Making Tomorrow a More Resilient Place: On Black Swans in The Project-Based Firm

Black Swan events are defined in the literature as events which have a major impact, which lie outside the bounds of prediction, and which are only rationalised in retrospect. While some may disagree, almost all failures, even catastrophic ones, are not really Black Swan events but a series of failures that alone may have a negative impact on the immediate out-comes but combined lead to catastrophic failure. It is surprising how often experienced managers of project-based firms, ignore the early warning signs of these failures and move forward despite serious problems in many areas that are keys to the firm’s success. This will ultimately lead to the Black Swan event materializing. Through a case study on the collapse of construction giant “Carillion”, this study finds that Carillion’s liquidation was an endoge-nous Black Swan, brought about by directorial negligence manifested in a failure to respond to early warning signs, a lack of a culture of organisational learning, and an inherently frag-ile business model. The study concludes that the liquidation would have been avoidable if the early warning signs had been seen in time, and had corrective action been taken. The case offers significant areas in which lessons can be learnt. Firstly, organisations need to identify indicators to serve as early warning signs of trouble. Secondly, organisations must embed organisational learning across all activities, to spread best practice and prevent the recurrence of errors. Thirdly, the government, with its twofold role of largest client and of regulator, has a responsibility to take action to ensure that the environment in which these firms operate does not allow the Carillion model to operate by fostering a culture of innovation, ending the practice of accepting the lowest bids for work, and building a reporting framework with transparency and objectivity at its heart.

Publisher does not allow the open access sharing of this paper