In this essay I explore what Nassim Taleb’s thinking about systems, randomness and fragility vs. antifragility means for organizations. I am going to introduce you to his ideas and outline how they impacted my thinking about organizations and what we can learn from them about organizational design. Then, I am going to present the core concepts of Frederic Laloux’s work. He examined several organizations that operate with a set of totally different procedures than most organizations today. Procedures that, I argue, can help organizations to decrease their fragility and even put them in a better position to benefit from antifragility.

Consider this essay as part 2.5 of my digital leadership series, as it is not really about digital leadership yet still very closely related. Here are part 1 and part 2. Also make sure to read my notes, if you want to get the full picture.

I have been a huge fan of the works of Nassim Taleb for a couple of years now. Just recently I came across Reinventing Organizations — an excellent book by Frederic Laloux — and his work surrounding it. Both lines of thinking put together give us an excellent explanation why and how organizations — businesses, NGOs, social institutions and probably even governments — need to change, when they strive for longevity, continuous success (whatever “success” may be) and, plainly, the opportunity to still make an impact in the world of tomorrow.

Before I go into more detail and expand on that thought, I want to introduce readers who haven’t heard of them before to the parts of their respective work on which I want to build. That said, I can highly recommend you to pick up their books and get familiar with their respective lines-of-thought. I can only briefly and selectively retell parts of their ideas and thinking. Plus, it’s way more fun to read them in their own tone.

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I’ll start with Taleb. His key books from which I draw here are The Black Swan (2nd edition!) and Antifragile. His original domains— or rather those from which his thinking originated — are randomness and risk. Being a former option trader at Wall Street, he had a professional interest in the topic but surely was way more invested and critical than most of his peers. In a very abridged way, his original analysis claims we currently don’t deal very well with risks and randomness. He demonstrates that the methods we apply to measuring risks and forecasting are fundamentally flawed.

He then continues to show that the decisions we make — in politics, businesses, economics and so forth — based on exactly those forecasts and risk assessments are creating tons of (to borrow his words) hidden risks. The reasoning goes as follows: Our measurement systems cannot deal with very rare, low-probability events, even though such events occur regularly. Think of the economic crisis (basically any of them), think of Fukushima or — positively — the development of the internet. Because the data we use to predict the future only looks at the past, comparable events do not occur in the sample. We simply can’t predict them (at least not if we are the turkey (this one is for insiders)).

Yet, many decisions (how much is spent, what we invest in, etc.) are based on exactly those forecasts and risk assessments. Since they structurally undervalue the possibility of said low-probability, high-impact events — which he calls black swan events — today’s complex systems (economies, states, large organizations) bear many hidden risks. This, in turn, leads to a very small margin of error which gets decreasingly smaller with any risk accumulated. As a result, we end up with very fragile systems.

All of this might sound very abstract, so I’ll illustrate it using the example of the Fukushima catastrophe. Naturally, before deciding to build a nuclear plant that near to a shore where earthquakes are common, the risk was assessed. Yet, it was finally concluded that an earthquake with a 9 on the Richter Scale in the way it eventually happened was so unlikely that it wasn’t necessary to account for it. The plant was build, yet against all odds nature finally did the unthinkable (or rather unaccounted-for) and unleashed the exact shattering event that led to the catastrophe. Risk management practices failed us, big time.

(I know I am repeating myself but I want to stress yet again that this explanation is very abridged and therefore lacks the work’s original depth and logic.)

When Taleb concludes that we are currently building towards increasingly fragile systems, he starts taking more of a systemic view in his works in general. He starts to ask how we can build systems that are less prone to being hugely affected by negative black swan events, aka are less fragile or simply robust. On his journey to an answer he develops the concept of antifragility. At first, Taleb asks how robustness can be achieved by systems. Then, he discovers that robustness isn’t the exact opposite of fragility. I borrow his metaphor:

If you get a parcel delivered that has “fragile” written on it and you throw it down forcefully, whatever is inside is in a worse condition than before. That’s fragility. If you take a parcel, throw it down and its contents are in the same state as before, we have robustness. Yet, the opposite of a fragile parcel would be one which you throw down and its contents are in a better condition than before. This idea is so hard to grasp for the human mind that all languages Taleb researched for a word to describe it, do not actually have a name for it. So, he simply called it antifragility.

In his book Antifragile he delves into what antifragility is, how it plays out and manifests in different contexts. The question now turned into: How can we build systems (and also lead our lives in ways) that are less prone to being hugely affected by negative black swan events but can take advantage of positive ones. A good example for the latter is the discovery of a cure for HIV. We can’t predict if, when or what organization discovers it. So, except if you have insider knowledge, the release of said cure would be a black swan event for you. So an antifragile strategy would be to invest a tiny portion of your overall wealth in all companies currently working on said cure. In case one of them comes up with it, regardless of which it is, you can expect its worth drastically increasing. If, however, none does, you don’t take too big a hit.

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Taleb is a broad thinker and thus takes a broad perspective in his writing. He applies his ideas to a wide range of systems, for example economies, governments, or the human body. Occasionally he also talks about organizations or businesses but doesn’t dive deeper into the issue of how they could implement his ideas (I think his disgust for people in suits might be a natural explanation). As I find these rather practical matters not only interesting but believe organizations can — and from a systemic perspective maybe even should — learn from his thinking. Ever since being exposed to Taleb’s concepts, I wondered:

a) How is it possible that systems — and therefore in human societies organizations — keep on making decisions based on fundamentally flawed instruments, even though we have this knowledge? What are the underlying mechanics that hinder systems from fundam

entally altering themselves?

b) What would an organization look like, that acted on the idea of antifragility?

Sure enough, these questions stemmed from my personal and professional interest in businesses, organizational design and disruptive innovations (which interestingly almost never come from within well established, big organizations). Taleb gives those questions some consideration but didn’t dive deeper into it. He has some stimulating thoughts however:

These were the lines along which I had been thinking for quite some time now. I also had some ideas myself about why most of today’s organizations tend to be fragile and don’t make use of antifragile concepts. One aspect I wondered a lot about was what I call the problem of misalignment. It’s basically a generalization of Talebs no-skin-in-the-game-problem:

In many organizations we find a lot of mechanics that actively produce a misalignment between what is “good” (as in: beneficial, profitable) for the individual and what would be “good” (as in: ensuring its future existence) for the organization as a whole. This is further increased by the simple fact that not a single person in the organization is the organization. Rather, it consists of different human beings, each with her/his own motivations, aspirations and responsibilities in life. Thus, everybody in an organization who has to make a decision, is always balancing between his own interests and the organization’s. That conflict is unavoidable. After all, every organization consists of individuals and thus it likely presents an unsolvable problem. Yet, at the same time, the issue gets signified a lot whenever the organizational design stimulates said misalignments.

There are many examples to illustrate this point. The aforementioned bonuses in banking are one of them. The way many companies set their budgets are another one. When you base next year’s budgets on this year’s spending, you end up with what is a well-known secret (a paradox, I know) in many companies: When the end of the year approaches and you didn’t spent your entire budget (aka you spent wisely), you buy stuff that you don’t really need in order to avoid budget cuts the next year.

And don’t get trapped here. Though you may at first impulse find that to be a “wrong” practice, it’s based on perfectly logic reasoning. You might — I surely do — shake your head at such events, yet at the same time I would never blame the person making the decision. If the system you operate in creates a fundamental misalignment (in the budget example the problem is that last year’s spending has basically nothing to do what you should or might need to spend next year. The world changes and so does what needs to be done. Thus, in order for a manager to keep his room for maneuver intact, it’s perfectly reasonable to exhaust his budget every year).

Once I wrapped my head around the problem of misalignment, it became clear to me, that while we have a decent amount of great companies that actually appear to fare better in domains such as creative tinkering or dealing constructively with failure, there is often a common denominator: The organization’s leaders. It’s a phenomenon I call— of course with a wink — “the good dictator”. In organizations with a traditional hierarchical approach and standard business procedures, it all comes down to the respective leadership team and the way they fill their role. Whenever an organization that’s operated in such a way manages to create an environment where people collaboratively experiment — even across organizational borders! — where failure is allowed — even wanted ! — and where decisions are more often made in the organizations interest than not: It always relies on the people at the controls.

That’s why we have seen a strong emphasize on leadership practices and culture in management literature in the last probably twenty years. And don’t get me wrong: That’s a good thing. Yet still, I always considered this approach risky. From a systemic point of view, it’s not a good thing to rely on chance rather than institutionalized practices, processes and mechanics. But how could an organization that benefits from antifragility and increases the alignment between personal and organizational interest look like?

I had a few assumptions:

These were at the back of my head for quite some time but I didn’t manage to make the room to think it through thoroughly. Of course I had some ideas myself, looked at things like agile methods, read the odd case study about companies that truly operated differently (this one comes to mind) but never quite got to an answer how these ideas could be implemented into an organization.

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Then I stumbled upon Frederic Laloux’s brilliant book Reinventing Organizations. It’s probably the closest I have come to an answer so far. Again, I will just briefly outline the key aspects relevant to this article and recommend you read the book yourself. Reinventing Organizations is based on an in-depth study of 12 organizations who run on “a different operating system”. Those organizations — Laloux calls them teal organizations according to the vocabulary of developmental psychology the line-of-thought he’s coming from — implemented certain practices in three certain areas:

I will just briefly explain them and tell you why and how I think they relate to Taleb’s ideas and my questions.

All organizations in the book employ are huge amount of self-management. Most forego traditional hierarchy completely. Using a well-defined set of processes, every employee can basically make any decision, including to spent company money. Because there is no organizational top, there is no top-down strategy. Things happen organically, every person in the organization is truly empowered (not as in the management buzzword) to act upon needs he or she identified and make decisions accordingly. The processes ensure that despite a lack of hierarchy people don’t simply act on their impulses and that decision-making doesn’t become an endless act of reaching consensus.

How does all this relate to fragility and antifragility?

First of, it creates way more creative tinkering. People who have an idea can implement it(given they follow the processes) and don’t depend on the agreement of several managers along the hierarchy. It reduces political considerations to a minimum, decisions are made quicker. Nobody has to hold back his ideas because he is already demotivated up front (I heard sentences along the line of “We don’t even have to try this because xyz won’t agree anyways. And if he would, the board would never approve it” countless times). Instead, things can happen, ideas are being constantly tested and the good stuff will stay and spread whereas things that don’t work will be stopped. Or, in terms of antifragile thinking: These organizations are well better equipped to create many small-scale experiments with lots of upside and little downside.

Also, most of the companies Laloux depicts are what I call self-critical organizations. They have implemented particular formats that have the purpose to challenge what and how things are done. It’s a really smart thing to do, yet fundamentally contradicts the way most companies act today. In a teal organization, it’s highly unlikely that you hear sentences like: “Nice idea but we have always done things like that around here so don’t even bother!”.

Recall the flawed bonus system for bankers I described earlier. Not only is a teal organization much more likely to do away with it in the first place, it is also smart enough to realize that even the new practice might create some unforseen biases and outcomes. So instead of believing in the new practice’s brilliance, they actively and willingly challenge themselves to keep improving and question the status-quo. All that by the system’s design and not because it relies on self-conscious people in leadership positions. The organization has self-critic in it’s DNA.

Also, most of the organizations depicted by Laloux did away with many of the practices that rely on forecasting and predictability. They operate without sales targets, they have no traditional practices of budget setting. Also, they usually don’t use bonus systems based on individual performance. In doing so, they are less prone to accumulating hidden risks and become more robust. Further, those kinds of practices are exactly the ones that are responsible for the misalignment between individual and organizational interest.

The concept of wholeness might — at least at first glance — sound almost esoteric when you’re vocabulary is shaped by business schools and traditional management terminology. Simplified, the concept of wholeness describes that people can come to work as the person they are without having to wear a professional mask. Some of the organizations Laloux looked at used active practices to strengthen this, others trusted their other processes to create it as a byproduct.

Either way, wholeness reduces the amount of ego-driven behavior at work and allows people to bring more of their selves to the office: Their emotions, their passions, the deeper aspects of their personality and so on. If this sounds rather aloof to you, I invite you to do the following: Think about a time you worked in a setting with other people and really enjoyed the work, probably even found it fulfilling. Now, ask yourself how your relationship with the other people involved in the work was at the time. I am confident that you won’t answer: “I couldn’t stand them” or “we were only professionally involved”.

A friend of mine, when reflecting about work, once told me: “Thinking of it, the best job I ever had, the one I most enjoyed and went to happily every time was actually the one worst-paid. It was simply a great place with great people”. And I can absolutely relate to her statement. I firmly believe that how you work and in what environment is as important — if not more — than what task you actually perform. And thanks to my job I’ve met enough people from different organizations to have a solid ground I base this belief on.

How does all this relate to fragility and antifragility?

Laloux uses the term psychological ownership to describe the personal buy-in of people into their organization. Even though the people in the teal organizations he examined are not technically owners, they relate to their respective organizations way more than people do in many other organizations.

It stands to reason that you have more psychological ownership at an organization when you personally relate to it. But since, as I stated previously, the organization is the people working at it, it’s easily comprehensible that the relationships you have with the people in your organization play a huge part in developing psychological ownership. When you care for the people in your organization, it’s way easier to care for the organization as a whole. This in turn increases your alignment with the organizational interest. You don’t want the organization to take damage because you don’t want the people in it to take damage.

Psychological ownership is further increased by another aspect that is closely interrelated with wholeness: Purpose. When people in an organization are actively invited to bring their full personality and openly speak about their inner concerns and struggles, purpose almost automatically becomes an issue.

Why am I doing what I do? Is it any meaningful? Is what our organization does meaningful? Does the organization’s purpose align with my own? If these issues are addressed and can be acted-on — as a result of self-management practices — you end up with a organization in which people’s and the organization’s purpose are pretty well aligned. Again a major factor for driving psychological ownership.

There is a nice practice that Laloux witnessed in one of the organizations he explored: In every meeting, there is an empty chair that represents the organization. At any time, everybody in the room is invited to take that chair and speak in the name of the organization. Such a practice is great to illustrate what psychological ownership can lead to. Also, it’s a measure that directly tackles the problem of misalignment. Thus, it helps to reduce mechanics which prioritize short-term decision making based on personal interest which are a catalyst for fragility in systems.

The third and final “breakthrough of teal organizations” (to use Laloux’s words), is what he calls evolutionary purpose. Whereas most of today’s management practices fall in the realm of predict (fragility-prone!) and control, the organizations Laloux depicts use methods that follow another logic: sense and respond. As the teal organizations are run rather as an ecosystem than a machine, they are good at reacting to inside or outside stimuli and constantly adapt. Simply compare the thoughts and language of Taleb speaking about antifragile systems and Laloux speaking about organizations that believe in evolutionary purpose and you will see striking similiarities.

There is a nice, very brief metaphor that Laloux himself quotes from one of the organizations (FAVI) he looked at, which does a good job of illustrating the underlying line-of-thought. So I’ll simply share it with you:

(From Reinventing Organizations at position 4570 on my kindle)

And then, from the same position:

Anybody familiar with Taleb’s thinking will recognize a striking resemblance. For everybody else, compare to those quotes (as I am in the lucky position of not having to follow scientific methods of citation, I took the lazy route and simply took some photos.):

(from Antifragile, p. 229–230)

And:

(from Antifragile, p. 233–234)

How does all this relate to fragility and antifragility?

Since the ideas in Taleb’s work and what Laloux describes as evolutionary purpose are so evidently similar, it is pretty straight forward in my opinion. Organizations that are run with the idea of evolutionary purpose in mind are less prone to fragility because they don’t rely on forecasting as much (This has, by the way, a lot to do with how those organizations make decisions and view failure. While forecasting in theory — when being accurate — would be a good tool for decision-making, it has often become a safety bond for decision makers: “I’m sorry, but this undesirable outcome of my decision was totally unforeseeable. I simply followed the forecasts and risk assessments and therefore I am not to blame.” Again a very understandable and defensible position, when your job is in danger as soon as you make a mistake.)

Further, if coming from a perspective in which your organization is an ever-evolving ecosystem, it is way more likely that it organically creates a lot of tinkering, in turn making it more prone to benefit from positive black swan events and thus: Antifragile.

As this text can at least somewhat be considered part of my series on digital leadership, I just briefly want to address how antifragile organizations and digitization relate to one another. First off, digitization created a highly-dynamic and quickly-changing environment that is really prone to black swan events happening. Nobody could confidently predict the success of companies like Facebook, Amazon or Google. Yet they became some of the world’s most influential organizations within only a few years. Business on the internet scales incredibly well and thus is prone to random (as in: unpredictable) events that have a huge influence.

But for an organization to take advantage of antifragility and not be a victim of fragility, it needs to be set-up in a certain way. Though none of the things I stated above is exclusive to digitization, it’s nonetheless one of the key drivers that forces organizations to challenge the status-quo. To not only a few it became an existential question whether or not they manage to reinvent themselves. Being capable of profiting from randomness is probably not the only but certainly a very good way to achieve this. (You tinker, you stumble across something that works very well, and suddenly you happen to be in a new market or business — instead of hiring a lot of consultants who give you a thorough analysis on which you base your decision to go into a new market, only to end up with a lot of lost money once you figure out that your top-down plan didn’t work quite as well as predicted.)

Also, it might not be a coincidence that we start to explore different forms of organization just at a time when the internet created the biggest self-organizing, decentralized, effectively non-hierarchical system humans ever created. The internet’s impact on how we think about organizations is also evident in the fact, that many companies who do things differently are influenced by the tech start-up culture that has it’s nucleus in the Sillicon Valey. Even though they are not necessarily what would be called teal in a true sense, many experimented and came up with new ways to do things. Concepts like agile project management and similar forerunners of self-management practices are deeply rooted in the tech industry.

Finally, modern software that can be subsumed under the label Enterprise 2.0 (enterprise social networks, internal blogs etc.) is not a necessity and surely not the key ingredient for organizations to implement self-management practices, but it nonetheless plays a role in the process. Transparent handling of data and a free flow of information are a very important factor in all the organizations Laloux investigated. Having the right tools at hand to create transparency surely helps. And as said collaborative software solutions are, for the time being, probably the easiest way to scale information flows in networked systems, they certainly are an important enabler for companies at a certain size.

Both, Nassim Taleb and Frederic Laloux have created great, very insightful works. On their own, they are remarkable and might even alter the way you think about certain areas of life. Yet, as I hopefully managed to demonstrate, they unfold a lot of synergy when put together.

On the one hand, we have Taleb’s ideas about randomness, fragile systems, and antifragility. They are based not only on sound reasoning and a broad, intellectual understanding but also on solid, mathematical proof. His concepts might be hard to grasp at first, because they are often counter-intuitive, but it’s very hard to refute them. Applying them to systems in general and organizations in particular, not only helps us to broaden our understanding of them, but also help us to identify some serious issues that need to be confronted. His work demonstrates, that and why many of today’s systems — and thus, organizations — are built with dangerous, inherent flaws.

On the other hand, Laloux’s work gives us some very actionable insights into how we can build different kinds of organizations which — knowingly or not — have done away with many of the issues Taleb addresses and even created practices that make them way better suited to profit from antifragility. I wouldn’t go as far as to state that they are totally antifragile but they are certainly headed into the right direction.

You can also look at it from the other way around: If you (as I certainly do) believe that the practices of teal organizations as presented by Laloux are a road worth taking — based on your experience, view of the world as well as the countless other arguments he presents — but are still looking for another line-of-reason to underscore it, than taking a closer look at Taleb’s work is a pretty good idea.

There are, however, certainly still some issues that are unsolved. The one I want to highlight here: Even in teal organizations, employees still have no skin in the game, as Taleb calls it. At least financially speaking, they still have more upside than downside — people only benefit from wins and are not hurt by losses of the organization. At least not, at the same scale: When the organization goes bankrupt, the employees of course lose their jobs but they don’t risk bankruptcy. Even if an employee makes a fatal decision, he doesn’t have the same risk as the organization he makes the decision for.

To solve the skin-in-the-game problem, organizations would have to introduce mechanics that turn employees into entrepreneurs. Teal organizations do that to some degree — basically by creating psychological ownership and empowering everybody to do make decisions, come up with new ideas and implement them — yet don’t do it in financial terms. This would call for an even more radical approach. Examples for organizations that manage to achieve this are for example networks of freelancers who operate like a company yet every member is his own economic subject. I don’t know if this is necessary — psychological effects shouldn’t be underestimated, but it’s nonetheless worth mentioning. How and in which way you could introduce skin-in-the-game mechanics in big organizations is something I’d be interested in and a question that remains, to my knowledge, unanswered for now.

On a final note I want to thank both, Nassim Taleb and Frederic Laloux for their inspiring, exciting and highly important works. In case you found this piece interesting and don’t know either of their works yet: You have a new reading list. I consider it pretty likely that reading each of them will be an inspiring undertaking. I hope I managed to link their individual insights and were able to give you an initial idea about why organizations should care about fragility, antifragility and the underlying issues as well as some ideas how this could be achieved. Feel free to build on this and share your thoughts!

The Things is my newsletter at the intersection of tech, crypto, entrepreneurship, and the network economy.

And here are the talks I promised at the beginning.

Taleb on The Black Swan:

Taleb on Antifragile:

Another talk by Taleb that’s called “How to live in a world we don’t understand”:

And last but not least Frederic on Reinventing Organizations: