A ‘bat flapping its wings’ in China has revealed the extremely fragile structure of pre-Covid-19 government budgets and policies, business models and national risk management plans across 220 countries. In view of the parliamentary debate for the Cyprus Government Budget next week, I propose the reform/redesign of EU Member States Budgets for 2021 to 2023 in a way that will allow governments to tackle more effectively the asymmetric threats of the post-Covid-19 era.
We live in a world of non-linear change, black swans and perfect storms, and still, it seems that we think in a linear mode. The linear models and the traditional static tools used during the pre-Covid-19 era cannot tackle the non-linear dynamics in epidemic systems. We live in a ‘Black Swan’ world. New cross-cutting tools, holistic polyparametric approaches and asymmetric innovation strategies are needed to cope with nonlinearities and asymmetries.
Covid-19 is our invincible enemy, changing our lives radically without ever revealing itself directly. The characteristics of the new coronavirus –high transmission efficiency, latent infection period, asymptomatic carriers, mutations– are associated with uncertainty, asymmetry, complexity, interdependencies, hidden risks, volatility and randomness. Covid-19 mutation rate and exponential spread outraces human innovation. Organizations need to innovate real-time or near real-time to cope with asymmetries in a rapidly changing world.
We have more nonlinearities –asymmetries, convexities– in today’s world. The blind spot of innovation cannot perceive that the potential gains that can be brought about by positive asymmetries (convexity bias) are more than the losses that might be incurred. Time, volatility, disorder, randomness and uncertainty increase the gain –than the loss– incurred through the exploitation of positive asymmetries. This fact escapes the linear mode of thinking.
Nassim Taleb points out that: ‘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 […] 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’.
According to Taleb ‘convexity bias’ is the difference between the results of trial and error in which gains and harm are equal (linear), and one in which gains and harm are asymmetric (a convex payoff function). The central and useful properties are that: a) The more convex the payoff function, expressed in difference between potential benefits and harm, the larger the bias and b) the more volatile the environment, the larger the bias. This last property is missed as humans have a propensity to hate uncertainty; but uncertainty constitutes the raw material for innovation. Convexity to uncertainty is a property that allows innovations to benefit from randomness more than they can be hurt by it. Antifragile risk taking is largely responsible for innovation and growth.
In his book ‘Antifragile, Things that Gain form Disorder’ Taleb describes the barbell (or bimodal) strategy as a way to achieve Antifragility: ‘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 […] 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 […] 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) and taking a lot of small risks in others (open to positive 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 […] An idea needs to be convex (antifragile), or at least bring about a beneficial reduction of fragility.’
After many years of research, I developed a new Innovation Model – the first tool on a global basis that embeds Antifragility property in the innovation process. This dynamic model, among other poses more than 60 asymmetric innovation strategies, cross-cutting tools and creative techniques that allow Organizations to modify their exposure accordingly in order to exploit positive asymmetries (opportunities) and protect themselves against negative asymmetries (dangers). This pioneering method can be applied in practically all domains and at all levels, sizes and scales.
If you cannot avoid negative exposure to the Black Swan, we should increase robustness. The focus should be on robustness to errors rather than improving prediction. The idea is simply to let human mistakes and miscalculations remain confined, and to prevent their spreading through the system. Complex systems are full of interdependencies, nonlinear responses and have hidden risks. Man-made complex systems tend to develop cascades and runaway chains of reactions that decrease, even eliminate, predictability and cause outsized events.
The new Innovation Paradigm is presented analytically in a 250-page practical Guide I prepared which includes a Creativity Workshop for enhancing the innovation capability of Public Services, Businesses, Communities and the Armed Forces. Central government and local government officers, business executives, researchers, diplomats and army officers, can be trained in the application of this new strategic tool through collaborative –multi domain, interdisciplinary– innovation workshops.
Antifragility should be a standard built-in property in Government Budgets and Policies, National Risk Management Plans, Local Government Organizations, Businesses (large corporations and Startups) and EU Programs such as Horizon Europe 2021–2027, European Green Deal and EU Recovery Fund. The discovery and exploitation of favorable asymmetries can create multiplicative results and benefits.
In his book ‘The Black Swan – The Impact of the Highly Improbable’ Taleb indicates that ‘Indeed, the notion of asymmetric outcomes is the central idea of this book: I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decision around that […] This 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 […] As it happens, many rare events yield their structure to us: it is not easy to compute their probability, but it is easy to get a general idea about the possibility of their occurrence. We can turn these Black Swans into Grey Swans, so to speak, reducing their surprise effect.’
Taleb defines a Black Swan as an event with the following three attributes: rarity, extreme impact, and retrospective (though not prospective) predictability. There are positive Black Swans (opportunities) and negative Black Swans (threats) with catastrophic consequences. A Grey Swan concerns modelable extreme events, a Black Swan is about unknown unknows. The goal is to reveal the uncertainty by turning Black Swans into Grey Swans.
In summary, the new Innovation Model presented very briefly in this article can: a) Integrate resilience into government budgets and policies, b) maximize the impact –scientific, social, economic– of innovation and b) help public sector and business innovate under conditions of extreme uncertainty.
*Nicos G. Sykas is a Strategy, Communication and Innovation Consultant.