The new risk equation

How companies are planning for disaster after 9/11/01.

In the months since the Sept. 11 attacks on the World Trade Center in New York and the Pentagon in Washington, the media has been filled with stories about the impact they have had on the American economy.

We have seen the shock waves reverberate across a wide spectrum of industries, from airlines and hotel chains to insurance companies, investment banks and defense contractors—even the U.S. Postal Service.

The savage events of that day are having an equally profound effect on business that is playing out largely behind the scenes. Companies in nearly every industry are now asking fundamental questions about how to structure their operations—particularly their critical information technologies and communications systems—in ways that will mitigate their risk from potential future disasters of like magnitude.

The attack on the World Trade Center was so devastating because it hit one of the most concentrated pieces of commercial real estate in the world. When the towers collapsed, almost 25 million square feet of office space—the equivalent of downtown Denver—were destroyed or became uninhabitable.

Entire companies vanished in the smoke. Tons of falling debris caused tremendous damage to nearby telecommunications facilities, disrupting phone and data services so badly that it has taken months to fully restore them.

As New York continues to rebuild, companies are rethinking every aspect of their businesses, including a move to a more “distributed” environment, not only for their workers and executives but for their IT and communications systems, as well.

How many data centers should we have? Should they be on the same local phone grid? Should they be on the same power grid? Do our executives need to be physically located next to our trading floor? Should all our executives work in the same place? Those are the kinds of questions being asked right now.

Witness the recent decision by Morgan Stanley to sell its new, 32-story tower at 745 Broadway in Times Square to Lehman Brothers. Lehman had been displaced by the attack and needed the space. For Morgan Stanley, though, the “key reason” to sell the building was because it was so close to the bank’s main headquarters at 1585 Broadway. If it occupied the two offices, Morgan Stanley said in a press release, “the firm’s trading and backup facilities would be concentrated in two buildings within one city block that are dependent on the same transportation and power infrastructures.” For the sake of “business-continuity planning,” the firm said, it made sense to spread out. The same thinking went into Morgan Stanley’s subsequent decision to build a backup trading floor somewhere else in New York or its surrounding suburbs.

Do not expect a mass exodus from the greater New York metropolitan area. Most of the hardest-hit companies were in the financial services industry, and New York is where their talent pool is. Lehman’s decision to stay in Manhattan is a testament to that fact. You can bank on a growing number of firms looking to New Jersey, Connecticut and Long Island, however, as good places to locate at least some of their IT functions and communications facilities.

Also clear is that businesses are looking to vastly increase the capability of the backup computer systems they have in place. Before 9/11, many companies that manage large, mission-critical data applications had disaster-recovery contracts with IBM, SunGard Data Systems or Comdisco, all of which provide emergency backup services in the event of an IT disaster. Few clients, however, had contemplated a disruption on the scale of the World Trade Center attack, where the period of dislocation is going to be measured not in weeks but in quarters or years.

On the communications side, service providers can expect much more pointed questions now from their customers about exactly how their telecommunications and data networks are constructed. The 9/11 attacks exposed how individual circuits were routed, as well as single points of failure. Now, end-users are looking under the hood, and they are demanding truly diverse routing to protect themselves from the disruption of another disaster.

In short, pre-9/11 solutions do not make sense in an era of post-9/11 risk. Disaster preparedness has traditionally been viewed as a discretionary expense inside the modern corporation—important, to be sure, but always subject to cutbacks during lean budget years. That era is officially over.

Vidal is senior vice president for new ventures and investor relations at Level 3 Communications Inc., Broomfield, CO, www.Level3.com.