While global interconnectedness has many benefits, it also creates the risk that events on one side of the world will dramatically and negatively impact companies on the other. This possibility raises the issue of what type of organizational structure and approach has the best ability to thrive in this type of environment. In Nassim Nicholas Taleb’s book, Antifragile, he discusses things that benefit from shocks and stresses. Do companies get stronger from adverse events? Could they with the right outlook and business approach? This article examines the concept of antifragility and discusses how companies can become more antifragile to strengthen their businesses and increase their ability to build value regardless of the conditions they face.

Business Fragility

The word fragile comes from the Latin word fragilis, which means “easily broken.” Fragility is measured across a wide range of disciplines, including political science, finance, physics and medicine.

In business, fragility is a state where a company cannot withstand:

• positive and negative internal and external shocks;
• of different types;
• of different levels of intensity;
• over different periods .

A company that is not fragile has the ability to withstand a wide range of positive and negative internal shocks of high magnitude over a long period of time.

State of Company That Is Not Fragile	State of Company That Is Fragile
Can withstand a wide range of positive and negative external and internal shocks of high magnitude over a long period of time.	Cannot withstand positive and negative external and internal shocks of any magnitude over a short period of time.

It might sound counterintuitive that included in a measure of fragility are positive as well as negative shocks. This is because positive events can be damaging as negative ones. A business can suffer just as much due to having too many customers as it can from having too few customers.

Business Stressors

Businesses constantly face many types of external and internal stress. Examples of external stresses are:

• macroeconomic changes, including increases and decreases in GDP growth rates, changes in inflation, and changes in currency exchange rates
• financial changes, such as interest rate movements
• market changes, including shifts in supply and demand, technological changes, and changes to the competitive landscape
• regulatory changes that affect a company’s sector.

Examples of internal stresses are:

• managerial changes, such as the loss of key executives
• financial changes, such as a loss of revenues or cost increases
• operational changes, such as a disruption of a company’s supply chain or labor issues
• reputational changes, such as events which harm the reputation of the company or the sector the company is operating in.

Antifragility

The concept of antifragility, as developed by Nassim Nicholas Taleb in his book, Antifragile, refers to something that, rather than being harmed, grows stronger from stress. Here is a talk Nassim Nicholas Taleb gave at Google regarding antifragility. This stress can be created by a single event or a context, such as a market, that is comprised of multiple negative factors.

Examples of antifragility are:

• physical fitness, where the stress of lifting weights causes a muscle to get stronger
• aerobic exercise, where stress on the respiratory system causes it to work more efficiently
• taking vaccines that contain small doses of a disease in order to build immunity against it
• human evolution.

Antifragility is distinguished from two related concepts: resilience and robustness. Resilience refers to the ability of organism or system to recover from some type of shock but not its ability to get stronger because of that shock. Robustness refers to the ability of an organism or system to continue to function despite a shock but not to get stronger because of that shock.

Antifragility must be distinguished from resilience and robustness.

A vital issue in antifragility is what is meant by the concept of an organism or system “getting stronger.” In the case of a muscle, if a person is capable of lifting 100 pounds and after a period of lifting weights the person is capable of lifting 120 pounds, we can see the close relationship between the stress and increased performance.

However, in many systems, the relationship between the stress and resulting improvement is not as direct. Assume that after the weightlifting period, the person’s strength remained the same, but his bones became stronger, or his cardiovascular health improved. While the person’s power did not increase, his overall health improved. The fact that a system can become more robust in response to a shock based on an aggregate and a specific basis is an important element of business antifragility.

Business Antifragility

Analyzing the concept of antifragility in business poses several challenges.

To begin with, businesses are not the same and they do not react in the same way to different things. Companies that are located in the same sector can have different:

• business models
• organizational structures
• human resources
• assets
• operating procedures; and
• values.

Further, businesses do not react to stressors in the same way due to a number of factors, including different:

• organizational DNA
• ways of looking at and handling issues; and
• people with different perspectives and motivations.

This means that applying the same type of stress on two firms at the same type can produce very different results. Some firms will get stronger from a shock and other firms will get weaker. Some firms will react to a negative event by becoming more creative and trying harder. Other firms will simply give up under the assumption that they cannot compete under new conditions.

Firms also are continually changing due to shifts in business plans and strategy, human resources and client relationships. These changes affect firm fragility and antifragility.

Creating an Antifragile Company

Here are 10 practical steps companies can take to become more antifragile.

Build an Agile Firm Culture. Firm culture determines the ability of a company to turn adverse events into positive outcomes. Regardless of how large a firm is and how many resources it has, if it is not strategically and operationally agile, it will not be able to react quickly when faced with adverse market or internal situations. An agile culture can quickly see and evaluate multiple courses of action and assign resources to facilitate directional changes and shifts from defense to offense.

Break Down Organizational Silos. Companies can become more antifragile by:

• removing organizational silos where people have little knowledge of what other firm departments are doing or are capable of doing
• flattening organizational structures and spreading them out
• creating roles where people have cross-firm visions and skill sets and can quickly form, reorganize and participate in teams that can respond to shocks and
• decentralize decision-making and give people discretion to react to different circumstances.

To support increased firm integration and awareness, firms should create opportunities for people from different departments to sit in on meetings outside of their immediate functional role, such as inviting lawyers to technical meetings or people on the marketing team to risk management meetings. This will give people a much broader sense of issues other departments in the firm are facing.

Increase Business Model Flexibility. A critical element that defines a firm’s level of fragility or its antifragility is its business model. If a company has only one product that it can sell under a narrow set of circumstances, it is highly exposed to risk. A ski resort is a business model with a high degree of fragility because the mountain cannot move, and the business can only make money when it snows. An agricultural company that sells a single product that is only produced at a particular time of the year is also highly fragile.

Firms can make their business model less fragile by:

• being present in different geographical markets
• participating in multiple market segments
• being present at multiple parts of the value chain
• selling different products and services
• selling products at different price points
• spreading out revenue and cost cycles.

Incorporate Optionality into a Business Model. Firms can become more antifragile by having the option to scale up or scale down, horizontally and vertically. Horizontally optionality comes, for example, by setting up a representative office in a new market that a company can, if necessary, quicky expand or reduce in size. Vertical optionality comes from the ability to dedicate more resources to different parts of the value chain.

Think Like an Investment Fund. Firms seeking to become more antifragile can learn from investment funds. Rather than betting on a single company, investment funds often spread their investments across multiple companies or sectors because they do not know which one will perform well. Companies can incorporate this approach and invest in other companies in their industry, complementary or different sectors. In addition to effectively diversifying the firm’s business, companies can benefit from investment positions in other firms to study various business models and operational approaches.

Create Continuous Feedback Loops. Many firms have evaluation frameworks that consider a situation at a particular point in time and then evaluate that situation again at a point in the future. One example is the common practice of preparing a business plan at the beginning of the year and then checking it at the end of a financial quarter. Another example is reviewing employee performance only once a year.

However, the external and internal environment is constantly changing, and not remaining aware of these changes means that opportunities are often lost and negative situations can worsen considerably. To counteract this, firms should put in place continuous feedback loops so the distance between internal and external shifts and reactions to those shifts is shortened as much as possible.

Build Relationships Outside the Company. Firms do not operate in isolation and very few companies can turn shocks into gains alone. To succeed under adverse conditions, companies need a supportive network of clients, business partners, advisors, and firm allies who can share information with the firm, signal emerging opportunities and threats, and help the firm to shift directions or try new things. This network is a two-way street. The more firms invest in community-building, the more antifragile they will be.

Increase Financial Flexibility. Firm fragility is a function of its resources, where those resources are located, and how quickly they can be used. One of the most critical resources is capital. Rather than amassing capital that is not put to productive use, making firms financially more antifragile means targeting operating their business with margins that are flexible enough to allow the firm to withstand financial shocks and dedicate additional resources to changing direction if necessary.

Firms can also become more antifragile by not only seeking capital when it is needed but continuously cultivating relationships with potential investors and capital providers to shorten the time needed to secure funding if necessary.

Continuously Monitor Market Developments. To benefit from stresses on a firm’s business model, firms must be aware of those stresses. Many firms operate with significant blind spots and do not see risks or opportunities coming until it is too late to take advantage of them.

Many events that are classified in hindsight as black swans were in fact white swans that were in plain sight. Everything is a black swan if your eyes are closed. To remove these blind spots and increase their peripheral business vision, firms should set up processes that gather market information and can mine that information for adverse and positive trends.

Enter New Business Environments. While most firms would not benefit from a deep dive into the dark waters of chaos, they should not be afraid to expose at least a part of their firm to business environments outside of their comfort zone.

One example of this is entering into a new geographical or product market that would complement the firm’s business model or growth vision or decouple them from adverse market scenarios. Even if this is not successful, facing novel conditions and trying to navigate them will create corporate survival skills that will help firms face future uncertainty.

Conclusion

As global markets become more integrated, different shocks will be transmitted across markets faster and faster. To face this environment, firms should make their organizations more antifragile. This will help firms create value and reduce risk over a wider range of market scenarios, regardless of whether they are favorable or adverse.

Thanks to Alina Grubnyak for the photo on Unsplash. Beautiful Free Images & Pictures | Unsplash