Could You Build a Department or Operation That Actually Grows Stronger Under Stress?
Moving into the new millennium, Chris Galvin (grandson of founder Paul Galvin) took the reins of Motorola. The cellular manufacturer, with a storied history of innovation that included creating the first car radios, was at the absolute pinnacle of its strength. With some 150,000 global employees, Motorola reached a market capitalization of $90 billion in 1999.
Four years later, Galvin, still wearing his ostentatiously monogrammed shirts, was ousted by his board in disgrace. Motorola had lost two-thirds of its worth and laid off a full third of its employees (including—full disclosure—your humble servant), after a ferocious competitive repost from Nokia, September 11th, The Dot-Com bust, and a $2.5 billion self-inflicted wound called the Iridium Satellite System. Titan to Titanic in four short years.
No one would think to look at such a Goliath and call it “fragile,” but that’s exactly what Motorola was; it was fragile to irrational exuberance in the tech market, savvy competition, shocking national events, big top-down mistakes, nepotism, and its own size. When thought about in this way, Motorola’s downfall was preordained.
What Doesn’t Kill You…
In his startlingly insightful book, Antifragile: Things That Gain From Disorder (Incerto), Nassim Nicholas Taleb illustrates that the chaos, randomness, and stressors of the world are wholly unpredictable. We currently waste time trying to make better predictions. We would do better to forget about prediction, and instead try to build operations and institutions that, like our muscles, became stronger from stress.
Taleb is a probabilist, an expert in asymmetric risk. His great insight shows that “fragility” has an exact definition. It means that something has more to lose than to gain from an interaction. A teacup has more to lose than to gain by interacting with an earthquake. Fragile propositions are those containing low-probability but highly-destructive risks (what Taleb refers to as a “concave” proposition). Thus:
- People who neglect oral hygiene are fragile to decay.
- The uninsured are fragile to catastrophic health events.
- “Creative” tax returns are fragile to IRS audits.
- Over-extended investment banks are fragile to sudden, shocking drops in their asset values.
One might think that the opposite of fragility is robustness, but one would be wrong. The opposite of something with downside exposure to stress is not simply being able to withstand the stress, but with actual upside exposure to that stress.
We see this effect all the time in the organic world. Think about the human body clearing away weak or dead cells so that the strong, healthy cells can multiply. Think about evolution (a macrocosm of cellular replication), in which less well-adapted organisms do not survive to reproduce. In each case, the individual unit may not survive, but by its sacrifice, it makes the whole organism stronger.
This Isn’t Personal. It’s Just Business.
So what factors make an organization or institution generally more fragile to large-downside risks?
If antifragility is the property of all these natural complex systems that have survived, then depriving them of volatility, randomness, and stressors will harm them. Just as spending a month in bed leads to muscle atrophy, complex systems are weakened or even killed when deprived of stressors.Nassim Nicholas Taleb
The following is a non-exhaustive list of factors that would tend to make a business or institution more fragile:
- Big expensive mistakes as opposed to small, manageable mistakes (this includes large debt and untenable cash positions)
- Centralized systems, which help to correlate the impact of mistakes
- Sheer size, because it reduces the options available when one needs to act quickly
- Single points of failure
- Decisions made by those with no skin in the game, or who are somehow isolated from the consequences they create
- Unnecessary interventionism and iatrogenic damage (i.e. illness caused by the healer)
- Top-down controlled planning, or other resistance to trial-and-error
- Over-reliance on prediction, and trying to draw more definitive conclusions than the data will bear
- Investing 100% in medium-risk strategies, instead of balancing low-risk with some aggressive-risk strategies
- Sheltering certain institutions from risk, especially legislatively (think: Too Big To Fail)
- Time itself. Time is a stressor, and eventually, everything falls to time (see: Shelley’s Ozymandias)
So What’s The Opposite?
From this partial list, we may begin working out elements of an organization’s structures, processes, and leadership that would not only make it robust, but that might allow it to gain from disorder. Here’s an example from Taylor Pearson’s Notes and Applications:
Good systems such as airlines are set up to have small errors, independent from each other— or, in effect, negatively correlated to each other, since mistakes lower the odds of future mistakes. This is one way to see how one environment can be antifragile (aviation) and the other fragile (modern economic life with “the earth is flat” style interconnectedness). If every plane crash makes the next one less likely, every bank crash makes the next one more likely. We need to eliminate the second type of error— the one that produces contagion— in our construction of an ideal socioeconomic system.Taylor Pearson
How To Build An Antifragile Marketing Organization
So we begin by asking ourselves, “How do we set up marketing leadership and processes to grow from stressors? How do we make errors correlate negatively with one another? How do we maximize trial-and-error, make errors small, and in all other ways make our operation resemble a natural, evolving system?”
Mechanisms To Adapt Directly to Market Feedback
Everybody thinks that they’re in touch with market demand until they wake up one day bankrupt. Good companies generally have visions, which amount to a broad declaration of the general field in which they commit to providing more value. But visions and mission statements can also become a suicide pact if they attempt to steer from the top rather than adapting from the bottom.
What mechanisms do you have in place, right now, to consistently cull market feedback, aggregate it, analyze it for significance, and allow significant findings to inform your roadmaps and strategies in a Bayesian way (i.e. to a degree that scales with the degree of, and confidence in, the change)?
When we consider market feedback, we typically think about typical mechanized collection methods, like these specified by Neil Patel:
- Feedback Boxes
- Direct Outreach
- User Activity
- Usability Tests
To this, I would also add Sentiment Analysis. AI is starting to give us some impressive tools for sentiment analysis over millions of social posts and/or online reviews. Check out this case study from Crimson Hexagon on how their analysis uncovered a brand new market for guitar maker Fender.
Four out of five of Patel’s suggestions are mechanized and lend themselves to quantification, but (especially in B2B), direct outreach is the method that provides the real value. Adele Revella is the head of the Buyer Persona Institute. In her wonderful book Buyer Personas, she lays out her proscriptive, interview-based methodology for creating useful, buyer’s journey-based personas that offer deep insights into the consideration process. She finds the interview method superior to surveys, as the added context and anecdotes are invaluable.
The most common point of failure in culling market feedback is the failure to learn the right lessons and adjust strategy. We have a tendency to rationalize and cherry-pick findings when the overall lessons run contrary to our suppositions. As pointed out in this Harvard Business Review article, a culture of learning is crucial to applying the right lessons from the market (together with other factors cited in the article).
Decentralization and Trialing
In most marketing operations, the centralization problem is one of personnel and a lack of redundancy.
Were your head of marketing to be hit by a bus tomorrow, what would suffer? If the answer is “nothing,” immediately fire your head of marketing. If the answer is, “There’s definitely some stuff we’d have a hard time replicating,” then the problem is one of delegation and (cross)training.
We understand centralization to create efficiencies (why, after all, would an organization need 10 CRMs?), but it is actually the root of bureaucratic bottlenecking. How many times, when talking to a vendor or prospect, have you heard, “We’d love to do business with you, but all of X function has to run through our Y team. It would take 6-12 months just to get a waiver…”
As Jared Lewis puts it in this Chron article on marketing decentralization, functional areas within a marketing department should share standards, data, calendars, coordination, and vision, but should be otherwise as free as they can be to test and innovate. Running all decisions and methods through a central arbiter commits two sins: it correlates errors (because the entire department is “all in” on a bad proposition), and it also puts emphasis on a top-down planning structure that kills innovation.
We drive true progress and innovation, Taleb argues, not by a central vision, but by many, many acts of random tinkering and adaptation.
Diversification of Risk Levels – The “Barbell”
If in 2007 you put your money in a bunch of “medium-risk” CDO tranches, you would have no money today. So much for the label of “medium risk.”
The problem in general with medium-risk strategies is that they give you the worst of both worlds: the tremendous opportunity costs of tying up your resources, with limited or dubious upside. You keep no resources available to jump on sudden opportunities, while at the same time producing mediocre returns that have a non-zero probability of not materializing at all.
By contrast, when professional options traders manage risk, one option they might employ is the “barbell” strategy: most investment in negligible-risk, highly liquid securities, and some little investment in aggressively speculative positions. The probability of these aggressive bets are low, but we mitigate this by committing only a small minority of our resources. Taleb refers to this tactic rather colorfully as “marrying the accountant while having an affair with the rock star.”
This strategy allows marketers to take a few speculative risks while running a fundamentally conservative operation. In my article on taking initial control of marketing operations, I talk about using the first few months as an opportunity to pilot certain ideas, and you’ll see the pilot concept reflected in these “barbell” examples:
- Digital advertising: separating a small budget to pilot a brash awareness campaign, while reserving the majority of your budget for classic lead generation.
- Budgeting: isolating a certain level of budget for piloting a single, high-profile branded networking event, while retaining the majority of the budget for more classical operations.
Redundancy and Overcompensation
Overcompensation explains why your muscles build back to a stronger level after being stressed (hypertrophy). The usefulness of antifragility comes not just from building back to where one was before, but building back stronger.
When I worked at a digital agency, one of the most important meetings we would convene was the client-loss post mortem. This was a mandatory, often excruciating meeting held after a client ended a relationship, wherein we did our level best to diagnose the source of any underlying issues and build better processes to keep the same problem from recurring.
What internal processes do you currently have at your organization to correct for business or opportunity loss? How about for personnel loss? How about branding or writing mistakes?
Very often, we would put processes in place to create redundancies. This sacrifices some efficiency (often the worst thing for a labor-intensive agency to sacrifice), in order to make sure little issues were caught before they became big issues. It’s very hard, for example, for an agency specializing in copywriting to catch all typing and grammar errors without some kind of cross-editing or partner-proofing process in place.
Summary: The Test of Tesco
One Harvard Business Review article by Brad Power tells the story of Tesco, a UK company revered for its decades-long commitment to supply chain excellence.
Once held up as a shining example to the retail industry, Tesco has begun stumbling in recent years. Their attempts to enter the U.S. market were less than successful. In addition, Tesco’s previous financial successes emboldened them to diversify into a variety of (some times completely unrelated) industries, including creating a small film studio. As put by one analyst quoted in the article:
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.Harvard Business Review
At the time of the HBR article in 2013, the author suggested that Tesco would be entering a true test of its institutional antifragility.
Tesco, the author said, had certain antifragile advantages that could help it recover: mechanisms for listening to customers, a robust problem management system, and management open to experimenting. Would that create enough antifragility to build back stronger from these stressors?
Sadly, it was not to be.
Tesco was about to enter a period, still going on as of this writing, referred to as “The Lost Years.” Their top-down planners involved them in still more Avante Garde escapades like tablet computers and restaurant chains. Like Motorola with Iridium, they sunk all their capital into high-risk ventures that seem idiotic in retrospect. Tesco’s decades-long, monomaniacal focus on efficiency and cost-cutting, together with their zig-zag investment strategy tore them away from customers and their feedback. Finally, they became so big, that they had no maneuvering room during bad times.
How do you make your operation antifragile, and avoid this drama?
- Get mechanisms in place to understand and incorporate market feedback.
- Decentralize, and create redundancies to help mitigate errors and losses.
- Manage your risk positions.
- Figure out processes to overcompensate for stresses and failures.
…and above all, do not try and shelter yourself from randomness and stress. Embrace it!
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