- Business management & operation
Managing a disaster
It's not a pleasant thought, but another major disaster is going to happen, sooner or later. Nitin Bakshi believes that we can both learn from how disasters were managed in the past and also find better ways to manage and recover from the next major global setback. Moreover, he believes that relying on governments alone is not wise. Stuart Crainer asked Professor Bakshi about his views.
You’ve received recognition for your research in helping companies and governments avoid disruptions in business continuity when disaster strikes. No one wants to think of a disaster as a regular occurrence, but you seem to be introducing the idea.
We’ve always had disasters, but what’s new in the modern business environment is the globalisation and interdependency of the world economies. According to the UN, 2009 was the mildest year in the last decade in terms of number of natural disasters, yet accounting for 245 disasters compared to a high of 434 in 2005. Some 58 million people were affected in 2009 and the economic losses tallied up to an astounding $19 billion. Companies like General Motors, for instance, are operating in more than 50 countries. So the likelihood of being hit by a disaster is fairly high for such firms. When it does happen, there can be huge consequences for the supply chain network.
The flood in Pakistan is one fairly recent world disaster. Most people focused on the humanitarian consequences, not the supply chain.
Certainly, the humanitarian aspect is most critical. However, there is another dimension to the matter. Americans, for example, may watch such a disaster and feel compassion for the people of Pakistan, but they may not realize that they are affected by the crisis too, albeit economically. Pakistan is a major supplier of raw material to the garment manufacturers. This flood leaves the garment industry grappling with the problem of making alternate sourcing arrangements. They are, no doubt, searching for another source right now, probably in Sri Lanka, Bangladesh or Vietnam.
You are not saying that business disruption outweighs humanitarian concern.
I’m saying that the two concerns are not entirely divorced from each other. There is significant overlap between what governments need to do to help people recover from a disaster and what businesses need to do to resume normal operations. The same holds true for prevention of disasters. This overlap between “humanitarian logistics” and “business continuity” is where I wish to contribute. My focus is on getting the public and private sector to think in terms of cooperation.
I have two major interests: the first is the management of disruption — I’m talking about catastrophic disruptions such as natural disasters, terror strikes and economic slowdowns. The second is elaborating on the role of the private sector in creating a society that is resilient to disasters.
Let’s first talk about the management of disruption. What does that mean?
When you think of the management of disruption, you are talking about strategies you might put in place before, during and after the disruption. So, before a disruption, you would do a risk assessment (identification and measurement of the risk); monitor the risk; and you would try to mitigate the risk, i.e., reduce the likelihood of a disruption occurring and reduce the scope for losses in case an adverse event were to occur. During the disruption, you continue to use mitigation strategies directed at containing losses. After the disruption you’re looking at recovery, such as workers returning home after the hurricane or a flood evacuation and, on a bigger scale, resuming port or airline operations.
And what role do you see the private sector playing in creating a society that is resilient to disasters?
The traditional view has been that public safety and security are entitlements provided by the government to citizens. Governments are beginning to see that this is just not viable anymore. There is a need for the private sector to get involved. For instance, retailers have channels and resources for distributing their products to the customers in a very short time, and they have fantastic communication infrastructure as well. In the event of an evacuation triggered by an extreme event, why not capitalise on this infrastructure, which is already in place, rather than try to recreate it from scratch, from the government’s point of view?
Are you suggesting that the communication and logistical infrastructure of Tesco and Sainsbury, which is already in place, would get relief to disaster victims faster than the government can?
I am suggesting they may have developed supply channels and resources that could be used during a natural disaster. With appropriate oversight from the government, the retailers would be happy to volunteer their help in difficult times, as it facilitates early resumption of business and is reflective of the organization’s commitment to CSR. Indeed, I see scope for alignment in the objectives of the government and the private sector. In my research, I have been trying to identify and elaborate on the role of the private sector in creating a resilient society.
How do you see the private sector working with a government during a disaster?
The primary concern is protecting lives and restoring normalcy as quickly as possible. The private sector can certainly help facilitate these objectives. Certainly by adhering to safety best practices and investing in early warning systems, disasters such as the Bhopal tragedy in India (1984) and the BP oil spill in the US Gulf Coast (2010) can be avoided. By not restricting itself to not causing the problem, the private sector can be part of the solution at large by sharing its knowledge, infrastructure, and human resources in crisis situations. Finally, the Insurance sector has an important role to play in efficiently redistributing the risk from disasters across the various stakeholders in society.
Getting all the players to work together sounds like a monumental task.
I think governments are warming up to the idea because they know they need to respond more quickly and be more creative in times of disaster. The private sector has already thought about a lot of these contingencies in the context of Business Continuity Planning. Rather than having a government-centric approach to emergency management, we need to involve the private sector and individuals much more. Public-Private partnership for disaster management is where the future lies.
Your view of disruption risk avoidance strikes me as pretty creative. You’ve stepped back and assessed the situation from a supply-chain perspective. What brought you to this perspective?
In an article I co-wrote with Professor Paul Kleindorfer, ‘Co-opetition and investment for supply-chain resilience’ (Production and Operations Management 18, no. 6, 2009), we proposed that suppliers and buyers should jointly invest in supply chain security. We also showed how collaboration can be implemented and that it’s economically smart.
You also have been part of a team of professors that wrote about the security of international ports. It has attracted a lot of media attention. Do you find that a sign that your work is making a difference?
Yes, well, those 20-foot by-8-foot by 8-foot metallic boxes carried by large ships are the infrastructure underlying international trade. It wasn’t long after September 11 that the United States and the UK realised the significant risk to national security they present — weapons and instruments of terrorism could be smuggled in. As a result, the US mandated that, by 2012, 100 per cent of US-bound containers at international ports had to be inspected. But there is a problem with that mandate: it will take a lot of time, cost a lot of money and create significant congestion at the ports. If congestion increases rapidly or grows beyond control, that will affect international trade, and therefore GDP. I have worked with Stephen Flynn at the Center for National Policy and Noah Gans at the Wharton School to describe how to effectively manage this congestion by suggesting that the private sector get involved. (‘Estimating the operational impact of container inspections at international ports’, is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1664386.)
Could you elaborate on that?
Currently the US or UK governments maintain their respective national inspection infrastructure. If each of the two countries were to unilaterally inspect containers without involving the private sector, then it would be burdensome and, quite possibly, infeasible. I have examined the advantages and disadvantages of the two methods of container inspection that are the most likely to be used. There has been a lot of debate about what is feasible and what’s not, but only one system — an adapted version of what is called the SFI approach — is capable of being scaled up to satisfy the scanning and radiation detection requirement mandated by the US law. It involves rapid screening using relatively low-cost drive-through portals followed by a more careful scrutiny of only those containers that raise an alarm in the initial screening. Thisprotocol allows it to handle 100 per cent of all container traffic bound for the US, as well as other destinations, on a cost-effective basis. Terminal Operators, who are members of the private sector, have stepped forward and volunteered to invest in the equipment and to manage the inspection process as part of their Business Continuity initiatives. With adequate government oversight, this would constitute a sensible approach since the Terminal Operators are best placed to manage congestion at the terminal.
You have just published a new paper about the power grid system. Should they be managed differently?
The idea there is that national infrastructure, such as a power grid that uses traditional fossil fuel for power generation, could be vulnerable to disruption – unintentional or otherwise. This is true anywhere in the world but particularly so in some developing nations. Firms that are outsourcing work to a developing country might want to think about funding backup micro-grids powered by solar or wind energy as an alternative power source. Then, in case the national grid is not available for whatever reasons, they could still function using the micro grid. Furthermore, this reduces the attractiveness of the national grid as a potential target for terror strikes. The point is to build on the idea of involving the private sector in achieving resilience.
What other private-sector expertise can be applicable to the study of disruptions?
To provide an example, with regard torisk assessment, I think the companies that collect and interpret near-misses have a lot to offer. Du Pont is a leader in tracking near-miss statistics. This is a chemicals company that has to manage potentially dangerous processes. They represent undesirable events in a pyramid structure in order to identify and measure risk. For each adverse event, there are a number of events with limited impact and even more with no impact. So, at the top of the pyramid is the worst case — say fatalities or serious injury — the ultimate undesirable event. At the bottom, they may be a lot of minor events such as oil spills on the shop floor. These events, closer to the bottom of the pyramid, are referred to as near-misses.
The company may have very little data on fatalities, but many oil spills obviously point to the fact that things are not running all that smoothly in the organisation, and are a leading indicator that you might have fatalities if you don’t investigate and address the cause of the oil spills. Tracking near misses can give insight into how to effectively manage safety within the organisation.
Are there any other risk-avoidance or business continuity practices that you’re investigating?
There is an opportunity to learn from the use of performance-based contracting in the aircraft engine industry. For example, Rolls Royce, based in the UK, uses performance-based contracts which they refer to as “total care”. That means they will supply engines to airlines and in return will get paid for the number of flying hours, the time the plane is actually flying. Under this arrangement Rolls Royce assumes responsibility to keep the plane flying. Hence, it is in its best interests to work hard to keep the engine fault-free. The longer the plane flies without need for engine maintenance the more money it makes.
What can we learn from performance-based contracting that we can apply to disaster management?
It’s very difficult for the government to monitor what various agencies and contractors are doing in times of disaster. However, if their reward structure incorporates some meaningful measure of performance, such as a recovery time objective (RTO), then presumably it will motivate them to do their job to the best of their ability without the need for close supervision.
Learning can certainly occur both ways, that is, the private sector can be the beneficiary too. It makes complete sense that disaster management agencies in the public sector and volunteer organisations, such as Oxfam, would have developed expertise that might be relevant to the private sector.
Disasters are going to continue to happen. The whole point is to keep improving at managing them. I would not wish for my work to be restricted to being an academic exercise. Therefore, getting this research out to a bigger audience is actually quite important. I believe that the private sector has a lot more to offer in helping create a more resilient society.