The Crusade Against Efficiency - Part 1

I’d like to start today’s post with the story of Hermann Maier, an Austrian downhiller who was known as the "Herminator" for his spectacular skiing skills. In the 1998 Winter Olympics, Maier fell dramatically during a race. Here’s the video for the curious:

This story was originally recounted by Roger Martin, a top business thinker of our times, who had originally watched it in real-time as a kid and was shocked like everyone else! But, he also realized how Maier's zero-friction ski suit, which made him super-efficient when he was upright on his ski, actually resulted in him not being able to slow down after the fall.

This perspective totally resonates with me… Our blind chasing of efficiency can at times lead to disastrous consequences. Luckily, Hermann was able to recover and he went on to win 2 gold medals, But, I see this very mistake committed by entrepreneurs and corporate executives/managers alike - without them fully realizing what they are chasing and why. This, when coupled with not understanding what they are measuring and how, creates an environment where it becomes hard for human creativity to flourish.

The American obsession for efficiency can arguably be traced back to Adam Smith and the depiction of the pin factory in his book, 'The Wealth of Nations.' By implementing the division of labor, the factory achieved a level of efficiency far beyond what would have been possible if each worker were responsible for crafting entire pins from start to finish. Our blind chasing of efficiency is now omni-present - it has even infiltrated the bleeding edge of innovation, Silicon Valley high tech. companies. The chase is now on at various levels of abstraction and has contributed to disastrous consequences in our economy and our lives.

In the announcement about Cyb3rSyn Labs, my new startup, I wrote:

The first two will be covered in future posts - I’d like to focus on the topic of efficiency in this post. Let me begin this week’s post with a pertinent quote from Peter Drucker's book, 'Management Tasks, Responsibilities, Practices':

Table of Contents

• The inefficient bees

• The lost lesson from the pandemic

  • A quote bouquet on efficiency

• The inefficient individual

• Personal finance

• Tinkering

The inefficient bees

Bees have their own signaling mechanism ('waggle dance') by which they communicate the direction & distance of the nectar/pollen.

What’s interesting is that about 20% of the bee journeys ignore those signals and go off in random directions. But, the queen bee doesn’t stop them or demand that they improve the monthly nectar production targets via efficiency gains. You’d think that in the millions of years of evolution, the bees would have attained a level of efficiency that’s better than 80%!

This inefficiency confounded scientists for a long time until they modeled the bee colony as a complex system surviving over long periods of time in a changing and uncertain environment.

If 100% of bees accurately followed the signals, they’ll be 100% efficient but they also get trapped in a local maximum and when their environment changes drastically (a 'black swan' event - e.g. cows clearing out all the flowers of their only garden), the hive eventually starves to death. Watch Rory Sutherland explain this elegantly as the "exploit vs explore" dynamic in this video:

Even if 99.9% of the random bee journeys don't have any Return on Investment (ROI), the hive will be compensated heavily when just one bee stumbles upon a jackpot - say, a massive sunflower field. That's the evolutionary lesson that bees have learned about surviving in complex systems over long periods of time.

When we zoom out, nature in general doesn’t “optimize” - it builds redundancies. Take the example of our own body: we have two lungs, two kidneys, two eyes and so on.

We have to look at ‘rationality’ as what aids long-term survival, not short-term optimization. Many zero-sum games can be avoided from this perspective.

As Rory Sutherland reminds us, a flower is a just weed with a marketing budget. The whole process may not be efficient (time consuming and energy expensive), but it is certainly effective from an evolutionary survival perspective.

The lost lesson from the pandemic

One of the dominant paradigms from the industrial era is the idea that management’s primary focus was to do things in a predictable/repeatable fashion at an ever increasing rate of efficiency and scale.

But, complexity destroyed that paradigm. This was most evident during the pandemic and yet we seem to have learned no lessons from it. Well, maybe we have learned some lessons from the particular, but not from the general. Let's rewind the clock back to the pandemic days...

Supply chain shocks, auto manufacturers having to shutdown their factories and stop production because of chips shortage, empty store shelves, etc. Why did all of this happen?

In complex systems, pinpointing a single "root" cause is not possible. However, if we aim to identify a key mistake to avoid in the future, it's clear that our blind pursuit of efficiency lies at the heart of the issue.

In this case, many business leaders for the past couple of decades were blindly chasing efficiency - ‘Just in Time’ inventory, squeeze as much juice out of the supply chain as possible, etc.

Why pay for the high storage cost of buffer inventory, right? This in turn boosted the bottom line and thus the quarterly profit margin & the share price.

Because of this blind pursuit of efficiency, manufacturers had no room for error and no margin of safety! All of this imploded in 2021, right in front of our eyes.

I'm sure some of the companies that got impacted are now carrying buffer inventory of key parts and are building resiliency in their supply chain and production capabilities. But, I'm not sure if they have looked to see if the same type of mistake is being made elsewhere in the business.

We usually learn lessons only from the particular - but not from the general. We try to solve superficially for a particular "problem" that we narrowly define, but don't understand the fundamental underlying insight behind the solution that then can be generalized so that we can apply it to various other areas.

The turn of events during the pandemic showed us how efficiency came at the cost of resilience and we are still paying the price of the knock-on effects. I invite the reader to explore the pitfalls of chasing optimization in complex systems on their own. I’ll wrap this section with a quote bouquet on efficiency!

A quote bouquet on efficiency

For the premium subscribers, I'll now discuss the implications on all of us as individuals - what insights can we apply to our day-to-day living and to personal finance?

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