Fragile networks: Why the RBS computer glitch could happen anywhere
RECENT events have been catastrophic for Royal Bank of Scotland (RBS). A computer glitch caused complete mayhem in its subsidiaries, leading to a collapse in the payments systems. Money was not processed, 17m customers were unable to access their accounts and pay their bills. An incident of this magnitude must surely have been caused by a massive event. Perhaps its system was victim to a malevolent cyber-attack? In fact, it seems that an inexperienced operative in India accidently wiped information during a routine software upgrade.
In other words, a relatively trivial problem went global.
This is not an issue that is specific to RBS. It is a fundamental feature of any system in which networks are important. Another example is an outage in an electricity supply system leading to a huge blackout. Sometimes a major event causes a major failure, like a hurricane destroying physical links in the system. But all too often a trivial failure leads to a systemic cascade.
It is the connected nature of networked systems that enables small events to have consequences on a scale up to and including the network as a whole. The probability of any single small event causing a dramatic incident is very, very small. But trivial problems occur on an almost daily basis in almost all systems. At any time there is the potential for catastrophe.
In the scientific literature on the fundamental mathematical properties of networks, there is a jargon to describe this inherent property. Networks are “robust yet fragile”, a phrase initially coined by the scientist John Doyle in the 1990s.
We see this principle very clearly in financial markets. Think back to the banking credit crisis of late 2007, the harbinger of the major crash just over a year later. At the end of June in 2007, there were a few problems. Voices were raised about debt. But these were still minority concerns. Anxieties had not percolated across the banking network. Suddenly this changed, and we had a major liquidity crisis. Inter-bank lending collapsed, leading very quickly to the demise of Northern Rock. Not much had happened. But negative sentiment suddenly cascaded.
Companies must take these fundamental features of networks into account. Adverse comments, often with no basis in reality, about a firm and its products are often posted on the internet. Most of the time, they do not get very far. But very occasionally a grievance, even if it is completely ill-founded, will get global traction and seriously damage a brand, or even a whole company’s reputation.
One of the real cutting-edge areas of scientific investigation on networks is how to spot at a very early stage when a comment has the potential to go global. Defensive strategies are possible, and firms are not powerless in our highly-connected world. But it is crucial that both firms and governments start learning the lessons of the networked world of the twenty-first century.
Paul Ormerod is a founding partner of Volterra Partners. His latest book Positive Linking, published by Faber, is out now.