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The Magnificence of the “Inconceivable!”
Discovering “Black Swans” that Overturn Conventional Wisdom

Tatsuhiko Inoue
Professor, Faculty of Commerce, Waseda University

Practical Logic that Overturns Industry Wisdom

When humans see with their own eyes things that they previously believed to be “inconceivable,” they fall into a state of panic and confusion. If later asked about the background and causes of what happened, they are likely to respond regretfully “If I had known more about it, I could have dealt with it more effectively.”

Literary critic Nassim Nicholas Taleb compared such “inconceivable” occurrences to a black swan. This is because the very existence of a swan with black plumage was “inconceivable” until Europeans traveled to the continent of Australia and discovered just such a bird.

These kinds of “black swan” discoveries are highly valuable in the academic world. They present situations that cannot be fully explained by popular beliefs and are unequaled opportunities to discover new forms of logic and reasoning.

The idea that “black swans” can lead to new discoveries applies to the world of business as well. As an example, in an event that took place over 40 years ago, a group of business organizations from Japan’s furniture industry went on an observation tour to America and encountered a “black swan” there for themselves.

“These can’t possibly be so cheap.” “This way of displaying things is inconceivable.”

All of the furniture store managers unmistakably had these feelings, at least to a certain extent. The prices of the products they saw were kept to roughly 1/3 what they would be in Japan, and they were displayed not by individual item type, but coordinated into the form of living spaces. These managers realized the abundance to be found in America first-hand, from the perspectives of both prices and living standards.

Among the participating managers, it is said that the only one who confronted this “black swan” in the true sense was Akio Nitori (president of Nitori Holdings Co., Ltd. as of 2014). Even though he had just started his business, Mr. Nitori was already facing a management crisis, and was desperately grasping at straws by participating in the tour.

“Why is it possible for these prices to be so low?” Mr. Nitori thought not only about the superficial aspects of the stores he saw, but deeply immersed himself into studying the mechanisms of their management, analyzing them from multiple viewpoints. He found that in America, high levels of standardization and efficiency were able to be achieved through the operation of chain stores with over 200 locations.

At that time, in Japan it was said that opening a quantity of 5 stores or more would only lead to bankruptcy since it would not be possible to effectively manage them all, and this had become the conventional wisdom of the industry. The Nitori company, now well-known for its slogan “Nitori: quality that surpasses its prices” was born from suspicion of the validity of this convention and from extensive research into many examples of chain stores in America. Its founder Akio Nitori overturned the accepted ideas of the industry thanks to the “black swan” he found in another country, and established the new business category of home furniture and home fashion chain stores.”

Anticipating the Future with the Case Study Method

A number of “black swans” thought of as “inconceivable” may be solely the products of uncertainty and randomness. However, in this world there are also “black swans” that might arise from simple ignorance. There may be instances where events cannot be sufficiently explained with the knowledge of the time period, or where such explanations, even if they do exist, are just not widely known.

One of the methods most suitable for the discovery of these types of “black swans” is the case study method. The reason is that according to the ideas of statistics, “black swans” are treated as “outliers” (values that deviate significantly from the others in a statistical sense, or more specifically values that are not observed to occur with a frequency of more than 1%) and are excluded from being subject to analysis.

If outliers exist when statistical analysis is to be conducted, they will disrupt the overall trends of the data, and actually performing analysis with those outliers included will cause the overall trends to fail to be accurately reflected in the numerical results. Therefore, outliers are as a general rule removed from tabulation targets in statistical analysis.

Conversely, in the case study method, outliers are not discarded but are instead treated as the focus of research. For example, cases seen to anticipate future activity are considered “leading cases” and observed in great detail.

Also, if “deviant cases” that differ from the majority are found, examining the reasons behind their deviation can cast suspicion on accepted ideas and highlight factors that had previously gone unrecognized.

In academic management conferences, research based on statistics was actually the norm well before the current statistics boom, with numerous such articles published in academic journals, and with their publication ratio accounting for roughly 90% of the total.

However, on the other hand, a stronger presence of the case study method can be seen as for the articles which succeed in receiving “Best Article” awards for excellence. Looking at recent trends, approximately 50% of the articles featured in association journals published by the Academy of Management, an American academic society, involved the case study method (from the 2000s up until 2013).

As also explained in my book Finding a Black Swan in Management: A Guide Book of Case Study [Burakku Suwan no Keieigaku—Tsusetsu o Kutsugaeshita Sekai Saiyushu Jirei Kenkyu] published by Nikkei BP, the case study method has a magnificent power not found in statistical research, and it is a practice actually carried out by all of us in our normal, everyday lives as well. I hope that you can discover such “black swans” and apply them to daily business in valuable and wide-ranging ways.

Tatsuhiko Inoue
Professor, Faculty of Commerce, Waseda University

[Profile]

Professor Inoue completed Doctoral Program at the Graduate School of Business Administration, Kobe University, in 1997. He holds a PhD in Business Administration. After obtaining positions as Associate Professor at the Department of Management Studies, Graduate School of Social Sciences, Hiroshima University; and Associate Professor at the School of Commerce, Waseda University (concurrently enrolled in MBA night courses at the Graduate School of Commerce), has held current position from 2008. Has also held successive positions including Faculty Fellow of the Research Institute of Economy, Trade & Industry (RIETI) and Senior Fellow at the Wharton School of the University of Pennsylvania.

[Major Written Works]

Good Imitation to Great Innovation [Moho no Keieigaku—Idai naru Kaisha wa Mane kara Umareru] (Nikkei BP, translated in Korea, Taiwan, and Thailand); Management Organizations as Shown through Careers: Individual Logic and Organizational Logic [Kyaria de Kataru Keiei Soshiki—Kojin no Ronri to Soshiki no Ronri] (co-author, Yuhikaku); The Logic of Profit Engines: Creating Mechanisms to Monetize Technology [Shueki Enjin no Ronri—Gijutsu o Shuekika suru Shikumizukuri] (author/editor, Hakuto-Shobo); Business System Strategies: Business Mechanisms and Competitive Advantages [Jigyo Shisutemu Senryaku—Jigyo no Shikumi to Kyoso Yui] (co-author, Yuhikaku); Strategic Infrastructure [Henbo suru Nihon Kigyo no Senryaku Infura] (co-author, Hakuto-Shobo); Information Technology & Business System Evolution [Joho Gijutsu to Jigyo Shisutemu no Shinka] (Hakuto-Shobo); Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge [Kopikyatto—Mohosha koso ga Inobeshon o Okosu] (translation supervisor, Toyo Keizai); and Nissan’s V-up Challenge [Nissan V-up no Chosen] (supervising editor, Chuokeizai-sha).