The Design of ‘Antifragile’ Innovations in the Age of Black Swans

The Design of ‘Antifragile’ Innovations in the Age of Black Swans


 

 

 

 

 

 

 

 

By Nicos G. Sykas, Strategy, Communication and Innovation Consultant

In his book Antifragile: things that gain from disorder Nassim Nicholas Taleb –the leading global authority on Risk Management– states that «Antifragility is beyond resilience or robustness. The resilient resists shock and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, the rise of cities, cultures, legal systems […] In every domain or area of application, we propose rules for moving from the fragile toward the antifragile, through reduction of fragility or harnessing antifragility. And we can almost always detect antifragility (and fragility) using a simple test of asymmetry: anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile […] The barbell (or bimodal) strategy is a way to achieve antifragility […] The first step toward antifragility consists in first decreasing downside (remove fragilities), rather than increasing upside; that is, by lowering exposure to negative Black Swans and letting natural antifragility work by itself […] I initially used the image of the barbell to describe a dual attitude of playing it safe in some areas (robust to negative Black Swans), hence achieving antifragility […] But the barbell also results, because of its construction, in the reduction of downside risk – the elimination of the risk of ruin […] For antifragility is the combination of aggressiveness plus paranoia – clip your downside, protect yourself from extreme harm, and let the upside, the positive Black Swans, take care of itself […] Why does asymmetry map to convexity or concavity? Simply, if for a given variation you have more upside than downside and you draw a curve, it will be convex; the opposite for the concave». You are antifragile if you can benefit from randomness more than you can be hurt by it (convexity to uncertainty).

  1. Taleb’s definition of ‘barbell’ strategy: taking maximum exposure to the positive Black Swans while remaining paranoid about the negative ones. Positive Black Swans have a necessary first step: you need to be exposed to them. The idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty.

A Black Swan is a rare, unpredictable event that has a major effect (large magnitude and consequence). A Black Swan carries an extreme impact (positive asymmetries or negative asymmetries). Black Swan effects are necessarily increasing, as a result of complexity, nonlinearities –asymmetries, convexities– interdependence between parts and globalization. Complexity plus asymmetry lead to explosive errors.

  1. Taleb points out that the ability to switch from a course of action is an option to change: «An option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side […] Let us call trial and error tinkering when it presents small errors and large gains […] To crystallize, take this description of an option: Option = asymmetry + rationality […] The fragile has no option. But the antifragile needs to select what’s best – the best option […] Trial and error… is not really random, rather, thanks to optionality, it requires some rationality. One needs to be intelligent in recognizing the favorable outcome and knowing what to disregard […] We can, from the trial that fails to deliver, figure out progressively where to go […] Innovation is precisely something that gains from uncertainty: and some people sit around waiting for uncertainty and using it as raw material, just like our ancestral hunters […] When someone has more upside than downside in a certain situation, he is antifragile and tends to gain from volatility, randomness, errors, uncertainty, stressors and time. And the reverse».

Antifragile risk taking is largely responsible for innovation and growth. The field of innovation is concerned with finding positive Black Swans, rare events that capture significant returns.

  1. Taleb links innovation success with the hidden benefit of antifragility and the power of optionality: «This hidden ‘convexity bias’ is what the common discourse on innovation is missing. If you ignore the convexity bias, you are missing a chunk of what makes the nonlinear world go round. And it is a fact that such an idea is missing from the discourse».

The structure of an innovation should be such that it benefits from volatility, variability, disorder, randomness, uncertainty and time by minimizing exposure and harm from negative (unfavorable) asymmetries and maximizing exposure and gain from positive (favorable) asymmetries (more upside than downside from volatility and randomness). Exposure modification is a basic parameter in the design of ‘antifragile’ innovations.

We need connectivity and clusters to harness scale and specialization; but we also need the right tools to harness antifragility. The new Innovation Model I have developed offers the following unique advantages:

  1. It allows organizations to exploit antifragility by applying a series of techniques and methods which modify innovation exposure: rebranding, repositioning, differentiation, diversification, adaptability, agility, modularization, reconfiguration of the various elements / parameters of innovation, scale up and down, homeostatic creativity, step change, removing fragilities, optionality, convex transformation (barbell strategy).
  2. It follows a more holistic, polyparametric approach, using more than 100 evaluation criteria and success factors which address all stages of the innovation cycle.
  3. It can be applied in practically all domains / areas (public services, local government, NGOs, social innovation, entrepreneurship, cyclical economy, financial innovations, education, basic and applied research, smart cities, economic diplomacy, nation branding, risk management, political marketing) and at all sizes and scales (products and services, startups / spinoffs, small and medium sized enterprises, large corporations, National System for Research and Innovation, Horizon Europe Program, UN’s Sustainable Development Goals).

Metaphor is a basic creative mechanism used to facilitate the innovation process: 

“A metaphor is a means for explaining something less well known in terms of something that is better known. It enables scientists to begin to understand poorly known phenomena in terms of better understood phenomena.” Arthur Miller.

“A huge number of creative discoveries have resulted from analogical thinking.” Mark Runco.

“Some of the most creative breakthroughs occur when an idea that works well in one domain is transplanted in another.” Mihaly Csikszentmihalyi.

“Metaphors are the apogee of our capacity for symbolic thought.” Robert Sapolsky.

Analogies highlight non-obvious similarities between two things that appear to be dissimilar, and individuals solve novel problems by making analogic connections to other problems they have faced in the past and by adopting and adapting their existing solutions to fit the new problem.

According to G. Edelman there are two basic types of thought – concept recognition and logic. Concept recognition, to a very large extent, depends on metaphors. Metaphoric thought is useful due to its great associative / combinatorial power.

In its most primitive way, thought depends on metaphors and from what G. Lakoff and M. Johnson call image schemata.

The dynamic, cross-cutting tool described very briefly in this article is presented analytically in a step by step practical Guide which I have prepared – a template for producing ‘antifragile’ innovations in the age of black swans. This is the first time, on a global basis, that antifragility properties are embedded in the architectural design of innovations. This game-changing tool helps individuals and organizations innovate more effectively.

In his book The Future of Capitalism, Paul Collier notes that «Economists estimate that typically an innovator captures only around 4 per cent of the overall gains from their innovation: the remaining 96 per cent accrues to the rest of us».