t go as planned? Agile business models should also cover suppliers, partners and customers when setting-up the rules of the game so that it would be in everyone’s best interest to respond fast and efficiently when changes happen. 

Before a company can change how it runs it’s business, there needs to be repeatability in how it runs business currently. If repeatability is low, the wheel gets invented again and again, slightly differently each time. This means there is no basis to which changes could be targeted to guarantee that the company would start doing needed things differently without breaking other practices elsewhere.

Once the company changes how it wants to repeat it’s business, there needs to be control & discipline to ensure that the ship begins to turn. This requires running the business in a way that generates an audit trail of data, that can be used to assess if things are really changing, and check-points to find and fix places that are lagging behind.

Practice makes perfect: The readiness to execute changes remains just a paper tiger if it is not put to real use regularly. Doing smaller and frequent changes builds change experience to the organization, prevents falling into business-as-usual – complacency, and reveals hidden bottle-necks e.g. between organization blocks that could slow the changes when the really serious surprise is at hand.

Relevant specialties: Business model design, value chain margin management, sourcing, supplier portfolio management, risk sharing, Vendor Managed Inventories, business process efficiency, life cycle landed margin management, change management