Where No Business is Good Business

Many American corporations rely on the security of "workplace-recovery centers" -- fully equipped but empty office space reserved for the moment when disaster strikes.

IN a quiet office park in the Minneapolis suburb of Minnetonka, half hidden by a knoll, stands an unexceptional one-story office building. No sign identifies the building's purpose. Inside is a securities-trading floor with up-to-date computers, data lines to the world's major stock markets, and banks of telephones. Wall clocks tell the time in Singapore, Minneapolis, and London.

Not even on the busiest day of the year in the stock markets, typically, do the phones on this floor ring or the computer screens light up. Periodically cleaners come in to wipe away the fine layer of dust that accumulates on the French Impressionist prints in the conference room, the kitchen counters in the break room, the tables, desks, and chairs, and the empty wastebaskets. Except for a skeleton crew of two in the front office, no one works here. Everyone is happy if the work stations that fill the building remain unused as much as possible. In the upside-down world of workplace-recovery centers, of which this building is an example, no business is good business.

The Minnetonka building, which is owned by Comdisco, of Rosemont, Illinois, will open its doors to subscribers when a power outage, a tornado, a fire, a blizzard, a flood, or some other interruption to business strikes. Subscribers -- in particular, securities-trading firms -- will simply forward their calls and move temporarily to Minnetonka. They will thus avoid the financial losses and ill will resulting from an inability to execute trades; few customers will ever know that any transfer of operations took place.

Although subscribers frequently visit in order to test their disaster-recovery plans and equipment, the Minnetonka facility has never in its four years under the current ownership been fired up in an emergency situation. Scores of other facilities around the country sit in a state of continuous anticipation, awaiting disasters that may never happen.

Subscribers annually pay $400 to $800 per work station for the right to occupy a recovery facility in an emergency, and they will be assessed additional fees (often covered by business-interruption insurance) if they actually begin using it. Today the biggest concentrations of such facilities are near the financial centers of the East Coast. But the business originated in the upper Midwest, when a Minneapolis consultant named Ken Israel, an expert in computer and communications recovery, realized that trillions of dollars in trades were endangered every year because most financial-services firms lacked backup offices and equipment.

ONE day in 1988, as Israel was offering disaster-recovery recommendations to a large brokerage firm, the idea of workplace-recovery centers hit him. "I was highlighting the company's points of weakness, and I saw that data was not the important piece," Israel recalls. "They made their money via communications and trading, and they had a huge exposure [to losses]. They were spending hundreds of thousands of dollars backing up their mainframe computers, but that wasn't what they needed most."

Israel, a slight man who is visibly intense and energetic, conceived a simple, valuable idea: securities traders needed disaster-proof temporary quarters in the event of an emergency, with adequate equipment and connections to the world's securities markets -- and he would build such quarters. At first Israel had difficulty imagining what his facility would even look like. Then, searching the Twin Cities for a vacant building, he stopped at one place and peeked through a window. "I got a vision," he says.

His mind's eye showed him a miniature trading floor, a shrunken replica of the space in which his brokerage client conducted its daily business. The building would have satellite-linked phone service and diesel generators supplying backup power. Israel and a partner leased the building, got design assistance from the Securities and Exchange Commission, and established connections to 144 securities exchanges worldwide. They called their firm Exchange Resources, and they acquired several subscription-paying clients, including the company now known as American Express Financial Advisors.

One of the biggest pools of potential customers was in New York City, and in 1992 Israel persuaded J. P. Morgan & Co. to buy a $30 million subscription that allowed Exchange Resources to build a facility on Staten Island. In the minds of New Yorkers at the time, terrorist attacks loomed larger than other disasters as threats to business, so the new facility was built "in the last place anyone would look," Israel says -- right next to the Fresh Kills landfill, one of the world's biggest garbage dumps. The building has satellite uplinks, low windows designed to foil the assaults of terrorist sharpshooters, and a walk-in electrical generator "that could light up Broadway and still have juice left over for Hoboken," Israel says. "New York could have sunk, and we'd keep on trading."

Exchange Resources later opened workplace-recovery centers in Singapore and England. The English facility, built in an old cookie factory, concealed its true purpose by allowing a local baker to run the ovens, sending the aroma of freshly baked cookies over the neighborhood.

The company's technological capabilities did not remain untested for long. When the "storm of the century" hit New York City in December of 1992, and flooded the streets, a securities-trading subsidiary of National Westminster Bank lost its electrical power and telephone service. By 6:45 a.m. on the next business day seventy-five of the bank's securities traders were doing business out of Exchange Resource's Staten Island facility.

By then, however, Israel was starting to lose his love for the business. Exchange Resources prided itself on the extent to which it could replicate a client's home trading floor -- complete with speed-dial numbers programmed into the telephones and framed photos of executives' families on the desks -- but clients wanted more. They demanded exclusive space, emergency offices bigger than what their competitors were given, and menus of the catered food they would be served on days of emergency. "Monday had to be Chinese, Tuesday French, the next day pizza -- and they were dead serious about this," Israel says. "They wanted eleven bagels toasted light, et cetera. This was ass-kissing and not staying focused on the business."

Meanwhile, the workplace-recovery business attracted well-financed new competitors with roots in the insurance and data-recovery fields, quickly reducing Exchange Resources from the industry leader to a poorly capitalized underdog. In 1995 Israel and his partner sold Exchange Resources to Comdisco.

SINCE then the industry has lost some of its romance. Power outages, dead phone lines, and crashed Internet servers are now possibilities more chilling to corporations than terrorist attacks. Although IBM, Comdisco, and SunGard, the big three in the industry, still have plenty of financial-services and securities-trading firms among their clients (federal regulations in fact require banks and many financial institutions to have disaster-recovery plans), other kinds of businesses now also use their services, including health-maintenance organizations, e-commerce enterprises, travel agencies, transportation companies, and auto makers. Anyone who relies on the phone or the Internet to keep in touch with customers is a good prospect for a workplace-recovery center. Often the staff of a company's call center, which handles inquiries or orders from customers, occupies the desks when things go wrong.

This is not to say that only electronic glitches drive businesses to workplace-recovery centers. Industry studies show that whereas power outages and computer hardware and software problems account for about 40 percent of companies' disaster declarations, hurricanes, floods, fires, explosions, and earthquakes cause most of the rest. When Hurricane Floyd soaked the East Coast last September, recovery facilities throughout the area experienced high demand for their dry and electrically self-sufficient offices.

In a hurricane or other disaster any plan to use a workplace-recovery center is doomed if the company doesn't repeatedly practice the relocation of its business operations and prepare for a sudden switchover. To be ready for such testing -- let alone a real disaster -- many clients keep backup software and disaster-recovery manuals in the recovery center's lockers. Some clients' lockers also hold T-shirts and caps that the lead recovery staffers will wear to maintain order during relocation and recovery.

When companies arrive for testing, which can happen several times a year for days at a time, workplace-recovery centers awaken. GMAC Residential Mortgage bused thirty employees from its customer-service center in Waterloo, Iowa, to a workplace-recovery facility in Illinois, forwarded some incoming calls, started up the computers and GMAC's proprietary software, and watched what happened. It all worked, and the employees were able to do their jobs. The company did its best to see that employees liked their new surroundings. "We were taking them away from their families," says Mark Kern, GMAC's vice-president of corporate contingency planning and security, "so we got them a nice bus, kept them in a pretty nice hotel, and made them as comfortable as possible."

Repeated practice helped Mercedes-Benz USA, whose headquarters, in Montvale, New Jersey, endured its share of suffering during Hurricane Floyd. The heavy rains and flooding didn't damage the company's facilities, but they disrupted the electrical power and phone service. Mercedes-Benz runs a twenty-four-hour roadside-assistance center, which handles 5,000 calls a day from stranded motorists; the company declared a disaster and quickly shifted the center's operations to a workplace-recovery facility. In just two hours employees were again taking calls on the toll-free line, twenty miles away from company headquarters. They remained there for three days, while phone and electrical service were gradually restored in Montvale. "The key to success was testing, making employees comfortable, and defining their roles and responsibilities," says Gordon Michel, the company's disaster-recovery coordinator. "Going through the testing process was just another day at the office -- but in another office."

Some companies publicize their subscription to workplace-recovery centers, hoping that customers will regard their preparedness as reassuring. Providing uninterrupted service to customers "is part of the values and ethics of my company," says Tonya York, the vice-president of business-resumption services at the Charles Schwab & Co. brokerage firm, which has contracts to occupy up to 2,200 work stations in recovery centers around the country in the event of an emergency. Although Schwab isn't likely to run an ad campaign featuring its disaster-backup plans, York says, "our customers and investors are becoming more educated every day, and to think they're not thinking about this is unreasonable."

Other firms -- most, in fact -- do not discuss their recovery plans in public. Few companies like to admit that they might experience a catastrophe, especially if they are dependent on a feeble and untested recovery program. All the firms that operate workplace-recovery centers keep their complete client lists confidential.

In the future, however, no doubt more and more companies will subscribe. Already many businesses cannot function without such third parties as telecommunications suppliers and Internet-service providers, and the growth of e-commerce will put even more businesses in a position of dependency. If its supplier fails, the business is in trouble unless it has somewhere else to go. "There's a greater expectation that you will be there all the time," York says. "You'll have to recover instantly [from a disaster] or have a redundant environment somewhere so that you will always be up."

Disasters of a magnitude sufficient to require companies to activate their workplace-recovery contracts remain infrequent. Many recovery facilities go for years without housing anybody in actual distress -- and their owners make money regardless. During those times staff members at the centers assist with testing, keep their places in working order, and give tours to prospective customers. Still, working in a sizable office building that is nearly empty must get lonely. "I'm used to it," says Matt Scribner, who runs Comdisco's facility in Minnetonka. All around him computers, fax machines, phones, printers, and coffee machines sit silent, awaiting their chance to come to life.

Jack El-Hai is the author of to be published next month.

Illustration by Giacomo Marchesi.

The Atlantic Monthly; August 2000; Where No Business is Good Business - 00.08; Volume 286, No. 2; page 22-24.