Decentralization, Disease and Terrorism.

Editorial note: this article was written long before the largest black out in the American history occurred on August 14th, 2003. The message of the article rings even more true today. If you are interested in modeling and understanding the costs of making your organization resilient, contact us. Our strategic partner, Primary Matters, Inc. has just completed some modeling work on the costs and upside of redundant decentralized infrastructure for customer service centers.

How the world just changed again.

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Author: Alistair Davidson, Eclicktick Corporation. alistair@eclicktick.com

Draft 3.0. April 14, 2003

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Let's make this personal.

What if your job is at risk and you there is a good chance you'll get fired and, even worse, you could have prevented it?

That's the situation many companies are in these days.

The key task: “Think disaster!”

Now disasters come in many shapes or forms. There's the hard drive that did not get backed up. There's the unexpected weather storm in Denver that keeps people from work for three days. There are lunatics wandering the world with high powered rifles and assassination fantasies as Washington residents have experienced. There are the unfortunates killed by religious extremists in the 9/11 suicide bombings.

Type of Disaster	Examples
Personal disaster	Personal or family member sickness or accident
Information technology disaster	Work is lost due to theft, crash, or failure of a key technology.
Weather disaster	Weather or natural event such as flooding, snow storms, earthquakes, fires, avalanches, etc.
Urban disaster	Failure of key piece of infrastructure, e.g. rail crash, bridge collapse, accident on freeway.
Disease disaster	SARS, flu, bio-terrorism event
War and terrorism	9/11, sniper shootings, car bombs, suicide bombings, dirty bombs, nuclear bombs

OK, so these are all exceptional you say. It's a numbers game. I don't have to worry. Then along comes SARS (Severe Acute Respiratory Syndrome). Who knows what a colleague has done or where he or she has been?

Example: at a Hewlett-Packard plant in Toronto, some bright light, who had been exposed to SARS came to work and potentially infected 200 people - the entire plant. It probably cost HP $500,000 in lost wages alone. And that is before the additional cost of disruption and mistakes are taken into account.

So they all get quarantined. It's like the hair color ad. “She told two friends. And she told two friends…” but in this case, without quarantine, it would be, “She told 200 friends. They told 200 friends each. Who in turn told 200 friends.”

And 200 X 200 X 200 is 8,000,0000 friends.

So, now that I've got your attention, what can you do about it?

The magic piece of advice is “Be proactive.” If you think not being proactive is expensive, then look at the airline industry. Traffic is down massively -- 30-40% in many markets. Airlines in the US, Canada, Hong Kong and Europe have had to file for bankruptcy. Massive lay-off and salary reductions have been required. Illustrious names like Cathay Pacific, United, US Air, Swissair - all have gotten into trouble. 9/11 cost New York City at least $17B. And terrorism is forecast to knock .25% off the world economy's growth rate - an impact of around $75B.

The good news is that the solutions don't have to be expensive and they can actually help companies and your personal life. That promise that many company makes and don't do a very good job of - “We support family values” - may in fact be aided by some of the responses to these terrible events.

So what can you do?

Protecting Your Job from Disasters

There are five relatively simple steps to ensuring that your company is not going to hit this wall. But before we get to them, let's think about how we should analyze the future. Futurists often use scenario analysis to help them clear their way through the uncertainty of the future.

What they do is identify some powerful variables that might cause the future to look a whole lot different than a straight line extrapolation of today. In the case of disasters, two key drivers of different futures would be terrorism and infectious disease. We have seen both, and both could get much worse.

There's a demographic time bomb in the Middle East where populations have doubled over the past twenty years, and there is nothing like having a whole lot of unemployed young males with no place to invest their energy to create conditions ripe for war and terrorism

And on the disease front, overpopulation and global travel have turned the world into a giant Petri dish for breeding new diseases. Even worse, overpopulation brings animals and people closer together causing `exciting' new diseases. AIDS is probably the result of deforestation and the forestry workers eating chimpanzees (SIV migrated to humans and became HIV).

SARS and the annual flu variants are often are born in China where farmers live in close proximity with their land and livestock. Their human viruses exchange genetic material with the animal viruses in their ducks and pigs. Not only are people traveling, but so are genes - between species.

So, we have the two drivers, disease and terrorism- both population driven - and if there is one thing you can always count on, it's demographics. Demographic changes are the easy ones to call.

So, you take your alternate futures and you look to see how your business would survive under your proposed scenarios.

High Terrorism	Fundamentalist terrorism, no new diseases, or diseases controlled rapidly through advances in medicine. Impact: 0.25% of GDP	More fundamentalist terrorism, SARS and more. Impact: 0.4-2.% GDP
Low Terrorism	Conventional wisdom view. The basis for your current planning. Impact: 0.5% of GDP	Urban terrorism, SARS and more lead to dislocation and panic. Impact: 2% or more of GDP.
	Low Disease	High Disease

Economic impacts have been estimated by Standard and Poor's, Morgan Stanley and the IMF. They are shown as a rough approximation of the potential impact.

Now, scenario analysis does not say that these futures are forecasts. People look at the future and they adapt. Living in disaster prone California, I buy extra candles and flashlights. I have battery back up capabilities for my computers. The same is true for scenarios, people adapt; but what's important to understand is that each of these futures is part of a spectrum of disasters to which you are already exposed. And you have to anticipate how what you are currently doing will affect your business under these scenarios. Most people change what they do when they think through their exposures.

For a strategic thinker, a solution that solves multiple problems at the same time, and which brings multiple benefits generally turns out to be a good investment. So, what do you do?

The temptation is to throw up your hands in horror and say, “We can't do anything”. But that reaction leads the way of potential disaster. There are in fact, important and relatively inexpensive solutions. They do require spending some money, but there can be immediate pay-offs from some such investments. So they are worth paying attention to.

The Five Step Program

Step 1: You need to make a list of all the value creating activities your organization does. Strategists often call this the value chain. What are the activities that people pay you for doing?

Step 2: You need to identify the critical tasks you do. Which ones absolutely have to work in the event of disaster? Which can be contracted out when disaster strikes?

Step 3: You need to identify your priorities in a disaster. In most companies, 20% of the employees, 20% of the products, 20% of the customers, 20% of the suppliers are absolutely critical. These are the ones you focus on first.

Step 4: Figure out how you might operate in the event of disaster. How can you do business if your office burns to the ground? If people have been quarantined and can't come into work? If a key supplier can't ship to you?

Step 5: Set up stand-by arrangements and a plan for transitioning to the standby arrangements when disaster strikes.

Figuring Out the Benefits and Costs

Now, the hard part is normally figuring out the costs and the benefits of your standby arrangements. Each type of stand-by arrangements needs some justification. The rule of thumb here is start off with a “back of the envelope” calculation. If you can a quick and dirty analysis, you can save yourself a lot of work.

But the real area of focus should be on the high return areas. Some examples may help here.

	One risk	Multiple risks
Multiple pay-offs	Utility computing, e.g. computing outsourced to a supplier like IBM offering computing on demand	Telecommuting and decentralized IT architecture that permit a “work anywhere” business
Single pay-off	Hard drive back-up	Alternate storage, multiple telecom networks

In world where you can't do everything, the immediate preference should be for investments that solve multiple problems and deal with multiple risks. And if they have multiple benefits, then that is even better.

But the impact is going to vary. Not everybody will be affected in the same way.

The scenarios imply the impact of these four scenarios needs to be looked at by various institutions in society.

Different Impacts on Different Players

	Key Players	Issues to Address
Economic Impact	Government	Design and implement domestic and foreign policies to reduce the likelihood and impact of disruptive events caused by terrorism and disease.
Industry Impact	Industry associations, cooperation between competitors	Lobby for policies that facilitate changed investment patterns to minimize disruption. In certain industries, transition programs to help exiting employees from industries where demand has been irrevocably altered.
Company Impact	Risk analysis of bottlenecks in company and supplier infrastructure.	Arrange alternate suppliers. Investing in standby capabilities. Decentralizing organizations.
Value Chain Impact	Develop models of value chain performance under different scenarios	Focus upon key value adding activities. Pareto activity analysis - which activities are most important. Pareto customer analysis - which customer are key to support in a crisis Pareto employee analysis - which employees must be able to work in a crisis.
Customer Impact	Modeling of customer consequences of business interruption.	Development of new services tied to risk and return profile of customers.

Decentralization and Telecommuting - It's Not Just In the Future. It's Here Now.

Telecommuting, virtual private networks and an architecture that removes the importance of centralized infrastructure turns out to be one of the most important decisions a company can make today, particularly in the light of the four scenarios presented.

Allowing employees to work at home allows them to work under most of the disaster scenarios. It addresses big disasters like SARS and terrorism, but just as importantly it allows a company to operate under the small disasters, like a three day snowstorm. And decentralization and redundancy are intrinsically less risky.

But you need to model such architectures. All decentralized networks whether you are looking at distributing customer call centers across multiple locations, or implementing brand new Internet-based telephony capability (VoIP telephony) involve putting together lots of pieces and being able to model the demands, the capacities, the costs and the response times.

Consultants such as entrepreneur Greg Borton, developer of Primary Matter's The Guide™, have spotted this opportunity (www.primarymatters.com" www.primarymatters.com ) . He and other firms have been building tools that are designed to make such decision easy to evaluate. They are structured for modeling the volume demands, the fixed and variable costs of the people and decentralized infrastructure, and the revenues implications of servicing, or not servicing a customer or supporting employees off site. And they can do the analysis quickly because of their tools.

The New Market for Telecommuting

“Fixed-line telecom companies in areas affected by the disease say companies are scrambling to get high-speed Internet connections for employees so they can work from home. Internet traffic has jumped and, much as they did when the Sept. 11, 2001, terror attacks temporarily shut down international travel, companies are using videoconferencing to replace face-to-face meetings.

"PCCW Ltd., Hong Kong's biggest fixed-line carrier, says Internet traffic has jumped 20% since the outbreak of severe acute respiratory syndrome, or SARS, began, and the company is signing up more subscribers to its broadband Internet services, though it couldn't provide an exact figure. Singapore Telecommunications Ltd. says new subscriptions for broadband have doubled in the past week, which will cause a jump of about 20% to 25% for the month. In Taiwan, Chunghwa Telecom Co. says the use of its videoconferencing service that allows Taiwan companies to interface with factories in China jumped by two-thirds in March, to 2,000 minutes, from about 1,200 minutes.” Wall Street Journal, April 15, 2003. “As SARS epidemic spreads” by Jason Dean

Large consulting firms like SAIC (www.saic.com ) are now using his tool to help their government, big business and customer service center clients to help look at their next generation of technology decisions. Maurice Degley, a consultant at SAIC customer service center consulting practice comments: “Managements now realize you can't wait for disaster to happen. You have to model your business and figure out where you're exposed. But most of our clients can't put all the data together without person years of work. That's why you need a model to help you. It speeds things and show how you can get short term payback and long term risk reduction.”

Does this kind of model make sense? Well, perhaps the question is: “Can you afford not to plan for the increasing frequency of disruption in your business?” Some simple calculations on the cost of providing broadband to employees at home suggests that for a typical company, a 1 to 10% probability of a five percent reduction in sales would pay for the broadband connection for all employees.

A detailed model will help look at the costs of setting up managing and transitioning to such home use when disasters occur. And you'll need to quantify the benefits from normal usage in normal times - and there should be some benefits there too in addition to the obvious advantage to the employee.

More support for the need to think about disasters comes from the following observations:

Whether or not you believe in global warming, it appears that the volatility of weather is now such that businesses are interrupted by extreme weather conditions on a regular basis.

Many writers now predict an ongoing series of disease pandemics due to overpopulation and shrinkage of hitherto wild habitats, causing remote diseases to migrate to humans (e.g. Laurie Garrett's The Coming Plague: Newly Emerging Diseases in a World Out of Balance, Farrar Straus & Giroux; (October 1994), Penguin 1995)

Terrorism is already here.

But there are other good reasons for thinking telecommuting and decentralized infrastructure makes sense. We have, in most of the developed world, a transportation crisis. We can't build more roads. And we know two things for sure:

The cost of decentralized information processing, telecommuting, video conferencing, mobile telecom services has and will continue to drop. Like computers, telecom cost drops are so large that if they had occurred in the car industry, we would all be buying Rolls-Royces for a dollar and the technology would allow us to get hundreds of miles per gallon.

Population growth guarantees more congestion on roads.

So in a world of escalating US deficits, revenue constrained states and cities, with a growing backlog in road and bridge maintenance, and escalating demands for higher levels of non-economically productive security spending, networking offers some serious advantages to governments. It's cheaper to encourage widespread broadband than to continue to invest and obtain diminishing returns from new freeways (whose construction triggers massive opposition). It may be cheaper to have airlines downsize than subsidize them to maintain a level of capacity that was needed before inexpensive telecom was possible.

And in an environment where infectious disease is an issue, transportation patterns can change quickly - in Hong Kong, a city dependent upon public transportation - a 20% drop in traffic on the subway was reported due to SARS in April 2003 .

People will still travel.

People will go on vacations.

Some things still need to be done in person. People still need to meet.

But not everything needs to be done at the office. And financial constraints and risk minimization strategies are starting to come together as an irresistible force.

The old Motown song goes: “Call me. I'll be there”. There is going to be everywhere.