I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

Friday, December 24, 2010

Heathrow Mess is Explained by Taleb

Like many thousands of other people, I was forced to stay in London for an extra few days because weather-related factors caused Heathrow and other UK airports to close. Nearly a week after it began, thousands remain stranded.

Most analyses of why this happened have looked at how supply-side factors such as additional snowplows or seat capacity on contract could lessen the impact of an event like this. Hugo Dixon, writing in Reuters Breakingviews, suggested that a better demand management mechanism - one that creates a more efficient market for seat demand under circumstances where seats are at a premium - is just as important to consider.

I took a different perspective, which Breakingviews was kind enough to publish. Here's the abstract and a link to my letter:

Heathrow mess is explained by Taleb.
Europe's main airport is a highly inefficient market with poor and asymmetric information. Snow turned it from a utility to a casino. This wasn't a Black Swan event. But it reflects Taleb's argument that optimized systems are vulnerable to catastrophic failure.

Vulnerability to catastrophic failure makes abundantly clear we would be better served by demanding and rewarding robustness over optimization, especially from utilities.