Why don’t we talk about those “Elephant in the Room” scenarios? Those situations that are obvious to everyone, yet leaders still leave to chance. What are Black Elephant scenarios and is your organization preparing for them?
Lessons to be learned from the Covid-19 pandemic are still being formulated even as the Covid-19 vaccines are now in the early stages of bringing a hopeful end to the spread of the virus. Are there more of these challenges in our future? What governments and corporations probably fear most are strategic surprises or so-called Black Swan events, a category of futures that the philosopher and statistician Nicolas Nassem Taleb (2007) described as “rare, hard-to-predict developments that have a large, game-changing impact” on peoples, national interests, economies, policies, processes and many more areas alike. In 2002, not long after the terrorist attacks of 9/11, the former U.S. Defense Secretary Donald Rumsfeld referred to Black Swans as “unknown unknowns.” He said: “There are known knowns. These are things we know we know. We also know there are known unknowns. That is to say there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.” This well-known phrase is often quoted in a sarcastic way, but it contains a large grain of truth. In the past few decades, the world has had to cope with some Black Swans or unknown unknowns; for example, the Asian financial crisis in 1997/98; the global economic and financial crisis caused by the sudden collapse of Lehman Brothers in 2008/09; the Arab Spring in 2010; the Fukushima nuclear disaster in March 2011 and, of course, the 9/11 terrorist attacks on the United States. They not only caused major disruption but had large, far-reaching repercussions on numerous nation states, their policies, concrete actions and ultimately a huge number of people.
It’s tempting to call the Covid-19 pandemic a black swan event— an event so unexpected and devastating that companies could not have prepared for it. But experts have been predicting global pandemics for years, and in January 2020, the World Economic Forum’s Global Risks Report cited infectious diseases as a potential threat. Yet very few companies included a global pandemic in their highest risk categories. Those that did try, looked primarily at the broad issues they would have to encounter. In 2014, PreparedEX, a company with a team of crisis experts who prepare organizations to be more resilient to the myriad of risks they face, conducted its first pandemic exercise with an international oil company. Insights from that pandemic exercise and other exercises included the need to rethink current logistical strategies (e.g., just in time logistics vs. stockpiling), social distancing challenges, challenges of maintaining continuous communications with the various internal and external stakeholders, and immunization priorities once the vaccine became available. But in most cases the companies stopped at this point and didn’t drill down into issues such as who would carry out the recommended implementations, how they would do it, and the resources required.
One might well argue that the Covid-19 pandemic we are experiencing is not a Black Swan event or the proverbial ‘elephant in the room.’ It could, however, be called a ‘black elephant’ event. The environmentalist, Adam Sweidan, explained this idea to Thomas L. Friedman thus: “[It is] a cross between a ‘black swan’ — a rare, low-probability, unanticipated event with enormous ramifications — and ‘the elephant in the room’: a problem that is widely visible to everyone, yet that no one wants to address, even though we absolutely know that one day it will have vast, black-swan-like consequences.”
The 2008 financial crisis may have been the first such Black elephant and Covid-19 pandemic and arguable Brexit, the latest. But we’re likely to suffer more, such as cyberattacks, rolling blackouts to regional electrical grids that lasts for weeks, electromagnetic pulse (EMP) disruptions from rogue state and terrorist attacks, or cosmic occurrence, breakdowns in algorithmic-driven security trading, weather disasters due to climate change, and another Covid event, e.g., Covid-22. In the past, companies could dismiss these threats as local or regional problems. But markets and businesses are now so deeply interconnected across the globe that disruptions in one place can spread rapidly and deeply.
Corporate boards and other high-level leaderships have a special responsibility for building the necessary resilience in this environment. They have a fiduciary responsibility to ensure the business is sustainable. But in the past, the short-term focus of capital markets often pushed directors away from resilience. The rise of complexity in the world today throws up enormous challenges for governments and corporations. Black swans will confront them, and Black elephants will be lurking in the background. More likely more than just one. You have probably already identified some of the Black elephants in your organization while chatting with colleagues over a libation at dinner or while stuck at the airport during a weather delay. How often do you surface them during leadership meetings?
If we have gained nothing more during this last year from the Covid-19 pandemic, it has had the effect of helping us realize that corporate strategies need to be revisited and challenged. The use of specific scenario-based exercises is one option to consider as you examine those potential Black elephants and strive to determine the various “I didn’t know that I didn’t know that” issues that you may encounter in the future. While the old proverb “no plan survives first contact with the enemy” is true, it is also important to understand that in the course of determining potential courses of action for a “Black elephant” event, in the process you will also discover courses of action that will not work and you therefore not waste time going down that road when the “Black elephant” arrives. What are your “Black elephants?” What are some that have not yet been identified?