Black Swan Blindness is a concept developed by Bent Flyvbjerg

Bent Flyvbjerg

Bent Flyvbjerg is the first Chair and BT Professor of Major Programme Management at Oxford University's Saïd Business School and is Founding Director of the University's BT Centre for Major Programme Management. He was previously Professor of Planning at Aalborg University, Denmark and Chair of...

 and Alexander Budzier at Saïd Business School

Saïd Business School

Saïd Business School is the business school of the University of Oxford in England, located on the north side of Frideswide Square on the former site of Oxford Rewley Road railway station. It is the University's centre of learning for graduate and undergraduate students in business, management...

, University of Oxford

University of Oxford

The University of Oxford is a university located in Oxford, United Kingdom. It is the second-oldest surviving university in the world and the oldest in the English-speaking world. Although its exact date of foundation is unclear, there is evidence of teaching as far back as 1096...

. The concept of Black Swan Blindness explains how decision-makers are commonly surprised by out-of-control events, which often costs them their jobs and even their companies even though they know of Black Swan Events. While black swan blindness has disastrous consequences it itself is caused by well known managerial fallacies, such as:

• Illusion of Control
  Illusion of control
  The illusion of control is the tendency for people to overestimate their ability to control events, for instance to feel that they control outcomes that they demonstrably have no influence over. The effect was named by psychologist Ellen Langer and has been replicated in many different contexts. It...
  
  
• Organizational desirability
• Self-service
  Self-service
  Self service is the practice of serving oneself, usually when purchasing items. Common examples include many gas stations, where the customer pumps their own gas rather than have an attendant do it...
  
  

The key symptom of black swan blindness are performance management

Performance management

Performance management includes activities that ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, employee, or even the processes to build a product or service, as well as many...

 systems that only track averages or expectation values and ignore the variability

Variability

The term variability, "the state or characteristic of being variable", describes how spread out or closely clustered a set of data is. This may be applied to many different subjects:*Climate variability...

 of performance. The ignorance

Ignorance

Ignorance is a state of being uninformed . The word ignorant is an adjective describing a person in the state of being unaware and is often used as an insult...

 of an important aspect of risk

Risk

Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

 and uncertainty

Uncertainty

Uncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...

 leads to misguided management attention while exposing organizations to the impact of outlying events, so called black swans

Black Swans

Black Swans is a 2005 Dutch drama film.The film won a Golden Calf for best sound at the Netherlands Film Festival in 2005.-Plot:Marleen works as a volunteer in a rest home in Spain. When she meets Vince they are attracted to each other. Their passionate relationship has its ups and downs, and...

.

Examples

Famous examples include:

• FoxMeyer Drugs was the 4th largest US pharma distributor with a balance sheet of USD 5bn headquartered in Carrollton, Texas. FoxMeyer's Black Swan was named Delta III it kicked-off in 1993 and planned to implement SAP R/3 for financial managmeent as well as Pinnacle for warehouse automation with Andersen as the implementation partner. The system was designed to replace FoxMeyer's mainframe Unisys system to increase the volume it can handle. The project was planned to deliver the new R/3 system and the warehouse automation in 18 month, at costs of USD 65m, and save USD 40m annually. However, not uncommonly SAP and Andersen used the project as a development corporation. The actual cost of the project spiralled to over USD 100m. Thomas Anderson CEO and project champion was forced to leave but the change in leadership came too late. The automation of the warehouse failed and resulted in USD 34m lost inventory. Even more troublesome was the R/3 system performance. FoxMeyer was able to process only 2% of the order volume (10,000 orders per night) that the mainframe system handled. This serious issues in the scalability of the R/3 system came at the time when the company won a major new client. The ICT project erased FoxMeyer's profitability and in 1996 the FoxMeyer was forced into bankruptcy.

• The Black Swan for Levi Strauss happened in Q2/2008 when the company's net income dropped by 98% to USD 1m compared to Q2/07. Since 2003 Levi Strauss underwent a major ERP software implementation scheduled to finish in 2010. The global ERP template was first rolled out into the Asian subsidiaries and in 2008 reached the US. The project was designed to replace a complex architecture of Baan in Europe, a bespoke system in Canada and Asia, and the US using a mix of mainframe systems. Levi Strauss tried to clean up the IT architecture to migrate to one common SAP system with the help of implementation partner Deloitte. The project costs were estimated to be between USD 1-5m, excl. consulting fees. Before rolling out the system to the US Levi Strauss was forced to integrate its systems into Wal-Marts systems increasing the number of complexities in their IT architecture. The company suddenly faced a tremendously different approach to internal controls and only narrowly avoided the need to restate their financial reports. Rolling out new internal financial processes and check procedures lead to a massive hindrance in Levi Strauss' order fulfilment, forcing it three distribution centres in the US to close down for a full week, despite the companies attempt to mitigate the risks by pre-shipping orders in Q1 to wholesalers that normally would have shipped in Q2. The company took a USD 192.5m hit to its bottom-line but was able to absorb this shop. David Bergen the CIO who joined Levi Strauss in 2000 had to leave. Levi Strauss stayed with SAP and is currently undergoing a private cloud experiment to reduce the IT cost.

• Hershey's implemented a new order taking and fulfillment system. The project cost USD 112m and comprised a mix of SAP's ERP systems, Siebel's CRM systems, and Manugistic's SCM system supported by Accenture as the integration partner. The project was initially planned to go-live in a Big Bang in June 1999 but the project was delayed by 3 months. During the month of September, however, Hershey's was still fixing errors in its shipping and order fulfillment systems not being able to deliver their products to their customers during the busy Halloween period. In total Hershey's was not able to deliver orders worth USD 100m for Halloween 1999. The news made front page of the Wall Street Journal and stock prices fell 8%. In October, 1999 Hershey's was forced to report a 12.4% drop in quarterly sales to USD 87.6m (earnings -18.6%). The company said computer problems with Hershey's SAP system have created a backlog of orders and slower deliveries. Hershey's stayed with SAP and its CEO (Wolfe retired in 2001).