Adam’s Law?

Vulnerability to disruption increases with development

There is a characteristic which is self-evident to the professionals in this field, that is, as we develop as a Society, we become increasingly reliant on more and more suppliers delivering products or services. Should just one component of the supply chain be disrupted then this service or product cannot be delivered. This can result in chaos. This is simply a manifestation of Adam Smith’s contention that the increased division of labour allows increasing output. However, with ever more suppliers, and the implementation of just in time production, the loss of just one small component disrupts the entire chain. This is as true for services as it is for manufacturing and after Adam Smith we should perhaps refer to this as Adams Law.

To illustrate this, imagine yourself to be a Venetian banker in the 16th century. He would need ledges quills and ink say possibly a desk and to operate in a secure environment, under the rule of law, but that’s about it. Now consider his modern counterpart. Just providing the most basic of modern day services the Banker needs to operate both within and under the rule of law, he needs sophisticated computers, he needs a base to operate from, he needs communication devices and he needs an army of people to run this, accountants, data entry, lawyers, compliance people and then HR to manage them.

That’s a complex web of people and products just to do the simplest banking operation. This complexity brings with it vulnerability; if they are denied access to the office, if there is no electricity, (or water) then the organisation cannot function. If you cannot function, there will be a knock-on effect for the counterparties, due to the interconnectedness of our society. If just one bank fails, this has a domino effect on other financial institutions and counterparties.

So, how on earth, given this hugely complex environment, can we assure continuity of service?

The answer is firewalls. Firewalls, not in the IT professional’s sense, but rather used in their original sense, to stop fires spreading to other parts of a building.

Whilst we cannot stop disasters, we can, through planning and risk assessment reduce the chance of them happening. What we need to do is insert a firebreak, preventing a disaster spreading from one institution to another.

The office is the nerve centre of all our businesses, bringing together all the human capital, electronic devices, communication systems and expertise needed to deliver services to customers. Indeed, everything we need to function.

Being denied access to that facility immediately prevents us from processing transactions or data in a variety of ways. Consequently, it is a fundamental requirement to have alternative facilities that can be a mirror of our own critical systems. Though technology allows most people the opportunity to work remotely, this just will not work effectively for all in a crisis. The crisis management team and core business functions need the office infrastructure to efficiently and effectively manage the business through a crisis.

We can’t stop the world becoming more complex. What we can do however is insert firebreaks just as we have been doing throughout the centuries. These new firebreaks will be less tangible but will have the same function; that is to stop the transmission of a problem into the wider environment.

One can argue that Financial Institutions have a fundamental role in the facilitation of trade, but I would argue that many other organisations could claim the same, certainly electricity generators, also communications providers, even water companies. I doubt that many people would have suggested that tanker drivers are fundamental, but we have seen how a nation can be crippled within seven days if fuel is not delivered. More recently just the sighting of a drone at Gatwick Airport prevented a quarter of a million people from travelling.

Our society has benefited hugely from increased specialisation, but without building in, and paying for firewalls we will become increasingly vulnerable to catastrophic failures.

Author:

Paul Barry-Walsh – Chairman

Beacon Fellow

CNBC European Philanthropist of the Year