How can companies deal with gray rhinos that are deadlier than black swans?

Nassim Nicholas Taleb's black swan theory has made people pay more attention to small-probability but high-impact events. In fact, events with high probability and great impact should get more attention from people.

Michele Wucker, director of the International Policy Institute and director of the Ifificial International's Latin American office, was one of the first scholars to study the latter. At the Davos Global Forum in January 2013, Walker first proposed the concept of "grey rhinoceros" in response to high probability and impact events.

Walker argues that grey rhino events are actually more likely to occur than black swan events are unpredictable and accidental. The 2008 U.S. housing bubble and the reality of digital technology that subverted traditional media are typical gray rhino events.

In the course of business, enterprises may not necessarily encounter black swan events, but it is almost a foregone conclusion to encounter gray rhino events. If companies can't respond effectively to this, grey rhinos will be a more lethal source of risk than black swans.

What kind of response should enterprises take when facing gray rhinos that cannot be ignored? In Grey Rhinoceros: How to Deal with a High Probability Crisis, Walker outlines the following four main points.

<h3>1. Divide and conquer</h3>

The more serious grey rhino crisis is actually difficult to solve in one step. At this point, using a divide-and-rule approach to solve part of the problem first is a more reasonable strategy.

Of course, this does not mean a dwarfing of the overall goal, but rather that companies should implement coping strategies in a planned step-by-step manner. Enterprises can decompose the decisions to deal with gray rhinos into small, detailed and effective implementation units, and through the superposition of implementation effects in each unit, gray rhinos no longer become obstacles on the road to enterprise development.

For example, the deteriorating environmental problems are a thorny gray rhino that many companies are facing. Unilever CEO Paul Polman's response is worth pondering. When Polman took office in 2009, he announced that he would double the size of Unilever in his own role while drastically reducing the environmental impact of the company's production. To achieve this ambitious goal are the specific governance measures that Polman divides and conquers. For example, Unilever changed its past practice of landfilling into low-cost building materials, which enabled Unilever to achieve its goal of zero landfill in 2015. For example, between 2008 and 2013, Unilever reduced its scrap output by 1 million tons from processing and logistics, which not only saved it nearly $400 million, but also greatly reduced its pollutant emissions. In India, Unilever turns organic waste into fertilizer for vegetable growing areas, and in Indonesia, Unilever fuels processed cement. Together, these subdivisions became part of Unilever's Sustainable Living Plan in 2010. Polman's goal is becoming a reality step by step.

<h3>2. Accurate assessment</h3>

Accurately analyzing the level of grey rhino problems allows companies to better choose the exact strategy to deal with. Overjudging or underestimating grey rhinos is not conducive to a real solution to the problem. In this regard, Sony's case is a major lesson.

Companies in the game entertainment industry are among the most frequently attacked by hackers. But Sony's security measures have been loose, and the company has ignored warnings from its employees. In April 2011, Sony's gaming platform was hacked, losing at least $170 million. However, even such an obvious gray rhino did not allow Sony's relevant departments to really assess the potential risks they faced. By November 2014, when Sony Pictures suffered a hack, Sony had finally suffered a huge loss: the hack caused the social security numbers of 47,000 current and former Sony Pictures employees, as well as Hollywood stars, to be leaked. The incident was also commented by the Associated Press as "likely to become the worst-losing black attack in the history of American companies." Afterwards, it was found that at least 17% of Sony's internal system was left unregulated. And important classified information, such as digital records of old employees and customers, Sony also stores them in computers that are connected to the Internet.

Sony grossly misjudged the harm that risk could bring, and ultimately paid a heavy price. Accurately predicting the magnitude of gray rhinos and giving them the corresponding scale of response is a task that every company should pay attention to.

<h3>3. Promote change through dramatic events</h3>

Some defects in the environment of the enterprise or the enterprise itself are often the internal reasons why the enterprise encounters a certain type of gray rhinoceros. At this point, if companies can look outside and find some dramatic events that can inspire change, then the gray rhinoceros facing the company may no longer be a threat.

Because of the continuous change of climate, the average amount of water in the Great Lakes region of the United States has begun to decline significantly since the 1990s. This is an overwhelming gray rhino for Miller Camson Beer Company in Milwaukee. After all, as Kim Marotta of Miller Camson Brewing's Sustainability Department puts it, the core of all strategies points to a simple truth, "Without water, there is no beer."

To this end, Miller Camson Beer Company sent a team to South America to learn from the water-saving experience of the local beer company's reputation overseas. After careful investigation, the study group made some surprising discoveries. Some South American brewers are good at working with barley growers to save water, and together they have cultivated drought- and wind-resistant barley varieties, increasing production per acre from 100 tons to 140 to 160 tons. Not only that, some manufacturers are also good at controlling the steamer at the most suitable temperature, and the steps of cleaning the equipment are controlled at the most appropriate time, which helps the enterprise to save water. After the return of the study group, Miller Camson Brewery established a water warfare laboratory in Milwaukee and implemented the learning group's learning results one by one. This has greatly reduced the water consumption of Miller Camson Beer Company, and the company has gradually got rid of the gray rhino problem of water shortage.

<h3>4. Define a crisis as an opportunity</h3>

If the gray rhinoceros it encounters can be regarded as an opportunity to improve the business model and management level of the enterprise, then it is entirely possible for the enterprise to gain a new competitive advantage in the process and complete the reengineering and upgrading of the enterprise. MAS is a case in point where a crisis is turned into an opportunity.

MaS, a Sri Lankan company, is a blended fiber garment manufacturer that maintains business partnerships with several U.S. companies. U.S. companies have provided MAS with a number of preferential policies under the International Textile Trade Agreement. But as these incentives expire in 2005, MAS will have to pay workers 35 cents an hourly wage. At this time, companies in other countries in South Asia have far lower labor costs than this, such as Bangladesh, where the same wage is 16 cents per hour.

In the face of such a severe gray rhino crisis, MAS instead took this as an opportunity for companies to optimize their talent structure. MAS has carried out a series of new measures within the enterprise, such as providing better on-site medical services, prohibiting overtime work, realizing a more respectful communication between employees and managers, providing free transportation and education, etc., which has significantly improved the quality of MAS's workforce and the enthusiasm of employees. After this change, MAS won heavyweight customers such as Victoria's Secret and Marks & Spencer, and the company's development has entered a new stage.

<h3>Related Reading:</h3>

Title: Grey Rhinoceros: How to Deal with a High Probability Crisis

By Michele Wucker

Translator: Wang Liyun

Publisher: CITIC Publishing Group

Publication date: December 2016