1105RA Indian Blackouts Underscore Disaster Planning Must Include Offshoring

What is Happening?  On Monday, 30 July, 2012, India’s Northern power grid failed and left over 320 million people without electrical power. Then Tuesday, 31 July, three of India’s power grids (the Northern, the Eastern, and the Northeastern) failed causing a blackout affecting over 620 million people. All power was restored on Wednesday, 1 Aug. These unprecedented outages stopped many businesses that lacked sufficient disaster recovery capabilities and crippled remaining businesses by preventing untold workers from commuting to work.

Why is it Happening?  The precise cause(s) of the grid failures and the resulting widespread blackouts will likely not be known until after a thorough investigation. Further, these outages did not impact Mumbai (the major financial center) nor did they impact Bangalore and Hyderabad (the major centers of outsourcing). However, these outages should serve immediately as warnings to business executives worldwide that “stuff happens” in the form of unscheduled disruptive events. These disruptive events range from terrorist attacks, to failures in major utility systems, to socio-economic, to political, to natural disasters such as floods, earthquakes, etc.

Market Impact  Regardless of the actual disruptive event, an area’s infrastructure – communications, power, transportation, and housing – can be profoundly impacted. And, as was seen in New Orleans after hurricane Katrina, recovery from the event can take days, weeks, months, or even years.

Intersecting with the exposure of disruptive events is the fact that many businesses worldwide have turned to outsourcing and offshoring to reduce the costs in areas ranging from IT operations to people-intensive processes such as customer support hot lines. Thus, independent of the nature of the disruptive event, the fundamental question for business leaders is: Are there adequate disaster recovery and business continuity plans in place for the entire extended enterprise (i.e., including all outsourced and offshored processes)? These business continuity plans must include alternatives for obtaining backup systems, facilities, and personnel.

Even if the Indian blackouts this week had had a more dramatic impact on worldwide businesses, Saugatuck does not predict a shift away from offshoring in particular or outsourcing in general. The economics of outsourcing and offshoring remain compelling. But, the decision must also include the potential impacts of disruptive events.

Saugatuck urges users to focus on disaster recovery and business continuity even though the systems and people may be half a world away. All users and IT vendors, including outsourcers, should assure adequate contingency plans which include at least:

• Alternative sources for systems and for human resources. Single-sourcing may be more easily managed, but the exposure to a disruptive event is greater. Firms utilizing multiple providers may need to reconsider their outsourcing strategies (and budgets), as managing multiple providers could make a significant dent in budgets. Users should assure that vendors have a complete disaster contingency plan for all critical resources – on shore, or offshore. This is most critical for business process outsourcing vendors.
• Geographic dispersion across multiple providers; or at least providers with multiple locations – ideally in multiple countries. This will mitigate the probability of a disruptive event bringing down a crucial business process.

IT vendors and services providers should feature disaster preparedness and recovery capabilities in discussions and proposals/RFP responses to users. These can be a meaningful competitive advantage.

In the end, it is the responsibility of both the user and the provider of outsourced services to ensure that business continuity is adequately planned.

As Cloud adoption accelerates, and weaves itself across a wide range of important business processes, the issues related to disaster recovery become even more paramount. These themes will be explored in a special featured panel entitled Managing Risk and Reward in the Boundary-free Enterprise™ at Saugatuck Technology’s upcoming large-enterprise CIO / CTO-focused conference, called the Cloud Business Summit – to be held November 14, 2012 at the Westin Times Square in New York City. To learn more about the conference, go to the event website www.cloudbusinesssummit.com

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