Be prepared for the Unthinkable

Daniel Dumke — Wed, 30 Mar 2011 09:07:00 +0000

Today I just want to highlight a short article from “The Conversation” blog at the Harvard Business Review for you to read. The article, which can be found here, was written by Harold Sirkin, senior parter at the Boston Consulting Group.

Problem

Sirkin describes the problem of disruptive events referring to the black swan analogy. In hindsight most people can explain the cause and effect relations of the Japanese disaster with ease, but beforehand most companies belief that such events could not be predicted, or prepared for. Sirkin disagrees, and suggests the following measures to improve performance in extreme situations.

Measures

Preparation for the unlikely is key to lowering the impact on the own company, this includes a diversification of the supply base and a locking of supplies before shortages occur.

Companies should furthermore invest in flexibility, so producing more products locally and lower the fixed cost, eg. by outsourcing.

As you see it is a really short article…

Conclusion

Of course this is no research paper, with elaborate methodology. I see it more as a business insight, what are companies doing. Or in this case what are the current recommendations of the consultants.
For my critique I would like to make three points:
I found it rather confusing how to fill the gap between the companies which do not see themselves able to predict disruptive events and the consultant who recommends preparing for the unknown. I think what Sirkin implicitly means is that it is not about modeling specific scenarios (like the Japan earthquake) and assigning probabilities to them. But to think about more general ways to increase the resilience of the supply chain, which can be helpful for a large number of different scenarios.

Furthermore, the recommended measures miss the current trend for cost minimization and how to align both goals. I could well imaging another BCG consultant telling the same company to reduce supplier redundancy and operational flexibility to reduce cost. So perhaps risk mitigation is just not for all?

Most importantly, this article also follows the Black Swan, since it is only written in hindsight as well. As you can see from the other publications of Sirkin on the HBR, which are mostly about supply chain innovation and change management, consultants fall for the trending topics as well. This is a problem for disruptions because they usually do not happen cumulatively but with long intervals between them. So the right time for this article would have been half a year ago or one year in the future. But everybody is wiser after the fact, and forgets soon thereafter. (Since I did not do a full review of all publications of Sirkin, this conclusion may be skewed.)

Reference:

Sirkin, Harold L. (March 28, 2011 ). How to Prepare Your Supply Chain for the Unthinkable Harvard Business Review – Blogs Link: blogs.hbr.org/cs/2011/03/why_are_supply_chains_eternall.html

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disruptions

mitigation

strategy

Harold L. Sirkin

Be prepared for the Unthinkable

Problem

Measures

Conclusion