Tag: business continuity

Leveraging Tier-2 and -3 Locations to Strengthen Business Continuity Planning | Blog

It’s time for a fundamental rethink in the way companies approach their Business Continuity Planning (BCP), in general, and their locations strategy in particular. More than 70 percent of enterprises leverage only a single – usually tier-1 – location in one country for global business services delivery, according to our analysis. And even for companies that leverage tier-2/3 locations, deployment is the highest at their tier-1 location. This deployment model not only limits the full value they can achieve from location diversification, but also significantly increases their BCP risk. Let’s take a deeper look at this.

As our recent blog on unlocking value from tier-2/3 locations pointed out, with tier-1 locations fast maturing and saturating, enterprises may soon have to factor in tier-2/3 locations to minimize risk, capitalize on the cities’ advantages, and ensure business continuity. Leading co-working players are also expecting a rise in real estate demand in tier-2/3 cities, and planning to expand to these locations.

In India, in particular, a leading global services delivery location, companies that deliver Global Business Services (GBS) and have leveraged tier-2/3 locations as part of their location strategies (such as IBM and Tata Consultancy Services) have benefited significantly from a BCP standpoint by successfully diversifying their:

  • Concentration risk: Multi-city location strategies, coupled with workload flexibility across delivery centers, have helped minimize prolonged disruption during the pandemic.
  • Delivery locations risk: Tier-2/3 cities help diversify the location risk and also face lower macro-economic and political risk than tier-1 locations, which adds to their viability.
  • Functional risk: Many firms, such as Capgemini, leverage tier-2/3 locations as spoke or support centers in a hub-and-spoke delivery model network. In fact, they don’t shy away from distributing highly critical services and processes across tier-1 and -2/3 locations to reduce the functional risk.

And it’s not just the risk diversification advantage – our client interactions have revealed that leveraging tier-2/3 locations across India can help facilitate business continuity during the pandemic in the following ways:

  • The spread and impact of the virus is concentrated in major tier-1 locations, which account for ~40 percent of the total cases in India. In contrast, most tier-2/3 locations are largely unaffected, and only about 15 percent of them are classified as red zones, or areas with high active cases of COVID-19 and a high doubling rate. Thiruvananthapuram and Kochi in Kerala, Visakhapatnam in Andhra Pradesh, Bhubaneshwar in Odisha, and Trichy and Coimbatore in Tamil Nadu are some of the tier-2/3 locations designated as orange/green zones. Thus, restrictions are likely to be relaxed or lifted earlier in those areas, with a faster return to business as usual.
  • The resilience and back-to-work rate for tier-2/3 locations are higher, as they’re easier to traverse, and employees typically live near offices, unlike in most tier-1 cities, where employees typically rely on public transport to go to work
  • Most firms that operate in tier-1 locations have a considerably large pool of migrant employees who have returned to their native towns/cities in the light of the lockdown and might not be willing to return to work immediately, given the risks.

At the same time, to unlock the full scale of BCP benefits from tier-2/3 cities, firms need to ensure certain baseline factors to facilitate business delivery:

  1. They need to make sure they have ready, skilled, and trained staff for all critical processes in secondary locations, as it’s difficult to transfer employees from one city to another in the event of an emergency.
  2. They need to establish leadership representation in these locations to better govern and manage the increasing workload.
  3. They need a seamless communication system to facilitate data accessibility and transfer.
  4. They should simplify and redesign their processes to reduce handoffs, decision points of contact, and people dependence.

 

We’d love to hear about your BCP experience with tier-2/3 locations and thoughts on the viability of these locations in the coming years. You can also read our blog on “The Coming of Age of India’s Tier-2 and -3 Service Delivery Locations” to understand the key drivers and challenges inherent to tier-2/3 locations to develop your own locations strategy. Please share your inputs with us at [email protected], [email protected], or [email protected].

The Coming of Age of India’s Tier-2 and -3 Service Delivery Locations | Blog

India is widely regarded as a preferred service delivery location for global companies, given its attractive low-cost proposition, skills availability and scalability, and mature global services ecosystem. Until recently, the country’s tier-1 locations shouldered the weight of the services delivery agenda. However, with increasing maturity and saturation, enterprises and service providers are expanding their footprints across tier-2 and -3 locations throughout the country to take advantage of lower competition, cost savings, and better living standards, as well as to diversify location risk.

Read on to learn about the tier-2/3 global services delivery market in India and their accompanying advantages and underlying trade-offs, as well as what it takes to successfully operationalize a tier-2/3 delivery center in the country.

Understanding tier-2/3 locations’ value propositions

Tier-2/3 locations currently account for 18-20% of the global services workforce in India. Unlike most European countries, where a small clutch of cities offer services delivery, India offers a plethora of tier-2/3 location options, including: Ahmedabad, Gujarat; Coimbatore, Tamil Nadu; Jaipur, Rajasthan; Kolkata, West Bengal; Kochi, Kerala; Visakhapatnam, Andhra Pradesh; Chandigarh and Thane, Maharashtra; Lucknow, Uttar Pradesh; Thiruvananthapuram, Kerala; and, Indore.

Delivery of global IT services is more mature than is global business process services (BPS) in most tier-2/3 locations, but the share of global voice and non-voice-based BPS is on the rise. Service providers occupy a larger market share than enterprises’ Global Business Services (GBS) organizations in most tier-2/3 locations, facilitating transactional work, servicing incumbent clients and fixed-price projects, and, at times, supporting complex workstreams.

Multiple factors enhance the tier-2/3 locations’ value propositions:

  • Lower compensation and facility costs translate into considerable cost savings of 10-20% versus a typical tier-1 location
  • Relatively low competition allows the scope to differentiate, create a better brand image, and attain leadership in talent markets, and provides access to a largely untapped talent pool with relevant skills
  • Tier-2/3 locations also experience 10-15% lower attrition than tier-1 cities, resulting in better service delivery and lower hiring and training costs
  • In contrast to most tier-1 locations, which are experiencing increasing traffic congestion, worsening quality of life, and health-related issues, tier-2/3 locations offer a better standard of living at a lower cost, making relocation an attractive proposition
  • Various state governments have started offering incentives such as single window clearances, ease of land allocation, stamp duty exemptions, Floor Area Ratio (FAR) relaxation, and capex/interest subsidies to further increase the attractiveness and viability of tier-2/3 locations

All these advantages have driven companies already to open centers in tier-2/3 cities or at least to begin to explore the viability and value. For instance, a leading telecommunications services firm employs over 40% of its Indian workforce at its tier-2 delivery center; a leading professional services firm is looking to scale its overall GBS headcount at existing tier-2 locations; and, a leading e-commerce firm is evaluating multiple tier-2/3 cities to support customer services delivery. Many service providers are also showing keen interest in expanding their tier-2/3 footprints to support both transactional and complex workstreams.

But, of course, tier-2/3 cities aren’t panaceas, and both enterprises and service providers must be fully cognizant of the realities of establishing a center in one of them and address challenges quickly to unlock their maximum potential.

Key challenges in supporting service delivery from tier-2/3 locations

Scalability, especially beyond 1,000 FTEs, can be a challenge in some tier-2/3 locations (such as Chandigarh, Visakhapatnam, and Coimbatore) with limited peer presence and better opportunities in nearby tier-1 locations. Given the relatively low market maturity and paucity of adequately skilled talent, companies would have to invest in training recent graduates and/or building a recruitment engine from the ground-up. Additionally, the entry of a few large companies can easily congest the market and increase costs quickly.

Challenges with infrastructure and delivery enablers like utilities, transport, meal/catering, and stationery providers, as well as inferior connectivity to domestic/international locations, also pose hindrances. Thus, it might be difficult to relocate experienced talent at the managerial and leadership levels. Further, most tier-2/3 locations primarily deliver transactional services, and companies that want to support more specialized operations would have to make substantial investments in the talent market.

At the same time, we believe that a sound understanding of the location and its advantages and challenges, coupled with a nuanced strategy, can help companies establish successful delivery centers in tier-2/3 locations and integrate them into their portfolios.

How to successfully operationalize a tier-2/3 location delivery center

To extract maximum value from their tier-2/3 centers, we believe that companies should undertake the following steps:

  • Capitalize on the early-mover advantage to access benefits beyond cost savings, such as footprint diversification, lower attrition and competitive intensity, and wider access to talent
  • Create a distinctive employee value proposition, such as defined career paths, exposure to leading technologies, and financial benefits, to ensure better positioning
  • Invest in talent development and revamp the existing operating model to support complex workstreams. A case in point is a leading BFSI firm, which is betting big on its tier-2 delivery center in Thiruvananthapuram to move up the automation and analytics value chain and support new processes
  • Play a talent shaper role by working with the local academic and government bodies to influence educational curricula, training infrastructure, and programs, and reskill/upskill talent or seed talent from other centers. A leading service provider, for instance, has opened one of the largest corporate education centers globally in Mysore, Karnataka, helping it attain leadership in the regional talent market
  • Enhance the relocation proposition for existing talent by providing adequate monetary and non-monetary incentives, especially those that alleviate some of the problems associated with tier-1 locations, such as congestion, pollution, safety, and security

Are you currently leveraging or considering tier-2/3 locations for your service delivery efforts? We’d love to hear your thoughts on including tier-2/3 locations in your portfolio, and/or your views on how the tier-2/3 delivery landscape will evolve in the coming years. Connect with us at [email protected], [email protected]restgrp.com, or [email protected].

And keep your eyes peeled for an upcoming blog on how tier-2 and -3 delivery locations can support organizations’ business continuity planning efforts.

Post-COVID-19 Recovery: A Technological Reform | Blog

COVID-19 has revealed some crippling inadequacies to enterprises across the globe. With employees locked down in their homes, manufacturing processes on hold, warehouse facilities inaccessible, and supply chains at a standstill, businesses are facing an undeniable economic crisis. This downtime has made them question their underlying business models, operating methodologies, and, most importantly, their tech investments. An overarching question that also looms large is: What will a post-pandemic business ecosystem look like, and how can enterprises and service partners be better prepared for it?

The 2008 financial crisis was a wake-up call for businesses around the world, and was accompanied by new financial governance structures, steps to ensure transparent and efficient decision-making, and large-scale legislative reforms. In contrast, COVID-19 is expected to usher in massive technological reforms. We already see early signs of enterprises preparing for the future by leveraging technologies not only to address current requirements but also to build a strong foundation for the post-pandemic ecosystem.

Let’s take a look at some areas where technology is being leveraged to respond in radically newer ways.

Next normal – virtual experiences

Imagine taking your kids to a safari, or attending a concert in London, or test driving a car, all of this while you are in self-quarantine at home. Virtual tours, virtual resource-sharing, and even virtual personalities and friends are likely to become routine, compelling enterprises to rethink their business models. Customer interactions and customers’ expectations from brands will also change dramatically, requiring enterprises to design innovative solutions and new experiences, and ensure their seamless delivery. Technologies such as Internet of Things (IoT), Augmented Reality (AR), and Mixed Reality (MR) offer enterprises exciting opportunities to address these needs. Service partners will play a critical role in helping enterprises understand customers’ evolved expectations, visualize future demand themes, re-design virtual customer journeys, and build the required technological assets.

Cross-industry collaborations

Amid the lockdown and uncertainty across the globe, technology platform-based businesses seem to fit like pieces in a puzzle. Think about food and grocery delivery businesses or content delivery platforms such as Amazon Prime and Netflix, or even social media platforms such as Facebook. As users get more comfortable with technology and use it increasingly to meet varying needs, the treasured data gathered across platforms will also pave the way for cross-industry collaborations. For instance, secured access to customers’ virtual profiles can enable insurance firms to design personalized products based on lifestyle and preferences. Similarly, travel and tourism businesses can identify target customers and offer them curated solutions based on their preferences identified by converging insights across these platforms. These changes will usher in a new wave of innovation, driving seamless interactions, deeper customer insights, personalized marketing, and new business opportunities. Service partners will be trusted with the critical role of catalyst, which can onboard various stakeholders, enable seamless integration of diverse systems, and facilitate value realization for all entities involved.

Business continuity planning

Many technology firms are already supporting enterprises with solutions to ensure business continuity. For instance, Oracle, Salesforce, SAP, and ServiceNow are enabling collaboration, file sharing, and data sharing with flexible payment options to support their enterprise customers. And Cisco, Dell, Nutanix, and many others are offering free-to-use solutions or adopting creative financial models such as deferred payments and lower initial payments to facilitate business continuity for customers. This is, in turn, helps their clients build brand equity, which is likely to pay off in the long term. These firms are “doing good by doing well,” essentially responding with much-needed solutions. Increasingly, service partners will be expected to bring about changes in their engagement, delivery, and commercial models to address the challenges confronting their clients.

While businesses are still trying to fully grasp what it will take to survive and thrive post-pandemic, we can say one thing for sure: an astute understanding of customer needs, coupled with the right technological assets, proper governance, and a structured investment approach will help prepare enterprises for the world we encounter on the other side of the pandemic.

If you are looking to understand the evolving business ecosystem and a roadmap for how you can prepare your organization better for growth post-pandemic, please write to me at: [email protected].

COVID-19 Brings Opportunities To American Businesses | Blog

The COVID-19 pandemic came upon us so quickly. In just three months, the US went from a boom economy to threatening recession and businesses closing nationwide. CEOs now ask Everest Group for advice on how they should address their business issues because of the pandemic. What should they do right now to maintain business continuity? How can they ensure third-party services continuity? And how they can position their businesses for recovery – and even find opportunities for competitive advantage – when we come out on the other side of the COVID-19 pandemic?

Read my blog in Forbes

Visit our COVID-19 resource center to access all our COVD-19 related insights.

Are You Prepared for a New Normal? | Blog

This is the fifth in a series of blogs that explores a range of topics related to these issues and will naturally evolve as events unfold and facts reveal themselves. The blogs are in no way intended to provide scientific or health expertise, but rather focus on the implications and options for service delivery organizations.

These insights are based on our ongoing interactions with organizations operating in impacted areas, our expertise in global service delivery, and our previous experience with clients facing challenges from the SARS, MERS, and Zika viruses, as well as other unique risk situations.

A month ago the equity markets were hitting all-time highs, but as I write this, the Dow Jones Industrial Average is down about 30%, largely due to the actions being taken to control the spread of COVID-19. Simply put, many enterprises are shutting down and pulling back – preserving cash, cancelling projects, delaying investments, and freezing hiring and/or laying off employees. We are truly living in unprecedented times.

However, through the confusion and panic, leading enterprises are demonstrating their preparedness in this difficult business environment, putting their leadership and digital business models on display. Amazon is pivoting quickly, responding to the crisis by not accepting new inventory to their warehouses other than medical and household staples, extending delivery hours and quickly hiring 100,000 additional employees to meet demand, while raising employee wages by $2/hour through April.

Other lessons from a less dominant company includes a Chinese cosmetics company, Lin Qingxuan, which was forced to close 40% of its stores in China (and 100% in Wuhan) during the peak of the crisis. The company quickly redeployed sales resources to their online presence to influence customers and drive online sales, resulting in 200% sales growth over prior year sales for the same period according to Harvard Business Review. In another example, luxury brand LVMH, which owns Louis Vuitton and Fendi, has repurposed its perfume manufacturing lines to make hand sanitizer, a move that may win the hearts of consumers as the crisis diminishes.

Clearly, this crisis demonstrates just how quickly consumer and business demands can change. If your business model is not designed to absorb these impacts, you most likely have been severely affected.  Leading enterprises are already planning for the end of this crisis. China is seeing a dramatic decrease in the number of new COVID-19 cases, factories are reopening, workers are returning to their jobs, and companies such as Dow Inc. are actually seeing increasing demand for goods in China.

If you were one of the companies on the outside looking in, now is the time to act so that the next crisis does not catch you on your heels. To fortify your business model, start by doing the following:

  • Review the alignment of your business strategy, business model, and core processes. The evolution of many enterprises focused on one area – such as client interactions – while overlooking other processes – such as such as manufacturing, supply chain, distribution, or accounting. The entire value chain must work in harmony when facing dramatic shifts in the business environment.
  • Develop your perspective of the “new normal,” and quickly make adjustments. Do your customers still want to do business with you in the manner they did before the crisis, or will they expect a new normal? Do you really understand your customers’ buying behaviors? This crisis may have a significant impact on how you conduct business in the future as you learn new habits such as remote work, virtual collaboration, enhanced e-commerce, and improved visible business tracking.
  • Understand what drives your value – outsource everything else to more capable providers. Dedicated outsourcing providers invest in their core business and strive to offer world-class services so that you can focus on your core value drivers. While outsourcing will drive cost efficiencies, you should expect it also to drive quality, flexibility, and agility of non-core processes that can better enable your business model.
  • Review the alignment of strategic third parties to your business model. Many enterprises do not understand the value of a vendor management organization (VMO) until a strategic partner fails them. A VMO ensures alignment to the business model and selection of the right providers and suppliers to ensure they can move at the speed that your business model requires.
  • Ensure your organization structure is aligned to your business model. To deploy as quickly and decisively as Amazon, Lin Qingxuan, and LVMH, you must have an organization that is innovative, empowered, aligned, and prepared. If your organization structures have not evolved as your customers have, you may want to review the reporting structures, spans and layers, and internal governance models to be certain you can address quickly changing business environments.

While this crisis has not yet peaked in many parts of the world, it is not too early to begin planning for a recovery and the new normal. Leading companies are monitoring the situation while also pushing forward with transformation and cost saving plans, incorporating changes with new learnings. This is not the first time we have been here, and it certainly will not be the last. Now is the time to not panic, but be bold and forge ahead.

Visit our COVID-19 resource center to access all our COVD-19 related insights.

A World Caught Unaware: Business Continuity and Disaster Recovery in the Wake of COVID-19 | Blog

This is the fourth in a series of blogs that explores a range of topics related to these issues and will naturally evolve as events unfold and facts reveal themselves. The blogs are in no way intended to provide scientific or health expertise, but rather focus on the implications and options for service delivery organizations.

These insights are based on our ongoing interactions with organizations operating in impacted areas, our expertise in global service delivery, and our previous experience with clients facing challenges from the SARS, MERS, and Zika viruses, as well as other unique risk situations.

A virus originating in China has brought life to a standstill around the globe – and that includes service providers and shared services centers or Global In-house Centers (GICs). From delays in procuring office supplies (most of them sourced from China) and rescheduling of important meetings/events to the threat the virus poses to human capital, the risks have pushed most firms to revisit their business plans and potentially prepare for another worldwide recession. The virus spread has also been a wakeup call for providers and shared services centers, testing their preparedness in terms of business continuity and disaster recovery. In fact, it has made some firms comprehend the need to balance their cost-competitive mindset with a risk-competitive one.

Some organizations are well prepared and offer examples for others to follow. In this blog, we take a look at some of these noteworthy business continuity and disaster recovery measures, based on our conversations with more than 20 GICs and service providers globally. Strategies that stand out in particular include:

  • Site-based strategies for senior leadership – A few firms have balanced their leadership positions across centers and geographies to ensure that all senior roles for critical processes are not based in a single location
  • Headcount thresholds – Some firms have thresholds on the maximum number of Full Time Equivalents (FTEs) in a particular location – both at a city level and country level
  • Dedicated resilience management groups – Some firms maintain a full-fledged business continuity team to manage crises and their responses
  • Robust work placement strategies – A number of firms ensure that critical activities are spread across locations

For example, a UK-headquartered bank (with GICs across multiple locations) has an intra-city, inter-city, and inter-country Business Continuity Planning (BCP) strategy. The bank follows a robust BCP operating procedure by: (A) assessing a service’s/process’ business impact /criticality if work were to stop due to reputational, financial, or customer-related reasons, among others); and, (B) identifying the work location based upon criticality – highly critical services/processes are typically distributed across two countries. To understand this better, the company invokes:

  • Intra-city BCP for extremely short-term events, such as shutdowns for three to four hours due to maintenance work at a site
  • Inter-city BCP for short-term or limited impact events affecting a city, for example, transport strikes
  • Inter-country BCP for critical events such as natural disasters. For instance, during the recent floods in Chennai, India, the bank moved critical processes such as risk and analytics to other GIC locations, such as Poland

In the aftermath of the coronavirus outbreak, we are likely to see significantly strengthened business continuity plans – those that take into account talent availability, work placement strategy, infrastructure availability, and newer metrics to manage performance. In particular, we encourage enterprises to explore answers to the following questions to develop robust business continuity plans:

  • Can the virtual model emerge as an effective alternative to physical locations? What does it mean from an infrastructure perspective?
  • How can automation solutions be deployed to manage down time?
  • What additional features need to be added to office communication tools and applications to enhance collaboration?
  • Is there a need to adopt new metrics to monitor resources working from home for an extended period of time? What should these metrics be? How will they co-exist with privacy laws?

Visit our COVID-19 resource center to access all our COVD-19 related insights.

Philippines IT and Business Process Operations Fail to Fall to Typhoon Haiyan’s Fury | Sherpas in Blue Shirts

November 7, 2013, marked the start of devastatingly dark days in the Philippines, as Typhoon Haiyan battered certain areas with sustained wind speeds of 196 miles per hour. The typhoon crossed the Visayas Island group of the central Philippines, causing havoc on the eastern coast from northern Luzon to southern Mindanao. The worst affected region was the Leyte province, where most of its capital city, Tacloban, was destroyed (see the image below for Haiyan’s path within the Philippines).

Typhoon Haiyan

Source: United Nations OCHA and the Washington Post

While of course loss of life, suffering, and the need for all types of aid are top of mind concerns for citizens around the world, the severity of the typhoon’s damage raised concerns regarding its impact on business operations and business continuity in the country, particularly in the global services sector.

The Philippines is a global leader in delivery of voice business processes (BP) and has a rapidly growing information technology and business process (IT-BP) industry. The country is also making strides in some of the niche BPO segments such as the healthcare sector, which alone offers an annual revenue potential of US$1 billion by 2016. Global buyers and service providers have built a strong presence in the Philippines, and typhoon threat is a geographical risk trade-off that companies have made in return for a good-quality English-speaking talent pool and notable cost arbitrage over U.S. cities.

Following is a list of the recent and deadliest typhoons in the Philippines:

NameDate of ImpactCasualties
Haiyan/Yolanda 2013November 7–8, 20131,774+ (accurate estimates yet to arrive)
Bopha/Pablo 2012December 2–9, 20121,146
Washi/Sendong 2011December 16–17, 20111,268
Fengshen/Frank 2008June 20–23, 20081,410
Durian/Reming 2006November 29-December 1, 20061,399

Source: Wikipedia

Typhoon Haiyan is the 23rd typhoon to hit the Philippines this year and is unarguably the most severe natural calamity to affect the country in recent times. Although the devastation caused by Typhoon Haiyan was massive, it was concentrated in the central and eastern provinces, and metro Manila remained unharmed. Since the majority of IT-BP centers are located in metro Manila, the impact of the typhoon on the IT-BP industry was minimal.

However, it did affect IT-BP operations in the cities of Cebu, Iloilo, and Dumaguete, where work was suspended by the respective city mayors in preparation for the typhoon. Temporary power outages and disruption in telecommunications infrastructure led to higher absenteeism in these cities. Flight connectivity was hampered with the cancellation of a number of domestic and international flights. While there are no confirmed reports of damage to specific IT-BP delivery centers, some located in the path of the typhoon may have suffered infrastructural damage. These include a 200 FTE BP center in Pili, Camarines Sur province, and another 200 FTE BP center in Palo, Leyte province.

As the country deals with the devastation and destruction through rescue and relief operations, it is important for global services stakeholders to understand and review their service delivery presence in the Philippines. Players need to be mindful that choice of locations susceptible to natural hazards requires an efficient business continuity plan (BCP). Redundancy measures for critical business processes, which may suffer downtime caused by such incidents, should be in place to avoid disruption in business operations. Although acts of nature are highly unpredictable, their effects can be minimized by acknowledging the impact on business operations during evaluation of locations for global service delivery.

No Crystal Ball for Service Delivery Location Risk, so Plan for Your own Appetite | Sherpas in Blue Shirts

Rapid evolution of global sourcing has allowed multinational corporations to gain access to a much broader pool of resources and to maximize the benefits of service delivery from low-cost locations. However, these incremental benefits have come at certain intangible cost, as now the overall value chain for any global industry is much more vulnerable to a variety of global risks. As increased pressures for cost containment are forcing large corporations to accept the risks associated with delivery from low-cost offshore sites, the focus is shifting from risk avoidance to risk mitigation. Generally, global companies approach risk mitigation in three ways:

  • Rigorous location selection/optimization analyses are conducted simultaneously with the sourcing decision so the business case typically captures not only cost savings benefits but also the probability of various risk factors associated with each location option
  • Risk monitoring frameworks are constantly refined so that even a slight shift in risk exposure is identified very early on, ideally providing the opportunity for some proactive measures rather than reactive responses
  • Disaster recovery and business continuity plans are developed to minimize disruptive consequences if risk situations materialize

Given Fortune 1000 companies’ magnitude of global sourcing activity and the fact that a worst-case scenario may entail billion dollar losses, it is not surprising to see rising interest in development and use of risk monitoring tools. There is no doubt that this activity, if conducted properly, can add considerable value to the overall risk mitigation process. However, in the recent months I have seen multiple attempts and claims to push these measures to unrealistic levels of event forecasting based on some early indicators. To be fair, these attempts are primarily limited to political types of risk, as conventional science is not able to predict natural disasters such as earthquakes or tsunamis. However, even for political risks, some “experts” believe that proper interpretation of early signs of threat can allow global firms to relocate their delivery hubs to safer locations.

For example, these experts point to the “Jasmine Revolution” in Tunisia, which began in December 2010, and now in hindsight they claim it was obvious that the Tunisian revolution would trigger a chain reaction across the entire region. So, per these experts, only completely oblivious companies didn’t pull out from Egypt ahead of time. Really?! In the same mindset, all global firms should have pulled out of India and shut down their Indian captives in 2008 after the Mumbai bombing. Similarly, the 2009 spike in criminal activity on the Mexican border due to the drug wars should have led to an immediate assumption that the danger would spread throughout the country driving an immediate need to relocate operations to a safer location.

Tracking risk changes is quite feasible, but 100 percent accurate prediction of major political disruptions is a complete utopia, and I believe that such wishful thinking may work to an organization’s detriment by creating a false feeling of security in believing it possesses a universal prediction tool. The reality is that a reliable crystal ball has yet to be invented, a shift in risk distribution still leaves multiple scenarios possible, and all that can be done is perform an accurate probability analysis.

Then, as probability of risk is just an input, actual interpretation of and decisions made per that input must be based on each specific organization’s risk appetite. For example, one company may choose to ignore a very high probability of a catastrophic event because it views doing so as a “better off” scenario than the prohibitive cost of relocating a mission-critical process. On the other hand, even a slight increase in hypothetical risk exposure may force a risk-sensitive client to take some proactive measures. The right approach for every organization is the establishment of a comprehensive set of risk thresholds and predetermined measures. For example,  if the probability of major disruption reaches, say, 25 percent, the firm should keep passports and invitation letters ready for business continuity staff. If the probability of disruption increased to 75 percent, then the company must relocate 50 percent of its business continuity staff to the extraction location.

I do believe there is significant benefit in tracking risk, performing scenario analyses and constantly refining your mitigation approach, but accurate prediction of the future is impossible. Think about it this way: had there been a reliable framework to forecast the wave of revolutions around the Arab world, I am sure that all dictators would have identified this risk at the very early stage and attempted to preempt it.

Eyes Wide Open – What Are the Risks of Global Services? | Sherpas in Blue Shirts

Over the last decade, we have been witness to a world that is logically shrinking in size and expanding in its ability to provide options in global services. The phenomenon is being driven by the increased integration of technology and the sudden emergence of service delivery capabilities in new geographies, thus allowing organizations to tap into global resources at a rapidly increasing rate.

The utilization of a global services delivery model is allowing organizations, regardless of their size, to:

  • Realize cost savings through labour arbitrage
  • Access skill sets and capabilities on a more dynamic level
  • Manage a continuous 24-hour service and support model
  • Adapt cost structures to facilitate focus on core businesses

Sounds great, so what’s the catch?

The catch is that organizations with global and diverse service delivery models face new and ever changing risks. Some of the triggers of global risk include socio-geo political tension, pandemic crisis, financial events, terrorist events, natural disasters, civil turbulence, and infrastructure disruptions.

When risks manifest into reality for an organization that is using a global delivery model, they can occur at significant speeds and at magnitudes of impact that have not been seen before. This is because most global delivery models are heavily intertwined and have interdependencies that are often overlooked. The ripple effect of a risk event and the complexities of demand on resources for recovery are often not realized until it is too late.

Organizations with a global delivery model require a disciplined approach to successfully manage global risk triggers. To do so, they can implement a comprehensive risk framework to proactively monitor and mitigate perils in their global environment. Two key components of the risk framework are:

Risk monitoring by location

  • Develop a baseline risk profile for all targeted cities/countries as part of the decision-making process on delivery centre locations
  • Monitor all selected locations on an ongoing basis to assess the change in risk levels
  • Develop risk profiles for each city/country that contain location dashboards of key risk indicators to allow for a quick assessment of the change in risk levels from the baseline risk profile against the current risk profile
  • Examples of location risk indicators include:
    • Strategic risks that assess the city/country risk, including the likelihood of political, social, and economic inefficiencies and stability, inadequate legal system or regulatory pressures, and natural disasters, etc.
    • Tactical risks that reflect market-related changes and dynamics, cost of inflation, flexibility of the labour market, availability and quality of the infrastructure, and medical/health events

City-Down and Country-Down analyses

  • Identify and understand the impact to the organization and its network of services as a result of a city-wide or country-wide service disruption
  • Understand the changing requirements of the organization’s recovery plans by continually monitoring and assessing the impact and the conflict in recovery activities, e.g., competition for infrastructure and labour resources among the organization and all of its service providers that impacts the organization’s service recovery capabilities

The nature of the risk events that are monitored, managed, and prepared for vary greatly. Most naturally occurring events have very little, if any, lead-time. However, there are planned risk events that provide a much greater window into the timing of their occurrence. When an organization is properly monitoring and managing its risks, it should not only have the necessary processes in place to address all types of risk events but also to minimize the impact of each. A few recent examples of risk events are listed in the table below:

 

As we embrace global service delivery models with open arms, how well prepared is your organization to manage and mitigate the risks in this new and highly integrated world?

How prepared are you, really, to mitigate risk during a geographic catastrophe? | Sherpas in Blue Shirts

The recent crisis in Egypt serves as a sober reminder of the need for highly robust disaster recovery (DR) and business continuity (BC) planning in the global sourcing industry. And while most large, multinational corporations and their sophisticated outsourcing service providers do have DR and BC plans in place, they tend to focus on just one layer of the onion – getting IT systems and applications up and running in alternate locations.

But a fully effective risk management strategy must methodically peel back each onion layer in order to deep-dive examine, and be pre-prepared to address, the potential primary, secondary and tertiary impacts of all variables and components in a truly holistic manner, as shown below.

Let’s look at a real-world disaster situation in a comparatively stable part of the world to bring this concept to life – the devastating impact massive Hurricane Katrina had on the Medical Center of New Orleans and its patients in 2005.

To set the stage of the overall impact, when Hurricane Katrina hit New Orleans, major parts of the city were flooded, people were stranded in their homes, there was major infrastructure damage, power was out, businesses and city services shut down, ground transportation in and out of the city was impossible, and the city was in utter chaos.

At the Medical Center of New Orleans, the “what was affected” included the emergency room, the laboratory, the pharmacy, the operating rooms, nursing, and ambulatory, specialty care, intensive care unit, and rehabilitation services. The “who was affected” included the patients, the doctors in the Medical Center and other destinations, the nurses, and management. The “issues related to the impact” included inability to operate, prescribe or administer medications, and receive payments and medical supplies. And the “what actions could be performed to mitigate the effect of the issues” included evacuating patients to other hospitals, delivering data processing from a remote site, and relocating back office functions to a remote site.

To snapshot the cascading effects of the crisis, the primary impact was a catastrophic breakdown of infrastructure, which required evacuation of the hospital’s patients. But there were massive evacuation issues which caused patients to be separated from their physicians and dispersed to unknown destinations. This led to the secondary impact, wherein receiving hospitals couldn’t diagnose patients, medical records were inaccessible in flooded facilities, and physicians couldn’t be contacted to coordinate care. The tertiary impact was that some patients were unable to receive proper treatment, causing loss of life and extended illnesses. Additionally, as payer and provider processes were completely down, the government had step in, driving massive additional costs to tax payers.

The bottom line is that New Orleans as a city – and the Medical Center itself – was completely unprepared to handle a catastrophe of this magnitude.

Against that backdrop: how many layers of your risk management strategy have you unpeeled to pre-prepare for any type of disaster?

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