The inadvertent disconnection of a power supply in May 2017 resulted in the cancellation of all of British Airway's flights at London's Heathrow and Gatwick airports, grounding of tens of thousands of passengers and costing the company 'in the order of £80 million'.
This is just one recent example that illustrates the major impacts that disruptive events, both internal and external, can have on businesses.
In 2000, a lightning strike in Albuquerque, New Mexico, caused a surge in the local electrical grid which started a relatively minor fire at a Philips Electronics plant. While the fire was extinguished quickly and there were no injuries, the cleanrooms were badly contaminated and millions of microchips were ruined. Initially, Phillips significantly underestimated the time it would take to resume production. At the time, Philips was the key supplier of chips for Ericsson's mobile phone production and by the time Ericsson management were aware of the full extent of the disruption, they were unable to source alternative supplies. This caused a major disruption to production and contributed - along with other factors - to a $2.3 billion loss in Ericsson's mobile phone division that year.
In 2012, Royal Bank of Scotland experienced a catastrophic IT failure because of a ‘glitch’ with a software update. Over 7 million account holders were unable to access or transfer funds. As well as incurring significant reputational damage, the bank was fined £56 million. It also set aside £125 million to cover compensation and related costs.
Sources of disruption are inevitable, but damaging consequences need not be. Organisations that implement business continuity management are better equipped to meet the challenges that arise when disruption occurs. They are more resilient and better able to safeguard their reputations, brands and value-creating activities.
What is business continuity management?
Business continuity management is about identifying and managing potential threats to your business, and developing your capability to respond effectively to a disruptive event. It is about anticipating what might go wrong and taking planned and rehearsed steps to protect your assets. It is also about prevention and reducing the likelihood of disruptive events occurring in the first place.
Why adopt business continuity management?
Quite simply, it is in every organisation’s self-interest to ensure it can continue to operate in the event of a disruption. Consider the oil tank explosion at Buncefield in 2005, which badly damaged an adjacent business park, as well as the oil terminal itself. Ninety-two businesses employing 9,500 people were displaced from their premises. The total cost to nearby businesses was estimated to be £100 million. Several were not sufficiently resilient and were forced to close down.
Examining how your organisation’s activities could be disrupted and what impacts could arise enables you to put in place procedures and plans to reduce the likelihood of a disruption occurring, and to mitigate, reduce or even eliminate the potential impacts. By adopting an approach based on business continuity management, your organisation can do this in a structured and rigorous manner.
Beyond the imperative for continuity of operations driven by self-interest, other emerging factors are motivating leading organisations to protect their revenue, brands and reputation by implementing business continuity management. These include corporate governance, customer demands, regulatory compliance, public procurement criteria and insurance requirements.
Supply chain dependencies
Several notable incidents over the past decade have also highlighted the need for greater emphasis on continuity management across supply chains. These include the eruption of the previously little-known Eyjafjallajokull volcano in 2010 and the 2011 Tohoku earthquake (and subsequent tsunami and nuclear accident at Fukushima Daiichi).
- The Eyjafjallajokull eruption disrupted air travel across western and northern Europe for six days. The international Air Transport Association (IATA) estimated lost revenues in the airline sector of $200 million per day. It disrupted businesses across the continent - and beyond - by leaving passengers and time-sensitive cargoes stranded. It also reduced demand for jet fuel by ~2 million barrels per day.
- As well as causing mass casualties and significant environmental damage, and necessitating a 21.5 trillion yen, 30-40 year clean-up at Fukushima Daiichi, the Tohoku earthquake disrupted global supply chains for semiconductor equipment and vehicle parts. More recent earthquakes in April 2016 again resulted in Japanese car manufacturers suspending production as a result of a shortage of critical parts.
Other, less widely-reported events have had similar effects.
- An explosion at the Aichi Steel plant in China in January 2016 halted production at Toyota’s Japanese plants for one week as a consequence of a shortage of steel components.
- The ongoing conflict in Ukraine has resulted in a dramatic increase in the price of neon, which has increased the cost base for semiconductor manufacturers.
- The 2001 outbreak of foot and mouth disease in Britain had a major impact on the Irish agricultural and tourism sectors, with the impact on the latter alone estimated to have been ‘in the region of €210 million, with a heavy concentration in the rural economy’. It also resulted in several travel restrictions that impacted on supply chains into and out of Ireland.
As a result of these and other incidents, customers in many sectors increasingly look to their suppliers to implement business continuity management to enhance continuity of supplies.
Legislative compliance is an important driver in some jurisdictions. In the UK, for example, the Civil Contingencies Act 2004 requires the emergency services, local authorities and certain national heath bodies and government agencies to establish effective business continuity management. Other regional and national utility and transport companies are also required to cooperate.
Benefits of business continuity management
Business continuity management builds resilience. It enables organisations to respond more effectively, to reduce the time it takes to resume normal operations and, potentially, to avoid significant or irrevocable damage. It can also eliminate certain lower order risks by identifying and addressing relatively simple single points of failure. While not catastrophic in terms of impact, these risks can impose significant costs on businesses over time.
Adopting business continuity management is more than a purely defensive move. Resilience assures customers and strengthens organisations' value proposition. Being able to demonstrate to customers that you have a thorough understanding of business continuity risk, and that there are robust plans in place for continuity of supply in the event of a serious disruption, can be source of significant competitive advantage.
The successful implementation of business continuity management typically involves several business functions. Senior management buy-in is a prerequisite. The key elements of a business continuity management initiative involve:
- Defining the scope, e.g. does the initiative cover your entire business or specific activities?
- Identifying and understanding your critical business activities.
- Analysing and assessing the potential impacts of disruptions.
- Quantifying and prioritising the business risks.
- Developing a business continuity strategy.
- Preparing response and recovery plans to mitigate the impact of disruptions and accelerating the return of your business to pre-disruption activity levels.
Standards, such as ISO 22301, can be used to guide your business through this process. The extent to which a standard is applied will depend on the business environment and the complexity of the operation.
At Byrne Ó Cléirigh, we improve our clients' resilience to business-threatening disruptions by undertaking business impact analysis and risk assessments. We partner with organisations in diverse sectors, including, recently, aviation and advanced manufacturing, to adopt best practices in business continuity management.