The 'Baterfly' Effect: Why COVID-19 is not a Black Swan

'A man in China takes a bat soup and at the other end of the world you got fired.' (@laJuani_Crazy).

The Butterfly Effect has mutated into the Baterfly Effect, and confronts us with what some identify as a clear case of Taleb's Black Swan that companies cannot foresee. However I disagree with that interpretation.

 

Those who know me most intimately will remember my sermons warning of the 2008 crisis. My arguments were belittled even in my closest circle. It is not easy to be heard when you seem the only sober at a drunk party. So, even at the risk of being called Captain Hindsight, let's wash the Swan. Maybe we'll find out why it wasn't as black (unexpected) as it looked.

We have already said in the article 'The time machine' and 'The Star of the Unborn' that to identify and classify the elements and mechanisms of change in long-term prospective activity, we must take into account two factors: Impact and plausibility.

The impact depends on our sector. When the Eyjafjallajökull volcano burst in 2010, the impact was regional in Europe and negative for airlines, while it was positive for companies offering video conferencing systems. By the way, it was a shame to see companies make such bad purchasing decisions to buy this technology. Fossils from that year still appear in corporate conference rooms.

In COVID-19, airlines and tourism are suffering a lot, while food retail and other sectors are dramatically increasing their activity. Therefore, the impact is subjective insofar as it depends on our sector perspective. It is very important to highlight that the impact must be considered not only in its immediate dimension, but also in the long term. How will the economy, consumer habits, geopolitics, and so many other things change after the event?

And what about the plausibility? Let's get back to the mentioned volcano. The following year it was the Grimsvötn volcano that threatened air traffic in Europe. Large eruptions can occur every thousand or tens of thousands of years, but in an economy like ours, small eruptions can greatly affect our aviation sector. Perhaps, if I am an airline, from recent experience I should include volcanoes in my scenario planning. Also, you never know how long an eruption can last. We could mention many more plausible scenarios, such as a solar storm for telecommunications companies.

 

 

Últimas pandemias globales

Last pandemics. By for Visual Capitalist. See original infographics.

 

Let's go back to COVID-19. As we see in the attached graph, in the last 70 years 8 major pandemics have been officially declared, without counting the various outbreaks that have been locally controlled, or haven't been considered pandemic due to their lighter effects on human beings. One every 10 years. It is therefore a matter of the fate of the mutation and the health services effort that the outbreak is more or less contagious, and more or less fatal. It depends on those factors that the epidemic affects everyone (literally), such as the non-Spanish Flu , AIDS, or SARS, or is contained in one world region (e.g. Ebola). Keep in mind that other similar events are not included in this graph, such as the Mad Cow disease, which had such an impact on a food subsector.

An event as frequent as a pandemic should not be considered a Black Swan. It is a matter of time that, after COVID-19, a new disruption of this type emerges, with greater or lesser impact (hopefully less). The time scale is small enough to take into account that disruption in the life time of any company with a global profile (and even without that profile). It is therefore not acceptable to consider a situation like COVID-19 'not plausible', and to leave it out of the scenario planning in our long term prospective.

COVID-19 is not a Black Swan. Perhaps our social memory is very short.

Let us reflect from the knowledge of our sector to develop our strategic scenario planning. It always helps to imagine what would take our sleep away. But this will be the subject of another article.

 

By Miguel Borrás

(The Butterfly Effect is a 2004 American science fiction thriller film written and directed by Eric Bress and J. Mackye Gruber)

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