The change in the established conditions brings with it uncertainty. The greater the number of changes in a shorter time, the greater the uncertainty. And uncertainty leads to disorder. By definition disorder is a “Situation or state of confusion or alteration of something”. Can your company be one of the companies that benefit from disorder?
After two decades in the 21st century, we all agree that change is a constant. We can also agree that change is happening faster and faster. New technologies, social changes, changes in human behavior have a shorter and shorter cycle.
In times such as those we are currently experiencing (the Covid-19 health crisis), the volume of change and its magnitude has multiplied in a reduced space of time. With the particularity that some of them are changes of great magnitude (regulations that block the activity in complete sectors, limitation to the circulation of the population, publication of aids for the business network).
They are far-reaching changes that we can see every day in the news. These changes have their direct and instantaneous reflection in the companies and create the so called “disorder”. What can I do in the face of these changes? How can I be one of those companies that benefit from the disorder?
Can we predict the changes?
The human brain is limited in predicting change. The human being is only able to predict change in a linear way.
An object/animal is placed in front of our eyes moving at a constant, linear speed from left to right. That object/animal passes in its way behind an opaque object. What will happen? We will stop seeing that animal/object for a certain amount of time, which takes time to pass behind that opaque object.
The human brain will be able to predict when that object/animal will appear on the other side of the opaque object. And it will be right if, and only if, the object/animal maintains the linear and constant speed that it had until now.
If the object or animal studied increases its speed in the period of time we have lost sight of it because it is behind the opaque object, our prediction will erroneously estimate that the animal maintained the same speed, and therefore our prediction will be late, the animal will have appeared earlier.
The capacity to adapt
The human being is unable to predict non-linear change. And the change in the current environment is not linear. The ability to adapt is essential for human beings. And it is especially so for companies.
The ability to adapt is the most important quality of a business to survive, especially in an environment of high uncertainty and change.
Companies and organizations are obliged to print adaptation in their DNA. And not only that, they are obliged to have this adaptation reflected in their strategic lines of action.
We tend to think that a solid business is a safe business. And we are not wrong if this business also has the capacity to adapt. If it doesn’t, we are lost. We can think, for example, of a large company in the steel industry. A company that has healthy accounts, loyal customers, a great management team and a plan for expansion and sustained growth. In principle everything indicates that it is a reliable company, a winning bet on which to invest.
But let’s think that the company is not able to adapt to changes (loss of its most important supplier or client, drastic changes in the prices of its raw materials, regulations that change the “game board”, new competitors), or that it does not do so quickly enough. So we are talking about a clear case of death foretold. Companies die because they fail to adapt to change. And I am sure that a few examples easily come to mind for all of us.
With this idea of the quality of adaptation that organizations must have, I would like to introduce a new concept coined by Nassim Taleb, a Lebanese essayist, researcher and financier.
It is called “anti-fragility”. A neologism created by Mr. Taleb, to define those things that are the opposite of the fragile.
The anti-fragility of companies.
We tend to think that solidity or robustness is the opposite of fragility. However, robustness is not the opposite of fragility. The opposite of fragile is “anti-fragile”. That is, something that grows with disorder, volatility, uncertainty.
To illustrate this with an example, Nassim gives us a very intuitive idea: The example of Damocles, the Phoenix and the Hydra.
Damocles . Damocles is fragile. He had a sword over his head, hanging by a thread. The slightest volatility or stress could break him and kill him. Any slightest change would have killed Damocles.
Phoenix . The Phoenix is robust. The Phoenix is reborn from its ashes. It resists changes and survives them, but does not get better. The Phoenix was indifferent to stress.
The Hydra . The Hydra is anti-fragile. When the Hydra cuts one head, two grow. Change and adverse circumstances make the Hydra stronger. The Hydra was looking for stress, it made it stronger.
Our companies have to be Hydra, they have to be anti-fragile. Especially in a random and unpredictable world. They have to be the companies that benefit from the disorder.
The world we live in is completely unpredictable and therefore it is impossible to make predictions about it. Absolutely no one can know and successfully predict whether something will succeed in the market, what the stock market will do next week, or when the next economic crisis will be. Our organizations have to be able to benefit from change and uncertainty.
And how can our organizations adapt and be “anti-fragile”?
How can my company be anti-fragile?
In the financial world, the term “barbell strategy” is used when a trader invests in long and short duration bonds, but does not invest in bonds of intermediate duration.
The “barbell strategy” can be useful for companies. The basic idea of this strategy is to invest 90% to 95% of the organization’s time and resources in key business activities, such as developing better products, maintaining and attracting new clients.
What to do with the remaining 10% or 5%? Invest this time and resources in activities that help our organization adapt to change. Betting on innovation teams, search for new market niches, development of new products.
These are high risk activities and therefore, with high failure rate, but also with high reward. “Don’t pick up pennies in front of a steamroller”. Make asymmetric bets, in which if you win, you win much more than you can lose. Never take a risk that could end up with you.
In situations of constant change it is key to have a “waist” to undertake these changes. This flexibility must be reflected in the mentality of the managers. This is not the time for “that has always worked this way”. Not in such a changing environment where things can stop “working like that” from one week to the next.
Be prepared for change, and be able to accept that things may stop “working that way”.
We are not talking about technology just because we introduce technology into our company, which is a big mistake. As our friends at Pirelli used to say, “Power without control is useless.
Technology is a means. Any technology requires planning, talent and collaboration to successfully implement it in a company.
Think about if that technology helps you to achieve any of your goals, plan how you can use that technology in your company, and how it adapts to your available human capital.
To understand how this technology can help you and implement it successfully, surround yourself with the best partners.
The manager has to be open to change. It is very likely that in these times of change, new ideas, initiatives, alternatives or proposals will arise from within or outside the organization.
The executive must have permeability and critical sense to evaluate these proposals and decide if they can bring value to the company.
Here the maxim is “Undertake lightly”. The simpler the better. Fail small. Small mistakes make us go through the “error-learning” cycle more quickly.
“Avoiding small mistakes, leads us to bigger mistakes”.
New products or new customer niches
It’s time to think about the changes, how the day to day has changed for my potential customers. How is their day to day now? How can I help them with my product or service? Where can I add value?
Changes make my day to day as a company change, but the focus should be on how the day to day has changed for my customers or potential customers.
In a changing environment, it is more important than ever to maintain a “Customer Centric” mentality. After all, it is that “Customer” that brings revenue to our companies.
In short, it is in these moments of high volatility or uncertainty that we have to make the greatest effort to adapt. We have to evolve as organizations. We have to be the species that adapts to change and survives.