Don’t Think of a Pink Elephant (or a Black Swan Event)

What happens when you put a black swan event in the same room with a pink elephant?  According to an article last month in Harvard Business Review, you get a “black elephant event” – a rare, unpredictable, but potentially devastating risk (a black swan event) that no one wants to talk about (the pink elephant in the room).

The article warns that companies need to actively prepare and build resilience for such events.  While the quest for ultra-lean balance sheets and the efficient use of assets over the last several decades have yielded returns for investors, the corresponding use of debt, outsourcing, and streamlined supply chains have also left companies vulnerable to looming black swan events.  Such as COVID-19…

But maybe there’s a silver lining hidden in the cloud of the pandemic.  The HBR article points out that the painful lessons learned from the outbreak could actually strengthen the resilience and sustainability of companies that pay attention to them.

The article is primarily aimed at a board-level audience, but the guidance offered in building resilience and developing a roadmap to navigate through future black elephant events is relevant to all levels of management:

  1. Governance – Ensure that actions are being taken to stress-test and build defenses against negative events, both physical and digital (including our favorite suggestion: “war games” to prepare effective responses).
  2. Leadership Development – Develop leaders’ business acumen so they can think creatively and proactively about the future and take quick and decisive action against threats (also one of our favorite suggestions…).
  3. Compensation – Tie incentives to advancing resilience and sustainability objectives while also achieving growth and profitability goals.

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