Understanding the Importance of Convexity and Future Readiness

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Sep 14, 2023

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Understanding the Importance of Convexity and Future Readiness

In today's rapidly evolving world, companies and individuals alike must strive to stay ahead of the curve. The concept of convexity, or antifragility, can help us understand the need for constant adaptation and innovation. Furthermore, understanding what makes a company future ready can provide valuable insights into how to thrive in an ever-changing business landscape.

Convexity refers to the ability to benefit from uncertainty and volatility. In other words, instead of fearing and avoiding risks, one should embrace them and use them to their advantage. The gains in technology and empirical science cannot solely be attributed to trial and error or serendipity. Logically, chance and trial and error cannot consistently lead to long-term gains. Errors can have catastrophic consequences, causing planes to crash, buildings to collapse, and knowledge to regress.

To become future ready, companies must scale up their capabilities to remain competitive. A company that fails to regularly shift its know-how will face competition from copycats, fall behind in advancements, and ultimately fail. This requires a commitment to ongoing learning and a willingness to adapt to changing circumstances.

One commonality among top-performing companies is their ability to form partnerships and collaborate with disruptors in their industry. Instead of trying to outrun fintech disruptors and tech giants, companies like Mastercard and Visa have partnered with their rivals, investing in a wide range of application programming interfaces (APIs). They have realized that the best innovations often come from third parties who are closer to their customers.

Another key behavior exhibited by successful companies is their ability to explore new areas while exploiting existing opportunities. American Express, for example, was once the largest payment company but has since fallen behind. Unlike Mastercard and Visa, American Express did not explore new areas while exploiting existing opportunities. This highlights the importance of maintaining a healthy portion of activities dedicated to exploring the new, even when early evidence remains unclear.

A strong viewpoint about the future also plays a crucial role in future readiness. Companies like Nike, Lululemon, and Hermes exhibit a high degree of certainty and learn aggressively to update their mental models when new data emerges. This combination of high learning and high certainty allows visionary leaders to better discern consumer taste and detect new behaviors.

In high-speed sectors like the tech industry, executives must pivot quickly to avoid being left behind. Microsoft's success can be attributed to its bias for action while remaining realistic. Executives focused on preventing catastrophe while scaling new businesses, such as cloud computing and augmented reality.

Vertical integration can also help companies stand out in their industry. Tesla, for example, uses its software muscle to take over more functionalities that were once located in purpose-built hardware. This allows them to differentiate themselves and stay ahead of the competition.

To ensure future readiness, companies need to worry less about keeping up with the status quo and more about finding a new viewpoint. The automotive industry, for instance, has been slow to embrace exploration and experimentation. However, to transition from mechanical engineering dominance to knowledge in software and electronics, a shared viewpoint at the highest level is essential.

In conclusion, understanding the concept of convexity and future readiness is crucial for individuals and companies looking to thrive in today's rapidly changing world. By embracing uncertainty, forming strategic partnerships, exploring new areas while exploiting existing opportunities, maintaining a strong viewpoint, pivoting quickly, and finding new viewpoints, companies can position themselves for success. To ensure future readiness, remember these three actionable pieces of advice:

  • 1. Embrace uncertainty and use it to your advantage.
  • 2. Form strategic partnerships and collaborate with disruptors in your industry.
  • 3. Maintain a healthy balance between exploring the new and exploiting existing opportunities.

By following these guidelines, you can increase your chances of remaining competitive and future ready.

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