It is critical that companies explore the discontinuity potential not only in their inner core of suppliers, but among their suppliers’ suppliers as well. The Toyota Motor Corporation, one of the leading practitioners of just-in-time inventory, nearly had to stop production of its Sequoia sport utility vehicle in its Princeton, Ind., plant after the September 11 massacre: One of its own suppliers, Continental Teves Inc., was waiting for steering sensors, normally air-freighted from another company in Germany, but planes were grounded. Toyota has since worked with its suppliers to make sure they receive critical components on time. Continental Teves now has the German-made sensors shipped by boat and maintains a two-week, rather than a one-week, inventory. Such moves add inventory costs for the supplier, and as yet it is not clear whether the supplier can pass some of those increased costs on to the customer. As with every other aspect of a supplier relationship, risk will now be part of negotiations.
One effective means for anticipating and planning for discontinuities within extended networks is strategic simulation, also known as war-gaming. (See “Understanding War Games: A Tool for Vulnerability/ Discontinuity Assessment,” at the end of this article.) Assessing vulnerability is not a new application for strategic simulation, which has been around since the Chinese invented Go 4,000 years ago, but it has taken on heightened significance since September 11.
Just as security has become a critical consideration in dealing with suppliers, so must it become a factor in evaluating strategic alliances outside the supply chain. For many firms, the reflex reaction to the September 11 attacks will be to pull back from alliances — in particular, global, cross-border partnerships. We believe, however, that alliances may be the safest form of international expansion. Acquiring global assets, which was always risky for operational and cultural reasons, now increases an organization’s vulnerability to physical attack as well. A network of alliances, appropriately managed, is potentially more resilient than a collection of global acquisitions. Alliance partners retain local management, eliminating the costs and risks of deploying employees around the globe.
At the same time, a network of alliances represents a substantial interdependence risk for the enterprise, introducing a new set of business perils that are not well understood. These interdependence risks are not technological mysteries so deeply embedded in the mechanics of the Web that you need a computer science degree to understand them. In fact, they are concepts that have been dealt with in various forms for years (for example, PERT charts for program planning). Effectively addressing this risk helps companies deal with important issues such as accessibility to critical information, protection of proprietary information, accountability, and traceability of transactions.
Even before the terrorist attacks, the mounting protests that began in Seattle and continued through Geneva, Davos, and Genoa indicated a need for companies to rethink their globalization strategies. This is not to equate the protesters with the terrorists. But the simple social and economic truth is that there is a palpable opposition in the East and West to the globalization regimens of many multinational companies. French farmers demonstrating against McDonald’s as a symbol of American cultural hegemony garnered widespread support despite the company’s claim that 80 percent of the products they served were made in France.
At the least, corporate leaders will have to be able to identify legitimate nongovernmental organizations, distinguish genuine grievances from untenable demands, and adapt strategies and operations to the needs of increasingly diverse global constituencies. More important, corporate leaders should add to their companies’ mission the goal of spreading the benefits of openness — through education, training, and rising living standards — to the world’s dispossessed. In short, the same good corporate citizenship that motivates support for worthy causes at home also should encourage companies to undertake prominent and effective efforts to improve conditions wherever they operate or sell.