Black Swan Events in Human Resources

A black swan is an event that comes as a surprise; nobody expects it, and it changes the environment surrounding us. It disrupts businesses, organization, and significantly shifts our values. It touches everything – people, organizations, companies, and governments. Even Human Resources Functions are usually hit hard by the unexpected Black Swan events.

In modern organizations, we run many risk assessment sessions, and we have plenty of back up plans on shelves. We understand that some risks can come as a surprise. They hit us like a flash of lightning. They cause damages, and society stops living as it used to.

It is always the same; we are surprised that something like it could happen. The most agile businesses grab the opportunity and start growing at an unprecedented pace. The others decline.

However, once in a while, there is an event, nobody was predicting it could come. It disrupts business operations, causes disasters, and changes our priorities and values. Simply said, such an event is a shock.

How to make the business ready for the upcoming Black Swan?

How can we prepare the business to absorb and survive the consequences of the unexpected shock event? How can we build a more resilient organization? These are the most critical leadership questions, and Human Resources has to play its role in answering them.

Most successful organizations describe their competitive landscape; they try to understand all internal and external risks. Conducting regular broad risk assessment sessions lead to a design of robust business continuity plans. Introducing a learning organization adds required resilience and agility, that help overcome the crisis hitting the business.

Black Swan Events in Human Resources
Black Swan Events in Human Resources

​However, a black swan event cannot be predicted. It could come any day, and it can cause a severe shock. Moreover, it comes without any prior signs, and it changes the business landscape overnight. What was successful and highly profitable can become an obsolete product that nobody wants to buy.

​On the other hand, you can train your flexibility, agility, and openness to new ideas. You can build a learning organization that can react quickly to external shocks. Such an organization can bring a unique offering almost at no time, and it can fight for its life. Being agile is one of the best weapons against most black swan events.

Furthermore, when the crisis hits your business, it is always beneficial to have a plan. If you have a business continuity plan (not a strategy), you have at least a skeleton to build a new idea on top of it.

A brief definition of the Black Swan Event​

Mr. Nassim Taleb defined a black swan event like an event with the following three attributes:

  1. it is an outlier, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility;
  2. it carries an extreme impact, and
  3. despite its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

One of the attributes of the black swan event is its unpredictability. It can happen anytime and hit all organizations and the entire society. You cannot predict the exact timing, and you cannot judge the direction from which it will influence the business. However, you can drill the business continuity plans. You can also incorporate some level of robustness into the organization to absorb the initial impact and release enough resources to fight with the unexpected event.

A Recent Black Swan Event Impacting Human Resources Function (yes, the coronavirus crisis)

In most media and posts, the current COVID-19 illness is usually described as a black swan event. But, based on the definition of a black swan, we have to conclude that it is not a moment of a surprise because many scientists predicted such a possibility. We just ignored their warnings that a new virus or bacteria can disrupt modern society. And it did.

On the other hand, a full lockdown and the illness’s speed caused a black swan event. It was not the illness; most damages were caused by safety measures to protect nations. Many businesses were shut down, shops were closed, international travels were banned, and far too many organizations missed all or a significant part of its revenues while keeping a cost base unchanged. Cash was a king again.

Organizations with robust plans in place enjoyed the initial advantage. Taking the idea off the shelf is quicker than designing one. They just switched their operations to a backup business continuity plan, and they continued to serve their clients.

Also, a learning organization has a better chance of surviving the initial chaos. It teaches its employees to operate with unknown risks and find the best ways to deliver the best services and products to customers. Employees in such businesses are autonomous, and they do not require step-by-step management.

All flexible organizations operated online (or made a quick switch) and left all employees working remotely. Even functions like Call Centers were allowed to work from home, and teams are not asked to return to offices as soon as possible.

These flexible and learning organizations also acquire new lessons from the crisis. They change the way how they think about business. They review all rent contracts, remote working policies, and the technology they use to run the business. They are willing to invest smartly into new technologies that will upgrade their flexibility and ability to deliver solutions to the market quicker.

They conduct a simple SWOT analysis to find opportunities to make business robust, resilient, and ready to accept upcoming challenges.

Other Examples of HR Management Black Swans

Human Resources is a function that defines and delivers all related people management policies. It also deals with all people-related issues and challenges in the business. As such, all black swan events always touch the HR team.

Nothing in the organization can happen without its employees. Even the black swan events occur in the technology part of the business, and employees have to deal with it. And all consequences affect employees. That makes Human Resources a fragile and vulnerable function. In the end, it is a sensitive function that can be hit by many black swans coming from different angles.

However, most HR Black Swans are about the losses of critical resources. The most dangerous one is the loss of the leader. Also, a whole team can leave the organization, and the business can lose vital know-how. We run succession planning processes for these moments, and we make managers spread knowledge across the team. We try to avoid a single person dependency.

On the other hand, there is a hazardous hidden risk. In Human Resources, we tend to underestimate the importance of the function. We feel that our influence on business results is somewhat indirect. Each positive change in Human Resources needs time to be visible in overall business results and performance. Being indirect does not mean that the black swan coming from Human Resources cannot immediately hit the business.

However, an event in people management can cause severe damage to the organization. Besides, we do not run regular risk assessment sessions to identify the most critical hidden dangers to human capital being employed.

Just as a reminder – most black swan events are connected with the people in the organization. It can be a fraud, a fatal mistake, a loss of the leaders, illness, or a simple international travel ban. It is challenging to have a plan for all of them; on the other hand, it is always useful to identify risks at least. In general, risk mapping is an excellent tool for describing the landscape outside and inside the organization to understand the most significant hidden dangers that can kill the business.

How to mitigate the Black Swans in Human Resources

As mentioned earlier, the organization can adjust its processes and internal infrastructure to increase its chances to embed impacts of the black swan event successfully. It can design more robust procedures that can continue operating with a slightly decreased performance.

On the other hand, a team must understand which processes and procedures need some contingency to be incorporated into their design. No company can afford to carry a significant overweight because it would not be able to compete with more agile and cheaper competitors. Just right and critically essential processes need to be strengthened.

Mitigating black swans is mainly about two critical elements:

  1. Human Resources Risk Assessments
  2. Learning Organization.

Regular Human Resources Risk Assessment

Conducting regular risk assessment brainstorming sessions is one of the most efficient ways to uncover hidden risks within and outside the organization. A dedicated team can brainstorm the craziest risks they see and discuss them in a safe environment. This principle is essential and valid for all risk assessment sessions, including HR ones.

Risk Management Session in Human Resources
Risk Management Session in Human Resources

Employees need to be encouraged to talk during these SWOT analysis sessions. They have to think out-of-the-box. Otherwise, just the most common risks will be identified again and again. However, if employees are allowed to be genuinely creative, they can locate the most significant hidden dangers that can move the business to a dangerous place.

The best way to organize a risk-assessment session is:

  1. Brainstorm all potential risks that could endanger the business;
  2. Prepare a SWOT analysis using outcomes from the previous step;
  3. Ask “what-if” questions to get one layer deeper;
  4. Prioritize and plan next steps;
  5. Update Business Continuity Plans.

Learning Organization

An agile organization has an advantage when an unexpected event hits society. It discovers creative ways how to continue its operations. Employees are resilient and willing to win. They try new approaches, and they share experiences to conclude quicker.

Also, a learning organization allows employees to come with proposals that are approved almost instantly. It empowers them to talk to customers, and they have broad freedom to agree on a solution without prior approval. Such an organization has learning and agility as its core values.

Robustness is not the only option for how to deal with black swans. Agility, creativity, and continuous learning are other components of success. In such a firm, employees are used to be agile and change the direction of travel quite often. They are flexible, and they know how to find relevant and essential information to make a quality decision.

Human Resources is a great example of how a learning organization can make the business more resilient. HR can be run without the technology for a few days; just the HR team needs to be agile and flexible. They can switch the operation of the function into a completely remote mode. They can still support others over the phone and deal with the high volumes of incoming requests.

Additionally, a learning organization runs its succession planning procedures in a background. Most people who are willing to learn are also ready to grow. No formalized program is required; employees just upgrade their skills and competencies.

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