Just before it was unleashed in 2007 America's mortgage crisiswhich subsequently grew into World economic crisis, there were plenty of leading economists and analysts convinced of the solidity of the mortgage sector. One of the few I heard in 2006 predicting this crisis was Nassim Taleb. Nassim, a practicing hedge fund manager and risk analyst, not only predicted this (and earlier) crisis, but also put forward a very logical and fairly complex mathematical explanation for similar phenomena. He described his concept in the book Black Swan: Aftermath of Highly Unlikely Events, which is ranked among the 12 most important books in the U.S. since World War II.
Nassim Taleb used the term Black Swan in reference to a phrase that came into English from Latin and whose original meaning referred to “that which does not exist”. Never before have humans encountered a form of swan other than white. That changed in 1697 when a Dutch traveler Willem de Vlamingh discovered in Western Australia a place where a flock of black swans lived. What was the reaction to this discovery? Well clearly there are black swans when there are white ones! Although until then the belief was strong enough to translate even into the language, from that moment on it was normal for black swans to live. So this is how Taleb defined these fundamental events, which are unexpected and surprising, yet have a major impact. Other examples are the outbreak of World War II, Google-type IT giants, the election of President Trump in 2016.
Taleb, however, does not focus on predicting hard-to-predict events, but describes systems/organizations that not only survive the “arrival of the black swan”, but manage to benefit from it. He called these systems Anti-Fragile, aka adoptive, agile, anti-fragile.
Let us demonstrate such a system on the example of one of the world's entrepreneurs, who influenced not only the production sector — Tomáš Baťa. His system (the so-called Batismus) were inspired by, among other things The Japanese and from it evolved Lean-management. Bata is a great example of coping with many crises, including the impending bankruptcy in the early days of the business with his brother and the war and post-war crisis. His system even survived his own death and the coming to power of communism in the Czechoslovak Republic. Bata's system meets the criteria of Taleb's anti-fragile system and can be a practical inspiration for us.
1. Primary purpose of the company: service to the public
Crises essentially have one root cause — a crisis of values. This develops a relationship crisis, and it is already brewing. What is the reason for our existence? If the purpose of the company is defined as profit generation and this is recognized as the primary value in the culture of the company, then any means (zne) can be used for this purpose. We are getting into a situation in 2007 when banks were approving loans for a long time to people who had no chance to repay it. It was faked, it was cheated. But sales quotas were met and the money flowed. Before the tipping point came. Similarly, then Lance Amstrong He won the Tour de France seven times with the help of doping, as the main purpose was to win.
Bata defines the purpose of the company as value and service for the customer/company, and as the fuel for its generation, carefully monitors profit generation. But this is a consequence of the healthy functioning of the company, not the primary goal. This fundamentally changes the thinking and the search for ways to fulfill the goal defined in this way. Bata has demonstrated its value approach in the company's crisis moments. Although at the beginning of the business his brother “earned” the debt of the company (despite their agreement), Bata never stood up to it with an attitude - it's your fault, deal with it. Or let the indebted company go bankrupt. His morals didn't allow him to. His attitude was: it's mine -- our duty to pay off all debts.
2. “A Day Has 86,400 Seconds”
Attention is our asset. It can create and produce value or consume it. Where we put our attention, it grows. I know many owners and managers who spend day and night in the company, but by focusing their attention only on the control and management of operational problems, they soon reach the ceiling of their possibilities (time, financial, energy).
Bata was quite conscientiously devoted to building fungibility, raising a new generation, passing on his thinking to other co-workers. He constantly wondered how to further improve and develop the company and led others to do so. At the same time, he stressed the importance of rest and regeneration. Indeed, he was ahead of his time by at least 80 years. Today we would refer to this approach as time-management and work-life balance. Such a system is equal to the body of an active athlete, which is trained to load and gradually improve, as well as getting stronger due to regeneration and rest.
3. Self-management of workshops and profit and loss
Taleb refers to central control as one of the typical characteristics of fragile systems. If important decisions cannot be made in my company without me, this whole system is automatically as fragile as I am. Often Monday is synonymous with a lot of operational meetings, vacation then means stress, “what happens when I'm not in the company”. Such a black swan can then be the illness or death of the owner/manager, and a fragile firm built on centralising management then experiences hard times.
Bata built a large company as a complex of many small firms. Each workshop was such a small business. Today's companies are organized according to a structure of division of power and internal cost management. Bata did not believe that central management was able to optimize and streamline production in any workshop. It is the people in it who directly do the given work and, under sufficient conditions, are able to improve it.
By being independent both in terms of management and economy, the workshop was able to link the remuneration of these committed collaborators to the economic outcome of the workshop. Then came Bata's mentor, endlessly explaining what the workers should do to get more money for their paychecks. He had to come up with a very simple system to make it understood by the workers, who often could not even read and write. However, he educated them into entrepreneurs who had reason to take care of the whole workshop, including the machines, as their own, or were personally involved financially and financially (the workers had rented machines, for example). This fulfils, in addition to Taleb's principle of decentralization, the principles of simplicity and that everyone must go to the market with their skins.
We have experienced the practical effect of this concept ourselves in BusinessCon, with the company Č.V. Prototyp. Thanks to the independence of the workplace and the creation of a share in the profit and loss of this workplace, they achieved in practice that the individual shifts began to communicate with each other much more and to pass on the problems and experiences of the last shift. The forwarding shift has handed the workplace clean and ready so that the slightest blackout does not occur just because the tools are not in place. The incoming shift automatically started by itself in advance so that they had time to agree with the forwarding shift. The saving in the case of the C.V. Prototype was a quarter of a mile. CZK per order. No central regulation or regulation was needed for this. All it took was a motivating system.
4. Transparent communication across the company
Again, let me first give a typical example - in the case of large companies, it is almost a rule: top management divides and “manages” their kingdom within the company. Information is then something that becomes a source of control or concern. It is better to keep everything secret so that it cannot accidentally turn out that we have made a mistake somewhere or that things are not as we say “on the outside”. This leads to barriers between departments (it is a value shared in the culture of the whole society), and in case of problems it only begins to point fingers and look for the culprit somewhere outside of us. The customer and his needs are very far removed from the daily internal frog wars.
Bata once again introduced what still seems like science fiction: the economy of self-managed workshops was evaluated on a weekly basis, and the results of all workshops, including foreign branches, were known every Friday afternoon. On Saturday, there was a company-wide conference, which was shared across different parts of the company. Bata spoke very transparently and patiently about the management of the company, about his plans and visions, explained his intentions and educated.
Martin Palička/Etnetera, Honorary Member BusinessCon, represents a company that decided a few years ago to introduce transparency regarding the amount of salaries. What many people deny as possible or possible in the world, but certainly not in the Czech environment, has been in operation in Etnetera for several years. By doing this, the company demonstrates a consistent culture, which then attracts people who are honest and transparent.
5. Continuous improvement, or the ability to capitalize on uncertainty
Decentralization of management in the form of self-management of workshops, personal involvement of individual collaborators, transparency and open dissemination of information — all this enables perhaps the most important Bata approach — continuous innovation and improvement.
Let's look at the example of the Black Swan from the 1920s: a sharp increase in the rate of the Czechoslovak crown (by 250%[25]) from October 1921 to October 1922, Czechoslovak products became unsaleable abroad. Bata came up with a bold idea: cut the price of shoes in half. This was exploited in marketing by the well-known posters “Bata crushes the dear”. To compensate for the loss from the turnover, the employee agreed to a salary reduction of forty percent (!) However, he also agreed with Zlín companies to reduce their prices to fifty percent (!!) ,[27] so workers did not feel any decrease in pay. Nearly 100,000 pairs of shoes sold in a single day for 8.1 million crowns.[28] Thanks to this, production was able to increase by 60% (!!!). In order to maintain this method for the long term, Bata and his collaborators were forced to fundamentally optimize the entire system. Instead of crisis and bankruptcy, Bata was able to benefit from this event for a long time.
Nassim Taleb would be seething with joy.
Conclusion
The above ideas inspire how to invest in changes in our businesses during the growth phase of the economy so that we can benefit from what the future holds. Taleb taught us that no matter what we want to think about the future, surprises don't miss us.
Bata inspires us in how to build a company that benefits from surprises and changes.
In the following articles, we will look at how to cope with the recession in the financial management of the company and how Agile and Lean management can help implement Taleb's anti-fragile system in operation. If you are interested in these topics and want to discuss them in depth, come to our next business club — the information is on the website http://www.businesscon.cz/.
Mapping Taleb's Anti-Fragile System to Bata's Enterprise
Download mapping as pdf.
Roman Šmiřak/RainFellows