Flying with black swans

In his recent book of the same name, former currency trader and ‘professor of uncertainty’ Nassim Nicholas Taleb has introduced the idea of ‘black swans’ – unforeseen events with a disproportionately disruptive effect.

The name is derived from the fact that, prior to the discovery of Australia, the definition of ‘swan’ always included the phrase ‘a white bird’.

But when Western explorers travelled Down Under and found the black variety of swan, the definition had to be entirely overturned.

Taleb argues that the existence of black swans – other examples of which include the unexpected stock market crash of 1987 – prove that statistical modelling of future events is of limited use, because it is those events that cannot be predicted that will make the greatest impact.

The argument contradicts the school of thought – famously advocated by author Tom Davenport in his book Competing on Analytics – that sees extensive statistical analysis as key to business success.

These theoretical arguments became very real for US airline SkyBus in April 2008.

The low-cost carrier was the poster child for deep analytics, and is used by data warehouse provider Teradata as a quintessential case study for active data warehousing – using a real-time, event-driven data warehouse as the universal source for operational data.

Launched in March 2007, the company had the luxury of a ‘greenfield’ IT implementation and was unburdened by legacy systems.

That allowed Alicia Acebo, SkyBus’s acting CIO, to build the IT infrastructure of her dreams. Acebo successfully achieved data management nirvana – a single source of the truth that allowed business users to perform ad hoc analyses without IT involvement.

But in April 2008, the company went bust. As sophisticated as its IT systems were, they had not predicted the stratospheric rise in oil prices, which destroyed profits.

When Skybus started out, the price of a gallon of oil was around $60. “The business model allowed SkyBus to be profitable even if prices were to go as high as $90,” recalls Acebo. Earlier this year, the price of crude oil reached $119 per gallon, forcing the company to close operations.

SkyBus was an unfortunate casualty of the immutable truth that, no matter how sophisticated analytics technology gets, the future will always have surprises in store.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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