A frequent question I get asked is “how do I prepare against black swans?” Ever since Nassin Nicholas Taleb’s “The Black Swan,” this is a topic that comes up frequently in risk management discussions. However, though these events are important to consider a much more relevant (to most companies) question to ask is, “how do I spot a ‘neon swan’?”
What is a neon swan? Jason Zweig, writing in the Wall Street Journal, notes:
You’ve heard of black swans—events that are unthinkably rare, immensely important, and as unpredictable in advance as they are inevitable in hindsight…what we will call the neon swan, an event that is unthinkably rare, immensely important and blindingly obvious (http://professional.wsj.com/article/SB20001424053111904233404576462410143674364.html).
Today’s operational networks are full of these neon swans; and it’s interesting to note how many companies acknowledge their possible existence, at the same time as they acknowledge that there are no strategies or plans to deal with these catastrophic but easily foreseeable events. Here are just a few that I have come across in the past few months:
- Retail: Food contamination in private label products that seriously harms a consumer
- Heavy Industrial: Supplier insolvency that seriously disrupts production
- Aerospace: Counterfeit supplies that make finished goods worthless
- Auto Parts: Artificial competition that is manipulated by governments to create the illusion of market success
- CPG: Consumer products launches that have zero chance of success launched with great investment anyway (and with supply chain executives already planning for failure the night before launch)
- All: Serious IT breach in company systems that would cripple a global operation in hours
When asked why there is no plan for preparing for a neon swan, the usual answer is that “it’s not in our brief.” The problem is that I get that answer from every department I speak to. Once in a while someone will point me to the Enterprise Risk Management (“ERM”) function, but more often than not ERM analyses are so high level and far reaching that they lack specific understanding of very real, very possible risks. So next time you wonder about those distant black swans, pause for a moment and wonder if there is a neon swan blinking a lot closer to home.
(Tip of the hat to Prof. Alex Triantis of the Univ of Md. for the link to Zweig’s article).