The U.S. Consumer Product Safety Commission lists 354 separate product recalls on its website this year alone, including everything from U.S.-made Honda all-terrain vehicles with ball joint issues to pumpkin-shaped candle holders posing laceration hazards. What would it mean to your company if you were forced to recall products? Are you prepared for the possibility?
Many business leaders are touting the creation of a Business Continuity Plan, a blueprint for action to be implemented in the event circumstances that jeopardize the on-going operations of the business or any of its parts occur. The characteristics of a good plan can be illustrated in a very well-known actual emergency. Consider the Tylenol contamination calamity that hit Johnson & Johnson (J & J) a number of years ago. The company sprung into action immediately with a public relations offensive, a quality process remediation, a re-packaging initiative, and an extensive investigation to identify the cause of the contamination. All of this was done in addition to the standard recall of products on store shelves and instructions to discard product in the hands of consumers. The actions taken were so timely and well-executed that it is impossible to believe that J & J didn’t have a plan in place for this kind of disaster. While there was a momentary interruption in the Tylenol business for J & J, recovery was swift and Tylenol sales resumed and soon hit new highs in volume. J & J’s reputation for corporate responsibility soared.
Contrast the J & J experience with the Menu Foods debacle over contaminated ingredients in pet food and the deaths of numerous dogs and cats earlier this year. The ingredients were imported from China. While Menu Foods may have had no reason to think that the ingredients would be tainted, they probably now wish that they had prepared better for just such an event.
Where does your company stand on business continuity planning? Product recalls are only one aspect of business interruption. Think about the many companies who were in the path of Hurricane Katrina who are no longer with us because they couldn’t recover from the interruption caused by the hurricane. Many of the businesses in downtown Manhattan didn’t survive the terrorist attacks of September 11, 2001 for the same reason. Other risks come in the form of regulatory compliance, supply chain disruptions, corporate governance, and political disturbances. The point is that the potential for business interruption can come from many sources anywhere in the world. And, while business interruption insurance will pay you a small stipend to compensate for losses of revenue and profits in the event of an interruption, your competitors will happily take the customers you can no longer serve.
A good plan anticipates the potential interruptions peculiar to your business and establishes the actions necessary to minimize their impact should they occur.
Assessing risk has moved from an ad hoc process to a formal business practice that inculcates a culture of proactive risk assessment, management, and accountability. If you do not already have a formal BCP process, here are some of the benefits you can expect by establishing one:
- Avoidance of revenue losses. When there is a business discontinuity, revenue and customer losses can reach fifty percent if not resumed rapidly.
- Enhanced reputation. Johnson & Johnson emerged from the Tylenol disaster with their reputation not only intact but enhanced by the way they handled the problem.
- A marketing opportunity. Oreck, the vacuum cleaner company located in the path of Hurricane Katrina, touted in advertising their ability to rapidly resume operations after the hurricane and the company’s charitable activities in the area.
- Leadership credibility. Business leaders demonstrate their credibility to their colleagues and board by being ahead of the curve through planning.
- A culture of prevention. The planning process itself can expose potential interruptions and emphasize prevention.
Companies expend substantial resources to obtain market share and ultimately to get the share that makes them a real factor in their marketplace. A disruption, if not managed well, can obliterate these hard-won gains in the market. Business continuity planning can’t eliminate the possibility of a disruption but it can prepare a company to rapidly recover and possibly even benefit from the experience.
A good plan takes into account all the functions of a business; much more than IT disaster recovery planning and product liability issues. For example, the supply chain is now recognized as a significant potential for disruption and some of the more advanced companies are requiring their vendors to have BCPs of their own. Another attribute of a quality plan is the amount of employee involvement. If there is a high degree of employee participation in developing and maintaining plans, it is more likely that all the critical people and processes will be identified and included as integral parts of the plans.
You hope that you will never need to execute the plan’s actions but having a Business Continuity Plan is prudent management. If you would like more information about Business Continuity Planning, call me at NJMEP at (973) 998-9801.