“An ounce of prevention is worth a pound of Cure” – Benjamin Franklin
The entire businesses around the world are exposed to risk or disruptions whether it is from fire, equipment failure, natural disaster, communication failure, economy downturn or an act of terrorism. There can be hardly superior hazard to any organization than recession. The organizations experienced more disruptions than ever in the past years. These disruptions can ruin the organizations or make it difficult to survive. This is where Business Continuity Management (BCM) plays integral role to smoothly run the business without any interruption. Business Continuity Management is very important for the endurance of the business.
Business Continuity Management is a method designed to ensure that the functions of an organization can be managed or restored promptly in the event of internal or external occurrence. One of the most important objectives of the BCM is to reduce the legal, financial and reputational damage of these events which results, increase in profitability of a business.
Business Continuity Management is defined as a holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience with the capability for an effective response that safeguards the interests of its stakeholders, reputation, brand and value creating activities.
In theory Business Continuity Management replicate crisis management to a great extent which has grown rapidly over the past decades, main aim of eliminating focus of social and technological problems. Crisis management approach and Information systems (IS) defense is the foundation of business continuity management. The evolution of BCM started since 1970s, identifying the main 3 stages of growth. The first stage, “technology mindset” during 1970s was limited to the protection of corporate mainframe computers. After the advent of personal computers to end users in 1980s leading to vast quantity of computer users in organizations, resulted raise in the number of transactions, compliance became regulation and legal requirement. This second stage was identified as “auditing mindset”. The final stage “value mindset” in 1990s became more focused on the requirements of business where business continuity management can act as to add value to the organizations. At this time of moment BCM approach became more efficient by including improved protection for whole organization, customers & suppliers, social and technical process. The technology and auditing mindset was limited to the protection of IT.
Due to increased use of technology over the past decade organizations are more dependent on it, which brings about new risk for business. Some of the business completely rely on IT and operates day and night. A very small interruption can cause considerable loss of revenue and customer which results in damage of business reputation. 25% Companies who faced IT crisis from 2 to 6 days went bankrupt immediately whereas 93% of the companies filed for bankruptcy in a year that lost their core data for 10 days. In this escalating global business world and integration of various economies generates fresh challenges have encouraged the development of business continuity management. Recent recession has more influence over outsourcing to save the production and labor cost. Supply chain risk is greater than ever as new risks are coming from international economies. Companies like GAP and Nike found that these can have poor impact on the reputation of the company. A little loss or delay from single supplier can have bad affect on the organization. BCM plays important role to manage supply chain disruptions, it also adds towards the development of BCM. Extreme weather and climate change are seen to be affecting the growing organizations operations. Major events in the past for instance September 11, 2001, World Trade Centre a terrorist attack, July London buses and underground another terrorist attack, the 2000 energy crisis, pandemic flu more recently swine flu and natural disasters like Tasunami, latest in Japan, all these events have major influence on the development of BCM and created more importance for the organizations to have business continuity plan in place to avoid all the problems and disruptions caused by the upcoming unknown events. IT, globalization, supply chain, climate and weather, terrorism, pandemic are growing disruptions organizations facing day by day. These risks are linked together; crisis in one part may possibly spread in various directions. BCM is extremely essential for the maintenance of the products and services while protecting the reputation of the business. BCM seeks the survival and profitability of the organization when disruption occurs. Improves the resilience capacity of the business against disruption; also recover from unexpected events.
No doubt Business Continuity Management has started in terms of compliance while protecting Information System (IS), now has developed to avoid various short and long term disruptions and adds value to the organizations. There are many drivers forcing reasons why an organization should have BCM in place. Organizational reputation is the strategic asset of the company. Managing risk related to it for example negative news, bad feedback from customers, making financial losses, late payments, increasing stakeholder demands; has become the major driver for BCM. Furthermore it has developed into main concern for most of the organizations. Non timely wrong decision, lack of communication after the crisis occurs can lead to financial and reputation damage of any organization. BCM is not limited to fight against disruption, it also make positive effective communication and how to handle the crisis situation in order to minimize the damage caused by crisis. Financial and reputational damage is directly associated with customers, while coping with recession, it is very essential to retain the existing customers and attract new customers besides meeting the needs of customers in a positive environment. Truly understanding the customer needs and mindset is a paramount.
Insurance provide organization the comfort by transferring the risk, being able to repair or replace the items in the event of loss or damage caused by the insured peril. Business Interruption (BI) Insurance covers loss in the profit for a limited period of time after the incident. It provides some cover for the financial loss but doesn’t cover loss of reputation, loss of customers, loss of business, and loss of employee loyalty. Moreover BI cover is limited to excess where losses incurred during those excess period of time is not covered whereas BCM would prevent the losses incurred or minimize the impact incident occurred.
Competitive advantage is another factor drives Business Continuity Management. In order to win the confidence of customers and suppliers the organizations should able to prove that they have appropriate BCM in place by ensuring tested business continuity plan. It improves the customer trust and brand reputation by creating competitive advantage. The organizations that have BCM in place the leading responsibility remains with the senior management and board. Although the organizations that have a specific BCM departments tend to be rising.
Uncertainty lies in the future; with the rise in various natural disasters like Tsunami, terrorist attacks, etc ‘Business continuity management’ has become inevitable. Business Continuity Management helps business go through these difficult times making sure of its survival in the market. BCM however, like all other good things also has its dark sides which without appropriate considerations can lead to a complete failure.
Some of the issues that may be faced by business continuity management include financial issues where majority of the company doesn’t have the sufficient resources to have a business continuity management in place. It also requires human resources to make sure of its success which might also be not available to the organization but as the environment in which organizations conduct their operation is highly dynamic to ensure that necessary actions should be taken to make sure that organization has the resources for BCM to make sure of its survival in times of incidents.
Moreover, as Business Continuity Management is highly demanding with certain needs in terms of resources most of the senior managers tend to retrieve from it but its importance has been seen in the last few years where companies where swallowed by the giant recession that the world faced and is still recovering from. Hence measures should be taken and its importance should be alarmed among the management of organizations. Apart from resources and management, BCM is also threatened by the fact the there might be over-analysis of business. Analysis should be performed in the part of business that is important or is directly related to BCM rather than analyzing the non-relevant part of the business. This can be assured by making allowing the head of the BCM project to decide the part of the business that has to be analyzed.
Another factor that might lead to failure of Business Continuity Management is too much attention to risk which can lead to hindrance in the way of project and the managers will to paralyze the project in order to save themselves from risk. Analysis of risk is however important to make sure of the success but when over-done it tends to cause hindrance rather than motivating the success of the project. Therefore, accurate amount of risk analysis should be performed by the organization. Business continuity management is usually made too much complex and time-consuming which is another factor that causes hindrance where as a good BCM practice will be easy, flexible and less time consuming. One of the biggest hindrances along with resources in BCM is the belief where most of the organization believes that they don’t require one or they might be never hit by a disaster. However, BCM is not only meant for disaster it might come in any face i.e. terrorist attacks, power or system failure, etc. Therefore, it is important for every organization irrespective of their size to have a BCM so that there is always a business continuity plan in times of crisis. The investment in business continuity is worthy because of the value it adds to the organization in particular competitive advantage.
On the other hand world economic crisis has key impact on business continuity management. If we think we will die tomorrow then we will not do anything same is the case with BCM. If organizations assume that they will shut down the business due to financial and economic slump that avoids the concept of business continuity completely. The concept of having BCM in place has been misunderstood in some cases. The likelihood of BCM to be effective in the times of disruption depends on if a company has business continuity plan whereas companies without business continuity unable to survive. In short BCM act as a helping tool for organizations whether in the times of recession or minor interruption.
Business continuity management is therefore complementary to the process of risk management that analyze the risk exposure and possible consequences of these risks to the business. It doesn’t just focus on the disruptions but also brings out the key improvements for the product and services which is required for the survival of the business. However with the help of business continuity management all the business can fight throw recession if implemented appropriately.
In addition it assists in understanding the functions of organizations closely and deeply to enhance the performance and profitability while protecting and enhancing the reputation and brand value. The most challenging phase is implementing Business Continuity Management in the organization. Serious difficulties are faced by the managers while dealing with employees, customers and suppliers. Business continuity management practice is new and becoming more common. Communication plays chief role in the BCM implementation process. Possibly it should be involved at all levels of organization so everyone should be aware of identifying the main threats and try to eliminate them. The continuity plan must be tested and maintained all times to ensure it work when incident occurs. The need of BCM is more than ever mostly in times of recession as it acts as a useful tool for saving cost while improving the financial state of the business. Organizations exercise BCM to protect their brand, reputation, people and bottom line. In addition it provides foundation for attracting new customers. BCM is the great asset in times of recession. It must be understood that BCM not only add value by preventing disruptions but also to recover quickly from the incident occurred.
Case Study of Nissan: Recovering Supply Chain Operations after Natural Disasters
For instance, due to the natural calamity in Japan in 2011, Nissan lost 2,300 automobiles that were scheduled to be sent to the United States. Planning for calamities is crucial to the sustainability of a firm and should be specified as a corporation method for minimizing destruction and missed manufacturing time in the event of a disaster.
Because of Nissan’s readiness, they were able to restore manufacturing quickly, permitting them to commence reimbursing lost financials before their rivals. Therefore, this reduced the $25 million a day they would have proceeded to incur. Nissan did encounter certain obstacles when attempting to recover lost equipment, including the need to stockpile collection, diversify logistics, provide backup supply, manage demand, and bolster its distribution network. Having a contingency supply and expanding the use of several suppliers would aid in solving the issue. When a calamity strikes, being flexible about where a firm’s parts come from can lessen the likelihood that the business will be damaged.
Numerous international vendors are advantageous because if a catastrophic event afflicts one region, the other areas can assist with the work. Despite the fact that Nissan has conducted drills since 2003, it is substantiated that the company’s organizational methodology was to prioritize the protection of its staff and understand the wellbeing of its distributors, suppliers, and affiliates before determining the most effective methods for rebuilding activities. However, none of the aforementioned tactics could have been successful. Nissan failed to quickly assemble its top leaders to examine the disaster and generate potential remedies.
Regarding Nissan, the firm’s Business Continuity Plan (BCP) is established at its Global Disaster Control Headquarters (GDCH) in Yokohama. Nissan’s approach prioritizes employee safety, as well as the safety of suppliers, dealers, and other related businesses. To safeguard the security of its distribution network and personnel, the firm developed a safety verification system. Initially, the program was email-based, but Nissan transitioned to an effective web-access scheme.
The organization had practiced emergency exit and command posts well in advance of this event, which was crucial for their resiliency. Due to their annual exercises and rehearsals, Nissan could undertake disaster recovery expeditiously and with precision. Hitoshi Kawaguchi, Nissan’s senior vice president at the time, stated that once individuals are prepared for all types of emergencies, they do not despair. Due to their preparedness, the company managed the earthquake with prudence and composure. Therefore, this eliminated some of the $25 million they would have continued to lose each day.
Nissan resumed all operations in just one month, whereas other companies could not carry out their activities. Due to Nissan’s sophisticated development and testing of seismographic modeling, they were able to promptly respond to the detrimental tremor that struck on March 11, 2011, and guaranteed that they had made adequate preparations beforehand. Emergency procedures and egress pathways were among the vital data that was kept, produced, and distributed to personnel. During a natural disaster, the executive group at Nissan assured that staff safety was accorded the utmost importance. Consequently, Nissan’s BCP is regarded as one of the business’s top mitigation and incident management tactics. Due to these tragic events, the corporation was capable of providing automobiles to the USA and Chinese marketplaces when its rival companies were unable to. Nissan demonstrated remarkable resilience in the face of the tragedies on their doorstep.
An entire production network has distinct processes, quality assurance standards, and distribution network management techniques. During crises or natural catastrophes, stockpiling inventory that can be used in emergencies is the primary tactic. Nissan had bought many parts, and their arrival coincided with the period shortly before the earthquake. The risk mitigation strategy is crucial for this stock stockpiling technique. Nissan has an effective risk administration system in place, which offers it a significant advantage when stockpiling inventories during a catastrophe. Diversify distribution is when businesses acquire products from different merchants and institutions so that a malfunction with a single supplier or center does not affect the total supply. Nissan has efficient logistics partner synchronization and has broadened its supplier to regulate its distribution network. Nissan’s usage of ubiquitous and standardized components worldwide culminated in low-cost production. Nissan offered a variety of vehicles under the Nissan and Infiniti brands, thus, producing intriguing and novel items. Therefore, this enabled Nissan to build only its best-selling automobiles during a time of difficulty.
Demand approach encourages consumption to more closely match accurate supply by, for instance, modifying prices or providing incentives that motivate clients to buy items for which collection is less restricted. Nissan’s data governance and intelligent and quantitative control systems are superior. Nissan has a solid integrated research platform that may aid in demand management and, as a result, a solid operational plan. Nissan produced only the most popular designs and focused on vehicle deliveries to the American and Chinese markets. Thus, this allowed Nissan to deliver automobiles while its contemporaries could not, leading to increased sales.
An alternative supply is a non-regular provider or transport supplier that can be triggered in the case of a supply issue. Nissan’s downstream and upstream supply solution design allows reliable backup supplies. Personnel from other locations were requested to aid in the retrieval of damaged components. As such, better ideas were generated in a cross-functional and cross-regional approach. The business ran at night and produced its electricity as the workweek was altered to account for the negative impacts of the electricity shortage. Nissan’s initial action was to safeguard the safety of its distributors, retailers, and related businesses. It had been conducting trailing simulations to ensure priority decision-making rather than fear when a crisis comes.
Rapid and precise feedback indicated a functional recovery, and the corporation’s greatest asset was its capacity to collaborate with speed and concentration. Reducing the incidence and intensity of supply difficulties is achieved by fortifying the production process or collaborating with providers. Nissan has deployed distribution network disruption methods to bolster its procurement. They have versatile and robust supply chain methods and appropriate value chain harmonization and incorporation. Nissan has effectively controlled supply chain interruptions by implementing appropriate operating measures.
In contrast to other Japanese automakers, whose boards consisted solely of Japanese nationals, Nissan’s board consisted of individuals of many nationalities and had a Chief Recovery Officer. Nissan ensured that its Tier 2 and Tier 3 suppliers developed alternative sources for their components. Thus, this was done to guarantee that contractors could produce the same element in multiple facilities across the nation and to maintain supply continuity even during disruptions. It established a logistic portfolio management sequence and incorporated risk assessment features. After analyzing the catastrophe-related losses, they revisited and updated their emergency approach.
Nissan’s proactive responses to the events outlined in the case are primarily attributable to the corporation’s well-organized incident management program. This technique included but was not confined to rapid decision-making and the company’s previously built skills that allowed for swift restorations. First, Nissan developed a clear hierarchy of significance and assessment, which is essential for synchronizing and disseminating the emergency administration vision with all participants for immediate actions contributing to snap decisions following the happenings. Moreover, Nissan utilized the swift recovery skills it had built in the past. Nissan had already arranged its safe places and paths in readiness, and the business had implemented seismic retrofitting and standards in all of its factories and facilities in earthquake-prone regions since 2003. Therefore, this indicates that Nissan had devised an effective response to the crisis far before it transpired.
It is noted that the organizational strategy was to prioritize the safety of its personnel and comprehend the wellbeing of its vendors, distributors, and linked companies before determining the most effective methods for resuming operations. However, none of the preceding options could have been successful. Nissan forgot to quickly assemble its top leaders to examine the calamity and generate potential remedies. The corporation collaborated swiftly and methodically, paving the way for hundreds of personnel from other facilities to participate in the rescue mission.
Finally, the organization employs a dynamic distribution network tactic, contributing to greater overall robustness. Nissan demonstrated appropriate horizontal and vertical procurement integration throughout the text. As previously mentioned, Nissan anticipated requiring its Tier 2 and Tier 3 providers to use substitute purchasing for its components in the future to maintain a continuous flow of constituent elements. The firm’s risk administration program was prominently presented throughout the lawsuit. Their production process demonstrated versatility throughout the disasters’ effects.
In comparison to 2010, Nissan’s overall performance in 2011 was extraordinary. Nissan’s capacity to grow, analyze, and execute during critical times has been demonstrated through its success in the face of natural disasters. With solid business continuity strategies in place, businesses can set demands on their tier providers to guarantee that they can always satisfy their requirements even during a catastrophe. What Nissan has accomplished regarding supply chain administration is unprecedented.
After natural disasters, Nissan’s infrastructural and material issues are as follows: first, a fire broke out at Tochigi Factory and an Iwaki foundry, causing harm to lithium-ion batteries manufactured at Iwaki factory engines, Tochigi Factory, Oppama Factory, Yokohama Factory engines, and Zama Works. In addition, suppliers of components struggled to resume operations. Overall, Nissan’s recovery measures were conducted effectively. They comprehended where resources must be allocated and discovered crucial connections required to restart operations.