Operational Resiliency in Today's Economy

How to stretch and bend to be "ready for anything"

By Jerry Ose, Principal, Tompkins Associates

Businesses are committed to growth. Yet, while growth brings opportunities, it also creates greater risks. Growth forces change throughout the organization-from production to sales to supply chain partners.

A strategy for operational resiliency will help manage these risks by helping you understand potential vulnerabilities in your organization and enabling you to be better prepared for unforeseen events. A comprehensive and well-implemented operational resiliency plan is one of the most effective ways to help your company survive, expand and prosper.

Operational Resiliency Defined

Operational resiliency differs from conventional contingency planning because it looks at more than just how to come back from adverse events. It focuses on helping companies understand where they are vulnerable so they can avoid adversity as well as be ready to "bounce back" when the inevitable happens. Think of it this way: contingency is about how quickly you can repair breaks. Resiliency is about knowing how to stretch and bend so your company resists breaking, plus planning how to respond if it does.

An example is what happened to eBay in 1999. As customers logged onto the site to trade their goods, eBay went dead-leaving customers on hold for 22 hours. The failures ultimately cost eBay more than $5 million in revenue. To top it off, the market value of eBay stock dropped 20 percent as investors had doubts. A good resiliency plan would have helped eBay identify potential risks in its infrastructure, helping it avert or at least lessen the impact of this 22-hour customer service nightmare.

Here's a hypothetical situation with a company that makes lawn furniture. The company may be doing everything right in its factory. It has solid deals with its suppliers, and it's using a procurement strategy instead of just buying. But, suppose the company lets itself get so comfortable that it doesn't exercise its supply chain muscles. Imagine how the company would react when its supplier of aluminum chair frames goes out of business suddenly or has a strike. Suddenly, it's caught not knowing who can help because it doesn't have a resiliency plan in place. Keeping aware of your supply chain alternatives is one way to stay resilient, even while you're improving business and are on top of your game.

Resiliency Impacts Everything

Because of its popularity during the Internet boom, many people still equate resiliency with IT security and how to keep out hackers. A lot of talk about security after the tragedies of 9/11 has focused on the same areas, but operational resiliency is a much bigger issue. Hundreds of events can negatively impact companies if the proper precautions aren't taken into consideration. That's true whether you're debating selling your products overseas, running less-expensive material through your machinery, or instituting just-in-time inventory.

Resiliency is specific to the company that undertakes it. Like any best practice, it doesn't always mean the same thing in every company. A comprehensive operational resiliency outreach goes beyond IT security or regulatory compliance to identify potential risks, determine viable strategies and implement a plan that reflects your organization's goals. Ideally, resiliency should cover these four areas:

• Information technology and communications infrastructure: Infrastructure, security, software and hardware
• Operations processes: Management, engineering, production, maintenance and financial controls
• Physical security: Theft, utility supply, personnel safety, natural disasters and facility integrity
• Supply chain: Customers, suppliers, distribution, traffic and transportation, inventory and warehousing
  

Resiliency planning should include a detailed and thorough assessment to examine those four areas. Look for targeted and clearly defined questions addressing the key areas of your business. The results of this assessment should help you prioritize and identify risks that you might not normally recognize in your day-to-day operations. An effective solution should be based on:

• Properly communicated plans, both internally and throughout the supply chain
• Evolving regulatory and industry guidelines
• Redefinition of security, supply chain, operational and technology requirements
• Consideration of costs and benefits
  

The Benefits of Resiliency

Operational resiliency minimizes financial loss by putting in place plans and procedures to react appropriately to unplanned downtime. It minimizes expensive recovery efforts. It can enhance your reputation because you are able to show your customers and other supply chain partners that you have taken steps to prepare for any event. It enhances your competitive advantage because you have time to focus on advancing your company's mission, not on operational concerns. And it gives you peace of mind. You and your employees will be assured that you have taken the time and committed the resources to be prepared for the future.

In a world where everyone is trying to get lean and fast, there's less and less chance to make up lost momentum and lost business if your operations stumble. Incorporating resiliency into your company culture is challenging, but it could save you millions of dollars in time, labor and wasted resources in the future-and could mean your company's survival.