The Next Crisis Could Be Around the Corner…Is Your Company Prepared?Published: June 19, 2002 in Knowledge@Emory
The mantra of "failure is not an option" may have come from the Apollo 13 space mission, but it has long had significance in the business world. Today, more than ever before, fickle consumers and lawsuit-minded shareholders level additional pressure on Corporate America, making the catch phrase hold even greater resonance there. Now, enterprise resiliency has become the new buzz phrase for risk managers, working as consultants or in-house at a company. The goal: keep the business up and running despite any and all crises that may result.
Certainly, risk analysis and crisis management aren’t new terrain for most corporations. George Easton, a professor of decision and information analysis at Emory University’s Goizueta Business School, notes, "Many types of industries, such as nuclear power facilities, have constantly dealt with the possibility of a major problem." Redundant operating systems generally served as the answer to a critical malfunction for those in the power field and many other companies that needed to be highly reliable. "For airlines, the concerns have been continual, whether from crisis due to weather or a crash," he adds. "AT&T has long had to think about how to operate despite an earthquake or other disaster," while still having the bulk of customer service uninterrupted.
But, adds Easton, while corporations have developed systematic approaches to crisis for decades, now the customer and shareholder expectation seems to be that a company must arise from the ashes like the Phoenix. Companies are mindful of the demands placed on them, especially in light of the increasingly competitive and global business environment and the growing potential for class-action corporate litigation. Easton cites the Tylenol product tampering episode of 1982 for drug maker Johnson & Johnson and the Exxon Valdez oil tanker spill in 1989 as just a few of the defining moments that led companies to adjust their thinking on how to survive in times of a severe public relations, legal and financial crisis.
From critical breaks in the supply chain to realigning production to shifting customer demand, or responding after a natural or manmade disaster, companies can face a host of serious business challenges. Fortunately, today’s sophisticated technology can provide companies with data mining software that can easily analyze complicated customer buying patterns. It can also offer an easy way to backup critical company information in the event of a severe crisis. Easton notes that the varieties of software and platforms now available can provide business leaders with a much more effective way to analyze information and prevent crisis than ever before.
Jeff Dato, senior manager of the risk & advisory services consulting practice with KPMG in Atlanta notes, "We’ve moved on to the point where organizations are constantly monitoring data and transaction flow to ensure they can mitigate problems before they occur. The question facing businesses today is how can we be proactive and mitigate, so that we don’t ever fail. Customers and shareholders demand it." His practice group works directly with companies to improve business processes, and to upgrade crisis and data management systems.
Dato adds: "A few short decades ago, businesses were content. Say that a manufacturing company had a fire, or an ATM was down at the bank. The inconvenience wasn’t a big problem. People were very brand loyal. Today’s generation of consumers are very time conscious and customer service focused, and they want immediate gratification. Even business to business dealings have become that way."
Reputation and brand reliability have also become even more critical for companies as they occupy a place of high visibility on the Internet, he notes. Companies from behemoth Fortune 500 concerns to Mom and Pop operations can share equal footing on the Web. But, that high visibility also gives the customer or potential business partner a better opportunity to surf around for more reliable competitors should one company falter.
Even a perceived crisis, such as Y2K, led risk managers to discuss ways to make companies more resilient. "As far as Y2K, it was the first time I saw people truly focus on the supply chain and diversifying their providers," says Dato. "While much of the change in operational systems has been forced onto companies, the change has still been one for the better." The attack on the World Trade Center took disaster recovery and resiliency planning to a whole new level, he adds. "In a competitive environment, recovery is simply not an option any more. You have to predict problems before they happen, through stress monitoring and the discovery necessary."
According to Benn R. Konsynski, professor of decision and information analysis, today effective strategic planning often involves a look at how to keep the company operating, even in a limited fashion in the event of a crisis, to keep the company name out there with the customer. "Complete redundancy is too expensive for some organizations," he notes. "It then becomes a question of what is a sufficient level of operating, when major portions of the enterprise are not available, because of a crisis."
Dato adds, "It often becomes a question of how long can a business process or the technology that supports the business process be down, before there is a significant financial, operational or legal impact to the organization. Documentation of operating procedures and enterprise knowledge, in addition to effective data management are key to recoverability."
While information technology can often address many crisis situations, he notes that computer systems must also be analyzed themselves, in order to add layers of redundancies to make them more resilient. Still, he cautions, "Business drives technology, and not the other way around."
But, any sweeping initiative requires executive commitment, and all too often, notes Dato, certain aspects of enterprise resiliency are overlooked due to the costs and scope involved. "Executives at the top hold the purse strings, and they can make it happen or not happen," he says. "It’s not just talking about it, but devoting resources and money to put the processes into place to make resiliency possible."
Easton fears that American corporations are making one critical mistake in failing to more carefully analyze the treasure trove of information that they already compile --- customer complaints. "This is the last terrain where Corporate America can still improve," he adds. "It is often one of the most severe crises that can occur when there is a large level of customer dissatisfaction." He notes the devastating effect felt by both Ford Motor and Bridgestone/Firestone last year, after it was acknowledged that both companies failed to quickly react to information on tire blowouts and the resulting car crashes when certain Firestone brand tires were used on the Ford Explorer SUV.
"Often the consumer complaint information that companies have is not utilized to improve the system," says Easton. Companies remain focused on solving the problem one customer at a time, or alternately working on a public relations campaign to improve the tarnished corporate image. Unfortunately, all too often there are no conclusions drawn from a large-scale analysis of this critical information. Says Easton: "Where the rubber meets the road is to see how companies handle and address customer complaints."