Surviving the system shock decade

The 2020s has been defined by two systems shocks in quick succession. To survive, we need to revisit the work done a decade ago on building antifragile business.

It’s just over two years into this decade, and we’ve already had two of the biggest systemic shocks of many of our lifetimes. Just as we began to see the light at the end of the Covid-19 tunnel, war erupted in Ukraine. We hadn’t yet resolved the supply chain disruption of the pandemic, not to mention the shifts in working patterns and emergent migration. But now we have a new wave of problems. 

Over 2 million displaced people need places to live, while we grapple with an urgent need to reevaluate how we source our energy, and a major nation cut off from much of the global economy. And climate change still looks in the background, waiting to disrupt up further.

We are in the system shock decade, and we need to adjust.

No new normal

Eight years ago, our conference theme was The New Normal. That new normal is now over, and there will not be a new new normal to replace it any time soon. These systemic shocks are deep and profound, and they start to undermine many of the assumptions global business — and hence companies — are built on. 

Hardly any people find this comfortable. During periods of change, it’s natural to resist it, or to hanker over what was lost. Most people prefer equilibrium in their lives. I remember vividly walking down a small parade of shops near my home, during one of my allowed hours of daily exercise out of the house. The once-busy parade, filled with walkers, shoppers and often kite-surfers coming on to or off the beach, was deserted. I wondered when — if — things would return to “normal”.

That parade is busy once again, but that “normal” I was hoping for? It’s not coming back. It’s really not coming back. This is an uncomfortable revelation. But it’s true. 

From micro to macro disruption

We’ve been talking about “disruption” for the past decade or so, here at NEXT. That was — mainly — in the context of digital disruption. But I don’t think any of us could have predicted how low grade that disruption actually was compared to what we’re going through now. 

It’s arguable that we’re seeing the end of the era of growing stability of the post-World War II period. While there have always been wars and conflict regionally, we’ve had a period of general stability that has allowed globalisation to develop. Those VUCA-inducing shocks we have had, like the collapse of the USSR, seemed to create stability, rather than undermine it. (It’s possible that we might have to review that opinion in light of current events…)

The core pieces that built our apparently stable world took decades to form. The idea of just-in-time manufacturing, which has dominated industry for decades, has its origins in the 1930s. Significantly, it’s built on incredibly complex global supply chains, that are needed to support the web of suppliers needed to make many modern products. 

That, in turn, needed a world of increasing globalisation to work. And that’s precisely what we’ve had. By the 1990s, “globalisation” was enough of a phenomenon that we named it and started discussing it. The new millennium brought widespread adoption of the internet, and a form of digital globalisation that brought people closer together. The arc of the future seemed to be greater co-operation and integration. 

The stability illusion

Despite the financial shock of 2008, it was largely a world of stability. Stability favours systems that are efficient and lean. Vulnerabilities in those systems don’t matter because they’re not tested: the stability that surrounds the system sees to that. As the authors of a recent paper exploring the current systemic shocks explain

These systems could become “very weak” during a long period of stability because hidden vulnerabilities accumulate to create trauma when a major disruption occurs. Random events might, however, not be as harmful for the long-term prosperity of complex systems, such as supply chains, if the current approach changes and we see disorder as an opportunity to learn and grow. 

There is a cleansing effect of systemic shock: it clears out problems in supply chains, and takes companies out of the market, when they’re unable to adapt. How do you ensure that you’re one of the survivors? 

Counter system shock with antifragility

A decade ago, some business journals were starting to discuss antifragile companies — ones that thrive under pressure and economic shock, rather than fail. Leading the way was Nassim Nicholas Taleb’s book Antifragile: things that gain from disorder. Written in the aftermath of the big system shock of the first decade of this century, the financial crisis of 2008, people were understandably thinking about how to survive future events.

As Harvard Business Review put it:

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.

Ah, it’s our old friends exponential changes and bullwhip effects, isn’t it? While attention on the idea of antifragility waned as the memories of the crash faded, it’s jumped back into people’s thinking over the last couple of years for obvious, viral reasons. 

Towards an antifragile business

So, what can we take from the work on the idea of antifragile companies a couple of years ago? Here’s how that HBR piece summarised Taleb’s thinking:

Here is the working principle: Crises and major disruptions are not an abrupt departure from what anti-fragile organizations do continuously — solve problems. Rather than being controlled through rigid command structures, employees at all levels are trained every day to be quick problem-solvers. A disruption or crisis that might be crippling for some organizations is a challenge they already know how to handle.

Many traditional businesses aim for robustness and efficiency. These approaches work well in predictable, stable times. Contrast them with, for example, a craftsman whose income is unpredictable, as demand for his work fluctuates. He experiments with other products or services, to reduce his exposure to the risk of unexpected economic shifts. His risks are visible, so he adapts to minimise them. He constantly evolves to deal with unpredictable threats, or his business fails. 

Bigger businesses are very good at burying their vulnerabilities in efficiencies and calcified processes. That’s been the recipe for economic success in stable times. Why experiment when you don’t need to? Do known processes better, and profit. 

Digital disruption was a dry run for system shock

As those businesses that bore the brunt of digital disruption learnt, they need to learn to experiment, build redundancy into their product offerings and supply chains, and be able to adapt quickly when things change. 

As the authors of the paper on antifragile supply chains mentioned above put it:

Our discipline can learn from this because we might have followed the wrong blueprint for too long. This has led to very efficient but also very vulnerable processes, structures, and products.

In a decade of system shock that’s upon us, we need different blueprints to survive.