Here is an excerpt from an article written by Brad Power for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.
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Many large, successful organizations are more fragile than they seem. They break under stress. Remember the travails of Kodak, Digital Equipment Corp., and Washington Mutual? In their heyday, they were dominant players in their sectors. All disappeared. Why do relatively few companies prove resilient and withstand stress? And why are even fewer “anti-fragile” — that is, they get stronger when stressed?
In his book Antifragile, Nassim Nicholas Taleb describes how some systems, such as biological ones, gain from disorder. Anti-fragile systems love randomness and uncertainty; going beyond resilience or robustness, they get stronger with stress and volatility. Start-ups tend to be anti-fragile; large, successful organizations tend to be fragile. If lucky, a start-up grows and develops a success formula. With maturity, however, it can become rigid and fragile. Most successful organizations do not like volatility, randomness, uncertainty, disorder, errors, stressors, and chaos. Yet we are in a world where disruption and randomness are increasing. Organizations that gain from randomness will dominate, and organizations that are hurt by it will go away.
In a recent post, I described how Tesco, the $100 billion U.K. retailer, spent the last three decades improving its supply chain processes, and designing and launching a series of services, including smaller local convenience stores and online shopping. It’s a great success story, but there’s a catch. In recent years, Tesco stumbled in launching new stores in the U.S. and in its home market in the U.K. One commenter on my post put it bluntly: “Tesco’s recent woes in the U.K., having sacrificed customer intimacy for increased operational excellence gains through widespread cost cutting, are well documented. They were a best practice example in 2007. Not anymore.”
In response, Dan Jones, chairman of the Lean Academy who worked with Tesco, commented that the retailer’s success is rooted in failure. “In the UK, Tesco lost the plot several times in recent years as they grew to double the market share of competitors like Sainsbury‘s and Asda/WalMart. Each time they regained momentum by going back to listening to what customers were telling them in store and in shopper panels, as well as analyzing data on changes in their shopping behavior…. The lasting legacy of its learning from Toyota was building the capabilities to act quickly once they realized they had a problem. It looks like they are doing so again right now.”
Is Tesco fragile, resilient, or anti-fragile? Our competitive environments are complex systems, full of interdependencies that are hard to detect and responses to disruptions that are nonlinear. These complex systems tend to develop runaway chain reactions that decrease or even eliminate predictability, occasionally causing outsized events (Taleb calls them “black swans“), such as the financial crash of 2008. Organizations worry about fine-tuning their operations to handle the typical situations. The danger is that their management approaches cannot sense or respond to shocks. Organizational managers and leaders should be worrying about fragility in the face of such shocks.
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To read the complete article, please click here.
Brad Power has consulted and conducted research on business process innovation for the last 30 years. His latest research focuses on how top management creates breakthrough business models through process innovation, building on work with the Lean Enterprise Institute and Hammer and Company. To check out more of his blog posts, please click here.