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Preparing for a Black Swan Event

June 30, 2023
While Black Swan events are tough to anticipate, you can do several things to prepare your company for these unforeseen calamities.

Black Swan events are rare and unpredictable happenings that have a severe impact on various systems, including economies. Coined by former options trader Nassim Nicholas Taleb in his 2007 book The Black Swan, these events have three key characteristics:

1. They are highly improbable.

2. They have a massive impact.


3. In hindsight, they seem predictable.

HOW BLACK SWAN EVENTS CAN IMPACT THE ELECTRICAL MARKET

One thing is certain: Black Swan events will continue to occur. When it comes to the electrical economy, Black Swan events can disrupt distributors, manufacturers and contractors in significant ways. Recent examples of Black Swan events that shook the electrical economy and forced changes in the way we do business are the global financial crisis (2007-08), when the collapse of the subprime mortgage market in the United States triggered a worldwide financial crisis. The COVID-19 pandemic (2019-current) continues to have far-reaching consequences on many sectors including the electrical economy.

Military actions like the invasion of Ukraine (2022-present), and the impacts of the 9-11 terrorist attacks on the World Trade Center and the Pentagon (2001) are still felt today. Environmental change is causing severe weather events that can be considered Black Swans, often on a more localized basis, with frequently devastating consequences. These disruptions and others have affected our electrical economy in a variety of ways.

Supply chain disruption

Black Swan events can disrupt global supply chains, causing delays or interruptions in the delivery of electrical components and equipment. For example, natural disasters such as earthquakes or hurricanes can damage manufacturing facilities and transportation infrastructure, leading to a shortage of electrical products. This disruption can affect distributors’ ability to source and distribute products, as well as disrupt manufacturers’ production capabilities.

Market volatility and political uncertainty

Black Swan events often trigger extreme market volatility, which can have financial implications for all stakeholders in the electrical economy. For instance, stock markets may experience sharp declines, affecting the valuation of electrical manufacturing companies and distributors as well as copper and other raw materials. The uncertainty associated with Black Swan events can lead to fluctuations in demand and investment decisions, impacting the financial stability and growth prospects of these businesses.

Decreased demand

Depending on the nature of the Black Swan event, there may be a significant decrease in demand for electrical products and services. For example, during economic recessions or widespread crises, consumer and business spending often decline, leading to reduced demand for new electrical installations or upgrades. This decrease in demand can negatively impact manufacturers, distributors and contractors, resulting in reduced revenue and potentially layoffs or business closures.

Shift in priorities

Black Swan events can cause a shift in priorities and resource allocation. For instance, in the aftermath of a natural disaster, governments and organizations might prioritize rebuilding infrastructure, such as roads, bridges and housing, over electrical projects. This shift in priorities can lead to delayed or canceled projects, impacting manufacturers, distributors and contractors who were relying on those projects for business opportunities.


Regulatory changes

Black Swan events can trigger changes in regulations and policies, which can have significant implications for the electrical industry. Governments might introduce new safety standards or regulations to mitigate risks associated with specific events, such as stricter building codes after a major earthquake. Manufacturers, distributors and contractors would need to adapt their operations, products and services to comply with these new regulations, potentially requiring additional investments and adjustments – which would benefit the electrical industry.

Increased focus on resilience

Black Swan events often highlight vulnerabilities within the electrical infrastructure and the need for increased resilience. Governments and organizations may invest more in improving the resilience of electrical systems, such as upgrading transmission and distribution networks or implementing backup power solutions. This increased focus on resilience can create new business opportunities for manufacturers, distributors and contractors specialized in providing resilient solutions.

It’s important to note that the specific impact of Black Swan events can vary depending on the nature of the event, the region affected, and the overall resilience of the electrical economy. Different stakeholders may experience varying degrees of disruption and recovery based on their preparedness, adaptability and ability to access resources.

 PREPARING YOUR COMPANY FOR A BLACK SWAN EVENT

Preparing for Black Swan events is inherently challenging due to their unpredictable nature. However, there are certain steps that can be taken to enhance preparedness and resilience.

#1. Scenario planning. Engage in scenario planning exercises and brainstorming to identify potential Black Swan events and their possible impacts. This allows organizations and individuals to develop contingency plans and strategies for various scenarios.

#2. Diversification. Diversify investments, resources and operations to reduce vulnerability to a single point of failure. This can involve spreading investments across different sectors, diversifying supply chains, and having backup systems in place.

#3. Risk assessment and mitigation. Conduct thorough risk assessments to identify vulnerabilities and implement measures to mitigate them. This can include strengthening cybersecurity, ensuring robust emergency response plans and implementing effective risk management practices.

#4. Building resilience. Foster a culture of resilience by promoting adaptability, flexibility and agility. This can involve training employees to handle unexpected situations, promoting innovative thinking, and establishing effective communication channels.

#5. Collaborative networks. Build strong relationships and networks with stakeholders, including government agencies, industry peers and community organizations. Collaborative efforts can enhance information sharing, resource pooling, and coordinated responses during a crisis.

#6. Continuous learning and monitoring. Stay informed about emerging trends, technological advancements and potential risks. Regularly review and update preparedness plans based on new information and lessons learned from past events.

#7. Financial preparedness. Maintain adequate financial reserves and insurance coverage to withstand the financial impact of Black Swan events. This can provide a buffer during times of economic disruption and aid in the recovery process.

While it’s impossible to fully predict or prevent Black Swan events, these proactive measures can help individuals and organizations be more resilient, adaptive and better prepared to navigate the uncertainties and challenges that may arise. Understanding your market is crucial to withstanding unpredictable events. DISC Corp. can help you prepare and strategize by defining your current market and meshing with your scenarios.

Christian Sokoll is president of DISC Corp., Houston, the electrical market’s leading provider of sales forecasts and related market data. He can be reached at [email protected].

About the Author

Christian Sokoll

Christian Sokoll Bio

Chris began his career in the electrical industry 30 years ago in Spokane, WA, in the way so many in the electrical wholesaling space have – working the counter and the phones. He relocated to Phoenix, Arizona, and continued his career progression in an inside sales role with King Wire covering the Southwest. His next stop was Atlanta, where he continued to learn the business and worked the Southeast region. Little did Chris know that a move back to Washington state would start a career with Houston Wire & Cable that would span nearly three decades.

Chris was named “New Salesperson of the Year” in 1991 for his outstanding results and won additional awards for sales growth by supporting oil and gas exploration in the North Slope and managing a joint contract with Boeing. He progressed in his career taking an outside sales position in Lexington, KY, working with electrical distribution business development on major corporate accounts such as Mead Paper, DOW / Dupont, and the Savannah River Project. Chris was promoted to Regional Manager over the Southeast and again proved himself by significantly growing both sales and profitability.

Chris was asked to take on a turnaround project for Houston Wire & Cable’s Midwest Region, headquartered in the Chicago metro area, where he nearly tripled the region’s sales – from $24 million to $74 million. During his tenure in Chicago, Chris won numerous management and vendor awards for new product rollouts, sales growth, and national account management. His team won more “President’s Circle” sales awards than any of the other 11 Houston Wire & Cable locations. This high level of performance resulted in Chris earning a position as Regional Vice President.

Chris’s next stop was as Division President for Southern Wire, a heavy lift equipment wholesale subsidiary of Houston Wire & Cable based near Memphis, TN. He took this position post-acquisition and integrated the division, managed a transition of computer systems, and developed a segmented market plan while retaining all employees. Chris was able to buy out a competitor’s inventory, resulting in their exit from the market, and then hired their VP of Sales to step in as President of Southern Wire. This facilitated Chris’s next role as Corporate VP of National Business Development based in Houston, where his first responsibilities included continued oversight of Southern Wire, managing the Cable Management Services Project Group, and directing the National Service Center, a training and development group for new sales professionals entering the industry.

During this time overseeing so many critical divisions, Chris became more immersed in business intelligence and market data analysis – leading to innovative internal changes at Houston Wire & Cable. Chris learned to use and blend data from multiple sources such as DISCCORP, Industrial Information Resources (“IIR”), and ERP and CRM data to aid the company in embracing data and visualization tools in a completely new and unprecedented fashion. Chris deployed industry-leading corporate analytics and business intelligence tools such as Tableau, Power BI, Alteryx, Access, and Excel to inform and improve decisions and track KPIs. Likewise, he provided reporting for the board of directors and senior management team both in spreadsheets and in various advanced visual presentation formats. Chris also designed, tracked and approved compensation programs for sales reps and agents, and was also instrumental in the design and tracking of customer rebate programs.

In 2019, after working closely with DISC Corp. as a customer for five years and thus seeing the ongoing need for quality market intelligence data for the industry, Chris left Houston Wire & Cable to purchase DISC Corp. from its founder, Herm Isenstein. Along with being the leading economist in the electrical market for more than 30 years through his work at DISC, Herm was also a prolific author for Electrical Wholesaling magazine.

Herm passed away in Sept. 2019, but Chris continues to grow DISC’s vision while maintaining its leadership position as a trusted data source. By diligently working alongside  DISC Corp.'s economists, programmers, and marketers, Chris embraces his passion to ensure that DISC continues delivering high-quality business intelligence and forecasting to further the future of the electrical wholesaling industry.

Chris holds a bachelor’s degree in organizational leadership from Roosevelt University in Chicago and a graduate certificate in finance from the University of Chicago. Chris has completed various Microsoft training programs in Excel and Access in addition to data science theory, and he has written college-level course material on Microsoft Power BI and Excel.

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