Where an institution locates its critical functions determines which disruptions it can survive and which it cannot.
Geography as Resilience Architecture
Geographic concentration — the co-location of critical institutional functions in a single geographic area — produces coordination efficiencies that are real and significant. Co-located teams can communicate more efficiently, coordinate more naturally, and develop the relationship depth that produces institutional culture more readily than distributed ones. These efficiency benefits are the reason that geographic concentration is the natural equilibrium for most institutions: in the absence of specific resilience requirements, the coordination benefits of co-location consistently outweigh the resilience benefits of distribution.
Geographic concentration also produces specific resilience vulnerabilities: the exposure to local disruptions that affect the co-located functions simultaneously. Natural disasters, infrastructure failures, disease outbreaks, civil disruptions — all of these affect geographically concentrated institutions more severely than geographically distributed ones, because the concentration means that the disruption affects all the institution's critical functions at once rather than a subset of them. The institution that has concentrated its critical functions in a single location has essentially bought maximum coordination efficiency in exchange for maximum exposure to location-specific disruptions.
The Geographic Diversification Investment
Geographic diversification — the deliberate distribution of critical institutional functions across multiple locations that are not exposed to the same disruption risks simultaneously — is a resilience investment with a real and quantifiable cost: the coordination overhead, the real estate expense, and the cultural diffusion that distributed operations produce. It is justified when the probability of location-specific disruption multiplied by the impact of simultaneous disruption to all co-located critical functions exceeds the ongoing coordination cost of geographic distribution.
This calculation has changed significantly as remote collaboration tools have improved, reducing the coordination cost of geographic distribution and therefore lowering the resilience benefit required to justify it. The pandemic-era demonstration that most office-based institutional functions could operate across geographic distribution at near-normal efficiency has permanently changed the resilience-efficiency calculus for institutions willing to make the management investment that effective distributed operations require.
Geographic concentration is where most institutions locate their critical functions because it maximises coordination efficiency. It is also where they locate their greatest resilience vulnerability. The calculation of whether that tradeoff is correct requires knowing the probability and impact of location-specific disruption — and most institutions have not done that calculation.
Discussion