Black Swans and Blue Oceans

This post is about Black Swans (no, not Natalie Portman) and their relationship with Blue Oceans.

I just finished reading the book “The Black Swan” by Nassim Nicholas Taleb. I must say all my knowledge about the topic comes from the book (I’m not an expert nor close to it) but I found it quite enjoyable. Black Swans are described as events that we can’t foresee, that take us by surprise and have a big impact on the world or society. Examples of it can be historical events like the September 11 attacks, artistic manifestations or even products of radical innovation like the personal computer. The theory defies statistics and probabilities in many cases and closely examines why we can’t predict these types of events, how we tend to rationalize them after they occurred and how we should cope with the idea that Black Swans can occur without us knowing about them. They are called Black Swans as a metaphor to our knowledge limitations when “before the discovery of Australia, people in the Old World were convinced that all swans were white (…) confirmed by empirical evidence.”

Continuing with the metaphors, Blue Ocean is a business strategy (some say even “philosophy”) stated by W. Chan Kim and Renée Mauborgne in an homonymous book, that focused in new product and business development in uncontested markets. It basically states a business approach and methodology to find markets with almost no competition, a metaphor of being in a clear Blue Ocean instead of blood-fighting competition in a red ocean. Their classic example is Cirque du Soleil, where the company joined the decaying-market-animal-hurting traditional “circus” acts with the music, customs and scenario (and ticket cost) of high-end theater, creating a whole new concept without competition and great profit.

When I read that Nassim even categorizes products, such as the computer, as a Black Swan event , I couldn’t stop thinking on their relationship with Blue Oceans (and definitely liked the poetic approach “Black Swans swimming in Blue Oceans). These are my thoughts about them:

Black Swans can create new markets, and therefore unveil Blue Ocean opportunities. Take for example what the Fukushima Nuclear disaster has done for Nuclear Installation Inspectors world-wide. After Fukoshima, it was the first time the present Secretary of Energy in Mexico visited our only nuclear plant called Laguna Verde in March 2011. And it all started with a way-out-of-proportion tsunami in Japan that no one expected (a Black Swan). It is not that there were no Nuclear Installation Inspectors before Fukoshima, but it does bring new mainstream importance with low competition in an international market.

Using this same logic, Black Swans can also ruin your business or products since the effect can work both ways. For example, what penicillin (created by a “eureka” moment) did to other medicines of that time.

“History doesn’t crawl, it jumps”, meaning it is not a progression events as we study it, we only see it that way after it has occurred and we rationalize it. The same way some products “appear” in the market. Think of internet, think of Facebook. Of course they depend on constructing upon previous knowledge, products and effort, but they are disruptive innovations that open up markets, which is just what Blue Oceans intend.

Blue Ocean methodologies can’t predict Black Swans, but they can try detecting “Grey Swans” for radical innovations to emerge.

Both books I recommend, here are their references:

Chan Kim and Mauborgne, Renee (2005) Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant.Harvard Business Press.

Taleb, Nassim Nicholas (2010) The Black Swan, Second Edition: The Impact of the Highly Improbable. Random House Trade. (First edition is from 2007 in Penguin Books)

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