Is your company ready for the worst?
It is a scenario that every company in Tokyo dreads: a major earthquake that kills or injures thousands, paralyses public transport and communications, and leaves business operations in tatters.
Last year’s outbreak of the H1N1 strain of influenza was a reminder of the myriad threats companies must confront to survive: pandemics, earthquakes, floods, fires, utility outages, terrorism, cyber attacks and even financial scandals.
The possibility of widespread and prolonged disruption to the service, retail, banking or manufacturing sectors has made business continuity planning (BCP) an integral part of the operations of the prudent Japan-based business.
Safeguarding corporate infrastructures involves a whole raft of considerations, from how to protect offices housing millions of dollars’ worth of technology, to gauging how much data loss or enforced absenteeism is sustainable before operations grind to a halt.
A typical BCP strategy should include contingencies for every possible form of disruption as well as procedures for recovering and restoring critical functions, all detailed in a manual available to employees.
If the 11 September, 2001, terrorist attacks in the United States marked a BCP watershed for corporate America, the arrival of new flu strains in 2009 has focused the minds of the domestic and foreign business communities in Japan.
But Yoshio Kitazawa, president of the consultancy BCP Corporation, believes cultural resistance is preventing Japanese companies from embracing BCP with the same enthusiasm as their overseas counterparts.
“There is a kind of fatalism that is hard to shrug off,” says Kitazawa, a former international banker. “As a consultant, I am also aware that firms here are reluctant to pay for something they can’t see, such as advice on business continuity management.”
That poses a problem for Japan’s attempts to woo more inward investment, says Kitazawa, as landlords and potential business partners find it harder to attract foreign firms if they are unable to prove their BCP credentials.
“But if you can say your buildings have been designed or adapted to prepare for disaster, or if you have a programme ready for implementation when the unthinkable happens, you stand a much better chance,” he says.
“Exporters in particular are under increasing pressure to prove their BCP credentials, for obvious reasons.”
Japan, though, is learning from the experience of other countries, including Britain, whose history of dealing with terrorist attacks and threats has put it at the forefront of the BCP community.
The British Standards Institution in 2006 introduced an independent standard for BCP that covers private and public bodies, and all sectors of industry, while essential services and local authorities are required by law to plan for emergencies.
In the United States, compliance with several federal laws requires proven strategies for business continuity and disaster management, particularly in the healthcare, government, finance and utilities sectors.
Recent improvements in Japan’s BCP environment have been driven by the Bank of Japan (BoJ) and its determination to maintain market liquidity in the event of a catastrophe.
BoJ pressure has forced more banks to open backup centers, identify key personnel who would be expected to continue working in the wake of a disaster, and protect data that, if lost, could cripple operations.
In a 2008 report on risk management, the central bank found that among 84 Japanese financial institutions, 29 of them foreign, 90% had established institution-wide BCP. However, only around 40% said they were confident of the feasibility of their plans.
The BoJ said business continuity management had “continued to progress steadily,” but added that preparedness levels on such issues as swine flu fluctuated considerably, with many companies citing human resource and budgetary constraints as the main challenges to a longer-term strategy.
HSBC is one of several foreign banks that believe forward planning helped them emerge unscathed from the H1N1 flu pandemic.
The UK-based bank has been doing business in Japan since 1866 and has approximately 1,000 staff spread among 10 buildings. Preparing for the unthinkable is critical to its future operations here, says Jason Quigley, manager of business continuity planning in HSBC’s security and fraud department in Tokyo.
The bank’s presence in Hong Kong enabled it to learn valuable lessons from the 2003 SARS outbreak in Asia. “It was unfortunate, but it was a learning experience for our bank,” he says. “The most important thing is to plan ahead and be clear about what you’re going to do before the pandemic strikes.”
The bank’s country crisis committee for Japan meets regularly to plan policy and review the results of its drill regime, while its crisis team is ready to keep employees and other stakeholders updated in the midst of a disaster recovery effort. Should disaster strike, HSBC can switch its operations to two backup sites in Tokyo and Yokohama.
Senior management is equipped with satellite phones, while all employees have been issued three-day earthquake survival kits.
“Foreign banks have fewer resources compared with our domestic counterparts, so we have to ensure we can use them properly and wisely when the time comes,” Quigley says.
“The Financial Services Agency wants reassurance that we can provide service to customers during a market outage and ensure the safety of staff.”
Firms must also be able to allay fears among employees caught up in a crisis, says Keiko Suzuki, a human resources expert and president of the business consultancy Footsteps.
In the event of a flu pandemic, for example, what are the pay entitlements for workers forced to take a prolonged leave of absence?
“Although the Health Ministry created a panic last year, it at least stimulated BCP preparations for flu pandemics,” says Suzuki. “Firms are more serious about drills, provisions for working from home and so on as compliance requirements.”
But she adds: “They haven’t reached the point where business can be sustained. They have worst-case scenario simulations, but they have yet to answer basic questions, such as who will do certain jobs if someone is sick or a member of their family dies. The importance of these issues can’t be underestimated. They might end up saving your company.”
The flu pandemic prompted several companies to review their crisis management provision.
Consumer electronics company Sharp established an emergency headquarters in Osaka last April, and runs seminars on preventive measures and post-crisis working practices. In addition, 31,800 employees in Japan take part in regular drills.
“We have also put lots of measures in place to make our network more secure,” says Miyuki Nakayama of Sharp’s corporate public relations division. “And all of our employees have to learn how to use our internal communications system in case disaster strikes.”
But Japan will struggle to establish standard BCP practices as long as government and business continue to refuse to cooperate more closely, says Neil Katkov, head of Asia research at Celent, a financial services consultancy.
“Many of the obstacles in the way of better BCP strategies are linked to the culture of secrecy surrounding financial institutions,” he says. “They want to protect their confidentiality, which is only natural, but that is why there needs to be some form of overarching regulation put in place. Otherwise the coordination won’t happen.
“The United States investment banks are most conscious of the need for preparedness. Major EU banks and securities firms are also working hard on this, although their plans are not as robust as those of their United States counterparts.”
Katkov called for more integration between government, manufacturers, emergency services and the financial sector.
“New York is a good example, as it involves the fire department, the stock exchange and public utilities. But the planning in Japan is fragmented. More coordination between the financial sector and the government would be the simplest, most cost-effective way forward, but that seems to be on the back burner.”