The importance of strategic redundancy in covid-19

What is the nature of a black swan event?
A lot of people say it’s uncertainty.
However, uncertainty can also be divided into two types. One is measurable, or it can infer the probability of future risks from the past data.
The other is immeasurable. Black swan events are the latter because they have occurred so infrequently in human history that there is not enough data to make predictions.
More important, of course, is that even if one can predict a black swan event, one cannot accurately predict the damage it will cause, which is often beyond imagination.

The two main features of a black swan event — total uncertainty and the potential for catastrophe — also make black swans particularly dangerous because they can deal a crippling blow to established institutions and mechanisms.

The black swan can bring great disaster, and it always hit us unprepared.
There are two biggest challenges facing the potential black swan: we are always reluctant to admit the inadequacy of our knowledge and cognition, and we always believe in the way we measure risks.
But some risks are really impossible to measure.
Albert Einstein once said: not everything can be measured, and not everything that can be measured is important.
Dealing with black swans in the same way as dealing with quantifiable risks often leads to disaster.

The 2008 global financial crisis was an example of a blind faith in quantified human risk indicators and inadequate preparedness.
Crisis early in August 2007, according to Goldman sachs CFO Viniar at that time (David Viniar) as saying that investors are multiple consecutive trading day to witness “25 standard deviation” dramatic fluctuations in financial markets, the volatility in theory – that is, from the Angle of predicting risk – impossible to happen, because if use probability to calculate, even in the human history since the big bang occurred a similar sharp market fluctuations, chances are slim.

Long term capital management (LTCM), a firm joined by Nobel Prize economists James merton and Paul scholes, collapsed in 1998 when Russia defaulted on its national debt, also because of a lack of planning for black swan-style risks.
LTCM was confident in its algorithm, and instead of reducing its bets in the event of severe market fluctuations, it followed the logic of the algorithm to increase its bets.
The problem is that the algorithm relies on an analysis of past data and a risk model in a normal market environment that cannot predict the market impact of a Russian default.

The covid-19 pandemic is raging around the world, almost the largest black swan the world has faced since the great depression of 1929. The lack of preparedness and preparedness shown by countries around the world for this black swan now seems to be a shocking ignorance and negligence.
Epidemiologists should be aware that in a world of globalization, especially the increasing globalization of the movement of people, a pandemic once in one place means it can happen anywhere in the world.
When Europe and the United States in many countries see with in wuhan city and China after the outbreak of the centers for disease control and sharing information, without using Chinese anti epidemic reserved for at least a month time to make sufficient protection, lead to the global outbreak spread to today (as to) on May 27, more than 5 million people are infected, close to 350000 people died of tragic situation, can only use power lack of “imagination” to describe, once the spread of epidemic diseases may have evolved into the havoc the lack of a clear cognition.
The definition of imagination here is that we need to prepare for the worst about the harm that a black swan can do.

History is full of similar examples.
When the Austrian archduke was assassinated in sarajevo on June 28, 1914, not many people in Europe predicted that a global war was about to begin.
Even if one had accurately predicted the beginning of the first world war, it would have been of little significance, for few, if any, would have foreseen at the time the human cost and destruction of assets that would result from four years of war.
One of the originator, Kaiser Wilhelm ii of Germany, was still basking in the narrative of “first-mover advantage” when he started the war, thinking that the Balkans had set fire to a powder keg and given him the chance to start a war and win it first.

Black swans are different from the well-known risks that can be quantified with past data, and require a completely different set of ways of thinking and doing things.

First, black swans are unpredictable and meaningless.
Even if you foresee the black swan, it doesn’t help to prepare for the potentially dire consequences if you don’t.

Second, it needs to be constantly stressed that we are all ignorant of the uncertainties of the black swan.
That’s why many people use The phrase “The fog of war” to describe The fog of covid-19.
And we need to remind ourselves again and again that the consequences of a black swan are likely to be unexpected!

Third, we need to focus on making a scenario analysis of various future possibilities, and then make a careful, detailed and multi-dimensional assessment of the consequences of different possibilities, and prepare a variety of response plans, so as to deal with the unexpected blow of the black swan.
As early as the end of February 2022, the economist published a special article to propose a global response to the covid-19, emphasizing the need for open and transparent information and expert opinions, the need for governments to promote various quarantine measures to slow the spread of the virus, and the need for national health systems to make adequate plans to prevent medical runs.
Unfortunately, few countries have really responded quickly.

The global economic crisis triggered by covid-19 is also a black swan, and no normal stress test could foresee such an acute shock on the demand side, the supply side and the confidence side at the same time.
In the airline industry, for example, no airline could have foreseen a scenario in which international routes would drop to just 1% in a matter of weeks.
Therefore, the new coronavirus crisis has put forward a new thinking on enterprise management under the economic crisis.

The new black swan exposed the blind spot of traditional management thinking.
We are too used to the fact that the only goal of enterprise development is to pursue profit maximization, and the way to pursue this profit maximization is to push efficiency to the extreme. The most common is the popularity of just-in-time (just-in-time) supply chain management.
This excessive pursuit of efficiency, and the building of a complex and tight global supply chain, and the lack of resilience, was exposed in the covid-19 crisis.

The covid-19 crisis is therefore a wake-up call for enterprise managers, and every enterprise must think about how to increase “strategic redundancy”.
Strategic redundancy is common in nature, where everyone has two kidneys, although having one is perfectly viable.
The introduction of strategic redundancy in enterprise management is also known as the shift from just-in-time production to just-in-case management mode. It not only gives priority to efficiency, but also emphasizes the ability to respond to emergencies, enabling enterprises to have the ability to deal with emergencies.
Strategic redundancy is the ability to construct in a crisis, which requires human capital, as well as resources and funds in reserve.

A management model that emphasizes strategic redundancy requires increased resilience in the system.

In the case of supply chains, there are two criteria for measuring supply chain resilience.
First, how long can a company survive when it suddenly faces a shortage of key raw materials?
Second, if there is a shortage of key raw materials, how long will it take the enterprise to solve the problem and resume production?
The solution is to find other suppliers as soon as possible, or to have existing suppliers switch their redundant capacity as soon as possible.

In the wake of the new coroner’s attack, the medical systems of various countries around the world have been exposed to shortages of masks, protective clothing, ventilators and other important medical supplies and equipment. It is true that many resilient enterprises have emerged.
Dyson, a hairdryer maker, and McLaren, a formula one car maker, have both produced simplified ventilators in a matter of weeks.
However, even a few weeks’ delay in the covid-19 outbreak could be too late.
By the time the two manufacturers produced the machines, the demand for ventilators was over, as the peak of the medical run had passed.

Strategic redundancy also includes cash reserves.
Many of America’s biggest companies made what now looks like a huge mistake when they spent much of their earnings on share buybacks over the past decade, when financing was very cheap, rather than investing in research and development to drive future growth or building their own cash reserves to cope with the crisis.
The big four us airlines, for example, are now receiving only a fraction of the cash they have spent on share buybacks over the past five years in emergency bail-out funds from the federal government.
In other words, they would have been resilient to a post-covid-19 economic crisis if they had not been myopic in the face of a capital bonanza.

Furthermore, building enterprise resilience also requires a review of fully market-oriented resource allocation. In many cases, immediate costs and benefits are easy to measure, but it is difficult to measure resilience.
It is hard to expect companies themselves to remember the importance of “strategic redundancy” in the aftermath of a crisis if they rely on factors that are easy to measure and ignore factors that are difficult to measure.
Take a look at the novel coronavirus vaccine research after SARS, which was supposed to have dried up after a year or two.
In the words of a former expert at America’s centres for disease control and prevention, the neglect of vaccine research “is a global attention deficit”.

Finally, take a look at the United States, which has been hardest hit by covid-19.
In the reflection on America’s failure, two things are in place.

One is that if you exaggerate as much as possible the horrors of the epidemic (that is, the “imagination” highlighted above) and prompt people to take social distancing actions earlier, you may avoid disaster, but you may be accused of exaggerating later. This is a dilemma that disease control workers must overcome.

Second, pandemics, unlike other risks, allow politicians to weigh different options.
Politicians would be making a huge mistake if they were unable to effectively and consistently send a message of social isolation to the population at the time of a pandemic by considering other interests.
In the face of ordinary, quantifiable risks, such as a recession, and uncertainty, politicians need to cheer.
But in front of the big epidemic infectious so strong, because it is a devastating disaster may black swan, politicians have only one choice, rendering the question to the heavier the better, let people change behaviour as soon as possible – wearing a mask, wash your hands frequently, does not gather, maintain social distance – otherwise, the disaster could only to will be able to pick up.

Dealing with black swans, in the final analysis, requires a leap out of the risk-tradeoff, leaving only a dead-end path.

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