The Resilient Enterprise

Recently, JetBlue Airways experienced major operational disruptions as a result of a severe winter ice storm in the Northeast.  The company and its CEO David Neeleman are doing everything possible to recover from the problems that plagued their customers for several days and to make sure that such problems do not re-occur in the future.  Mr. Neeleman wrote in an online message to JetBlue customers:  "We have begun putting a comprehensive plan in place to provide better and more timely information to you, more tools and resources for our crewmembers and improved procedures for handling operational difficulties.  Most importantly, we have published the JetBlue Airways Customer Bill of Rights – our official commitment to you of how we will handle operational interruptions going forward – including details of compensation."

JetBlue’s travails remind me once more of the increased fragility of complex systems, and in particular, of the need to apply to 21st century businesses the kind of systems thinking that has long been used in more mature disciplines like civil, mechanical and electrical engineering.  My MIT colleague, Yossi Sheffi, Professor of Civil and Environmental Engineering and Engineering Systems, recently published a book, The Resilient Enterprise, in which he addresses these issues head on.

Professor Sheffi demonstrates how vulnerable companies are to unanticipated disruptions if they have not properly prepared for them.  The key is for a business to focus on resilience - which he defines as the ability to bounce back from disruptions and disasters by building in redundancy and flexibility.  Standardization, modular design and collaborative relationships with suppliers and other stakeholders are among the kinds of capabilities that can help create a resilient company.  It is equally important to embrace a corporate culture of flexibility - with distributed decision making and communication at all levels.

Talking specifically about supply chains, he observes, “Today’s supply chains span the globe and involve many suppliers, contract manufacturers, distributors, logistics providers, original equipment manufacturers (OEM), wholesalers, and retailers.  This web of participating players creates complexities, making it difficult to realize where vulnerabilities may lie. It also creates interdependencies that exacerbate these difficulties.”  He later adds:  “The vulnerability of the connected world to disruption is not limited to supply chain operations; it affects any business that depends on a reliable global communications network.”

Why are 21st century companies particularly vulnerable to major disruptions?  Let me suggest two main reasons.  The first is the nature of the complex systems we are building today, including businesses, especially globablly integrated enterprises.  As a result of the Internet and other advances in information technology, not only are systems today broader in scope, involving very large numbers of components, but we are also able to interconnect and integrate these components as never before.  Moreover, many of the components are undergoing rapid changes as a result of an increasingly volatile marketplace.  The result is that the overall system – the business itself - becomes emergent, a term used to describe highly interactive, fast-changing, complex systems whose behavior - indeed, whose very nature - is essentially unpredictable.

Faced with such vulnerabilities, you would expect that businesses would then increase their investments in resiliency and flexibility.  But in many cases, the pressures of our highly competitive marketplace to keep prices low and the short-term earnings obsession of our financial markets make it difficult for a business to devote the efforts and resources required to plan for potential disasters.  When the skies are clear, literally and metaphorically, such efforts may appear to be a waste of time and money.  Often, it is only by living through a major disruption and a near-death experience that managers learn the importance of planning for survival in an uncertain future. 

Many people, for example, still wonder how it is that mainframes are still around today, and have not been done in by newer, simpler, less expensive platforms.  The answer is simple.  Mainframes continue to be the most robust platform in the industry.  For those workloads that must be up just about all the time, nothing beats a mainframe.  Experienced managers know that for such critical workloads, the extra costs are more than made up by significantly reducing business outages, and thus avoiding the large costs often involved in managing through a crisis, as well as the subsequent damage to the reputation of the business.

In today's environment, businesses and societal institutions need to be able to change and adapt to whatever is going on in the marketplace, including the occurrence of totally unanticipated problems, some of which will likely be quite serious – such as volatile weather conditions that strand fleets of airplanes.  As Professor Sheffi points out, investments in resilience and flexibility not only reduce the risks of facing serious crises, but create a competitive advantage for businesses in our increasingly unpredictable marketplace.

Comments

[James Drogan]

At one time I was seeing Sheffi on a somewhat regular basis in my IBM role in Transportation Industry Marketing. I never walked away from an encounter without feeling enriched with new knowledge and new challenges.

Yossi and you are on a key issue. His book is a substantial contribution to a necessary dialog. I also recommend for your consideration Weick, Karl E., and Kathleen M. Sutcliffe. Managing the Unexpected: Assuring High Performance in an Age of Complexity. San Francisco: John Wiley & Sons, 2001.

I also wonder whether complexity is beginning to overtake our capacity for understanding and management. I would be interested in your views on this.

Thanks.

Jim

[Sanjay Dalal]

"The key is for a business to focus on resilience - which he defines as the ability to bounce back from disruptions and disasters by building in redundancy and flexibility. Standardization, modular design and collaborative relationships with suppliers and other stakeholders are among the kinds of capabilities that can help create a resilient company. It is equally important to embrace a corporate culture of flexibility - with distributed decision making and communication at all levels."

Irving, I plan on reading this book. Thank you for sharing the key insights.

One question I do have:

Would the investment required in time and resources to implement and create such a resilient business outweigh the benefits? For instance, is it analogous to buying an insurance policy? Or to put it another way, if a company does invest into redundancy and flexibility, would it make for efficient or inefficient decision-making especially at times of the greatest need? Also, at what stage of the business should a business begin to invest towards becoming a resilient business?

From a layman's perspective, it does make sense to hedge, and have preparedness for the emergencies and disasters. The question is how much is enough? Or can too much of it potentially make a company less willing to take risks, innovate and block creativity?

In the example of JetBlue, could JetBlue have become JetBlue if it had become focused (or obsessed) on becoming a resilient business from early on?

[Kenneth Romans]

Resilience is the answer to the question that is keeping us up at night - how do we make sure that last failure really will be the last? The most that folks are willing to commit is that they have done their best to prevent a repeat of what has already happened.

Yossi Sheffi's book, The Resilient Enterprise, breaks new ground by highlighting resilience and new ways to achieve it. As he makes clear, it is far more than the ability to bounce back from failure. Resilience is the ability to prevent the small problem from cascading into a catastrophe. And more.

Resilience is about much more than reliable platforms. It's about reliable infrastructure and applications all across IT. Even when all of the parts are reliable, you will still be at risk. The ominous emergent property of the whole complex of systems and people is likely to be hidden instability, not resilience. The apparent stability you seem to have while things are calm is an illusion. The next painful event ends the calm.

Resilience of the business is about more than reliability. The other side is innovation. Businesses must compete to survive, not just keep the systems up. IT must provide the systems that enable new products and services.

The sterile hygiene of a defensive IT that fights off change will kill a business. It will be unable to compete. Runaway innovation that bypasses IT process will kill a business. It will be unreliable. The conventional wisdom has been that the trick is to strike the right balance. It's a compromise.

The new frontier for IT is the quest for resilience from synergy, not compromise. IT must embrace business - not systems - resilience as the end. Then IT can do more than steer between control and innovation. The business is then resilient - it is reliable and competitive.

Good Tip