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Volume 32, Issue 1

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Friday, 15 February 2019 15:01

Adam’s Law? Vulnerability to disruption increases with development

Paul Barry-Walsh argues that as complexity increases in society, so do interdependencies. To prevent cascading disasters, organizations need to implement firebreaks which will ensure that they do not become the weak link in the supply chain.

There is a characteristic which is self-evident to the professionals in this field, that is, as we develop as a society, we become increasingly reliant on more and more suppliers delivering products or services. Should just one component of the supply chain be disrupted then this service or product cannot be delivered. This can result in chaos. This is simply a manifestation of Adam Smith’s contention that the increased division of labour allows increasing output. However, with ever more suppliers, and the implementation of just in time production, the loss of just one small component disrupts the entire chain. This is as true for services as it is for manufacturing and after Adam Smith we should perhaps refer to this as ‘Adams Law’.

To illustrate this, imagine yourself to be a Venetian banker in the 16th century. He would need ledges quills and ink, possibly a desk and to operate in a secure environment, under the rule of law, but that’s about it. Now consider his modern counterpart. Just providing the most basic of modern day services the banker needs to operate both within and under the rule of law, she/he needs sophisticated computers, needs a base to operate from, needs communication devices and needs an army of people to run this operation: accountants, data entry, lawyers, compliance people and then HR to manage them.

That’s a complex web of people and products just to do the simplest banking operation. This complexity brings with it vulnerability; if staff are denied access to the office, if there is no electricity, (or water) then the organization cannot function. If you cannot function, there will be a knock-on effect for the counterparties, due to the interconnectedness of our society. If just one bank fails, this has a domino effect on other financial institutions and counterparties.