Detecting Early Signs of Trouble
THE WORLD OF SECURITY is changing faster than we sometimes realize or wish to acknowledge. In addition to the age-old problems of violence and crime, security executives now have to contend with international terrorism, environmental damage, energy disruptions, protest movements, and potential pandemics. To these protracted and almost universal problems one can add the prospect of unexpected and often violent natural events like earthquakes, floods, or hurricanes.
One certainty is that there will be ever less time to plan and control responses to fast-moving and unpredictable events; furthermore, there will be evergreater penalties and burdens for failing to react effectively. Dwindling reaction time is a feature of the modern international scene. If we are to get ahead of the steep response curve, then we must increasingly look ahead and anticipate. This means increasing our planning and preparation well before any potential event. As a result, we need to develop more imaginative and dedicated threat assessments, as well as a more structured approach to measuring the likely pitfalls and warning signs.
During the Cold War, NATO used a fairly unsophisticated method for assessing the readiness of the Warsaw Pact countries for launching an attack on the West. This involved measuring activities like ammunition outloading, tank movements to the front, the call-up of reserves, and largescale exercises. Such activities were individually scored on a color-coded board, and when enough green and yellow dots changed to red, an imminent attack was thought likely. An alert could then be issued and forces prepared.
This relatively simple warning system tried to identify the key indicators that would help to foretell a pending crisis, and to reflect the collective triggers that could turn an orderly situation into a dangerous one. The phrase “tipping point” usefully conveys the idea of a scale: essentially, it is a fulcrum around which are balanced benign and hostile environments, with the outcome dependent on the loadings applied to either side. The shift from one to the other could perhaps be dramatic or possibly imperceptible, often as a result of the slightest pressure. Naturally, it is in the interest of security managers everywhere to offset any adverse threats with liberal measures of planning and preparation, thereby preventing the tipping point from ever being reached.
The modern corporate security professional could readily adopt and adapt a warning system like that used by the military to help prepare for the dangers ahead in the business world. When examining the corporate environment, security can find many different indicators which, if collected and measured, could usefully help to point to a looming problem or crisis. Such indicators range from abnormal share trading to terrorist reconnaissance to adverse media reporting. If these elements are amassed and studied, they may indicate that an organization is, or is about to become, a target. If the indicators are designed wisely and collated proactively, then the dangers ahead may be detected in time to be avoided. Here are some examples of how indicators could have pointed to trouble ahead for two different companies.
In 2002, Swiss Air sold the catering contract for British Airways flights to U.S. venture capitalist Texas Pacific Group, which, in turn, owned Gate Gourmet. This was the first indicator: Gate Gourmet became the single catering supplier to British Airways but the company had not made a profit since 2000; in 2004, the company lost approximately $34 million. This was indicator two. In 2004, media reports indicated growing sympathies between union members employed by the caterers and other service suppliers at Heathrow airport in London. The third indicator came in early 2005, after the key union at Gate Gourmet and officials had spent months in crisis talks over pay and productivity issues. The outcome was that by mid-2005, tensions were sufficient to cause a damaging strike by the caterer’s employees that eventually cost British Airways a reported $75 million and also disrupted thousands of passengers during the peak travel season.
Another example concerns Parmalat, a multinational food company in Italy. In 1990, Parmalat’s CEO, Calisto Tanzi, was accused of fraudulently filing for bankruptcy. At about the same time, a bad investment in Brazil drained funds from Parmalat. The company sought increases in capital to avoid bankruptcy. This was the first indicator. In 1995, inspectors working for the Italian authorities accused Parmalat of illegally exporting huge sums of Italian currency through Switzerland and then on to Panama; that was indicator two. The third indicator came in 1996 when the Italian media reported that Parmalat was heavily in debt. In the same year, the Parma Football club—98-percent owned by Parmalat—was reported to have lost $103 million, and Parmatour, a family-owned tourism group, may have lost $2.6 billion. Indicator four was Parmalat’s 1999 purchase of a milk-processing company, Eurolat. It was well known at the time that Eurolat was in financial difficulty. All of these factors could have predicted the incident in 2003, when an Italian court declared Parmalat’s main operating arm insolvent amid a growing sense of panic at the company. Approximately $4.9 billion disappeared from Parmalat’s accounts following the revelation of worldwide false billings and statements, according to Italian officials.
Both of these examples indicate how the warning signs were there for all to see but were not read sufficiently by those who could or should have implemented coping or avoiding strategies. The story is repeated in cases such as Enron, WorldCom, and Equitable Life. While many of these instances may be dismissed as essentially financial scandals, they had profound implications for corporate security personnel at the time and for all staff in those companies in the long run.
While it is easy to analyze such historical events and be wise in hindsight, it is also possible to use a warning and indicator mechanism to look at future developments and try to plan a course between the rocks. Take the issue of demographic change. Many countries in the developed world are becoming ‘graying’ nations as the proportion of the population of working age steadily dwindles. By 2025 in the United Kingdom there will be three people of working age for every person aged 65 or more, compared with about four at present. The situation is worse in Japan, where the working population is projected to fall by one-tenth over the next two decades.
Besides the obvious impact on pensions, the demographic shift will mean that some companies will have to think about recruiting more women and part-time workers, introducing more flexible working hours, increasing the uptake of graduates, employing more migrants, and increasing outsourcing. All these factors have security implications in terms of screening, contracts, and remote access to computer systems. By plotting the trends and marking up the actions deemed necessary to cope in advance, security can be more prepared than the competition.
The same approach can be taken over the issue of a potential pandemic flu outbreak. While the world waits to see whether there will be a widescale transfer of the H5N1 avian virus to humans, there is much that can be done by way of indicators to help in coping with an eventual outbreak in the human population.
A British company called Maplecroft has produced a range of pandemic flu indicators that shows the risk of emergence, the rate of infection, and the capacity to contain a flu virus. For each of 161 countries, 32 indicators have been created and measured to reflect the scale of risk, and each indicator is weighted according to the relevant importance of the particular issue.
Interestingly, the United Kingdom is at the top of the list for the risk of spreading infection and ninth for the risk of emergence. The indicators give an insight on what are the most important factors to consider in a pandemic, and thus where to focus attention and effort.
The idea of weighting an indicator is important since not all indicators have the same influence on a set of circumstances. If the security of assets in a banking institution, for instance, were given a set of indicators, such as the amount of money lost in armed robberies or the amount of property stolen in any set period, then the importance or influence of each could be weighted by factors like the losses incurred by other similar organizations or the volume of media reporting of such incidents from other areas or countries, or the recovery rate of stolen cash or items. While no great significance should be paid to any one set of indicators or weightings, the value lies in the changes to the indicators over time and the collective outcome.
It is also possible to gain insight from indicators developed by specialists. On a number of Web sites, security can assess how others see future markets by observing their gambling on possible outcomes. The Foresight Exchange Prediction Market, for example, allows players to see the odds on certain political or physical events coming to pass. The range of betting gives a good indication of the strength of conviction that some are prepared to back with cash. More exclusive, closed sites, populated by subject experts, allow subscribers to see what others are thinking with respect to, for instance, the timescale for the next pandemic.
Building a Risk Platform
Indicators are pointers of potential change over time, whether that is in the short or long term. If they are applied to a standard risk profile, it is possible to convey a sense of direction to conventional threat assessments. Combining the historical data of previous incidents with potential indicators provides a trend path for a range of threats. This approach can apply as much to forthcoming hurricane strikes in the North Atlantic Basin as forecasting robbery attacks in a city like New York. Such an exercise is far more meaningful than supplying a single snapshot in a rapidly changing world. Results in a particular category can also be ranked, from one to ten, for example, but again it is the relative position of any factor, rather than its absolute value, that is important in building the complete picture.
Another crucial element in the outcome is the quality of the data. Naturally, poor data will generate poor information, and the reverse is equally true. Good data will materialize especially if there is a firm commitment from senior management to the entire exercise. Money spent in assembling the right data will generally produce a return through profits. But management must also understand that the forecast that the effort yields will not necessarily be a definitive statement of a set outcome but more an indication of a trend that will need to be revised and updated constantly.
With that understanding, this type of predictive activity will help to generate a more effective and secure organization that is prepared to react and adapt to threats as they arise. That, in turn, will help the enterprise be more successful in the marketplace and more valued by both its staff and stakeholders.
Robert Hall is a former military officer who has since worked for large public- and private-sector companies in risk and security management. He lives in Colchester, United Kingdom. This article is based on a presentation he made to the 2006 ASIS International European Conference held in Nice, France.