COVID-19, Black Swans, and Gray Rhinos
Listen, I don’t know how this current pandemic is going to play out, but is there something businesses can learn for when we eventually get through this? Read on to find out!
You might be familiar with Nassim Taleb’s concept of the “Black Swan.” (Taleb, 2010) His basic premise is that humans are really terrible at correctly predicting the future. We like to form narratives about why things happen, instead of seeing that things happen randomly, and therefore use the past too much in planning for what is to come.
Instead, he says, history is shaped by highly improbable, big impact events. Events like 9–11 in the US or the current global pandemic fall into this category.
The thing about black swan events is that they are, individually, highly improbable. But, if you have very many low-probability, high-impact things that can happen, the chances that one of them is going to happen is almost certain. The problem is you don’t know which one is going to happen, only that something is.
This is where business continuity planning comes in. You don’t know if it is going to be a huge hailstorm, an earthquake, or a tornado, but you know something is going to happen at some point. So, it makes sense to have a plan on how your business is going to survive whatever the black swan is going to be next time.
So where do grey rhinos fit in? Michele Wucker finds that there are, in addition to improbable events of great impact, highly probable events of great impact that are ignored, again due to human nature. (Wucker, The Gray Rhino, 2016) We really like when we hear data supporting something we already believe is true, so we tend to be credulous of that which confirms our own beliefs (confirmation bias) while pushing back on data that does not support our beliefs, or that will put us in the uncomfortable position of having to change something based on the new information. For example, let’s say you had to assess your management competence, and then were given a test purporting to rate your competence. You would think it was a great test if it matched or even surpassed your own assessment, but think it was bogus if it rated you below it!
Similarly, some businesses are ignoring gray rhino threats to their business beyond that of today’s pandemic. Wucker’s blog (Wucker, The Top Gray Rhino Risks of 2020, 2020) is instructive. It does not list the global pandemic, appropriately I think, since that is more of a black swan event. It does list:
- Economic and financial fragilities
- Political uncertainty, both domestic and geopolitical
- Climate change
- Cyber and digital risk
- Supply chain risks
Does your business have plans in place to prevent or mitigate risk from these high-probability, high-impact events?
My advice is: take advantage of this terrible situation to collect information not for the next pandemic, but for the next business disruption, whether it is a black swan or gray rhino. Record what questions you have to answer now, and what things you wish you had already completed when all of this started. This will give you a head start coming out of this to make a plan for a more resilient business. So that when the next inevitable “No one saw that coming” event happens, or for that gray rhino you are currently ignoring, your business will be more likely to survive. Some basic guidance on business continuity management systems can be found in the ISO:22301 standard to get you started.
Taleb, N. N. (2010). The Black Swan. Random House.
Wucker, M. (2016). The Gray Rhino. St. Martin’s Press.
Wucker, M. (2020, March 9). The Top Gray Rhino Risks of 2020. Retrieved from Gray Rhino & Company: https://www.thegrayrhino.com/the-top-gray-rhinos-of-2020/