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In an Age When All Swans Are Black
Nasim Taleb is famous for predicting the 2008 US economic crisis using his “black swan” theory, which he presented in his book The Black Swan. “Black Swan” refers to an event that is highly unlikely to take place but comes as a massive surprise when it does.
Recently, Jeff Sommer, a reporter for the New York Times, argued that we live in an age when all swans are black. He is referring to a time when unexpected changes have become the norm.
What would be the best business responses in this era of extreme environmental change? I would like to share some ideas in this article.
First, the management philosophy that has dominated businesses for the past half century was the “Plan-Do-See” principle. The idea is to thoroughly assess a company’s given environment and capabilities, plan the best strategy, execute it, and evaluate the results.
Henry Mintzberg calls this management philosophy the deliberate strategy. He argues that the deliberate strategy is appropriate in a stable environment. On the contrary, when environmental changes are frequent and their directions unpredictable, strategies based on one’s assumptions are likely to be incorrect.
Mintzberg proposes the concept of “emergent strategy” as an alternative to rapidly changing environments. The emergent strategy does not involve preemptive planning of all actions but establishes strategies every moment through experimentation.
Let’s consider an example of the emergent strategy. Most colonies of ants commonly move their home to another place every year. The exact reason why ants migrate is unknown. However, their method of finding a new home is fascinating.
First, a small group of search ants depart in different directions to find potential homes. Each search ant returns home with the information on their choice of a possible home and introduces other ants to the idea to persuade them, which is similar to our electoral campaigns. Once some ants are convinced, the search ant visits the potential site with the ants. Some accompanying ants might think the potential site is desirable, and others will disagree. The ants return home. The group that liked the potential site will reintroduce it to the other ants and persuade them. By repeating this process dozens of times and when the number of persuaded ants reaches a certain number, all the ants proceed to move to a new home.
There is no meticulous plan for the ants in their search for a new home. There are no orders or directions from a high-ranking ant. Ants employ the emergent strategy. The strategy is completed in a highly democratic way through dozens of experiments and verifications.
Second, enhancing the diversity of the organization’s workforce is advisable in more turbulent times.
In an environment with little changes, it is fine to manage the company with employees aligned with the corporate culture prescribed by the company. Examples include company-imposed dress codes and working hours. However, in extreme environmental changes, companies call for more diverse talent and a flexible organizational culture. Be that as it may, it is not an easy feat to manage such diverse skills.
There is one significant difference between human-grown crops and weeds. In the wild, each rice plant flowers and ripens at different times. It was humans who planted rice and improved crops to make the plants flower and ripen at the same period. In other words, through crop improvement, we have eliminated the genetic diversity of rice plants for easier management. As human beings gained the ability to eliminate uncertainties in nature, it became unnecessary for wild rice plants to be diverse for survival.
If not for its genetic diversity, wild rice would have failed to adjust to the dramatic climate changes and become extinct from the Earth. This is nature’s insurance policy; species have developed a variety of genetic variations to survive in unpredictable natural environments.
Third, one should not go all-in on a single project or strategy in a turbulent era. It is pivotal always to have a Plan B.
More specifically, a portion of the company’s resources should be set aside as a contingency to prepare for future changes. Google, for instance, is generating profit through its dominant presence in the global search engine market. Nevertheless, it is aware that the search engine industry can fall instantly due to environmental changes, such as the advent of ChatGPT, which is why it invests heavily in new technologies and industries.
Waymo, which researches self-driving cars; DeepMind, which focuses on artificial intelligence; Wing, the drone delivery company; Calico, a company studying the prevention of human aging; the robotics company X; and the biotechnology company Verily are all Google’s Plan Bs.
There is contention between management scholars on what takes priority between “what to play” and “how to play.” Proponents of “how” should focus on becoming the world’s best in their industry. Those who value “what,” on the other hand, should endeavor to identify new fields of business.
“How” may have mattered in an era when changes were minimal. Companies that succeeded in finding the “how” could withstand even a century. However, in this everchanging era, “what” may matter more. We often see companies in an industry that are all in the red. We live in an age where it is more prudent to search for Plan Bs to sustain ourselves rather than strengthen our existing business strategies.
Recently, Jeff Sommer, a reporter for the New York Times, argued that we live in an age when all swans are black. He is referring to a time when unexpected changes have become the norm.
What would be the best business responses in this era of extreme environmental change? I would like to share some ideas in this article.
First, the management philosophy that has dominated businesses for the past half century was the “Plan-Do-See” principle. The idea is to thoroughly assess a company’s given environment and capabilities, plan the best strategy, execute it, and evaluate the results.
Henry Mintzberg calls this management philosophy the deliberate strategy. He argues that the deliberate strategy is appropriate in a stable environment. On the contrary, when environmental changes are frequent and their directions unpredictable, strategies based on one’s assumptions are likely to be incorrect.
Mintzberg proposes the concept of “emergent strategy” as an alternative to rapidly changing environments. The emergent strategy does not involve preemptive planning of all actions but establishes strategies every moment through experimentation.
Let’s consider an example of the emergent strategy. Most colonies of ants commonly move their home to another place every year. The exact reason why ants migrate is unknown. However, their method of finding a new home is fascinating.
First, a small group of search ants depart in different directions to find potential homes. Each search ant returns home with the information on their choice of a possible home and introduces other ants to the idea to persuade them, which is similar to our electoral campaigns. Once some ants are convinced, the search ant visits the potential site with the ants. Some accompanying ants might think the potential site is desirable, and others will disagree. The ants return home. The group that liked the potential site will reintroduce it to the other ants and persuade them. By repeating this process dozens of times and when the number of persuaded ants reaches a certain number, all the ants proceed to move to a new home.
There is no meticulous plan for the ants in their search for a new home. There are no orders or directions from a high-ranking ant. Ants employ the emergent strategy. The strategy is completed in a highly democratic way through dozens of experiments and verifications.
Second, enhancing the diversity of the organization’s workforce is advisable in more turbulent times.
In an environment with little changes, it is fine to manage the company with employees aligned with the corporate culture prescribed by the company. Examples include company-imposed dress codes and working hours. However, in extreme environmental changes, companies call for more diverse talent and a flexible organizational culture. Be that as it may, it is not an easy feat to manage such diverse skills.
There is one significant difference between human-grown crops and weeds. In the wild, each rice plant flowers and ripens at different times. It was humans who planted rice and improved crops to make the plants flower and ripen at the same period. In other words, through crop improvement, we have eliminated the genetic diversity of rice plants for easier management. As human beings gained the ability to eliminate uncertainties in nature, it became unnecessary for wild rice plants to be diverse for survival.
If not for its genetic diversity, wild rice would have failed to adjust to the dramatic climate changes and become extinct from the Earth. This is nature’s insurance policy; species have developed a variety of genetic variations to survive in unpredictable natural environments.
Third, one should not go all-in on a single project or strategy in a turbulent era. It is pivotal always to have a Plan B.
More specifically, a portion of the company’s resources should be set aside as a contingency to prepare for future changes. Google, for instance, is generating profit through its dominant presence in the global search engine market. Nevertheless, it is aware that the search engine industry can fall instantly due to environmental changes, such as the advent of ChatGPT, which is why it invests heavily in new technologies and industries.
Waymo, which researches self-driving cars; DeepMind, which focuses on artificial intelligence; Wing, the drone delivery company; Calico, a company studying the prevention of human aging; the robotics company X; and the biotechnology company Verily are all Google’s Plan Bs.
There is contention between management scholars on what takes priority between “what to play” and “how to play.” Proponents of “how” should focus on becoming the world’s best in their industry. Those who value “what,” on the other hand, should endeavor to identify new fields of business.
“How” may have mattered in an era when changes were minimal. Companies that succeeded in finding the “how” could withstand even a century. However, in this everchanging era, “what” may matter more. We often see companies in an industry that are all in the red. We live in an age where it is more prudent to search for Plan Bs to sustain ourselves rather than strengthen our existing business strategies.
