What is the maximum capacity of your business? Do you invest so you can scale up to peak capacity as needed? What are the risks and opportunities of investing so you can scale up as needed? How do you decide?
These questions arose during a recent business presentation about opportunities and risks. The presenter made an excellent point about organizations’ tendency to react to recent events, rather than planning for a defined outcome. It’s very tempting to invest for what just happened. But does it make sense to always be prepared for an extraordinary event? Should organizations invest in more systems, personnel, training, and equipment, just in case that “largest demand ever” happens?
Largest Demand Ever
Hurricane Katrina, which hit the Gulf Coast ten years ago this month, was a catastrophic disaster event impacting millions of people. It was the largest disaster response by government agencies and the American Red Cross. Hurricane Katrina caused hundreds of thousands of people to evacuate the impacted areas, stressing disaster responders’ capacity to locate, communicate with, and service populations in need.
The Post-Event Reaction
Following the initial months of helping people in need, American Red Cross succumbed to the presenter’s point about reacting to a recent event. It invested millions in supplies, equipment, and other resources to respond to another Hurricane Katrina. Maintaining that level of readiness proved to be expensive.
Proactive vs. Reactive
After a while, American Red Cross recognized exactly the point made by that business presenter mentioned before. It was not affordable to maintain the response capacity for another wide-spread catastrophic disaster event. As a consequence, American Red Cross assessed its disaster response needs and invested for planned capacity levels. Right-sizing capacity investments helped to reduce overall costs.
This real life example illustrates the presenter’s message. Planning and investing to achieve a defined outcome makes a lot more sense than reacting to the latest event.