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Black Swan Events, Change and New Opportunity

Change is inevitable except from vending machines - Woody Allen

It is not the fittest or the strongest of species that survives, it is the one most adaptable to change - attributed to Charles Darwin.

The black swan theory is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild (Wikipedia).

Change is hard.

We get used to a certain way of doing things of seeing certain patterns and being blind to others. Most of our life, we reflexively walk through our lives, using past experiences to create lenses to see the world and live our lives.

While our eyes are open, we often fail to see what is in front of us.

We may see an object in the yard we call a tree, but do we really see it?

Do we see its branches, leaves, shape, health, and its beauty?

Or do we just reflexively call it a tree and move on?

Most move on.

But there are rare events that call for us break these patterns and think differently. Included in such times are black swan events. These rare but powerful events stress and challenge the very foundations of our lives.

Black swan events are eventualities of complex systems. Black swan events we have experienced include 9/11, the housing market crash, SARS, HIV/AIDS, and now COVID-19.

To understand black swan events, we first must understand complex systems.

Complex systems underpin all we experience. From birds flying, to traffic patterns, to weather forecasting, to our bodies, our world and universe, complex systems govern all behavior and outcomes. From an atom to our universe, complex systems dynamics drive relationships and create the richness of our world.

Complex systems operate by several principles. These principles are different than the reflexive patterns governing daily thinking.

First of all, everything in complex systems is interdependent.

An example is a butterfly flapping its wings in South America influences weather patterns in the US. This interdependence is part of the problem we are seeing with COVID-19.

Michael Osterholm predicted we would have pandemic and it would be a black swan event back in 2005. He based his prediction on three things:

  1. First, he understood that pandemics are spread around the history of man and we haven’t had one since 1918. These catastrophic black swan events are rare and can be devastating. He knew we were due for another.
  2. Second, he saw the lack of reserve capacity of our hospitals, which are overly full with very sick patients. There is little flexibility and reserve in our hospitals today to accept a surge of sick patients from a new pandemic.
  3. Third, he noted the dependence on supplies and equipment from few sources, mostly China and Asian countries. The interdependence of complex systems means that when COVID-19 affected China, it stopped the supply chain of vital personal protective equipment and thus made hospital systems relying on these supplies very fragile to protecting their front line workers from pandemic infection.

The best country in the response to COVID-19 is Singapore.

Travelers walk by a thermal image camera in Singapore. Photo AFP.
Travelers walk by a thermal image camera in Singapore. Photo AFP.

Why? Singapore had previous black swan events with infections (SARS and H1N1) crisis events and they learned to think and prepare differently. They removed the dependence on China for their personal protective equipment and had their military produce reserves.

They expanded hospital rooms, particularly ICU rooms with negative airflow, important with airborne infections, which is in part the way that COVID-19 infects others. They learned to think differently.

This should be lesson one for us.

The second insight from complex systems is that they follow "scale-free" laws. Our thinking is in terms of normal Gaussian distribution (bell-shaped curve where 95% is in the middle and 2.5% is on either end, called outliers). In bell-shaped curve of distribution, all the elements in the curve are normally and symmetrically distributed.

But this is not how complex systems work. It is not how our world works. It is not how we learn from a once-in-a-lifetime event, and prepare ourselves to be resilient to others.

What is a scale-free set of relationships? They are distributed very unevenly. They are logarithmic instead of parabolic. They measure the amount of connection between the few dominant, most important agents in these systems,which are referred to as hubs. These hubs determine the stability of these systems and the architecture around these hubs determines the resilience or fragility of these systems to stress.

Malcolm Gladwell illustrated complex systems in his book, "The Tipping Point," where he showed that to have an idea or a product go viral, you didn’t need everyone, you just needed the right 20% of people. You needed connectors, mavens and salespeople to uptake the idea and spread it to the rest.

This 20% idea to influence the other 80% follows a rule by the famous economist Vilfredo Pareto coined the Pareto principle or the 20-80 rule. The most connected twenty percent of agents in any complex system accounts for 80% of the results.

Pareto Principle. Image courtesy
Pareto Principle. Image courtesy

Said differently, in all natural systems, some things are way more important than everything else. The problem is we can’t easily identify these important elements.

However, perturbations of these natural systems can disclose to us where these powerful hubs are located as stabilizers. Black swan events are powerful perturbations and can teach us great lessons about weaknesses and strengths of our existing systems if we know how to look.

Changing our way of thinking to learn from these black swan events is how Singapore became more resilient to COVID-19. Like Einstein said, "insanity is doing the same thing over and over again and expecting different results". Reducing the impact of COVID-19 in the near and long term requires us to think differently and change.

This is lesson 2.

The last property of complex systems is emergence. Emergence in complex systems means that 1+1+1 does not always equal 3. For example, a light bulb, a grass field and a group of people alone don’t make up a night time football game.

Emergence is a property that individual components of these systems combine in a number of different ways depending on the ambient conditions of these systems. For instance, are these individual components collaborative or competitive? Are they organized top-down or bottoms-up? Are they static or dynamic? Are they open or closed within the system. Emergence gives every system its unique properties, but also make prediction difficult in these systems, as the system changes with any small event (remember the butterfly).

That means you cannot approach these systems with our usual logic. Cause and effect relationships are not predicable, as these systems change dynamically with new stressors.

But we can prepare our systems to survive and even thrive in black swan events. The more top-down, closed, inflexible, and run by fixed rules and processes these systems are, the more fragile they become. Fragile systems fail with stress and black swan events are tremendous stressors of systems.

The mode of failure can be expressed in different ways from panic, to illness, to economic collapse, to fear. But stress always gives these systems opportunity to change and become stronger.

Systems and organizations that are more flexible, open, curious, bottoms-up, safe, abundance-based will not only survive these events, they can flourish. Learning systems rely on centralized purpose and direction, but local empowerment of decision making and fluid and frequent communication and learning loops in team members.

Natural change and different thinking is unlocked in resilient teams during black swan experiences. See Singapore.

This should be lesson 3.

We have a great opportunity to not only work together to protect ourselves and our neighbors in this COVID-19 infection, but to become antifragile by using this event to restructure our thinking and change.

Black swan events change things. By embracing this opportunity for change, we can lead and learn.

But there is one thing that does not change.

Almost Heaven, WV.