How to Make Your Business More Sustainable

How to become resilient in the face of constant change and turbulence? Nassim Taleb, author of such economic bestsellers as Black Swan and Antifragility. How to benefit from chaos, believes that we could learn a lot from nature:

Create redundancy

Having everything in reserve is a simple and rational strategy. The opposite of redundancy is “naive” optimization. Over-optimization makes the body extremely susceptible to any mistake. Therefore, for example, a healthy amount of body fat or two kidneys are not luxuries, although economists trained according to Paul Samuelson's textbooks might disagree with this.

Avoid over-specialization

Mother Nature does not like over-specialization, as it limits evolution and weakens living organisms. A strategy of focusing is the only strategy for a weak business. It bets on one product, niche and makes the organization too vulnerable to any external shock.

Big is the same as vulnerable

In September 2008, the collapse of the Lehman Brothers bank blew up the entire system. The “scale” effect, which on paper looks like a way to cut down expenses (mainly on non-production costs), has little to no evidence in reality. Large companies often cannot resist Black Swans, where speed and flexibility are the criteria for survival.

companies that failed due to poor strategy

Сonsolidations and mergers are trying to save money via the scale effect - the assumption that the larger the corporation, the more cost-effectively (and more efficiently) it operates. This idea is not supported by any facts, and market events often prove otherwise!

Create over-functionality

In nature, different structures can often perform the same function. This, of course, contradicts the ideas of theological design - that each object has a single goal, laid down at the moment of its birth by the Creator. In life, many objects can be effectively used to solve problems for which they were not conceived, and, what is important, all this at no additional cost.

How to Adapt Goal Management to the VUCA Reality?

1. Limit risks

First and foremost, the business must learn to reduce the cost of mistakes to an acceptable level. Mistakes and risks are an integral part of moving towards goals. The challenge is to restrict them to controlled areas, preventing them from spreading throughout the system, just like nature does.

As Nassim Taleb said, What is fragile should break early while it is still small. This will prevent significant loss of time and money. For example, in the Management by Objective (MBO) approach, the planning horizon is reduced to minimal periods - a sprint length of 2 weeks.

Recommendations: To reduce risks, companies should use experiments A / B hypothesis tests, MVP, and so on much more actively. These practices apply both to the company's products and to entire internal initiatives.

2. Use Management by Objectives without linking to material incentives

Taleb put forward the thesis that you should not allow someone who achieves “incentive” bonuses to manage a nuclear power plant - or your financial risks. Linking remuneration to goals can sometimes be devastating to the company. A possible example is the payment of bonuses to managers at bankrupt companies.

It is important to remember that in recent years, the understanding of the essence of the Management by Objectives method has gotten significantly distorted. The ideas that were laid in the foundation of the approach by its founders such as Peter Drucker are now almost completely forgotten.

A woman in front of a bull's eye symbolizing her goals achievement

The MBO approach was reduced to the development and distribution of quotas, whereas the initial essence of Management by Objectives is voluntary work on oneself. The criterion for the success of such work is the goals of the team and the company, accepted by the person takes as their own.

In contrast, current MBO practices create a different culture. In it, people strive for short-term, one-time, unique results, not for ones that are permanent, reliable, predictable, and improving every year.

In such an environment, the collaboration between departments and optimization of the entire organization does not take place, because each person and department works exclusively for themselves. Leaders know that the viability of their businesses and organizations depends on frequent and fundamental innovations, but they lack the will, resources, and tools to bring this understanding to life.

Recommendations: Read about the essence of MBO principles in our article MBO Hacks - Why MBO Remains Relevant.

3. Engage front-line employees in goal management

Workers in the thick of things can often make more accurate and efficient decisions than managers in their offices. Employees empowered to make decisions can act quickly and accurately on the spot.

The Management by Objectives approach has always supported the construction of “flatter” organizations - horizontal structures in which important information does not take long to reach decision-makers (DM). Also, the practice of involving employees in decision-making processes has a long tradition in Japan, in particular at enterprises practicing Total Quality Management (TQM).

Recommendations: The most successful MBO companies are often limited to three levels of hierarchy. Remember that nature does not like overly large structures, they are not stress-resistant.

4. Avoid over-specialization by developing over-functionality

In the VUCA world, reaction times are often crucial. The ability to receive operational information and make an immediate decision can make or break a project or business.

In 1999, MBO founder Peter Drucker writes the book Managing Oneself. He declares that the main need and mission of a modern person is to control themself, instead of doing what they are told.

An employee can and should be guided by their own values. This is the only reliable basis for their real motives. The employee must take responsibility for the relationships in the organization, since modern organizations based on "trust and understanding" survive and develop much better in the VUCA world.

Adapt Goal Management to the VUCA Reality

Drucker said that MBO is the practice of correct, deep, and complete communication. The key to achieving a goal is clarity and depth of understanding that must be achieved in communication between a manager and a subordinate. MBO can be implemented if the company keeps a focus on the development of the potential, and that of its employees above all.

The key driver for overcoming obstacles and creating value is innovation. Which requires the creation of a culture of entrepreneurship, a healthy attitude to risk, a love of experimentation, and continuous development of resources. This policy allows for the development of the very over-functionality that Taleb talked about and which is a reliable source of sustainability in the VUCA world.

Recommendations: MBO is not about KPIs and quotas. Any successfully achieved goal is the result of successful decisions, team actions, and the application of knowledge. These are the factors that an MBO company should focus on.

Conclusion

People strive to avoid stress and anxiety in any way possible. Including simple denial, which is a “childish” psychological defense. But the fact is, all our actions that are dictated by volatility aversion and the desire for order only hasten the onset of severe crises.

The fine line we're talking about lies, for example, between decisions to increase the budget for a project or let it die. It is clear that, as the budget increases, in the event of a collapse the damage can be fatal. It takes a lot of work to be successful in the VUCA world. First and foremost, it’s all about the personal psychology of leaders.

Ultimately, Black Swan is about some of the human delusions stemming from the centuries-old tradition of scientism. It’s about bad habits and an addiction to an abundance of information, which fosters self-confidence but does not add understanding and new experience. Black Swan is about the problem of experts who are so confident about their methods that they become blind to the facts.

Sustainable Business: How to Set and Achieve Goals