Amadeo Giannini, the founder of Bank of America, rescued all funds from his bank after the 1906 San Francisco earthquake. He used that to lend to customers few days after the disaster. Other banks were in smoldering ruins and unable to operate. Having a plan to get all the funds out, shortly after an earthquake, was a good continuity strategy.
Currently, GM is halting production in some plants. Ford is running out of paint. The electronics industry is under siege with lack of critical components that sustain us in this age of Apple and Facebook. And there are potential risks for many small firms to collapse. Why? The earthquakes in Japan disrupted supply chains and challenged the just-in-time (JIT) management model that has gained popularity.
Over the years, firms have become more cost-conscious owing to the fierce and global nature of competition. Many adopted a lean strategy. They order the materials only when needed; they consider holding stocks of parts an unnecessary redundancy. But events in Japan in the last few weeks have exposed the hidden costs of JIT. A company stands a risk of losing market leadership and corporate reputation. Organizations largely sit atop a three-legged chair of people, processes, and tools. When supply chain is disrupted, all three are affected, especially in the case of Japan, which produces high-tech niche products for which there are limited sourcing alternatives. Firms can model supply chain disruptions,but when Black Swans happen, the system usually breaks down. In his HBR post, Harold L. Sirkin provided ways companies can mitigate these issues.
Let me take a different look: IT infrastructure. As businesses transition into the digital ecosystem, preparing for events like earthquakes, tsunamis, and nuclear disasters become very important. How prepared a company is will determine if it can restart operations, as Giannini did, shortly after a disaster. That we work in one city and our data is stored in another makes this more challenging since the risk may not be obvious. For cloud-based organizations, what happened in Japan could elicit more questions on how prepared their hosted platforms are. Whether it is a terrorist attack on a server farm or a natural disaster, planning is what will help to develop that continuity. You must work out an IT continuity strategy to protect your business. Here are two important steps:
Offsite Backup: For organizations that depend on data to function, developing a flexible offsite backup strategy is important. And it must be far away from your locality. Keeping the backup in your vicinity does not make much difference; it could be affected by the same disaster that disrupted you. A backup strategy is not complete without an offsite strategy.
Investigate Cloud Partners: If you run your business in a cloud, you could become vulnerable if the cloud partner cannot recover from a major disaster. That the data is not resident in your facility must not give you an illusion of safety. You must find out how prepared they are to resume business after unusual events. This is important because, in Japan today, one of the problems is lack of power. Most firms are ready, but they do not have electricity to operate. It is possible that after a disaster, your organization could be ready for business, but your cloud partner is not.
Japan has taught the world JIT and right now its is revealing JIT’s risks to the world. It makes sense to identify, examine, and ameliorate your business continuity’s weakest link.
original published in HBR
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