“Managing for the future strategies”: A lesson for a chaotic world, comparing ‘anti-fragile’ entrepreneurs and ‘strategic’ managers in Iran

Abstract

The publication of The Black Swan (Taleb, 2007) by a statistician and investment risk analyst, N. N. Taleb, introduced the (anti-) theory of the randomness and the centrality of uncertainty to a wide audience about to be shocked by the scale and suddenness of a global financial crisis that few anticipated and many believed would never occur. In 1997 the Nobel Prize in Economics had been awarded to two authors, Myron Scholes and Robert Merton for their profit-maximising trading strategy which ‘proved’ that trading in derivatives could be both lucrative and safe. Taleb disagreed strongly, warning that uncertainties defied estimation. Indeed, Scholes’ and Merton’s company Long Term Capital Management went on to lose $4.6bn in less than four months. Our research suggests that pragmatic Talebian strategies, which recognise the high probability of positive and negative ‘black swan events’ are associated with survival by Iranian entrepreneurs. Black swan events are defined as defying forecasting and as incalculable in the nature and extent of their effects. Unforecastable events have some likelihood in all country contexts. However, given economic volatility, imposed sanctions and uncertainties surrounding Iran’s international treaties, the vagaries faced by Iranian entrepreneurs are very considerable. Iran is not unique as all industrial sectors, economies and societies are vulnerable to black swans as the global financial crisis of 2007-8 showed. Iran is chosen because a) entrepreneurs’ survival here may have lessons for entrepreneurs’ survival anywhere, b) it enables the author to draw on and revaluate the evidence of his own experience as an entrepreneur both in Iran and abroad, c) he enjoys access to many business acquaintances who operate in many of the same fields that he operates in and d) insofar as knowledge is attainable(!) knows Iran’s institutions. The study could have been conducted in other countries. Iran is chosen for practical and theoretical reasons. The broadest aim is to suggest strategies which improve firm survival, employment security and prosperity. A comparative study of the strategies of a) surviving Iranian entrepreneurs and b) salaried senior managers represents a good test of Taleb’s argument. He proposes that in a chaotic world in which small changes in antecedent conditions have large effects which magnify over time in ways that cannot be estimated, then ‘anti-fragile’ strategies represent one’s best chances of survival and success. The main research question is “Do Iranian entrepreneurs and strategic managers behave as Taleb would recommend and thereby survive?” Another way of expressing this question is to ask “Do ‘anti-fragile’ contribute to survival amid chaos?” Our subsidiary question is “Why are these two radically different forms of strategy thinkable?” The study establishes a benchmark, here top managers in petrochemical companies, who rely typically on ‘strategic planning’, a form of strategy which Taleb objects to strongly. This benchmark is chosen a) because the petrochemicals industry is vulnerable to black swans and b) because ‘strategic planning’ contrasts strongly with the ‘anti-fragile’ strategies adopted by surviving entrepreneurs. It is shown that Iranian entrepreneurs act in ways that are consistent with Taleb’s ‘anti-fragile’ strategy while most petrochemical managers interviewed follow something that is recognisable as the ‘functional paradigm’ which assumes an equilibrium state as default and treats risk as normally-distributed and therefore calculable. ‘Strategic Planning’ should work well if these assumptions held true empirically. The author argues that regardless of the particularly unfavourable international relations which Iran has, anti-fragility has value everywhere because no social endeavour is immune to black swan events. Indeed, without risk, there is no profit so anti-fragile entrepreneurs have much to gain from chaos. Considered at the larger scale, Anti-fragility could enable Iran to prosper, not least through diversification of its petrochemical industry. It is recommended that entrepreneurs and managers can embrace and spread enhanced anti fragility through mutual networks. The thesis is that preparation for chaos, errors, and fluctuations is wiser than inferring practices from historical data and wiser than pursuing profit maximisation. We should be mindful of “rare events with a huge impact” and because successful Iranian entrepreneurs are unsurprised by weekly surprises, they are well-placed to offer advice to entrepreneurs everywhere. Our methodology places limits on what we can and cannot argue here. Though largely unconscious of it, we are confident that surviving Iranian entrepreneurs represent a model of practice which may be worth copying. It is also reasonable to offer the hypothesis that in other countries entrepreneurs who take similar steps to those practiced by surviving Iranian entrepreneurs also have better survival rates in chaotic circumstances. However, this hypothesis is not tested here. Why it is that what cultural theorists call ‘fatalistic’ or ‘pragmatic’ reasoning (Thompson, 2008) is possible is discussed. As we will show, Grid-Group Cultural Theory offers an efficient and dynamic two-dimensional explanation for why surviving Iranian entrepreneurs have the capacity to feel, think and act in the way that they do. However, it is the appropriateness of fatalistic reasoning that is our chief concern rather than either the cultural conditions which make it thinkable or how far the same kind of reasoning is found in other entrepreneurs in other countries. It will be for other researchers to explore these suggestions.