“The coronavirus will peak in March and will die down in April.” These are the unanimous pronouncements from a medical doctor and an economist when I attended a business lunch seminar in early February 2020, about the prospects on the coronavirus. I must admit that it was comforting to hear those words from experts, exactly the words I needed to hear. All businessmen in the filled hotel ballroom expressed a sigh of relief, and in fact, agreed with the prognostications.
In mid-March, the coronavirus did not show any sign of warning, registering 140 cases with 12 deaths. On March 12, President Duterte announced the “community quarantine” of Metro Manila that would start at 12 midnight on March 15 up to April 14 that covers 16 cities and one municipality, banning majority of means of travel and halting mass transportation.
Several countries announced lockdowns during the same period, heralding the onset of a pandemic and a global crisis. Businesses were caught by surprise. In the Philippines, companies hurriedly implemented business continuity plans and struggled to tweak their business models. By September 2020, the country had the most business closures among medium, small, and micro enterprises (MSMEs) which stood at 70%, the highest in the region according to a study of Asian Development Bank.
Governments and businesses obviously downplayed the gravity of the coronavirus. As early as Jan. 30 last year, the World Health Organization declared the 2019-nCoV outbreak a Public Health Emergency of International Concern. But what businessmen like me heard from expert opinion in February last year reduced the coronavirus to just a fleeting infection.
This brings us to one of the biggest business lessons of 2020 — the need to detect and recognize black swans and grey swans and plan for their impact.
Grey swans are events with low probability of occurring but producing high to extremely high impact globally, such as COVID-19, population growth, climate change, a stock market crash, and Brexit.
Grey swan is a by-product of black swan, a term popularized by Nassim Nicholas Taleb in his best-selling book with the same title. He described a black swan as an extremely unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan examples he cited include the rise of the internet, the personal computer, World War I, the dissolution of the Soviet Union, and the 9/11 terrorist attacks.
Recognizing black swans and grey swans and preparing for their impact is easier said than done. Businessmen and educated leaders are subject to cognitive biases that cloud one’s judgement.
One is optimism bias, which causes some people to believe they are less likely to experience the impact of a negative event. Most of us are victims to this when we dismissed the scale of the coronavirus’ effect. We also observed how traditional retailers held on to their brick-and mortal business model during the quarantine, clinging to the false optimism that everything will be normal soon.
Another is confirmation bias, or the tendency to search for, interpret, favor and recall information in a way that confirms or supports one’s beliefs or values. I saw this when we businessmen, liked and agreed with the speakers who said that the spread of the coronavirus will end soon.
We need to be cognizant of black swans and grey swans and be wary of our cognitive biases by learning what needs to be learned, balancing opposing views about a potential event, and preparing and acting on the impact assessment.
This brings us to another lesson from 2020 — the bias for action in response to grey swans. Some companies quickly learned about changes in their customer behaviors during the quarantine, and calculatedly innovated their business models, like how Jollibee invested in cloud kitchens and how San Miguel and Emperador retooled their production lines to produce disinfecting alcohol.
But many companies, those which are casualties of the pandemic, adopted a wait-and-see stance and dilly-dallied on their investments. Investing in innovations even before an external event happens is another life-long lesson that businessmen should embrace. Those organizations which have digitally transformed before the pandemic are reaping the rewards of staying ahead of the curve in this time of digitization.
Grey swans and even black swans are bound to happen at some point in time. Another pandemic, a global cybersecurity attack, accelerated global warming, and war between nations are just some of the external events that we need to be constantly scanning, assessing, and preparing for. These may present both opportunities and threats to businesses. We just need to learn the lessons of 2020.
Reynaldo C. Lugtu, Jr. is CEO of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is the Chairman of the Information and Communications Technology Committee of the Financial Executives Institute of the Philippines (FINEX.) He is Fellow at the US-based Institute for Digital Transformation. He teaches strategic management in the MBA Program of De La Salle University.