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TERRORISM PREPAREDNESS

We can pay now or pay later

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WASHINGTON — International terrorists attack businesses far more than any other target, and when they strike, they aim to disrupt the flow of supply and demand and to destroy our way of life.

A survey of 642 global firms found that terrorism is the third most important concern to management, after energy prices and exchange-rate volatility. The companies surveyed reportedly spent on average about $147,000 on terrorism preparedness and hired about five new employees to deal with the issue. Yet many other corporations do not believe their shareholders would reward these investments, and therefore remain unprepared or the impact of terrorism.

With today’s global competition, firms no longer have the luxury of just aiming for “survival” in the face of an emergency or a terror attack. Firms must offer continuity to their suppliers, their clients and their employees in order to inspire confidence in the relationship. Flexibility allows firms to recover more quickly in the aftermath of terrorism’s direct and indirect consequences.

Preparedness is of key importance to any firm. For example, after hurricane Katrina, many displaced students and faculty members from New Orleans found continuity in Georgetown University classrooms immediately because contingency plans had been made. Even relatively small and local events can cause major dislocations. Suppliers can go out of business or have their facilities burn to the ground. Employees may be struck by illness or a labor dispute may halt shipments.

To safeguard the investment of shareholders and assure the viability of their firm, managers must prepare contingency plans that respond to system shocks.

We have developed a model of corporate readiness for international terrorism that links people, activities and society, and identifies opportunities for improvement. We propose a model of the different levels of corporate readiness for international terrorism by linking the relationship among conditions, activities and people, and identifying the leverage points to initiate improvement and change. It also helps to evaluate policy approaches to emergency preparedness in general.

We start with a terrorist threat or incident that causes both direct and indirect effects. They trigger the actions of responders, who can be either internal or external to the firm. These responders and the media shape the information, experience and perception of society and the firm. One consequence is the creation of friction that slows down international business transactions.

The availability of resources and the firm’s willingness to employ them affects the level of preparation. Managers typically are totally unprepared for the effects of terrorism on their firms, and are not willing to undertake any kind of investment. With sufficient input, managers change their attitude but are still not ready for any action. As concern grows, management searches for input such as checklists or audits. Eventually managers plan at a tactical and strategic level, and integrate stakeholders such as employees, suppliers, banks and legislators. Finally, management actually prepares the firm for terrorism by, for example, making provisions for emergency relocation of employees to relocate and to ensure that they have employment, and that they get paid when the ATMs are down.

From a public-policy perspective we know that legislative preparation will be more advantageous than an overly rapid but unexamined response to a current emergency. Our model indicates three particular intervention areas: information, resources and logistics.

There needs to be a much wider dissemination of preparedness information and an integration of preparedness materials into daily life, college courses, high school curricula and text books. We make sure that our children know how to check for dangerous traffic — they need to be more informed about terrorism and have an embedded sense for planning. We also need a clear sense of what can and cannot be expected from government in case of need, so that there is a reasonable level of self-reliance. The resulting preparedness may eventually even become a competitive advantage.

Web-based training media should disseminate training. There should be co-opted media time to communicate terrorism-preparation activities. Why not think of video games and a TV soap opera dealing with preparedness for terrorism? After all, terrorism is global and its threat is more real than any reality show.

Since many firms do not commit resources, and their shareholders do not support spending on terrorism-related tasks, an incentive needs to be provided. Support can either ease compliance with governmental rules or help firms pay for plans and preparations.

Security measures have introduced greater friction into international marketing that decreases the efficiency and effectiveness of logistics. Supply chain costs have increased substantially. Our survey respondents tell us that their international shipments now take an average of three days longer to arrive. Time is crucial when it comes to international competitiveness, merchandise shelf life, product quality and payment receipt. The new delays are evaluated to be the equivalent of a 2.4 percent tariff rate on goods, which is as large as the current overall level of protective tariffs imposed by Japan.

The gains from early preparation are high when compared to the costs. A capable response by firms to disaster is of benefit to the public purse. If public order and processes fall apart, the government will have to set things right at greater expense.

Firms that stay in business, retain their employees and serve their customers can make a great difference to societal continuity. As the saying goes — you can either pay now or pay later.