Events that create unexpected, undesired results can sometimes be called Black Swans.
The Black Swan Event concept was created by Nassim Taleb, an NYU professor. Based on Taleb's criteria the Black Swan event is a surprise to the observer, has a major impact and was considered foreseeable when reviewing data that was not considered relevant at the time, but later found to be obvious. (Taleb notes that this is usually a bias by the observers in hindsight to instill control into chaos.) He uses the analogy that butchering a turkey is a surprise to the turkey, not the butcher.
Launching a high risk strategy based on events with a low likelihood of occurring is a way to create a Black Swan. Risk in the minds of the strategists may be low; however, for many stakeholders the strategy injects chaos. Belief in the robustness of a strategy that is not robust will have consequences far beyond the expectations of the strategist.
An often underappreciated element of strategy is the process of gathering insight up from the field. By presenting the strategy as a straw man, even before a pilot program, the stakeholders most impacted by these changes can offer insights. Naturally change is resisted, but it is risky to not invite insight from stakeholders.
A common example of a potential Black Swan initiative is the change in customer/sales systems. The general concept is often to smooth out internal processes around sales operations and to possibly improve efficiencies. Problems arise when sales processes are not understood that sales and that many tasks in completing a sale cannot be standardized. Selling books is fine for a standardized process, selling a construction project isn't.
A rigid resource planning system not flexible enough to manage customer needs, special projects or risk sharing projects could potentially destroy the relationship. The same issues could be damaging to vendors and suppliers. How a strategy impacts sustainable business must be understood and costs and benefits evaluated.
Insight from Sales, Operations, Customer Service, AP/AR, warehousing, inventory management and other areas along the value chain could avoid a Black Swan Event. Single points of failure can be identified and the process made more robust as assumptions are eliminated. A review of margins by salesperson and then a look at their processes may offer better insight to where efficiencies can be discovered.
A large hospital chain took advantage of ground up insight to re-tool their strategy process. When working on a disaster plan at a hospital chain a disconnection between corporate management and nursing operations was discovered. As the insights from each level of management were gathered a startling vulnerability appeared. All the nurses and support staff were well aware of the "bogus bed" challenge, but corporate, non-nursing management was oblivious to the daily challenges of managing bogus beds. Bogus beds referred to the warehousing system for patients. A central computer program was used to track patient location from the entry into the hospital to dismissal.
Patients could be moved several times in a day and sometimes several times in an hour. Nurses were assigned patients but often there were handoffs. Updating the patient's location was a paramount task.
In the event of a disruption to the database or the communications systems, the nurses unanimously stated there would be a potential for disaster. They were clear that in this event an inventory of patients, some not conscious, some unable to respond reliably, many residing in a hallway or other staging area, would not be feasible. There had to be a system that was uninterruptable.
When this situation was presented to a corporate manager, they objected to the term "bogus" as "surfer" language and dismissed the issue initially. The tide turned and the case for bogus bed planning was embraced.
A high level project was initiated to provide new best practices and emergency training. Robustness was built into the system and managers became more aware of this critical element of patient management.
New questions were built in to the planning process. The starting point now includes simple questions such as how patient care will be impacted by this initiative. A system wide initiative was implemented in the dozens of hospitals managed by this firm.
The lesson learned was to map future strategies against critical tasks.
In some firms this approach has become a significant element in the pursuit of competitive advantage.
By focusing attention customer centric issues, senior management learns which key productivity indicators will have the greatest impact on their business. Larry Bossidy, ex-CEO of Honeywell International in his fine book Execution offers several key questions to ask when building a strategic plan:
"What is the assessment of the external environment?
How well do you understand the existing customers and markets?
What is the best way to grow the business profitably and what are the obstacles to growth?
Who is the competition?
Can the business execute the strategy?
Are the long-term and short-term balanced?
What are the important milestones for executing the plan?
What are the critical issues facing the business?
How will the business make money on a sustainable basis?"
From these strategic questions, tactical questions can be asked to support the higher level answers. For example, to understand whether the business can execute the strategy, it may be necessary to look at the customer service functions. Are there system cross flows that could be interrupted by this strategy, say a web-based system that can't access the internal inventory system, or denies credit when the limit has not been reached or won't print labels on the existing printers. In isolation a project may have a lot of perceived benefits, but a Black Swan is hatching as numerous subsystems not integrated with this project cripple the customer service levels.
So the long-term needs must wait as the systems are upgraded in the short run to accommodate the initiative. Milestones have to reflect this reality. Capital must be planned with an eye on competitor's moves. Will the initiative be embraced by key customers and your Sales Department? Will they be patient while the bugs are worked out or will another strategy such as outsourcing some functions be needed in the short run to keep pace with the environment while in the background the core business is re-tooling?
Managers can work through the issues provided they are aware of the swan eggs. Asking the right questions is a critical success factor. As Taleb says "Don't be the turkey."
When a management team understands its bogus beds it can avoid Black Swans.
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