What are your ‘Rings of Defense’?
I’d like to attribute this recent ‘catching up on my reading’ to long sunny summer days in my Adirondack chair, but no such luck. On the few rainless days, Zephyr has commandeered my chair. Despite these obstacles, I’ve still managed to find time to read, and share some interesting articles. Today, an article in June’s Fast Company caught my attention. The article is entitled “Through the Fire” and shares strategies Cisco, Corning, IBM, Intel and Schwab are using to survive in the current economic crisis, and emerge even stronger as the economy rebounds.
Of the profiled companies and strategies, Corning's Rings of Defense clicked with me. I can see the connection to business architecture, the business of IT, and business IT alignment. [As readers know, I prefer “business-IT integration”, but I’ll go with the crowd this once.]
Corning’s Rings of Defense (emphasis is mine)
“If anyone should be able to build a shatterproof fortress, it's Corning. But during the telecom crash earlier this decade, the specialty glassmaker for everything from medical devices to consumer electronics to cars saw revenue nosedive from $7 billion to $3 billion in 18 months; Corning almost burned the village trying to save it. "We vowed never to let that happen again," says president and COO Peter Volanakis. Corning's executive team, the same senior managers as during its epic fall, instituted an early-detection system to identify signs of trouble as well as four "operational rings of defense" to help it manage through a crisis in a measured, strategic way.
The first step? A good offense. Corning created its own market-research system, relying not just on its customers but also on its customers' customers, even checking stores to measure demand for the products it helps to create, such as LCD TVs. Corning also stockpiled cash, which enabled it to absorb a $400 million loss in the fourth quarter of 2008 without selling off part of its business, as it had to in 2002 to make a debt payment. And it helped that the company modeled worst-case scenarios and a response to each.
As trouble started brewing last year, Corning implemented its first ring of defense: discretionary spending cuts, reduced production, and hiring limits. As things got rapidly worse through the fall, management quickly implemented the second and third rings: shorter work weeks in Europe and Asia, limiting its use of contractors and temps, and, finally, layoffs. But as hard as it was to trim the staff by 13%, that was a far cry from the telecom crash, when it shed 21,000 of its 43,000 workers. This crisis feels more under control, the actions "more thoughtful," Volanakis says.
Most important, Corning has avoided the last ring, which would include reducing its $630 million annual R&D spending. Its lifeblood is new products, such as those it's aggressively pushing this year -- scratch-free touch-screen glass for cell phones and laptops, smaller next-generation data centers, and a laser-light engine that turns a laptop into a projector. "We're an R&D-based company," Volanakis says. "R&D is the absolute last thing we'd cut."”
So, what stood out to me? First, the use of scenario planning. A long standing practice to envision the future and craft responses, which unfortunately many companies neglect to do when things are going well. Clouded by ‘bubble fever’, perhaps. From a recent WSJ Article:
“Use of scenario planning rose following the 2001 attacks, to about 70% of executives surveyed by consultants Bain & Co. in 2002, up from 30% in 1999. Since then, Bain's surveys have found fewer executives using the tool, though the consulting firm expects heightened interest this year, because of the recession.
"It's sort of like flood insurance," says Michael Raynor, a corporate-strategy expert at Deloitte Consulting LLP. "Everybody runs out and buys flood insurance the year after the flood."”
The second thing, was the “rings of defense” concept. The diligent and deliberate articulation of responses, in this case cuts, that provide short-term relief, while protecting the future, in Corning’s case, R&D. Too often, in bad times, unilateral cuts are made, disregarding long-term implications.
So, my questions for you to consider:
1. Does your organization do scenario planning? Is this purely a business activity? Or does IT participate? Is the practice extended to the business of IT?
2. Has your organization articulated rings of defense? Is there general knowledge of what business activity should be in the center, protected by the last ring?
3. Has your IT organization articulated its rings of defense? Do the IT rings, the activities and capabilities being protected, align with the business rings? Or, do the IT rings subvert the business rings?
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