The Corona Epidemic: A "Black Swan"?

"This is a real black swan" - i.e., an event that cannot be predicted or can only be predicted with difficulty, which has far-reaching, mostly negative consequences for all persons and organizations directly and indirectly affected and at least calls into question the paradigms of their previous thinking and actions or, as in the case of many companies, even makes their previous strategies obsolete. Such statements are often heard in connection with the Corona virus epidemic.

Black swans become more common

One thing is striking: The "black swans" seem to have become more frequent in the last two decades. In connection with Corona, reference is sometimes made to the tsunami in the Indian Ocean triggered by a seaquake in 2004 and the nuclear reactor accident in Fukushima, Japan, in 2011. Far more often, however, because of Corona's global impact, reference is made to the 2008 financial crisis triggered by the Lehman bankruptcy, which in turn partly caused the euro crisis that followed shortly thereafter. And sometimes the "diesel affair" triggered by the "cheating" of some car manufacturers is also mentioned, which was a black swan at least for many automotive industry suppliers, rendering their previous, usually successful, action or corporate strategies invalid.

Strong parallels with the 2008 financial crisis

But can the Corona epidemic be compared, for example, with the tsunami in the Indian Ocean or the "diesel affair"? Only to a limited extent, because the tsunami - despite the more than 200,000 people killed - was primarily a regional event. And the effects of the "diesel affair" remain largely limited to the automotive industry.

The corona crisis can best be compared to the 2008 financial crisis, which drastically demonstrated the fragility of the international financial system: The Corona epidemic or pandemic makes clear to us how vulnerable our global economic system is with its barely untangling tangle of mutual dependencies and interdependencies.

Even a black swan has causes

The term "Black Swan" originates from the 2001 book by publicist, financial mathematician and investment banker Nassim Nicholas Taleb, "Fooled By Randomness," which deals with the history of finance. In 2007, he also published a book entitled "The Black Swan," which deals with unpredictable and momentous events beyond the financial market.

According to Taleb, black swans are highly rare and unlikely events,

• that have extreme consequences for those directly and indirectly affected,
• for which, however, one usually finds plausible and understandable explanations in retrospect.

He also includes such rather fortuitous events as the discovery of penicillin, which revolutionized health care, and the discovery of America in the search for a new sea route to India.

Black swans show blind spots

As Taleb wrote, explanations can be found for most Black Swans in retrospect. That is, they are not as unpredictable as they are often portrayed, at least at the time of their occurrence - also as an excuse for why, for example, a company went into such a severe tailspin because of the event that occurred.

But in the case of all the aforementioned Black Swans in recent times, there were well-known and renowned experts who warned of corresponding events or developments in advance - this also applies to the Black Swan "climate change", which is currently being pushed to the fringes of public awareness again in the wake of the Corona epidemic. This means that many "black swans" were or are predictable. Therefore, they rather abruptly make blind spots in collective thinking and collective perception visible.

Black swans make strategy breaks visible

Black swans also highlight inconsistencies in the action strategies of societies and companies. For example, when the social discourse in the area of energy and food supply debates regionality or production close to the consumer, but completely forgets about the supply of medicines, which is currently leading to supply bottlenecks in the wake of the Corona epidemic.

The situation is similar in industry. Here, many companies implemented "just-in-time" concepts in their production over the past decades, for example, but without sufficiently taking into account that when the required parts are delivered from China, which moreover originate from a supplier's workshops, the risk increases that they will not be delivered "just-in-time" - which in turn paralyzes production.

This means that many of the so-called black swans could have been avoided in retrospect, or that professional risk management would have enabled better precautions to be taken in the event of an emergency or need.

Making the strategy "crisis-proof" - as far as possible

Such inconsistencies - due, among other things, to collective blind spots caused, for example, by membership of an industry - often exist in the strategies of companies. These can lead to existential crises in the medium and long term. For this reason, companies should use the current Corona crisis, provided they are not fighting for survival, as an opportunity to check beyond their day-to-day business with external expert support: To what extent do such "breaks" exist in our strategic considerations and decisions? Only then can the necessary precautionary measures be taken to prevent existing risks from becoming black swans which, in extreme cases, endanger the existence of the company.

To the author:
Dr. Georg Kraus is managing partner of the management consultancy Dr. Kraus & Partner, Bruchsal (www.kraus-und-partner.de). Among others, he is a lecturer at the University of Karlsruhe, the IAE in Aix-en-provence, the St.Gallen Business School and the Technical University of Clausthal.