Template:M intro design System redundancy

It’s the long run, stupid

Taylorism and just-in-time efficiency A snapshot of the process, when it is at minimum stress, fair weather, all is operating well. But efficiency must be measured over an appropriate life cycle measured by the frequency of the worst possible negative event. The efficiency of a process must take in all parts of the cycle — the whole gamut of the four seasons — not just that nice day in July when all seems fabulous with the world. There will be other days; difficult ones, on which where multiple unrelated components fail at the same moment, or where the market drops, clients blow up, or tastes gradually change. There will be almost imperceptible, secular changes in the market which will demand products be refreshed, replaced, updated, reconfigured; opportunities and challenges will arise which must be met: your window for measuring who and what is truly redundant in your organisation must be long enough to capture all of those slow-burning, infrequent things.

The skills and operations you need for these phases are different, more expensive, but likely far more determinative of the success of your organization over the long run.

The Simpson’s paradox effect: over a short period the efficiency curve may seem to go one way; over a longer period it may run perpendicular.

The perils, therefore, of data: it is necessarily a snapshot, and in our impatient times we imagine time horizons that are far too short. A sensible time horizon should be determined not by reference to your expected regular income, but to your worst possible day. Take our old friend Archegos: it hardly matters that you can earn $20m from a client in a year, consistently, every year for twenty years if you stand to lose five billion dollars in the twenty-first.

Then, your time horizon for redundancy is not one year, or twenty years, but two-hundred and fifty years. Quarter of a millennium: that is how long it would take to earn back $5 billion in twenty million dollar clips.

In peace-time, things looked easy for Credit Suisse, so they juniorised their risk teams. This, no doubt, marginally improved their net peacetime return on their relationship with Archegos. But those wage savings — even if $10m annually, were out of all proportion to the incremental risk that they assumed as a result.

(We are, of course, assuming that better human risk management might have averted that loss. If it would not have, then the firm should not have been in business at all)

Tight coupling

Redundancy is another word for “slack” in the sense of looseness in the tether between interconnected parts of a wider whole. For optimum normal operation one should minimise slack — allow maximum responsiveness — what musicians would call “attack” — the greatest torque, the most direct transmission of power to road; minimal latency.

But, as Charles Perrow notes this is only true as long as the machine is working perfectly, in an environment where every outcome can be predicted, monitored, and bad ones can be avoided by rote. But, generally, these are not very interesting environments.

Just-in-time systems have the lowest tolerance for component failure. Should a component misbehave, they have the greatest risk of causing a chain reaction leading to catastrophe. The lack of “give” the shorter the time to diagnose the failure and shut the system down. Conversely a system built with back up can continue to operate while failed components are repaired or replaced. Likewise, a certain amount of “stockpiling” in a production line allows production to continue should there be any outages or supply chain problems throughout the process.

The manufacturing process is nominally optimised, conmoditised, but should nonetheless be in a constant state of improvement — jidoka — to refine the process, adjust for evolving demand, react to competition and take advantage of new technology and knowhow. This is a valuable “background processing” function — important and valuable but not day to day “urgent”— for which “redundant” personnel can be occupied, which they can redeploy immediately should a crisis arise.

This has two benefits: firstly the process “peacetime” self-analysis should in part be aimed at identifying emerging risks and design flaws in the system; secondly the personnel should have an intimate, detailed and holistic understanding of the process and should therefore be better adept to react to a crisis should one arise.

This behaviour is long-term “skin in the game” commitment best serviced by local, full-time, long-serving employees, not itinerant inexperienced outsourced labour.

The importance of employees, and the value they add 8s not constant. In an operationalised workplace they pick up a penny a day on 99 days out of 100; if they save the firm £ on that 100th day, it is worth paying them 2 pennies a day every day even if, 99 days out of 100, you are making a loss.

Redundancy as a key to successful change management

Damon Centola ’s research about concentration and bunching of constituents to ensure change is permanent.