(hopefully). But it’s also serious. We need to understand some of the drivers
and global trends that affect Risk. More importantly, we need to come up with
actionable ways to improve our understanding and management of Risk, to the
better survivability of our organizations.
So, first things first. What’s a Black Swan? Let’s get a definition out of the way:
a Black Swan, to paraphrase Naseem Taleb, the authority on the subject, is an
event that is (1) unpredictable, (2) massively game-changing and (3) in
hindsight completely foreseeable. If it does not embody all three elements it’s
not a Black Swan. Taleb says they’re rare – I say that’s changing.
Lots of people toss this term about almost colloquially, and many people (including
consultants) wax eloquently about them. The more interesting discussion, to me,
is: where are we going in terms of massive un-plannable events? I submit that
these type of events are becoming more frequent and more impactful. This is due
to a number of factors. Let’s unpack them!
There’s no question that our world is moving faster. Every measure
agrees. The speed of information-gathering has gone ballistic. Martin Hilbert,
writing in Science Daily, pegs 2002 as the threshold of the Digital Age – the
year that the amount of digital information surpassed the amount of analog
information (books, hieroglyphics, etc.). Kilo, mega, giga, tera, peta, exa,
zetta, yotta! There’s more data generated in the last 20 years than in the
previous 2,000. Technology in general is evolving faster. Mobile adoption is
accelerating exponentially (that’s the numbers with the little numbers above and
next to them). Innovations like Google Glass are coming faster and will have
game-changing impact on the world. It took thousands of years for the human
population to reach 4 billion (in 1980). The IP address scheme was invented in
1974 (the Nixon Administration!) to accommodate 4 billion addresses and we’ve
already run out. An “Internet Year” is three months… and now we’re talking about
Internet 2.0, “The Internet of Things”: in the near future, you will pull the last
bottle of beer out of your fridge, and 60 minutes later the Molson drone will
airlift another six-pack to your front yard! Email is already becoming archaic
and out-of-date. The speed of business is also accelerating due to Just-In-Time
and other factors. Anything runs this fast, its’ going to trip. The world’s no different.
Other factors are also contributing to the increasing frequency of game-changing
unpredictable events. The rise of global extremism means that there will be
another 7/7, another 9/11… and another. The globalization of economies will also
make crises more frequent. Why? When European economies were distinct and
sovereign, a country’s problem remained a country event not a Pan-European
Crisis. Pan-European Crises were rare (notwithstanding a certain Archduke’s
misfortune in 1914 and that Austrian paper-hanger in 1939). Nowadays, an
economic meltdown in any PIGS country (Portugal, Ireland, Greece, Spain) will
affect the entire Eurozone. The entire US Federal discretionary budget is less
than what must be borrowed (thanks, China – we’re good for it, we promise!).
When everything is connected, anything can domino into a Black
Not only will Swan-worthy events be coming at us faster, they will
be more impactful when they hit. Concentration Risk occurs when risks are
concentrated not dispersed (D’oh!) Here’s an example. In the 1990’s, Marriott’s
call center was housed in Salt Lake City. A warehouse-sized building with lots
of agents… supporting Marriott. Nowadays, you can walk into a call center in
Manila or Mumbai and encounter a warehouse-sized building – but it’s serving a
hundred companies, often competitors. 1994 call center outage in Salt Lake, one
company dark. 2014 call center outage in Manila or Mumbai, many companies dark.
Global supply chains mean potential failure chains. It’s particularly
interesting when suppliers serve competitors (we’ll talk about Nokia and
Eriksson in a later blog).
The magnitude of events is also getting larger over time. Given all of the factors
we’ve discussed, a singular event can cause more skew, causing an ordinary
crisis to grow wings and become a Swan. Taleb talks about the two realms of
Mediocristan and Extremistan. Mediocristan is where a single additional data
point does not skew the mean; Extremistan is where it does. The mean IQ of
a room full of business-people is a bell curve with a mean of about 120
(and you know who you are, folks). In comes Stephen Hawking or Marilyn Vos
Savant and the mean does not shift appreciably. Same if a blithering idiot walks in
(and you know who you are, folks). Mean IQ sits in the realm of Mediocristan.
On the other hand (or, on the other Stan), the individual net worth of the same group
is also a bell curve with a mean value. In walks Bill Gates or Warren Buffet
and the mean is skewed beyond recognition. I submit to you that the world is evolving
from Mediocristanic to Extremistanic. Mean net worth lives in Extremistan. So do Black Swans.
The next post will discuss why traditional Risk Management falls down on these
events. Spoiler alert: it’s partly due to some of the cognitive biases that we
as humans share, which impede a clear understanding of Risk and
How can we make our programs immune to these factors? ARSC is happy to have this
conversation with you!
(This article also appears on the World Conference of Disaster Management blog, where
Howard Mannella is presenting Black Swans, Grey Ash and Turkeys:
How to Plan for Un-Plannable Events in Toronto June 17, 2014)