Keys to success in managing a Black Swan event

A Black Swan event refers to a highly improbable occurrence with three characteristics: It is impossible to predict, it carries a massive impact and its shock value is stunning because people could never conceive of such an event occurring. Why does it matter? It can kill your organization if it isn't managed well.

Some people equate the term "Black Swan" with "crisis" and believe that crisis management plans, effective public relations strategy, business continuity planning and supply chain risk management will enable their organization to successfully address any eventuality. While that may be true, not all Black Swans are crises (for example, winning the lottery is a positive Black Swan). Perhaps more importantly, not all crises are Black Swans, as is shown by the difference between a typical hurricane and a hurricane like Katrina. Typical hurricanes occur relatively frequently, so organizations generally know what to expect and have disaster plans to guide response, and operations can usually be restored to normal after a period of reconstruction. However, Hurricane Katrina was more than a crisis - it was a Black Swan because no one could have envisioned the size and scope of it, organizations were shocked by the overwhelming impact of it, and for many, the post-Katrina ‘new normal' bore little resemblance to the past. A Black Swan event (or situation, if it's a culmination of circumstances that have evolved over
time) is a game-changer for those going through it or impacted by it. For them, and for the audience who might be witnessing the situation unfold, the world never looks the same again.

So why are Black Swans such a hot topic in businesses and board rooms right now? The name puts a face on the type of event that companies and their boards fear most - the ‘Unknown Unknown' that, despite all of the preparations that might have been made, still takes  the organization by surprise and shakes it to its core. In addition to Hurricane Katrina, Black Swan examples include 9/11, the 2008 credit crisis and the BP Gulf oil spill in 2010. The most recent example is the March 11, 2011 Japan earthquake and tsunami, the scope and full ramifications of which may not be fully realized for quite some time.

The focus of this paper is to understand the nuances of Black Swan events, how to counteract the shock factor and translating those insights into actionable intelligence.