FM Global survey reveals how maintaining business continuity following natural disasters goes beyond insurance

Stefano Tranquillo, FM Global

With globalisation accelerating and an increase in the frequency of natural disasters, corporate resiliency is becoming more of a competitive advantage. For example, following natural disasters in 2010 and 2011, certain automotive manufacturers gained a market share when they proved to be more resilient than competitors, both in their owned and extended supply chain facilities.

Equally, in the technology sector, analysts have said that the the floods in Thailand were the primary reason why Seagate Technology recaptured the worldwide lead in hard disk drive shipments in the last quarter of 2011. Seagate located its hard disk drive manufacturing plant in Thailand on high ground, which meant that it was less adversely affected by the floods and could continue business as usual, while its competitors could not. As a result the company became market leader.

FM Global operations manager, Northern Europe operations Stefano Tranquillo (pictured) says: “The key to business continuity in the face of natural disasters goes well beyond insurance: it is about preventing loss through protecting those critical physical assets that generate the revenue. It is within this context that those risk managers who are most effective at gaining corporate commitment to enhancing resilience will win the day for their companies.”

FM Global recently conducted a qualitative survey in Europe and the US to understand how successful clients gain commitment to risk improvement within their organisations. From this research, it identified six key barriers facing clients when implementing resilience strategies.

1. Challenging people

Several clients indicated they were key influencers who would not accept any proposed risk improvement initiatives, no matter the business case. In one instance, the risk manager managed to circumvent this problem by developing relationships with people who had a strong relationship with the key influencer in question - in essence isolating the obstacle.

2. Turnover

Risk improvement initiatives may not always be attainable because of staff turnover, both on the client and on the insurer side.

3. Mergers and acquisitions

When a company acquires another organisation with less stringent risk management process in place, the resilience of the combined business can be compromised. Further, acquiring another company will bring together key decision-makers who may have contrasting approaches to risk management.

4. New technologies

With new technologies come new hazards, which sometimes mean a change in risk quality for key facilities. The critical step here is to manage expectations by gaining a thorough understanding of the emerging hazard.

5. Geographic expansion

Language and local culture can impede the investment and implementation of risk improvement.

6. Product availability

The inaccessibility or high cost of quality construction material in emerging markets makes gaining commitment to risk improvement even more challenging. Finding alternative local solutions was noted as a critical step to overcoming this obstacle.

Tranquillo says: “The past few years have been challenging for most organisations. Challenges such as the recession, currency fluctuations and sovereign debt have affected most multinational companies, as have issues with supply chain and compliance. Any of these hurdles is daunting and, taken together, it is easy to see why many businesses face issues when trying to implement risk prevention practices. It is important, however, to remember that few businesses can afford to experience a serious interruption in production or product flow. From a high level, risk prevention is about making good business decisions on real business problems. For those companies that lack adequate risk prevention, business interruption can lead to damaged reputation, loss of market share and even negative share price fluctuation.

“Every organisation has a unique set of decision-makers responsible for assigning budget to risk improvement and driving the implementation of solutions to improve their organisation’s resilience. Throughout the survey several clients indicated that their chief financial officer is a major decision-maker in respect of significant investments in risk prevention. It is therefore crucial that we continue to work closely with risk managers to ensure that they have the information they need to convey a clear vision of resiliency and how they want to achieve it within their organisation. To improve the resilience of their organisations, c-suite executives must work closely with risk managers to build a strong corporate culture that embraces the critical importance of business continuity and focuses on sustainable successes.”