Softening the blows of disaster

The enormity of the destruction wrought by Hurricane Katrina on the communities of the US Gulf coast has yet to be comprehensively assessed. Already, though, the consequences for businesses around the world are beginning to become clear.

Insurance claims are expected to run to many billions of dollars, and the closure of oil refineries is causing a surge in fuel prices. Coming soon after last month’s severe floods in Switzerland and Austria, and with the Indian Ocean tsunamis fresh in the memory, Katrina has reminded us of the impact natural disasters can have on business – especially those that are unprepared.

Shortly before Hurricane Isabel struck the east coast of the US in September 2003, Havidán Rodríguez, director of the Disaster Research Centre at the University of Delaware, warned that the US population was becoming increasingly vulnerable to natural hazards such as hurricanes. He called for “more direct and proactive initiatives aimed at disaster mitigation and preparedness”.

Planning against natural disasters would seem like simple foresight, but the evidence is that most companies do not do it. Studies in the 1990s suggested that only 30-40 per cent of companies had any kind of plan or system for crisis management at all. That figure has risen since the upsurge in global terrorism, but of those companies that do plan for crises, most concentrate on man-made disasters such as war, terrorist attacks or accidents. Natural disasters take a back seat.

Complacency, it would seem, is the major barrier. Ian Mitroff, a professor at the Marshall School of Business at the University of Southern California, and Thierry Pauchant, a professor at HEC Montreal, argue that many businesses, especially large ones, believe themselves invulnerable, or at least strong enough to withstand any crisis, including natural disasters. Other observers have pointed out that while businesses are happy enough to make provision against risks such as burglary or accidental damage, they are reluctant to plan for large-scale events such as floods or storms.

In fact, the consequences of natural disaster can be even more severe than those of terrorism. Kathleen Tierney, professor of sociology at the University of Colorado at Boulder, estimates that the 1994 Northridge earthquake, which damaged much of the Los Angeles region, caused damage equivalent to 1 per cent of US gross domestic product. A study of a smaller disaster, the severe flooding and fire that affected the city of Grand Forks, North Dakota in 1997, concluded that a week after the floods receded, most businesses were still trading at only 70-80 per cent of capacity.

In Why Some Companies Emerge Stronger and Better from a Crisis, Prof Mitroff argues that businesses should develop emergency operational procedures, but these must go hand-in-hand with methods for coping with the shock and grief employees may feel, particularly if they and their families are among the victims. When planning for contingencies, managers must think creatively.

It is generally agreed that those companies that plan for and manage major crises such as natural disasters have a competitive advantage over those that do not. They are able more quickly to replace damaged stocks, find alternative supply sources and transportation routes and resume profitable trading.

Phil Harmeson, Denis Elbert and Bruce Gjovig of the University of North Dakota, the authors of the Grand Forks study, even argue that disasters can have unexpected positive consequences. “Opportunities arise as disasters serve as default agents of change, which provide opportunities for individuals, businesses and communities to rethink how they operate,” they write. In other words, the rebuilding process does not have to be a simple matter of replacing what was there before. Rather, rebuilding can be seen as a chance to redesign or re-engineer processes and systems to make them more effective.

One area where businesses can find real opportunities in the aftermath of disasters is in improving relationships with disaster-stricken communities. Often, businesses have the resources, systems and infrastructure to move quickly to offer assistance. In 1912, the city of Dayton, Ohio, was badly hit by tornadoes and floods, and thousands of people were made homeless. John Patterson, president of National Cash Register, which had its headquarters in Dayton, responded immediately.

He stopped all work at NCR factories and offices, and sent his employees into the affected areas to distribute food and relief supplies. NCR’s medical department provided doctors and nurses. Thomas Watson, NCR sales director and the later founder of International Business Machines, travelled to New York to buy more supplies and ship them to Dayton by train, all at the company’s expense. Patterson’s quick actions had helped saved lives, and Dayton developed a close and supportive link with NCR that lasted for decades.

Businesses can do something other than just sit on the sidelines after a disaster. Following the Indian Ocean tsunamis, Marks and Spencer is working closely with the charity Care to rebuild villages in Sri Lanka. Delphi International, the Canadian consultancy, is working on a similar project with the Indonesian charity Walhi in Sumatra.

This does not mean that coping with a major natural disaster is ever going to be easy. As well as the physical destruction, Prof Mitroff says, there are also psychological and emotional consequences. Disasters “cause us to question the very meaning of our lives and what we do”. Prior planning gives everyone involved a point of reference. People know what they are supposed to do in the event of a disaster but, even more important, they know why they are supposed to do it. Planning is expensive and time-consuming, but failing to plan can be more costly still.


• Accept that disasters and crises are inevitable, and must be planned for

• Assess threats from as many quarters as possible – not just the particular hazards of your own industry, but also universal and complex threats

• Disasters affect a company’s stakeholders in different ways; take all their views into account during planning

• Because disasters can affect every part of the company, look at the whole business and consider what role each unit or department can play in planning and recovery

• Recovery from disaster is not a process or problem-solving exercise; steps to deal with shock and grief, not just among employees but in the wider community

If you would like to know more about how your organisation can get involved and benefit from working with the Continuity Forum, please email us HERE! or call on + 44 (0) 208 993 1599.