Some Thoughts on the Resilient Enterprise

Stephen DeAngelis

February 26, 2007

IBM’s Vice President of Technical Strategy and Innovation, Irving Wladawsky-Berger, inspired by the meltdown of JetBlue following an ice storm in America’s northeast, posted a blog about resilient enterprises [The Resilient Enterprise]. He wrote:

“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. … 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.”

Wladawsky-Berger, who, in addition to his IBM job, is a Visiting Professor of Engineering Systems at MIT’s interdisciplinary Engineering Systems Division, notes that an MIT colleague, Yossi Sheffi, wrote a seminal work on resilience that should have helped inform JetBlue where potential troublespots could be found.

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.'”

In JetBlue’s case, in fact, weak communications was the source of their trouble. JetBlue’s CEO admitted that JetBlue was using an out-of-date system that was fine when the company was smaller but was inadequate for its present size and operations. JetBlue’s communications structure was a critical asset that had been improperly assessed as to its true importance to the company. That proved to be a costly error. Wladawsky-Berger continued:

“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 globally 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 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.”

It was JetBlue’s desire to keep prices down that made it try to squeeze a little more use out of its communication system before investing to update it. It may not be a “near-death experience” for JetBlue, but it was quite a blow to a company that prides itself on its reputation. What interested me more than Wladawsky-Berger’s discussion of JetBlue’s predicament was his discussion of “emergent businesses” that find themselves in complex and unpredictable environments. To meet the challenges of such an environment, organizations need to go beyond Sheffi’s definition of resilience in order to thrive, not just survive. They need more than supply chain redundancy; they need a process and a framework that is inherently flexible and adaptable. One of my jobs is to help organizations understand that a new structural paradigm is required to meet today’s challenges and that they need a framework that provides the flexibility and adaptability that Wladawsky-Berger writes about. He concludes his post:

“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.”

Resilience begins with identifying critical processes. Sheffi does a superb job of showing how you can do that for the supply chain, but as the JetBlue case demonstrates, there are other critical processes that are not quite as obvious. Enterra’s Enterprise Resilience Management Methodology® begins with a methodology that helps organizations do just that. By identifying those processes that are truly critical, a company can better prioritize it investment options. In closing, Wladawsky-Berger has recently announced his retirement from IBM, I wish him well.