Strategic Responses To Black Swan Events: C562 August 28, 2018 7:00 PM ET

Download as pptx, pdf, or txt
Download as pptx, pdf, or txt
You are on page 1of 37

STRATEGIC RESPONSES

TO BLACK SWAN EVENTS

C562
August 28, 2018; 7:00 PM ET
Critical Thinking/Business Models
• Smart Business Model or Scam?
• Can you make money if you sell your
product for less than the cost of your raw
materials?
• Swiss company won a bid to sell Malaria
drugs to the UN.
• “The price they wanted per pill was lower
than the cost of the raw materials.”
• Rosling, Hans. Factfulness: Ten Reasons We're Wrong About the World--and Why Things Are Better Than You Think (pp. 208-209). Flatiron
Books. Kindle Edition.
Project Teams
• Teams of five.
• Will open signup on Thursday.
• Please contribute to the discussion about
teams.
• My mistake in not putting this task in last
week’s module.
Discussion Forums
• Going well.
• Starting next week may make minimal
comments on grades.
• Refer to Zoom 1 for grading rubric for
discussion forums.
• Happy to discuss grade if you are
surprised.
Zoom Sessions vs. Chapters
• Will not lecture on the chapter material.
• This is a graduate class.
• Zoom sessions will include:
– Additional material and
– Interactive discussions.
Nassim Nicholas Taleb Books
• Fooled by Randomness 2008
• The Black Swan 2010
• Antifragile 2012
• Skin in the Game 2018
Taleb (from Amazon)
• “The problem with Taleb is not that he’s an asshole. He is
an asshole. The problem with Taleb is that he is right.”—
Dan from Prague, Czech Republic (Twitter)
• “The most prophetic voice of all . . . [Taleb is] a genuinely
significant philosopher . . . someone who is able to change
the way we view the structure of the world through the
strength, originality and veracity of his ideas alone.”—
John Gray, GQ
• “Taleb grabs on to core problems that others ignore, or
don’t see, and shakes them like an attack dog on a leg.”—
Greg from New York (Twitter)
Taleb (from Amazon)
• “For my wife and me, Antifragile is an annual reread.”—
Colle from Richmond, Virginia (Twitter)
• “I read Antifragile four times. First, to get the wisdom to
survive. Second, as a memorial statement for Fat Tony.
Third, as Das Kapital with correct mathematics. Fourth, as
ethics to learn a good way to die.”—Tamitake from
Tokyo, Japan (Twitter)
• “November . . . time for my annual reread of Antifragile.”—
Johann from Vienna, Austria (Twitter)
• “[Taleb writes] in a style that owes as much to Stephen
Colbert as it does to Michel de Montaigne.”—The Wall
Street Journal
Black Swan
The Black Swan
• Heard of Black Swan?
• Characteristics:
• Outlier
• Extreme Impact
• Retrospective Predictability
• “Explains almost everything”
• Example: Long Term Capital
Management (LTCM)
Black Swan Events - Examples
• Cascadia Fault (1700)
• New Madrid Fault (1811 & 1812)
• Volcanic Winter (Tambora, 1816)
• Carrington Event (1859)
• Katrina (2005)
• Fukushima (2011)
• Power Grid Hack (Ukraine, 2016)
Black Swan Events - Examples
• Pandemics
• Wars
• Elections (e.g. Trump, Brexit)
• Trade Wars
• Technological Shift/Disruptive Innovation
– Digital Cameras
– Electrified Vehicles
– New Business Models
Disruptive Innovation
• Digital Photography
• Gig Economy
• Sharing Economy
• “Uberization”
• Autonomous Vehicles
• Duolingo (online education)
• Rise of Robots
Cascadia Eathquake/Tsunami
• Next “Really Big One” in the PNW.
• The Cascadia Fault. A 9.0 Event.
• The odds of the big Cascadia earthquake
happening in the next fifty years are roughly one
in three.
• “Our operating assumption is that everything
west of Interstate 5 will be toast.”
• How do we know the date of the last one?
This Bridge is “Toast”
Cascadia Tsunami
• Citizens will have a 20-minute interval to
climb to the highest altitude possible
before the full force of the tsunami hits,
scientists predict.
• Their alert will be when dogs start
barking.
• 14,000 or more may die.
– My sense is that this is a low estimate.
• Businesses will be decimated.
New Madrid Earthquake
• The Mississippi River ran backwards for
several hours.
• Church bells rung in Boston.
• When it happens again “all hell [will]
break loose,” with 715,000 buildings
damaged and 2.6m people left without
power.
New Madrid Earthquake Damage
Volcanic Winter
• Mt. Tambora -1815
• Volcanic Explosivity Index of 7
• 12 cubic miles of magma into the air
• Largest volcanic explosion in recorded
human history.
• Led to the “Year without a Summer.”
• 200,000 deaths in Europe alone.
• https://www.amazon.com/dp/B00IKUAKWK/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1
Tambora: The Eruption That Changed the World
• When Indonesia's Mount Tambora erupted in 1815, it unleashed the
most destructive wave of extreme weather the world has witnessed
in thousands of years. The volcano’s massive sulfate dust cloud
enveloped the Earth, cooling temperatures and disrupting major
weather systems for more than three years. Communities worldwide
endured famine, disease, and civil unrest on a catastrophic scale.
• Here, Gillen D’Arcy Wood traces Tambora’s global and historical
reach: how the volcano’s three-year climate change regime initiated
the first worldwide cholera pandemic, expanded opium markets in
China, and plunged the United States into its first economic
depression. Bringing the history of this planetary emergency to
life, Tambora sheds light on the fragile interdependence of climate
and human societies to offer a cautionary tale about the potential
tragic impacts of drastic climate change in our own century.
Carrington Event
• Major solar flare hitting earth. 1859.
• Rare events – once every 100 years.
• The cost to US could be up to $1 to $2
trillion (and this seems really low.)
• 130 million without power in US.
• Might initially lead to an 1880’s level of
technology with a 4-10 year recovery
time.
Katrina
• August 29, 2005.
• 1245 (or more) killed.
• New Orleans’ levis and floodwalls failed
• $125 Billion in property damage
• Five Days at Memorial: Life and Death in
a Storm-Ravaged Hospital
Fukushima Nuclear Plant
• March 11, 2011. Magnitude 9.0 Quake.
• Led to a tsunami – 15 meters.
• Tsunami disabled backup generators.
– Why?
• Led to three nuclear reactor meltdowns.
• 16,000 deaths.
Fukushima Tsunami
Power Grid Hacks
• Ukranian Power Grid Attack
• Was this a test run for U.S. attack?
• On December 23, 2015, the control centers of three
Ukrainian electricity distribution companies were remotely
accessed. Taking control of the facilities’ SCADA systems,
malicious actors opened breakers at some 30 distribution
substations in the capital city Kiev and western Ivano-
Frankivsk region, causing more than 200,000 consumers
to lose power.
• https://goo.gl/9VNCwy
Lights Out
Why no preparation?
• Short term focus
• Failure to look at history
• Butterfly effect
• Recency bias
• Confirmation bias
• Anchoring bias
• Cost
• “Maybe it won’t happen on my watch.”
Preparing for Black Swans
• How to prepare for Black Swans
• Preparation and Resiliency
• All Black Swans in sum can lead to
significant potential risks
Resiliency
• Typically can’t prevent Black Swans
• But firms can create strategic resiliency
• Strategic resiliency can cover many
(maybe most) Black Swan events
• ROI on strategic resiliency investments
can be very high
The Resiliency Dividend
• Being integrated, a third characteristic of resilience, means that
the elements of the system are effectively coordinated.
Individuals, groups, organizations, and other entities have the
ability to bring together disparate ideas and elements into
cohesive solutions and actions. Integration involves the sharing
of information across entities, the collaborative development of
ideas and solutions, and transparent communication with the
people and entities that are involved or affected. It also refers to
the coordination of people, groups, and activities.

• Rodin, Judith. The Resilience Dividend: Being Strong in a World


Where Things Go Wrong (Kindle Locations 470-474).
PublicAffairs. Kindle Edition.
Antifragility
• “Antifragility” is a Taleb term
• Similar to Resilience
• Taleb draws a distinction
• Simple, decentralized vs.
• Complex, centralized
Example: Amundsen vs. Scott
• Amundsen - Redundancy
• Supply depots
• Supplies per man
• Result
IKEA after Superstorm Sandy
• Ikea store near NYC coast
• Store built on pilings
• First floor parking
• Reopened immediately after Sandy
Example: Atlanta Airport
• Cost to Delta?
• Are Microgrids a solution?
• The Galvin Electricity Initiative has said that for
every dollar spent on modernizing grid
operations, $4 or $5 is returned. (Forbes)
– What are the implications for your firms?
Benefits of Resiliency
• Indiana University President Michael A. McRobbie has
announced that IU will invest $55 million to help Indiana
develop actionable solutions that prepare businesses,
farmers, communities and individual Hoosiers for the
effects of ongoing environment change.
• The initiative will create an Environmental Resilience
Institute to better predict the impact of these threats and
facilitate collaboration between IU’s world-class faculty
and Indiana residents, businesses, nonprofits and the
public sector. Some of the partners include Cummins Inc.,
Citizens Energy Group, The Nature Conservancy, and
government officials from across Indiana.
How to be resilient
• Backups
• Business Continuity Planning
• Supplier Diversification
• Speed after the event
• Management Diversity/Diversification
• Scenario Planning
• Red Teaming
Questions/Comments?

You might also like