The notion of “black swan” events is nowadays widely known. Nassim Nicholas Taleb, a former Wall Street options trader, popularised the concept in a book that was famously published only months before just such an episode sent shockwaves around the world. Writing in The Black Swan: The Impact of the Highly Improbable, Taleb explored the idea of phenomena whose rarity makes them nigh on impossible to predict yet whose effects are catastrophic. The global financial crisis duly provided an epochal illustration. The value of preparing for crisis was clear.
Taleb later argued that the economic meltdown of 2007 and 2008 demonstrated the merits of allowing a broken system to fail. Such a course, he said, ultimately helps protect against the black swans still to come. Whereas merely shoring up an imperfect construct only leaves it even more vulnerable.
Was COVID-19 a bona fide black swan? This is a moot point. If humanity was bound to face a potentially devastating pandemic – as many experts, perhaps most notably Bill Gates, had warned – then this tumultuous episode might instead qualify as what the Japanese call a “black ship”: a massively disruptive force whose advent is largely expected.
The distinction between the two might sound pedantic. It might even seem redundant, given that black swan and black ship alike cause significant turmoil. Yet organisations would do well to consider the difference because therein could lie the decisive chasm between preparing for crisis and being hopelessly engulfed by it.
What’s on the horizon?
“Black ships” – kurofune – was the term bestowed on the Western vessels that arrived in Japan in the 16th and 19th centuries. First came the Portuguese, whose growing influence eventually prompted the Tokugawa shogunate to retreat into isolationism; and then came the Americans, whose gunboat diplomacy heralded Japan’s reopening after more than 200 years of self-imposed seclusion.
In the case of the latter expedition, led by Commodore Matthew Perry, Japan couldn’t have been especially surprised when persistent Western efforts to engage it in trade took such a dramatic turn. It was in many ways a predictable development and a lesson in preparing for crisis.
Perry first sailed into Edo Bay with four ships. He delivered an ultimatum and departed again, leaving the Japanese terrified. When he returned the following year, now with eight ships, the shogunate had already concluded that its only realistic option was to make peace.
Kurofune is still used in Japan to describe outside forces that bring major change. In an organisational setting, particularly with regard to the prospect of crisis, we might equate this with a threat that looms into view and moves ever closer – a brooding, smoke-billowing, inauspicious manifestation of horizon-scanning.
Crucially, a threat that’s in view – irrespective of how seismic its impact might be – can be framed, analysed and anticipated. In other words, preparing for crisis can be done. And this could go a long way towards shaping a company’s adaptation and consequent survival.
Risk as a cultural construct
The risk was once the stuff of monotonous pen-pushing and form-filling. Today it’s a key element of an organisation’s day-to-day operations and an essential weapon in navigating a fast-changing and increasingly uncertain world.
As such, it’s the prism through which crisis should be evaluated. It has to be thought of as encompassing an eclectic array of possibilities whose corollaries could negatively – and substantively – affect a business.
This requires a cultural shift – one based around a clear strategy for understanding and managing the many sources of risk that exist within any organisation. Above all, what’s needed is dialogue. A variety of stakeholders must collaborate to produce a rich picture of how a firm plans for disruption.
A vital goal should be to categorise a range of groups – including senior managers, line managers, employees, customers and maybe even external experts – and define the issues that each might have to confront if crisis should strike. What might the implications be? How might the company react? Who should be mobilised and to what end? What would represent an ideal outcome?
Such an approach delivers multiple perspectives on likely areas of insecurity and encourages preparedness for crisis scenarios. Importantly, it also imbues an organisation’s hierarchy with an open-minded and proactive outlook that acknowledges the lasting value of core competencies and dynamic capabilities.
Hindsight versus foresight
Not least where crisis is concerned, many businesses are trapped in the realms of hindsight. They’re too frequently left wringing their hands and asking: “What if we had done this?” Paying closer attention to risk should lead to a more far more pre-emptive question: “What if we were to do this?”
Of course, even this ethos might occasionally be found wanting – most obviously in the event of a genuine black swan. But anyone tempted to dismiss the whole exercise as futile might care to reflect on two points.
First, black ships greatly outnumber black swans, and the former can be dealt with more comfortably if they’re recognised and treated as such. Thinking of everything as an unforeseeable disaster is lazy and self-defeating, and any organisation that adopts such an attitude might very well turn out to be a co-architect of its own demise.
Second, as we’ve seen before and are seeing again now, even black swans are survivable. Preparation counts for a lot, notwithstanding that it’s sometimes broad rather than specific, and the lessons of one crisis are very often in some way applicable to another.
Ultimately, a readiness to think ahead, a determination to adapt and a willingness to devise proper solutions can carry an organisation a long way – even in extremis. By alarming contrast, a disinclination to look forward, a bent for inertia and a propensity for quick fixes may guarantee nothing more than a tumultuous journey from one existential threat to the next – in which instance the only reasonably predictable phenomenon is terminal collapse.
David Falzani MBE is a Professor at Nottingham University Business School’s Haydn Green Institute for Innovation and Entrepreneurship and president of the Sainsbury Management Fellowship.