How CFOs can help to make a business more ‘antifragile’

By in Opinion

In last month’s issue of The Real CFO we looked at the term ‘antifragile’ and what happened if a business became complacent and failed to keep up with the pace of change in their industry. In this issue, we introduce some strategies that CFOs can implement to remain alert to unexpected risks and stresses.

Nassim Nicholas Taleb, who wrote on the subject in his book “Antifragile: Things That Gain From Disorder” says, “Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”

So how can a CFO protect and create value for a business by making it more antifragile?

Look for the upside from downside. Be alert to problems and issues. Is it a sign of a potentially bigger problem that needs to be managed before it becomes a Black Swan event? Is there a market need that is not getting addressed?

Try new ideas, but fail small. Market conditions are currently so dynamic that long term strategic planning can be extremely difficult. Risks can be managed by appropriately analysing and testing assumptions before making significant commitments. Atlassian regularly test and track customer responses to new product offerings. Woolworth’s strategy to create 150 new Greenfield Masters hardware sites within only a five year period may have been more successful had they started small, slowly learnt about their new market, and developed a profitable business model prior to investing in the roll-out of a large number of costly new stores.

Keep an eye on your market. Senior personnel should be regularly liaising with customers and staff to identify voids in local markets and changing customer preferences, as well as customer reactions to existing product offerings. Businesses should also be monitoring for market or competitive changes that are occurring in their industry globally. Zara continually identifies the latest fashion trends, designs their products to match these trends and has clothes in stores within a few weeks of being designed.

Keep an eye on your business. Management need to be alert to changes in their business and the wider market, and consider how the company might cope if major drivers were to materially change. For example, what would the business do if petrol prices tripled, exchange rates with major trading partners halved or doubled, trade with major trading partners ceased or tripled, interest rates hit zero or 10% or if unemployment hit 10%? Management need to be mindful of not just the first round effects of such changes, but also the likely responses from the market and flow on effects this may have on their business. Monitoring these factors could be addressed for most businesses by undertaking regular benchmarking and sensitivity analysis on their business and the key factors which impact on success. The key to effective benchmarking and sensitivity analysis is to review analysis and inputs frequently to ensure that the conclusions derived are up to date.

Embed risk management processes throughout the organisation. Systems and processes need to be introduced to enable risks to be identified and responded to at an early stage. For example, if a mining company is aware that mine operators may override safety controls, employees will also be trained to recognise and respond to gas leakages that may be a precursor to a serious explosion. The effectiveness of existing processes will be regularly measured and reviewed to ensure such problems (e.g. gas leaks) are avoided in the future.

Create a learning organisation. Knowledge sharing is critical to creating a business that is innovation focused. At Atlassian, sharing information, providing feedback and discussing both successes and failures is at the heart of how the business operates. They use a Wiki (a website designed to collaboratively share information), to help embed a culture of teamwork within the organisation. All staff are encouraged to use the Wiki to share information and to suggest new product ideas.

By effectively using these systems and processes to make a business more antifragile, a CFO will be well prepared for any threat. This will only lead to improved performance and an enhanced capacity for your business to withstand potential future risks.

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