Swine flu, the crisis, and black swans

Twenty-five centuries ago, the Greek dramatist Euripides remarked: “The expected does not happen, it’s the unexpected which comes to pass”. This is indeed often the case, both in the economic and social realm.  All of a sudden, unexpected events occur which radically change our outlook and leave profound consequences.

The writer Nassim Nicholas Taleb calls these events “black swans”. He takes this metaphor from what happened in Europe in 1697. At that time, everyone thought that swans were only white; however, the first explorers to return from Tasmania brought black swans back with them. Thus, the white swan paradigm was consigned to history. Before the appearance of the black variety, nobody, understandably, was able to foresee the existence of swans which were other than white.

A similar lack of foresight afflicts economists, entrepreneurs, political leaders or managers when a crisis or a pandemic arises (or Google, or the Internet, or any number of other black swans). As Taleb points out, economists are brilliant at explaining what has already happened, and extremely bad at predicting the future. As a curious sidenote, when Taleb presented his theory at the World Bank, some members of the audience were none too pleased.

Why are we so bad at foreseeing the future? There are many reasons which help to explain this. The first is purely biological: our brain is hardwired for survival, and not for complex decision-making and calculating probabilities. In the distant past, you had a better chance of survival if you ran a mile when you saw a lion than if you stopped to contemplate the various courses of action open to you (basically because the lion wouldn’t wait). Secondly, our educational system is based on committing facts to memory, and not on identifying patterns. Third, we live in an increasingly complex world, which makes it more difficult than ever to predict what will happen in the coming months, let alone years.

So, if a black swan event is capable of shattering all the strategies which we have carefully developed over months and months (as occurred on September 11^th,, and as  tour operators in Mexico are now finding out), we would be well advised to approach decision-making from a different angle.

The first challenge we face is “learning to learn”. By this, I mean that managers need to focus not so much on what they know as on what they don’t know. We need to contemplate scenarios which take us radically out of our comfort zone, and then take these scenarios into account when defining possible strategies.

The second challenge for companies is to increase their chances of producing “positive black swans”, or in more conventional terminology, of bringing about market-changing innovation. (It’s worth noting in passing that Archimedes’ Law, the discovery of penicillin by Fleming, 3M’s Post-its or Pfizer’s Viagra all came about “by chance”.) However, if we want to produce the next “big thing”, we need to create a favourable environment which facilitates such a breakthrough. Google, for example, implements an innovation-friendly policy in the form of the 70/20/10 rule for the use of staff time: 70% of work time devoted to the core areas of the business, 20% to projects related to the business, and 10% to new ideas where “anything goes”.

Last but not least, we need to address fear of failure. It is evident that, in such a complex world as ours, no one can guarantee immediate success. So the key to paving the way for future innovation is to give people the freedom to experiment: to try out new ideas, to be wrong, and to be continuously learning.

Black swans wait for no man (or woman); either we take the initiative, or we disappear.

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