Earlier this year the Association of British Insurers reported that premiums for firms operating in storm-susceptible areas may have to rise by up to 100% over the next decade; in an article released by Reuters prior to the Copenhagen summit, the ABI was quoted as saying that “even a modest systematic change in storm tracks could increase average annual insured losses from windstorms by 25 percent”. While still making up a comparatively small portion of overall costs for shared service centers, any significant rise in premiums would nevertheless have an impact on budgeting for any such infrastructure, whether existing or in planning: once again, the need to consider the exposure of any location to possible damage becomes paramount not just in terms of the actual risk posed but in terms of the financial impact of the coverage required to allow the center’s top brass to sleep soundly at night. As margins grow ever tighter thanks to the competition posed by outsourcers and the general move towards greater efficiencies, this is an extra headache which all concerned could well do without.

Tech-enabled activities such as those carried out by a typical shared service center rely heavily on the kind of equipment particularly susceptible to flooding in particular. Insurance is obviously an absolute must – but if premiums really are to rise so significantly within such a comparatively short timeframe then it seems logical that there should be an increased focus on the part of those owning and operating centers upon developing infrastructure designed to help keep those premiums down as far as possible. Extra bucks spent “weather-proofing” existing infrastructure or incorporating within designs for new-build projects an extra degree of security might not come easy – especially post-crisis – but can companies really afford NOT to demonstrate to insurers that they’re doing everything within their power to minimize risk?

As noted in the first part of this article, thanks to labor arbitrage much of the activity now carried out by service centers takes place in locations which aren’t necessarily the best prepared to cope with sudden catastrophe in terms of maintaining access to power, water and communications; as well as increased premiums for insuring the actual buildings and hardware of a center, it’s also inevitable that we’ll witness a rise in the cost of insuring service provision even in cases where company infrastructure is relatively – or completely – untouched. Yet again this will have a direct bearing on site-location for those looking to establish new centers; meanwhile those managing facilities already in operation will need to reassure their insurers that the necessary measures are in place to keep services delivered, possibly for an extended period, even in the worst-case scenario of utility connections being destroyed. The back-up generators and similar safety nets mentioned in the first installment of this feature are thus doubly important: not only will they serve to keep business ticking over if catastrophe does hit; they’ll also help keep costs down even when it doesn’t.

Infrastructure isn’t just at risk from the biggest, most obvious impacts of climate change, however. Buildings in many areas will also become increasingly susceptible to changes at a much smaller level: warmer, wetter environments will create new challenges related to humidity – hence the need for a review of air-filtering systems etc (which will also have to cope, along with other elements of the infrastructure, with widening temperature ranges and their attendant structural stresses) especially near critical hardware – and even exotic fauna, particularly insect life which can wreak havoc with employees and systems alike. If that sounds too sci-fi, consider this: not only does “the preponderance of evidence indicates that there will be an overall increase in the number of outbreaks of a wider variety of insects and pathogens”  according to researchers Curtis Petzoldt and Abbey Seaman, authors of Climate Change Effects on Insects and Pathogens1, but climate change could also disrupt the balance between insects and their predators to the extent that pests could experience population explosions even in locations which currently do not even constitute their habitat at all. The impact of such events wouldn’t be confined within the pages of horror stories; at a very minor level we could see insect-protective screens becoming standard for centers even in temperate climates while, at the other end of the spectrum, large numbers of previously foreign species could threaten to render buildings uninhabitable through actual structural damage or the discomfort caused by their presence.

(Incidentally, those responsible for designing shared services infrastructure should also bear in mind the development of future policy – and future levies – with regards to sustainability, in that “green” buildings may well become significant assets in terms of reducing a companies exposure to eco-taxes while environmentally unfriendly structures may become rather expensive millstones, in punitive tax terms, around the necks of those organizations unfortunate enough to be maintaining them. It’s too early to predict what might emerge from the vast summit taking place in Copenhagen this month – and much too early to predict how successfully any agreements might be enforced – but presumably any “pay as you pollute” taxes created further down the line would be just as applicable to shared services as to any other area of business. For more on this topic, check out SSON’s interview with Jairo Rojas of BASDA: “Green IT: the Impact of Business in a Low-Carbon Economy”.)

The impact of climate change on the workforce will not of course be limited to coping with bugs in the office. The gloomier prognostications for the future (and that’s saying something) predict a significant rise in incidences of debilitating disease, partly as a consequence of said bugs, but also as a result of a host of other factors including a decline in the quality of drinking water and – not related to climate change but in some eyes even more perilous – a rise in the prevalence of antibody-resistant nasties. In consequence, absenteeism and turnover are expected to rise – especially in temperate areas experiencing an influx of new pests, and tropical locations subject to growth in the populations of existing ones. The potential costs of such developments are clear; it may well be that some of the huge gains generated by increased automation and general efficiency improvements are negatively offset by the need as a contingency to retain (and train) a larger staff than would be expected, or hoped for. This problem will also, presumably, only be made more severe by other consequences for the workforce: the impact of climate change on family life (especially problematic for expatriate workers who may have to cope with serious issues in their home countries), on mental health, on nutrition and many other areas directly affecting individual workers has yet to manifest itself.

This appears to be one of the issues relating to climate change being least addressed by employers. A survey conducted by Britain’s Trades Union Congress this year found that of 134 organizations questioned, only one had “given serious attention” as to how their staff might be affected by climate change in the years ahead. Shared services will be just as susceptible – perhaps even more so, given the downward pressure on headcount inherent in the model – to such effects as any other elements of a business: perhaps one area where SSOs have the greatest opportunity to benefit their parent organizations in terms of minimizing the impact of climate change is in helping formulate – and put into practice – strategies for limiting the effect on the workforce of some of the potentially devastating challenges which lie ahead.

This article was first published on the Shared Services & Outsourcing Network (SSON) – Read it here: http://www.ssonetwork.com/topic_detail.aspx?id=6646&ekfrm=6&utm_source=ssonetwork.com&utm_medium=SMO&utm_campaign=DIRECTORIES&mac=SSON_External_Listing_2057

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The more observant among you may well have noticed that this is not in fact a representation of the near future from the perspective of shared services and outsourcing; rather, a precis of the plot of disaster movie 2012. However, while such cataclysmic challenges remain (for the moment…) in the realm of Hollywood sci-fi, the threat posed to smooth back-office operations by smaller (but nevertheless potentially devastating) phenomena is very real. Organizations without clear, coherent and agile disaster-avoidance and disaster-recovery strategies are courting catastrophe – and in many respects the challenges will only intensify over the years to come…

If that sounds too doomladen for many readers’ palates, it’s worth taking a look at a few critical issues. Firstly, from an organizational standpoint a catastrophe doesn’t have to be global to have global implications: the amazing advances in technology that have paved the way for IT-enabled centralization and the rise of the shared services model have resulted in countless benefits but have also created incredible dangers for any companies foolhardy enough to put all their data eggs in one basket – the oft-imagined (and thankfully unlikely) scenario whereby Company X’s sole SSC is destroyed in an earthquake without that company backing up its mission-critical data is the archetypal nightmare here.

Secondly, the increasing interconnection brought on by globalization has similarly led to innumerable benefits but has also led to the possibility of almost unthinkable dangers, both natural and artificial: the headlines over the past year have been dominated by the consequences of the financial crisis, a “near miss” event in many ways which at one point looked as though it could result in systemic collapse with the global banking superstructure within hours of collapse; and by the avian ‘flu pandemic which – fingers crossed – appears now to be less problematic than was first feared but which could – thanks again to globalization and easy travel – have reached every corner of the earth more rapidly than any previous pandemic and with devastating consequences. In this case, disaster-recovery teams would have had to cope not with acute trauma at any one location, but the consequences of a significant proportion of the workforce being rendered unfit for purpose (ie, dead) and of the impact of a substantial depletion of the consumer base on profitability. Two near-misses in a single year: it’s easy to imagine the Sword of Damocles swaying gently overhead…

Coping with that kind of catastrophe might seem beyond the domain of shared services (as if they didn‘t have enough to cope with); however, it seems logical to assume that, in the case of a seriously destabilizing event like either of the last two mentioned could well have become, shared services would be perfect to lie at the heart of any recovery strategy developed by a global organization: a number of small, agile centralized groups (as long as they’re not too depleted or rendered useless by whatever’s transpired) are far better placed to mount coherent resistance to disaster than widely dispersed (and probably pretty terrified) local teams – as long, crucially, as the lines of communication remain open and the aforementioned mission-critical data is not lost. Any element of disaster-avoidance strategy dealing with major global events should therefore include well-defined roles for shared services teams maximizing the advantages conferred by this model.

However, such events remain, thankfully, unlikely in the short-term. Much more immediate and pressing is the risk of local catastrophes which threaten the shared services units themselves – and dealing with these, and minimizing their impact on the organization as a whole, is what disaster-avoidance and -recovery are really all about. After all, in the case of a truly disastrous global pandemic or systemic collapse we’re all probably going to have a lot more to worry about than whether the business processes are still up and running; however, a localized event could have very little impact on the world at large but prove fatal for an organization which hasn’t taken the time to take preventative measures. Unfortunately, in many ways it seems that the likelihood of such localized events – whether of natural or artificial origin – is on the up, for a number of reasons.

Foremost amongst these is the ongoing impact of climate change (and here it’s worth pointing out that while skeptics can rail against the assumption that humans are responsible, very few are actively denying that climate change is a reality) and other consequences of environmental degradation. Following the old adage that prevention is better than cure, a sensible starting-point for disaster avoidance would be to avoid locating critical infrastructure in areas likely to be worst affected by global warming in the foreseeable future – so global businesses are unlikely to be setting up shared services hubs on the beaches of the Maldives or the shores of the Ganges Delta, for example. The problem here is that nobody knows to what extent climate change is already impacting on what might previously have been thought “safe” areas via catastrophic meteorological events: anyone in the Philippines (an increasingly important shared services and outsourcing hot spot) during the fatal storms and floods earlier this year, or in New Orleans during the ravages of Hurricane Katrina, can testify to the effects of the weather on productivity. The bottom line is that now more than ever, location selection processes must include at their heart a full and rational assessment of the possible impact of climate change. In addition, once built, those responsible for a shared service center – no matter how sensibly sited – must also put in place contingency measures to cope with weather-related events of an intensity over and above what may have been expected only a few years previously. Back-up generators and plans to minimize the impact of disrupted communications and transport links are already an absolute minimum here.

At the other end of the spectrum, the possibility of a human-induced destabilizing event, which – thanks to an increase in terrorism targeting sites of commercial activity – has also increased over the past decade, is likely to rise exponentially if the worse forecasts for climate change are realized. Rising sea-levels and – ironically but no less catastrophically – increased drought are likely to see extreme population movements over the next couple of decades, fuelling existing social tensions and creating new ones. Predicting the stability of any given location ten years from now certainly isn’t an easy proposition – but it’s one that planners cannot now afford to ignore, especially as much new shared services activity is taking place in those fast-growing developing nations most likely to be worst affected by such pressures.

These points are by no means meant as an argument for keeping new shared services development wholly within the developed world (specifically within meteorologically “safe” locations); the benefits posed by siting infrastructure in the emerging hot spots are frankly too good to miss. The point is that those benefits will be for naught if they are not insured by robust disaster-mitigation practices which factor in the potential impact of climate change – and any board unwilling to face the realities of climate change, skeptical though its members may be about the underlying causes, is asking for the kind of trouble from which many businesses wouldn’t be able to recover. Splashing out a few bucks on getting a climatologist’s advice before investing millions in a new center might a few years back have been seen as verging on the lunatic; now it’s probably if not indispensable then pretty close to it.

Of course, it’s not just those looking at setting up new infrastructure that have to concern themselves with such gloomy matters: existing centers should also be assessed in terms of potential risks based on scientific data. But to a large extent such scrutiny will already have been carried out by most organizations – after all, severe weather events are hardly a new phenomenon: it’s their prevalence and intensity which are likely to increase over time. More crucially, firms now don’t just need to assess their own susceptibility to damage: thanks to the growth of outsourcing and the development of more disaggregated business structures, it’s increasingly vital to include in any due diligence an assessment of a potential provider’s ability to cope with the possible consequences of climate change. After all, the gains derived from a sweet outsourcing deal will look pretty paltry pretty quickly if your partner’s infrastructure is rendered useless by flooding or other weather-induced trauma.

For those who may be thinking all this is overly paranoid, it’s worth noting that the consensus within the business community is increasingly aligning itself with the climate-change evangelists. A survey conducted last year for insurance brokers Marsh found that 87 per cent of businesses consulted saw climate change as the single leading threat facing them over the next decade in terms of risks to future growth (while threats posed by the global economic downturn may well have risen to top spot in current thinking, it’s unlikely to have driven climate change off the agenda altogether). Regardless of cause – and that debate is unlikely to disappear despite the growing scientific consensus placing blame at  humanity’s doorstep – in the minds of those running the planet’s economic engines, the threat posed by changes in the environment is more pressing than those offered by terrorism, pandemics or anything else. Shared services, so clearly at the heart of so much of the transformation to have revolutionized business over the past few years, simply can’t afford not to be at the forefront of this most urgent issue.

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This article was first published on the Shared Services & Outsourcing Network (SSON) – Read it here: http://www.ssonetwork.com/topic_detail.aspx?id=6572&ekfrm=6&utm_source=ssonetwork.com&utm_medium=SMO&utm_campaign=DIRECTORIES&mac=SSON_External_Listing_2056

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