Category: Blog
When does an operational risk become strategic?
There you are, running a food business making beef products.
Pies, sausages, prepared meals. All delicious.
Customers love the taste and quality and you've got forward orders from a couple of major customers.
Your hygiene certificates are all up to date, staff are trained, ACC and other insurers are happy with your claims (or lack of them).
What could go wrong?
Your quality control person takes a sample of the beef and sends it to the laboratory. The result says the beef is horse.
Sorry? Run that past me again? The test results show the sample of beef contains horse DNA. And so do the others you send in. All of them.
Perhaps your supplier sent the wrong box of meat - or perhaps they bought the beef from another supplier who made a mistake?
At this point, there seems little choice. You pick up the phone and talk to the Food Safety people. At first they are incredulous. Horse-meat?
They make enquiries in widening circles. Other food companies and retailers are found to have the same problem. A product recall is made by each retailer. The media are told and quickly find out the name of your business. And your brand names.
Sales of your products plummet, not because of any risk of illness, but because eating horse is not nice and, anyway, the customers wanted beef. And their children are right off the idea of eating any meat because it might contain horse (think "My Little Pony" - Google that if you don't know what it is).
You'd thought about some sort of crisis planning but never got round to writing it down. Now you make it up as you go. And over the next few months rebranding, hard marketing and media liaison work pay off and sales begin to recover.
And then the Food Safety people take another sample and discover the veterinary drug phenylbutazone in beef burgers destined for a well-known fast-food chain.
Fairly quickly your business is on the rocks.
The purely operational risk just became strategic.
As far as I know, none of the European food producers or retailers who are embroiled in the real horsemeat scandal have gone into liquidation but I'm sure some have suffered badly. And, yes, as I write, phenylbutazone has been found in corned beef in the UK. It's a painkiller used to treat horses (and sometimes people) and is potentially harmful to some people.
This potted case history suggests to me the lack of effective risk management in many European food businesses and the lack of risk assessments covering substitution of ingredients. As part of the risk management process a HAZOP using the guide words INSTEAD OF might have identified substitution of ingredients other than those intended.
Further questions using SWIFT (structured-what-if-then) might have asked "has anyone ever heard of substitution of one meat for another?". And the answer would be yes.
Substitution and counterfeiting are a source of risk for many companies (and their regulators). The clean, green image of New Zealand is valuable and open to abuse. Or (a positive effect of this risk) it could be used to market our horse-free beef products to European supermarkets.
Provided nobody counterfeits or substitutes the products in transit.
Any takers?