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)

Innovation and War (The Narco Way)

Decorating this post I placed the image of "The Monster" a vehicle used by the drug cartel "Zetas", seized today by authorities at Tamaulipas. What is interesting is that the vehicle shows technological evolutions. It is heavily shielded (even the tires!), only showing lateral spaces for firing weapons. "The Monster" as newspapers have called it, even has a back compartment that throws nails and oil to the ground. But more impressive, this vehicle can run 110 km/hr compared to its earlier seized predecessor that only reached 40 km/hr and had less interior capacity. More speed while adding protection, weight and space? Something every car company would brag about.



"The Monster" reminded me about a submarine that was seized at Colombia three months ago (February 15) who had as a destination Mexico, with 8 tons of cocaine. Before I saw the news, I'd never thought cartels had submarines with autonomous navegation that could get from Colombia to Mexico carrying a heavy load. What made this particular submarine special was that it actually sumerged 9 meters below water, when all earlier caught versions almost navegated supperficially. The estimated cost? 2.12 million dollars.


I write this post because I've been working on an investigation related to war-driven innovations that, as its name states, are those that emerge, or are catalyzed, by factors related to armed conflicts. War gets economy moving as well as innovation. Although these reasons will never justify a war, we can analyze what specifically helps them to develop and replicate it in an non-violent environment or even in business. Here are some thoughts:

- Strong motivation (life or death priority) and resource-allocation to defeat the opponent. The radar, rockets, satellites, vehicles (submarines, jet engines) and even internet have all been influenced by war for protection, attack, supply or communication needs, inherent to the conflicts. These needs are sometimes extrapolated to “mainstream” market needs for other innovations into our everyday objects. Ever rode a Jeep, a Hummer or even a VW Beetle? Innovations can also be in the field of processes, such as the use of paramedics in the Vietnam War. Knowledge on supply chain in logistics and even ergonomics in design come from war. Non-violent best practice: Motivate and invest knowing innovation is a matter of business survival.

- The “scaling effect” of war. In addition to the last statement, we can emphasize that war, as a conflict between groups, scales up innovations: If someone creates a weapon, the other will create a stronger weapon and a way to protect themselves from the new weapon… and the original opponent will react the same way, and so on. It is a competition-driven innovation cycle with a Just-Can't-Lose Strategy. The clearest example comes from the space race during the Cold War between the US and the Soviet Union. Non-violent best practice: Embrace competition.

- The "lead user approach". which means that the harsh and demanding conditions during war help develop complex knowledge and technologies that can later be applied to "normal" conditions with great success. It’s like designing urban auto tires by analyzing F1 racers. As an example: Kimberly-Clark had created “cellucotton” which was 5 times as absorbent as cotton and half as cheap to produce, made out of wood pulp in times when cotton was scarce for bandages. It was used by soldiers in WWI to stop bleedings but soon it was also used by allied nurses for their menstrual cycle. Born: Disposable Feminine Pads. Non-violent best practice: Anlyze your products/services in extreme conditions or by "extreme" users and observe new ways they are using it.

- With government incentives, private interests get the competition going. In the Napoleonic Wars, the French government offered 12,000 francs to anyone that created a cheap and effective method of preserving food, which led to canning food. Remember this everytime you open a Campbell's soup or a soda can. Another example, one with an unexpected result, was when in 1943, during a rubber shortage, the US government asked private companies to create a synthetic rubber substitute. The best researchers at General Electric created… “Silly Puddy”, used today as a commercially successful kid’s toy. Non-violent best practice: Search incentives, maybe if you don't get things right, it can actually be good for something else.

- The “What do we do know? Effect”. After a war ends, many resources that were used for armed purposes are left unoccupied. DuPont had created Nylon, as a silk alternative, used mainly for parachutes, tires and flak vests, that gained importance in WWII when Japan cut off the West from their silk. What to do when nylon demand for war ended? Nylon Stockings for woman! There is also a "what do we do know" effect on knowledge, for example Walter Fredrick Morrison, that during WWII learned areodinamics flying a P-47 Thunderbolt, came back to invent the "Pluto Platters" the plastic forerunner of the Frisbee. Non-violent best practice: When a door closes, another one opens, its a matter of seizing the opportunity creatively.

- The aftermaths: Important innovations also come from dealing with the damaged caused by battle, such as medical advances. Prothesis are a main example. Last year I went to a great conference held by Armando Bravo, a young Mexican innovator, who created a low-cost mechanical hand prothesis, commercialiced by his company Probionics. http://www.probionics.com.mx/ Another example is the use of Virtual Reality to treat post-traumatic effects of violence, as psychologist from UNAM are doing in Ciudad Juarez with specially designed software for violence treatment. (Read news in spanish at http://noticias.universia.net.mx/en-portada/noticia/2010/09/21/481740/utiliza-unam-realidad-virtual-tratar-victimas-violencia.html.) Both examples proudly made in Mexico! Non-violent best practice: Problems by definition need solutions, you can focus on finding the right problems, it is not about giving the right answers but asking the right questions.

- Unethically, war has been a "permissive" environment, with experiments made in secrecy and protection from power groups: examples in history are using human testing for medical purposes. Most of our modern knowledge on how the body reacts to freezing temperatures comes from Nazi experimentation at concentration camps searching to prevent and treat hypothermia for their soldiers. The Atomic Bomb thrown at Hiroshima during WWII and nuclear effects studies is also an example of technology put to practice in a way that it normally wouldn’t be allowed. Non-violent best practice: Of course, this is an innovation factor we can't replicate.

My investigation for obtaining a Master’s scholarship is concentrating on detecting innovations, especially in the medical fields, that can emerge (or are emerging as my hypothesis sugests) during Mexico’s war against organized crime. I'll keep posting on the subject and any contributions on the topic will be welcomed.


(1) "The Monster" photo from http://www.elsiglodetorreon.com.mx/noticia/624536.el-monstruo-vehiculo-de-cartel-llega-mas-sof.html

(2) Colombia-Mexico submarine seized on February 2011 - photo from http://www.codigovenezuela.com/2011/02/noticias/global/colombia-encuentra-narco-submarino-capaz-de-navegar-hasta-mexico