Hunting the Black Swans in Your Continuity Program
This is the eleventh in the DRG ongoing series regarding hunting and mastery of the black swans in your continuity program. Look for it on the first Wednesday of each month.
Rewards for "Seeing" Your Black Swans
The Next New Thing….
I have been working recently on what we are calling "Next Gen Business Continuity", and one of the items arising from this is an awareness of the many ways that organizations can benefit from "seeing" their black swans. Essential to this vision is the capability to imagine all of the components of every dependency of your organization. This includes the following, among many others that will be specific to your industry sector and your individual organization:
Any one of these is worthy of an individual treatise, but today I want just to introduce the subject to you. As I have started to look into this concept more deeply, I have found myself repeatedly bumping up against the failure of the imagination, as well as the more generalized human characteristic to avoid thinking about what bad things might happen. More people and more institutions than you might think are driven by this type of avoidance thinking.
In order to identify all of the areas in the interlocking fabric of these dependencies, we must accept and act on the knowledge that any of the components essential to the success of an organization can fail, as well as understanding their interconnections with each other, how a break in one may cause others to fail. The certainty is that breaking just one link in the chain breaks that one chain. The real question is what are the other interlocking chains that it breaks? We are talking here about an interlocking fabric made up of multiple chains with multiple interconnections.
If imagination can provide concrete information about the links among our dependencies, we can provide an effective approach to expanding our vision to include all black swans within the universe that we have defined. As we exclude some scenarios as beyond our individual capability, we will begin to define the limits of our risk universe. Global nuclear holocaust is certainly one of these, but be careful, because we probably will not now automatically rule out all meteor strikes as cataclysmic, as we perhaps might have been tempted to do before the recent meteor strikes in Siberia.
In defining the components of our risk universe, we may find some of the attributes of the discipline of Business Analytics useful. But be fully aware that this discipline, and particularly predictive analytics, works on probability models focused on events that most often have happened before. And this is but a subset of our challenge here, which is ultimately to profit from adverse and improbable events that may never have happened before -- the black swans.
Let's take a look at some particularly intriguing ways that organizations have carved competitive advantage from the occurrence of highly improbable and sometimes wholly unpredictable adverse events...black swan events.
The first is the earthquake that occurred in Southern California on January 17, 1994, which is a particularly good example of acceptance that the unexpected may occur. The Northridge Earthquake (magnitude 6.7 on the Richter scale) was provoked by movement along a fault that was completely unknown when the earthquake occurred, and yet it was handled exceptionally well by emergency responders, producing much analysis of what they did to optimize emergency response efforts. What you will not hear much about is the new bus service to the airport provided shortly after the earthquake. Getting Los Angelenos out of their cars is a major coup for public transit. But keeping much of the additional usage of this bus line 3 years after the earthquake is a case of creating competitive advantage as a direct result of a clearly black swan event. It is a case of a response to a disaster event creating a permanent change in customer behavior and not incidentally, in transit organization revenues.
A classic case is of course the 1982 Johnson & Johnson handling of the contamination of their Tylenol product with cyanide. Although the company took a major financial hit in the beginning, its extraordinarily proactive and open response quickly restored confidence not only in this product, but also in their organization overall. Within a year, they were back to pre-incident revenues and probably increased volume, although some of this may have been due to the marketing campaign surrounding the newly packaged Tylenol. But this is of note as well: the tamper-proof packaging that was introduced at this time by J&J quickly became a standard throughout the industry. And so while it is true that the company suffered significant losses, both direct and indirect, shortly after the occurrence of the incident, it quickly returned to its former volumes and revenues when the new packaging was introduced. Not incidentally, it also forced its competitors to copy its packaging tactics. Sometimes acting responsibly can have significant financial benefits! This also is turning a crisis into competitive advantage.
Another excellent example is the Nokia response to the fire at a Philips semiconductor plant in Albuquerque, New Mexico on March 17, 2000. As soon as they learned about the fire, Nokia personnel were extraordinarily persistent in their pursuit of a continuous supply of the chips produced by this Philips factory – chips that were a critical component of their cell phones (as well as those of its arch-rival Ericsson). From the very beginning, Nokia managers were proactive at the highest levels of the organization, locking up all alternate sources of supply and putting in place new supply contracts.1
On July 20, 2000, Ericsson reported that the Philips fire had caused significant operating losses in its cell phone division, the final result of which was a deal with Flextronics to take over Ericsson's mobile phone business in October of 2001.2
What is needed to get to this stage of business continuity? All of the following3:
Call it just-in-time business development analytics…being on the constant lookout for trends and developments…and keeping these in mind when circumstances change abruptly during an adverse event. What response is best for your business? How can you make this response happen? What existing products can be deployed quickly to meet previously unacknowledged needs that appear suddenly and can be germinated into a permanent source of revenue, for example? How can you ensure, as did Nokia's managers, that your supply chain needs will continue to be met? How can you make a permanent and enduring change to increase your customers' level of confidence in your organization? How will these actions affect your revenues and those of your competitors? What organizational culture best supports this positioning? Sometimes taking care of your organization and your customers in a very proactive way, especially when your competitors are not doing so, can lead to a permanent improvement in market positioning.
More on the subject of using knowledge of black swans to your advantage in the coming months...
1 Latour, Almar:" Trial by Fire: A Blaze in Albuquerque Sets Off Major Crisis for Cell-Phone Giants", The Wall Street Journal, January 29, 2001.
2 Mukherjee, Amit S.: "The Fire that Changed an Industry: A Case Study on Thriving in a Networked World", FT Press, October 1, 2008
3 Fukuyama, Francis, Editor: Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics, Chapter 9", 2007, Brookings Institution Press.
About the Author
Kathleen Lucey, FBCI, is President of Montague Risk Management, a business continuity consulting firm founded in 1996. She is a member of the Global Membership Council and a past Member of the Board of the BCI, and the founding President of the BCI USA Chapter. IBM chose her as the first winner of its Business Continuity Practitioner of the Year Award in 1998. She speaks and publishes widely in both North America and Europe. Kathleen may be reached via email at email@example.com.