Crisis management
Encyclopedia
Crisis management is the process by which an organization deals with a major event that threatens to harm the organization, its stakeholders, or the general public. The study of crisis management originated with the large scale industrial and environmental disasters in the 1980's.Shrivastava, P. Mitroff, I.I., Miller, D. and A. Miglani, " Understanding industrial crises".Journal of Management Studies, 1988, 25, 4, 285-304. Three elements are common to most definitions of crisis: (a) a threat to the organization, (b) the element of surprise, and (c) a short decision time. Venette argues that "crisis is a process of transformation where the old system can no longer be maintained." Therefore the fourth defining quality is the need for change. If change is not needed, the event could more accurately be described as a failure or incident.
In contrast to risk management
, which involves assessing potential threats and finding the best ways to avoid those threats, crisis management involves dealing with threats after they have occurred. It is a discipline within the broader context of management
consisting of skills and techniques required to identify, assess, understand, and cope with a serious situation, especially from the moment it first occurs to the point that recovery procedures start.
Crisis management methods of a business or an organization are called Crisis Management Plan.
Crisis management is occasionally referred to as incident management
, although several industry specialists such as Peter Power
argue that the term crisis management is more accurate.
The credibility and reputation of organizations is heavily influenced by the perception of their responses during crisis situations. The organization and communication involved in responding to a crisis in a timely fashion makes for a challenge in businesses. There must be open and consistent communication throughout the hierarchy to contribute to a successful crisis communication process.
The related terms emergency management
and business continuity management focus respectively on the prompt but short lived "first aid" type of response (e.g. putting the fire out) and the longer term recovery and restoration phases (e.g. moving operations to another site). Crisis is also a facet of risk management
, although it is probably untrue to say that Crisis Management represents a failure of Risk Management since it will never be possible to totally mitigate the chances of catastrophes occurring.
Lerbinger categorized seven types of crises
, tornado
es and hurricanes, flood
s, landslide
s, tsunami
s, storms, and drought
s that threaten life, property, and the environment itself.
James categorises five phases of crisis that require specific crisis leadership competencies. Each phase contains an obstacle that a leader must overcome to improve the structure and operations of an organization. James’s case study on crisis in the financial services sector, for example, explores why crisis events erode public trust in leadership. James's research demonstrates how leadership competencies of integrity, positive intent, capability, mutual respect, and transparency impact the trust-building process.
Sense-making: represents an attempt to create order and make sense, retrospectively, of what occurs.
Perspective-taking: the ability to consider another person's or group's point of view.
in anticipation of Hurricane Katrina
.
There are 3 phases in any Crisis Management are as below
, the theory describes how innovation is disseminated and communicated through certain channels over a period of time. Diffusion of innovation in communication occurs when an individual communicates a new idea to one or several others. At its most elementary form, the process involves: (1) an innovation, (2) an individual or other unit of adoption that has knowledge of or experience with using the innovation, (3) another individual or other unit that does not yet have knowledge of the innovation, and (4) a communication channel connecting the two units. A communication channel is the means by which messages get from one individual to another.
Crisis leadership research concludes that leadership action in crisis reflects the competency of an organization, because the test of crisis demonstrates how well the institution’s leadership structure serves the organization’s goals and withstands crisis.
Developing effective human resources is vital when building organizational capabilities through crisis management executive leadership.
James’s theory of unequal human capital and social position
derives from economic theories of human and social capital concluding that minority employees receive fewer organizational rewards than those with access to executive management. In a recent study of managers in a Fortune 500 company, race was found to be a predictor of promotion opportunity or lack thereof. Thus, discrimination lawsuits can invite negative stakeholder reaction, damage the company's reputation, and threaten corporate survival.
capsules on store shelves, killing seven people, including three in one family. Johnson & Johnson recalled and destroyed 31 million capsules at a cost of $100 million. The affable CEO, James Burke, appeared in television ads and at news conferences informing consumers of the company's actions. Tamper-resistant packaging was rapidly introduced, and Tylenol sales swiftly bounced back to near pre-crisis levels.
When another bottle of tainted Tylenol was discovered in a store, it took only a matter of minutes for the manufacturer to issue a nationwide warning that people should not use the medication in its capsule form.
's apple juice was thought to be the cause of an outbreak of E. coli infection, the company lost a third of its market value. In October 1996, an outbreak of E. coli bacteria in Washington state, California, Colorado and British Columbia was traced to unpasteurized apple juice manufactured by natural juice maker Odwalla Inc. Forty-nine cases were reported, including the death of a small child. Within 24 hours, Odwalla conferred with the FDA and Washington state health officials; established a schedule of daily press briefings; sent out press releases which announced the recall; expressed remorse, concern and apology, and took responsibility for anyone harmed by their products; detailed symptoms of E. coli poisoning; and explained what consumers should do with any affected products. Odwalla then developed - through the help of consultants - effective thermal processes that would not harm the products' flavors when production resumed. All of these steps were communicated through close relations with the media and through full-page newspaper ads.
Inc., the toy maker, has been plagued with more than 28 product recalls and in Summer of 2007, amongst problems with exports from China, faced two product recall in two weeks. The company "did everything it could to get its message out, earning high marks from consumers and retailers. Though upset by the situation, they were appreciative of the company's response. At Mattel, just after the 7 a.m. recall announcement by federal officials, a public relations staff of 16 was set to call reporters at the 40 biggest media outlets. They told each to check their e-mail for a news release outlining the recalls, invited them to a teleconference call with executives and scheduled TV appearances or phone conversations with Mattel's chief executive. The Mattel CEO Robert Eckert did 14 TV interviews on a Tuesday in August and about 20 calls with individual reporters. By the week's end, Mattel had responded to more than 300 media inquiries in the U.S. alone."
Corporation faced a crisis in 1993 which started with claims of syringes being found in cans of diet Pepsi. Pepsi urged stores not to remove the product from shelves while it had the cans and the situation investigated. This led to an arrest, which Pepsi made public and then followed with their first video news release, showing the production process to demonstrate that such tampering was impossible within their factories. A second video news release displayed the man arrested. A third video news release showed surveillance from a convenience store
where a woman was caught replicating the tampering incident. The company simultaneously publicly worked with the FDA during the crisis. The corporation was completely open with the public throughout, and every employee of Pepsi was kept aware of the details. This made public communications effective throughout the crisis. After the crisis had been resolved, the corporation ran a series of special campaigns designed to thank the public for standing by the corporation, along with coupons for further compensation. This case served as a design for how to handle other crisis situations.
in which poor communication before, during, and after the crisis cost thousands of lives, illustrates the importance of incorporating cross-cultural communication
in crisis management plans. According to American University’s Trade Environmental Database Case Studies (1997), local residents were not sure how to react to warnings of potential threats from the Union Carbide plant. Operating manuals printed only in English is an extreme example of mismanagement but indicative of systemic barriers to information diffusion. According to Union Carbide’s own chronology of the incident (2006), a day after the crisis Union Carbide’s upper management arrived in India but was unable to assist in the relief efforts because they were placed under house arrest by the Indian government. Symbolic intervention can be counter productive; a crisis management strategy can help upper management make more calculated decisions in how they should respond to disaster scenarios. The Bhopal incident illustrates the difficulty in consistently applying management standards to multi-national operations and the blame shifting that often results from the lack of a clear management plan.
dispute transpired in August 2000. In response to claims that their 15-inch Wilderness AT, radial ATX and ATX II tire treads were separating from the tire core—leading to grisly, spectacular crashes—Bridgestone/Firestone recalled 6.5 million tires. These tires were mostly used on the Ford Explorer, the world's top-selling sport utility vehicle (SUV).
The two companies committed three major blunders early on, say crisis experts. First, they blamed consumers for not inflating their tires properly. Then they blamed each other for faulty tires and faulty vehicle design. Then they said very little about what they were doing to solve a problem that had caused more than 100 deaths—until they got called to Washington to testify before Congress.
Corporation ran aground in the Prince William Sound in Alaska. The Exxon Valdez
spilled millions of gallons of crude oil into the waters off Valdez, killing thousands of fish, fowl, and sea otters. Hundreds of miles of coastline were polluted and salmon spawning runs disrupted; numerous fishermen, especially Native Americans, lost their livelihoods. Exxon, by contrast, did not react quickly in terms of dealing with the media and the public; the CEO, Lawrence Rawl, did not become an active part of the public relations effort and actually shunned public involvement; the company had neither a communication plan nor a communication team in place to handle the event—in fact, the company did not appoint a public relations manager to its management team until 1993, 4 years after the incident; Exxon established its media center in Valdez, a location too small and too remote to handle the onslaught of media attention; and the company acted defensively in its response to its publics, even laying blame, at times, on other groups such as the Coast Guard. These responses also happened within days of the incident.
for the recoverers was 5% plus on their original stock value. So the net impact on shareholder value by this stage was actually positive. The non-recoverers remained more or less unchanged between days 5 and 50 after the catastrophe, but suffered a net negative cumulative impact of almost 15% on their stock price up to one year afterwards.
One of the key conclusions of this study is that "Effective management of the consequences of
catastrophes would appear to be a more significant factor than whether catastrophe insurance hedges the economic impact of the catastrophe".
While there are technical elements to this report it is highly recommended to those who wish to engage their senior management in the value of crisis management.
Research shows that organizational contributory factors affect the tendency of executives to adopt an effective "crisis as opportunity" mindset.
Since pressure is both a precipitator and consequence of crisis, leaders who perform well under pressure can effectively guide the organization through such crisis.
James contends that most executives focus on communications and public relations
as a reactive strategy. While the company’s reputation with shareholders, financial well-being, and survival are all at stake, potential damage to reputation can result from the actual management of the crisis issue. Additionally, companies may stagnate as their risk management
group identifies whether a crisis is sufficiently “statistically significant”.
Crisis leadership, on the other hand, immediately addresses both the damage and implications for the company’s present and future conditions, as well as opportunities for improvement.
, the September 11 attacks in 2001, and shootings on college campuses including the Virginia Tech massacre
, educational institutions at all levels are now focused on crisis management.
A national study conducted by the University of Arkansas
for Medical Sciences (UAMS) and Arkansas Children’s Hospital Research Institute (ACHRI) has shown that many public school districts have important deficiencies in their emergency and disaster plans (The School Violence Resource Center, 2003). In response the Resource Center has organized a comprehensive set of resources to aid schools is the development of crisis management plans.
Crisis management plans cover a wide variety of incidents including bomb threats, child abuse, natural disasters, suicide, drug abuse and gang activities – just to list a few. In a similar fashion the plans aim to address all audiences in need of information including parents, the media and law enforcement officials.
at the federal level, often play integral roles in crisis situations.
To help coordinate communication during the response phase of a crisis, the U.S. Federal Emergency Management Agency
(FEMA) within the Department of Homeland Security administers the National Response Plan
(NRP). This plan is intended to integrate public and private response by providing a common language and outlining a chain-of-command when multiple parties are mobilized. It is based on the premise that incidences should be handled at the lowest organizational level possible. The NRP recognizes the private sector as a key partner in domestic incident management, particularly in the area of critical infrastructure protection and restoration.
The NRP is a companion to the National Incidence Management System that acts as a more general template for incident management regardless of cause, size, or complexity.
FEMA offers free web-based training on the National Response Plan through the Emergency Management Institute.
Common Alerting Protocol
(CAP) is a relatively recent mechanism that facilitates crisis communication across different mediums and systems. CAP helps create a consistent emergency alert format to reach geographically and linguistically diverse audiences through both audio and visual mediums.
said,
“We live in the midst of alarms, anxiety beclouds the future; we expect some new disaster with each newspaper we read.”
Crisis management has become a defining feature of contemporary governance. In times of crisis, communities and members of organizations expect their public leaders to minimize the impact of the crisis at hand, while critics and bureaucratic competitors try to seize the moment to blame incumbent rulers and their policies. In this extreme environment, policy makers must somehow establish a sense of normality, and foster collective learning from the crisis experience.
In the face of crisis, leaders must deal with the strategic challenges they face, the political risks and opportunities they encounter, the errors they make, the pitfalls they need to avoid, and the paths away from crisis they may pursue. The necessity for management is even more significant with the advent of a 24-hour news cycle
and an increasingly internet
-savvy audience with ever-changing technology at its fingertips.
Public leaders have a special responsibility to help safeguard society from the adverse consequences of crisis. Experts in crisis management note that leaders who take this responsibility seriously would have to concern themselves with all crisis phases: the incubation stage, the onset, and the aftermath. Crisis leadership then involves five critical tasks: sense making, decision making, meaning making, terminating, and learning.
A brief description of the five facets of crisis leadership includes:
Some are:
1. Turnaround Management Society (International / Focus on Europe)
2. Institute for Turnaround (England)
3. Turnaround Management Association (International)
4. Institut für die Standardisierung von Unternehmenssanierungen (Germany)
In contrast to risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
, which involves assessing potential threats and finding the best ways to avoid those threats, crisis management involves dealing with threats after they have occurred. It is a discipline within the broader context of management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
consisting of skills and techniques required to identify, assess, understand, and cope with a serious situation, especially from the moment it first occurs to the point that recovery procedures start.
Introduction
Crisis management consists of:- Methods used to respond to both the reality and perception of crises.
- Establishing metrics to define what scenarios constitute a crisis and should consequently trigger the necessary response mechanisms.
- Communication that occurs within the response phase of emergency management scenarios.
Crisis management methods of a business or an organization are called Crisis Management Plan.
Crisis management is occasionally referred to as incident management
Incident management
Incident Management refers to the activities of an organization to identify, analyze and correct hazards. For instance, a fire in a factory would be a risk that realized, or an incident that happened...
, although several industry specialists such as Peter Power
Peter Power (crisis management specialist)
Peter Power is a British crisis management specialist and has advised many organisations in his area of speciality.-Personal history:Peter Power was born in the UK in 1951. He served in the 10 Battalion Parachute Regiment Territorial Army 1969 - 1971 before joining the Metropolitan Police in 1971...
argue that the term crisis management is more accurate.
The credibility and reputation of organizations is heavily influenced by the perception of their responses during crisis situations. The organization and communication involved in responding to a crisis in a timely fashion makes for a challenge in businesses. There must be open and consistent communication throughout the hierarchy to contribute to a successful crisis communication process.
The related terms emergency management
Emergency management
Emergency management is the generic name of an interdisciplinary field dealing with the strategic organizational management processes used to protect critical assets of an organization from hazard risks that can cause events like disasters or catastrophes and to ensure the continuance of the...
and business continuity management focus respectively on the prompt but short lived "first aid" type of response (e.g. putting the fire out) and the longer term recovery and restoration phases (e.g. moving operations to another site). Crisis is also a facet of risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
, although it is probably untrue to say that Crisis Management represents a failure of Risk Management since it will never be possible to totally mitigate the chances of catastrophes occurring.
Types of crisis
During the crisis management process, it is important to identify types of crises in that different crises necessitate the use of different crisis management strategies. Potential crises are enormous, but crises can be clustered.Lerbinger categorized seven types of crises
- Natural disaster
- Technological crises
- Confrontation
- Malevolence
- Organizational Misdeeds
- Workplace Violence
- Rumours
- Terrorist attacks/man-made disasters
Natural crisis
Natural crises, typically natural disasters considered as 'acts of God,' are such environmental phenomena as earthquakes, volcanic eruptionsVolcano
2. Bedrock3. Conduit 4. Base5. Sill6. Dike7. Layers of ash emitted by the volcano8. Flank| 9. Layers of lava emitted by the volcano10. Throat11. Parasitic cone12. Lava flow13. Vent14. Crater15...
, tornado
Tornado
A tornado is a violent, dangerous, rotating column of air that is in contact with both the surface of the earth and a cumulonimbus cloud or, in rare cases, the base of a cumulus cloud. They are often referred to as a twister or a cyclone, although the word cyclone is used in meteorology in a wider...
es and hurricanes, flood
Flood
A flood is an overflow of an expanse of water that submerges land. The EU Floods directive defines a flood as a temporary covering by water of land not normally covered by water...
s, landslide
Landslide
A landslide or landslip is a geological phenomenon which includes a wide range of ground movement, such as rockfalls, deep failure of slopes and shallow debris flows, which can occur in offshore, coastal and onshore environments...
s, tsunami
Tsunami
A tsunami is a series of water waves caused by the displacement of a large volume of a body of water, typically an ocean or a large lake...
s, storms, and drought
Drought
A drought is an extended period of months or years when a region notes a deficiency in its water supply. Generally, this occurs when a region receives consistently below average precipitation. It can have a substantial impact on the ecosystem and agriculture of the affected region...
s that threaten life, property, and the environment itself.
- Example: 2004 Indian Ocean earthquake2004 Indian Ocean earthquakeThe 2004 Indian Ocean earthquake was an undersea megathrust earthquake that occurred at 00:58:53 UTC on Sunday, December 26, 2004, with an epicentre off the west coast of Sumatra, Indonesia. The quake itself is known by the scientific community as the Sumatra-Andaman earthquake...
(TsunamiTsunamiA tsunami is a series of water waves caused by the displacement of a large volume of a body of water, typically an ocean or a large lake...
)
Technological crises
Technological crises are caused by human application of science and technology. Technological accidents inevitably occur when technology becomes complex and coupled and something goes wrong in the system as a whole (Technological breakdowns). Some technological crises occur when human error causes disruptions (Human breakdowns). People tend to assign blame for a technological disaster because technology is subject to human manipulation whereas they do not hold anyone responsible for natural disaster. When an accident creates significant environmental damage, the crisis is categorized as megadamage. Samples include software failures, industrial accidents, and oil spills.- Examples: Chernobyl disasterChernobyl disasterThe Chernobyl disaster was a nuclear accident that occurred on 26 April 1986 at the Chernobyl Nuclear Power Plant in Ukraine , which was under the direct jurisdiction of the central authorities in Moscow...
, Exxon Valdez oil spillExxon Valdez oil spillThe Exxon Valdez oil spill occurred in Prince William Sound, Alaska, on March 24, 1989, when the Exxon Valdez, an oil tanker bound for Long Beach, California, struck Prince William Sound's Bligh Reef and spilled of crude oil. It is considered to be one of the most devastating human-caused...
Confrontation crises
Confrontation crises occur when discontented individuals and/or groups fight businesses, government, and various interest groups to win acceptance of their demands and expectations. The common type of confrontation crises is boycotts, and other types are picketing, sit-ins, ultimatums to those in authority, blockade or occupation of buildings, and resisting or disobeying police.- Example: Rainbow/PUSHRainbow/PUSHRainbow/PUSH is a non-profit organization formed as a merger of two non-profit organizations — Operation PUSH and the National Rainbow Coalition — founded by Jesse Jackson. The organizations pursue social justice, civil rights and political activism.In December 1971, Jackson resigned from...
’s (People United to Serve Humanity) boycottBoycottA boycott is an act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons...
of Nike
Crises of malevolence
An organization faces a crisis of malevolence when opponents or miscreant individuals use criminal means or other extreme tactics for the purpose of expressing hostility or anger toward, or seeking gain from, a company, country, or economic system, perhaps with the aim of destabilizing or destroying it. Sample crises include product tampering, kidnapping, malicious rumors, terrorism, and espionage.- Example: 1982 Chicago Tylenol murders1982 Chicago Tylenol murdersThe Chicago Tylenol murders occurred when seven people died after taking pain-relief medicine capsules that had been poisoned. The poisonings, code-named TYMURS by the Federal Bureau of Investigation, took place in late 1982 in the Chicago area of the United States.These poisonings involved...
Crises of organizational misdeeds
Crises occur when management takes actions it knows will harm or place stakeholders at risk for harm without adequate precautions. Lerbinger specified three different types of crises of organizational misdeeds: crises of skewed management values, crises of deception, and crises of management misconduct.Crises of skewed management values
Crises of skewed management values are caused when managers favor short-term economic gain and neglect broader social values and stakeholders other than investors. This state of lopsided values is rooted in the classical business creed that focuses on the interests of stockholders and tends to disregard the interests of its other stakeholders such as customers, employees, and the community.- Example: Sears sacrifices customer trust
Crises of deception
Crises of deception occur when management conceals or misrepresents information about itself and its products in its dealing with consumers and others.- Example: Dow Corning’s silicone-gel breast implant
Crises of management misconduct
Some crises are caused not only by skewed values and deception but deliberate amorality and illegality.Workplace violence
Crises occur when an employee or former employee commits violence against other employees on organizational grounds.- Example: DuPont’s Lycra
Rumors
False information about an organization or its products creates crises hurting the organization’s reputation. Sample is linking the organization to radical groups or stories that their products are contaminated.- Example: Procter & Gamble's Logo controversy
Crisis Leadership
Erika Hayes James, an organizational psychologist at the University of Virginia’s Darden Graduate School of Business, identifies two primary types of organizational crisis. James defines organizational crisis as “any emotionally charged situation that, once it becomes public, invites negative stakeholder reaction and thereby has the potential to threaten the financial well-being, reputation, or survival of the firm or some portion thereof.”- Sudden crisis
- Smoldering crises
Sudden crises
Sudden crises are circumstances that occur without warning and beyond an institution’s control. Consequently, sudden crises are most often situations for which the institution and its leadership are not blamed.Smoldering crises
Smoldering crises differ from sudden crises in that they begin as minor internal issues that, due to manager’s negligence, develop to crisis status. These are situations when leaders are blamed for the crisis and its subsequent effect on the institution in question.James categorises five phases of crisis that require specific crisis leadership competencies. Each phase contains an obstacle that a leader must overcome to improve the structure and operations of an organization. James’s case study on crisis in the financial services sector, for example, explores why crisis events erode public trust in leadership. James's research demonstrates how leadership competencies of integrity, positive intent, capability, mutual respect, and transparency impact the trust-building process.
- Signal detection
- Preparation and prevention
- Containment and damage control
- Business recovery
- Learning
Signal detection
SiSense-making: represents an attempt to create order and make sense, retrospectively, of what occurs.
Perspective-taking: the ability to consider another person's or group's point of view.
Preparation and prevention
It is during this stage that crisis handlers begin preparing for or averting the crisis that had been foreshadowed in the signal detection stage. Organizations such as the Red Cross's primary mission is to prepare for and prevent the escalation of crisis events. Walmart has been described as an emergency relief standard bearer after having witnessed the incredibly speedy and well-coordinated effort to get supplies to the Gulf Coast of the United StatesGulf Coast of the United States
The Gulf Coast of the United States, sometimes referred to as the Gulf South, South Coast, or 3rd Coast, comprises the coasts of American states that are on the Gulf of Mexico, which includes Texas, Louisiana, Mississippi, Alabama, and Florida and are known as the Gulf States...
in anticipation of Hurricane Katrina
Hurricane Katrina
Hurricane Katrina of the 2005 Atlantic hurricane season was a powerful Atlantic hurricane. It is the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Among recorded Atlantic hurricanes, it was the sixth strongest overall...
.
Containment and damage control
Usually the most vivid stage, the goal of crisis containment and damage control is to limit the reputational, financial, safety, and other threats to firm survival. Crisis handlers work diligently during this stage to bring the crisis to an end as quickly as possible to limit the negative publicity to the organization, and move into the business recovery phase.Business recovery
When crisis hits, organizations must be able to carry on with their business in the midst of the crisis while simultaneously planning for how they will recover from the damage the crisis caused. Crisis handlers not only engage in continuity planning (determining the people, financial, and technology resources needed to keep the organization running), but will also actively pursue organizational resilience.Learning
In the wake of a crisis, organizational decision makers adopt a learning orientation and use prior experience to develop new routines and behaviors that ultimately change the way the organization operates. The best leaders recognize this and are purposeful and skillful in finding the learning opportunities inherent in every crisis situation.Crisis Management Model
Successfully defusing a crisis requires an understanding of how to handle a crisis – before they occur. Gonzalez-Herrero and Pratt found the different phases of Crisis Management.There are 3 phases in any Crisis Management are as below
- The diagnosis of the impending trouble or the danger signals.
- Choosing appropriate Turnaround Strategy.
- Implementation of the change process and its monitoring.
Management Crisis Planning
No corporation looks forward to facing a situation that causes a significant disruption to their business, especially one that stimulates extensive media coverage. Public scrutiny can result in a negative financial, political, legal and government impact. Crisis management planning deals with providing the best response to a crisis.Contingency planning
Preparing contingency plans in advance, as part of a crisis management plan, is the first step to ensuring an organization is appropriately prepared for a crisis. Crisis management teams can rehearse a crisis plan by developing a simulated scenario to use as a drill. The plan should clearly stipulate that the only people to speak publicly about the crisis are the designated persons, such as the company spokesperson or crisis team members. The first hours after a crisis breaks are the most crucial, so working with speed and efficiency is important, and the plan should indicate how quickly each function should be performed. When preparing to offer a statement externally as well as internally, information should be accurate. Providing incorrect or manipulated information has a tendency to backfire and will greatly exacerbate the situation. The contingency plan should contain information and guidance that will help decision makers to consider not only the short-term consequences, but the long-term effects of every decision.Business continuity planning
When a crisis will undoubtedly cause a significant disruption to an organization, a business continuity plan can help minimize the disruption. First, one must identify the critical functions and processes that are necessary to keep the organization running. Then each critical function and or/process must have its own contingency plan in the event that one of the functions/processes ceases or fails. Testing these contingency plans by rehearsing the required actions in a simulation will allow for all involved to become more sensitive and aware of the possibility of a crisis. As a result, in the event of an actual crisis, the team members will act more quickly and effectively.Structural-functional systems theory
Providing information to an organization in a time of crisis is critical to effective crisis management. Structural-functional systems theory addresses the intricacies of information networks and levels of command making up organizational communication. The structural-functional theory identifies information flow in organizations as "networks" made up of members and "links". Information in organizations flow in patterns called networks.Diffusion of innovation theory
Another theory that can be applied to the sharing of information is Diffusion of Innovation Theory. Developed by Everett RogersEverett Rogers
Everett M. Rogers was a communication scholar, sociologist, writer, and teacher. He is best known for originating the diffusion of innovations theory and for introducing the term early adopter....
, the theory describes how innovation is disseminated and communicated through certain channels over a period of time. Diffusion of innovation in communication occurs when an individual communicates a new idea to one or several others. At its most elementary form, the process involves: (1) an innovation, (2) an individual or other unit of adoption that has knowledge of or experience with using the innovation, (3) another individual or other unit that does not yet have knowledge of the innovation, and (4) a communication channel connecting the two units. A communication channel is the means by which messages get from one individual to another.
Role of apologies in crisis management
There has been debate about the role of apologies in crisis management, and some argue that apology opens an organization up for possible legal consequences. "However some evidence indicates that compensation and sympathy, two less expensive strategies, are as effective as an apology in shaping people’s perceptions of the organization taking responsibility for the crisis because these strategies focus on the victims’ needs. The sympathy response expresses concern for victims while compensation offers victims something to offset the suffering."Crisis leadership
James identifies six leadership competencies which facilitate organizational restructuring during and after a crisis.- Building an environment of trust
- Reforming the organization’s mindset
- Identifying obvious and obscure vulnerabilities of the organization
- Making wise and rapid decisions as well as taking courageous action
- Learning from crisis to effect change.
Crisis leadership research concludes that leadership action in crisis reflects the competency of an organization, because the test of crisis demonstrates how well the institution’s leadership structure serves the organization’s goals and withstands crisis.
Developing effective human resources is vital when building organizational capabilities through crisis management executive leadership.
Unequal human capital theory
James postulates that organizational crisis can result from discrimination lawsuits.James’s theory of unequal human capital and social position
Social position
Social position is the position of an individual in a given society and culture. A given position may belong to many individuals. Social position influences social status...
derives from economic theories of human and social capital concluding that minority employees receive fewer organizational rewards than those with access to executive management. In a recent study of managers in a Fortune 500 company, race was found to be a predictor of promotion opportunity or lack thereof. Thus, discrimination lawsuits can invite negative stakeholder reaction, damage the company's reputation, and threaten corporate survival.
Tylenol (Johnson and Johnson)
In the fall of 1982, a murderer added 65 milligrams of cyanide to some TylenolTylenol
Tylenol is a North American brand of drugs advertised for reducing pain, reducing fever, and relieving the symptoms of allergies, cold, cough, and flu. The active ingredient of its original, flagship product, paracetamol , is marketed as an analgesic and antipyretic...
capsules on store shelves, killing seven people, including three in one family. Johnson & Johnson recalled and destroyed 31 million capsules at a cost of $100 million. The affable CEO, James Burke, appeared in television ads and at news conferences informing consumers of the company's actions. Tamper-resistant packaging was rapidly introduced, and Tylenol sales swiftly bounced back to near pre-crisis levels.
When another bottle of tainted Tylenol was discovered in a store, it took only a matter of minutes for the manufacturer to issue a nationwide warning that people should not use the medication in its capsule form.
Odwalla Foods
When OdwallaOdwalla
Odwalla Inc. is an American food product company that sells fruit juice, smoothies and food bars. It was founded in Santa Cruz, California in 1980 and is headquartered in Half Moon Bay, California....
's apple juice was thought to be the cause of an outbreak of E. coli infection, the company lost a third of its market value. In October 1996, an outbreak of E. coli bacteria in Washington state, California, Colorado and British Columbia was traced to unpasteurized apple juice manufactured by natural juice maker Odwalla Inc. Forty-nine cases were reported, including the death of a small child. Within 24 hours, Odwalla conferred with the FDA and Washington state health officials; established a schedule of daily press briefings; sent out press releases which announced the recall; expressed remorse, concern and apology, and took responsibility for anyone harmed by their products; detailed symptoms of E. coli poisoning; and explained what consumers should do with any affected products. Odwalla then developed - through the help of consultants - effective thermal processes that would not harm the products' flavors when production resumed. All of these steps were communicated through close relations with the media and through full-page newspaper ads.
Mattel
MattelMattel
Mattel, Inc. is the world's largest toy company based on revenue. The products it produces include Fisher Price, Barbie dolls, Hot Wheels and Matchbox toys, Masters of the Universe, American Girl dolls, board games, and, in the early 1980s, video game consoles. The company's name is derived from...
Inc., the toy maker, has been plagued with more than 28 product recalls and in Summer of 2007, amongst problems with exports from China, faced two product recall in two weeks. The company "did everything it could to get its message out, earning high marks from consumers and retailers. Though upset by the situation, they were appreciative of the company's response. At Mattel, just after the 7 a.m. recall announcement by federal officials, a public relations staff of 16 was set to call reporters at the 40 biggest media outlets. They told each to check their e-mail for a news release outlining the recalls, invited them to a teleconference call with executives and scheduled TV appearances or phone conversations with Mattel's chief executive. The Mattel CEO Robert Eckert did 14 TV interviews on a Tuesday in August and about 20 calls with individual reporters. By the week's end, Mattel had responded to more than 300 media inquiries in the U.S. alone."
Pepsi
The PepsiPepsi
Pepsi is a carbonated soft drink that is produced and manufactured by PepsiCo...
Corporation faced a crisis in 1993 which started with claims of syringes being found in cans of diet Pepsi. Pepsi urged stores not to remove the product from shelves while it had the cans and the situation investigated. This led to an arrest, which Pepsi made public and then followed with their first video news release, showing the production process to demonstrate that such tampering was impossible within their factories. A second video news release displayed the man arrested. A third video news release showed surveillance from a convenience store
Convenience store
A convenience store, corner store, corner shop, commonly called a bodega in Spanish-speaking areas of the United States, is a small store or shop in a built up area that stocks a range of everyday items such as groceries, toiletries, alcoholic and soft drinks, and may also offer money order and...
where a woman was caught replicating the tampering incident. The company simultaneously publicly worked with the FDA during the crisis. The corporation was completely open with the public throughout, and every employee of Pepsi was kept aware of the details. This made public communications effective throughout the crisis. After the crisis had been resolved, the corporation ran a series of special campaigns designed to thank the public for standing by the corporation, along with coupons for further compensation. This case served as a design for how to handle other crisis situations.
Bhopal
The Bhopal disasterBhopal disaster
The Bhopal disaster also known as Bhopal Gas Tragedy was a gas leak incident in India, considered one of the world's worst industrial catastrophes. It occurred on the night of December 2–3, 1984 at the Union Carbide India Limited pesticide plant in Bhopal, Madhya Pradesh, India...
in which poor communication before, during, and after the crisis cost thousands of lives, illustrates the importance of incorporating cross-cultural communication
Cross-cultural communication
Cross-cultural communication is a field of study that looks at how people from differing cultural backgrounds communicate, in similar and different ways among themselves, and how they endeavour to communicate across cultures.- Origins :The Cold War, the United States economy...
in crisis management plans. According to American University’s Trade Environmental Database Case Studies (1997), local residents were not sure how to react to warnings of potential threats from the Union Carbide plant. Operating manuals printed only in English is an extreme example of mismanagement but indicative of systemic barriers to information diffusion. According to Union Carbide’s own chronology of the incident (2006), a day after the crisis Union Carbide’s upper management arrived in India but was unable to assist in the relief efforts because they were placed under house arrest by the Indian government. Symbolic intervention can be counter productive; a crisis management strategy can help upper management make more calculated decisions in how they should respond to disaster scenarios. The Bhopal incident illustrates the difficulty in consistently applying management standards to multi-national operations and the blame shifting that often results from the lack of a clear management plan.
Ford and Firestone Tire and Rubber Company
The Ford-Firestone Tire and Rubber CompanyFirestone Tire and Rubber Company
The Firestone Tire and Rubber Company is an American tire company founded by Harvey Firestone in 1900 to supply pneumatic tires for wagons, buggies, and other forms of wheeled transportation common in the era. Firestone soon saw the huge potential for marketing tires for automobiles. The company...
dispute transpired in August 2000. In response to claims that their 15-inch Wilderness AT, radial ATX and ATX II tire treads were separating from the tire core—leading to grisly, spectacular crashes—Bridgestone/Firestone recalled 6.5 million tires. These tires were mostly used on the Ford Explorer, the world's top-selling sport utility vehicle (SUV).
The two companies committed three major blunders early on, say crisis experts. First, they blamed consumers for not inflating their tires properly. Then they blamed each other for faulty tires and faulty vehicle design. Then they said very little about what they were doing to solve a problem that had caused more than 100 deaths—until they got called to Washington to testify before Congress.
Exxon
On March 24, 1989, a tanker belonging to the ExxonExxon
Exxon is a chain of gas stations as well as a brand of motor fuel and related products by ExxonMobil. From 1972 to 1999, Exxon was the corporate name of the company previously known as Standard Oil Company of New Jersey or Jersey Standard....
Corporation ran aground in the Prince William Sound in Alaska. The Exxon Valdez
Exxon Valdez
Oriental Nicety, formerly Exxon Valdez, Exxon Mediterranean, SeaRiver Mediterranean, S/R Mediterranean, Mediterranean, and Dong Fang Ocean is an oil tanker that gained notoriety after running aground in Prince William Sound spilling hundreds of thousands of barrels of crude oil in Alaska...
spilled millions of gallons of crude oil into the waters off Valdez, killing thousands of fish, fowl, and sea otters. Hundreds of miles of coastline were polluted and salmon spawning runs disrupted; numerous fishermen, especially Native Americans, lost their livelihoods. Exxon, by contrast, did not react quickly in terms of dealing with the media and the public; the CEO, Lawrence Rawl, did not become an active part of the public relations effort and actually shunned public involvement; the company had neither a communication plan nor a communication team in place to handle the event—in fact, the company did not appoint a public relations manager to its management team until 1993, 4 years after the incident; Exxon established its media center in Valdez, a location too small and too remote to handle the onslaught of media attention; and the company acted defensively in its response to its publics, even laying blame, at times, on other groups such as the Coast Guard. These responses also happened within days of the incident.
Impact of catastrophes on shareholder value
One of the foremost recognized studies conducted on the impact of a catastrophe on the stock value of an organization was completed by Dr Rory Knight and Dr Deborah Pretty (1996, Templeton College, University of Oxford - commissioned by the Sedgewick Group). This study undertook a detailed analysis of the stock price (post impact) of organizations that had experienced catastrophes. The study identified organizations that recovered and even exceeded pre-catastrophe stock price, (Recoverers), and those that did not recover on stock price, (Non-recoverers). The average cumulative impact on shareholder valueShareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders...
for the recoverers was 5% plus on their original stock value. So the net impact on shareholder value by this stage was actually positive. The non-recoverers remained more or less unchanged between days 5 and 50 after the catastrophe, but suffered a net negative cumulative impact of almost 15% on their stock price up to one year afterwards.
One of the key conclusions of this study is that "Effective management of the consequences of
catastrophes would appear to be a more significant factor than whether catastrophe insurance hedges the economic impact of the catastrophe".
While there are technical elements to this report it is highly recommended to those who wish to engage their senior management in the value of crisis management.
Crisis as Opportunity
To address such shareholder impact, management must move from a mindset that manages crisis to one that generates crisis leadership.Research shows that organizational contributory factors affect the tendency of executives to adopt an effective "crisis as opportunity" mindset.
Since pressure is both a precipitator and consequence of crisis, leaders who perform well under pressure can effectively guide the organization through such crisis.
James contends that most executives focus on communications and public relations
Public relations
Public relations is the actions of a corporation, store, government, individual, etc., in promoting goodwill between itself and the public, the community, employees, customers, etc....
as a reactive strategy. While the company’s reputation with shareholders, financial well-being, and survival are all at stake, potential damage to reputation can result from the actual management of the crisis issue. Additionally, companies may stagnate as their risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
group identifies whether a crisis is sufficiently “statistically significant”.
Crisis leadership, on the other hand, immediately addresses both the damage and implications for the company’s present and future conditions, as well as opportunities for improvement.
Public sector crisis management
Corporate America is not the only community that is vulnerable to the perils of a crisis. Whether a school shooting, a public health crisis or a terrorist attack that leaves the public seeking comfort in the calm, steady leadership of an elected official, no sector of society is immune to crisis. In response to that reality, crisis management policies, strategies and practices have been developed and adapted across multiple disciplines.Schools and crisis management
In the wake of the Columbine High School MassacreColumbine High School massacre
The Columbine High School massacre occurred on Tuesday, April 20, 1999, at Columbine High School in Columbine, an unincorporated area of Jefferson County, Colorado, United States, near Denver and Littleton. Two senior students, Eric Harris and Dylan Klebold, embarked on a massacre, killing 12...
, the September 11 attacks in 2001, and shootings on college campuses including the Virginia Tech massacre
Virginia Tech massacre
The Virginia Tech massacre was a school shooting that took place on April 16, 2007, on the campus of Virginia Polytechnic Institute and State University in Blacksburg, Virginia, United States. In two separate attacks, approximately two hours apart, the perpetrator, Seung-Hui Cho, killed 32 people...
, educational institutions at all levels are now focused on crisis management.
A national study conducted by the University of Arkansas
University of Arkansas
The University of Arkansas is a public, co-educational, land-grant, space-grant, research university. It is classified by the Carnegie Foundation as a research university with very high research activity. It is the flagship campus of the University of Arkansas System and is located in...
for Medical Sciences (UAMS) and Arkansas Children’s Hospital Research Institute (ACHRI) has shown that many public school districts have important deficiencies in their emergency and disaster plans (The School Violence Resource Center, 2003). In response the Resource Center has organized a comprehensive set of resources to aid schools is the development of crisis management plans.
Crisis management plans cover a wide variety of incidents including bomb threats, child abuse, natural disasters, suicide, drug abuse and gang activities – just to list a few. In a similar fashion the plans aim to address all audiences in need of information including parents, the media and law enforcement officials.
Government and crisis management
Historically, government at all levels – local, state, and national – has played a large role in crisis management. Indeed, many political philosophers have considered this to be one of the primary roles of government. Emergency services, such as fire and police departments at the local level, and the United States National GuardUnited States National Guard
The National Guard of the United States is a reserve military force composed of state National Guard militia members or units under federally recognized active or inactive armed force service for the United States. Militia members are citizen soldiers, meaning they work part time for the National...
at the federal level, often play integral roles in crisis situations.
To help coordinate communication during the response phase of a crisis, the U.S. Federal Emergency Management Agency
Federal Emergency Management Agency
The Federal Emergency Management Agency is an agency of the United States Department of Homeland Security, initially created by Presidential Reorganization Plan No. 1 of 1978 and implemented by two Executive Orders...
(FEMA) within the Department of Homeland Security administers the National Response Plan
National Response Plan
The National Response Plan was a United States national plan to respond to emergencies such as natural disasters or terrorist attacks. It came into effect in December 2004 , and was superseded by the National Response Framework on March 22, 2008....
(NRP). This plan is intended to integrate public and private response by providing a common language and outlining a chain-of-command when multiple parties are mobilized. It is based on the premise that incidences should be handled at the lowest organizational level possible. The NRP recognizes the private sector as a key partner in domestic incident management, particularly in the area of critical infrastructure protection and restoration.
The NRP is a companion to the National Incidence Management System that acts as a more general template for incident management regardless of cause, size, or complexity.
FEMA offers free web-based training on the National Response Plan through the Emergency Management Institute.
Common Alerting Protocol
Common Alerting Protocol
The Common Alerting Protocol is an XML-based data format for exchanging public warnings and emergencies between alerting technologies. CAP allows a warning message to be consistently disseminated simultaneously over many warning systems to many applications...
(CAP) is a relatively recent mechanism that facilitates crisis communication across different mediums and systems. CAP helps create a consistent emergency alert format to reach geographically and linguistically diverse audiences through both audio and visual mediums.
Elected officials and crisis management
Historically, politics and crisis go hand-in-hand. In describing crisis, President Abraham LincolnAbraham Lincoln
Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
said,
“We live in the midst of alarms, anxiety beclouds the future; we expect some new disaster with each newspaper we read.”
Crisis management has become a defining feature of contemporary governance. In times of crisis, communities and members of organizations expect their public leaders to minimize the impact of the crisis at hand, while critics and bureaucratic competitors try to seize the moment to blame incumbent rulers and their policies. In this extreme environment, policy makers must somehow establish a sense of normality, and foster collective learning from the crisis experience.
In the face of crisis, leaders must deal with the strategic challenges they face, the political risks and opportunities they encounter, the errors they make, the pitfalls they need to avoid, and the paths away from crisis they may pursue. The necessity for management is even more significant with the advent of a 24-hour news cycle
24-hour news cycle
The 24-hour news cycle arrived with the advent of television channels dedicated to news, and brought about a much faster pace of news production with increased demand for stories that can be presented as news, as opposed to the day-by-day pace of the news cycle of printed daily newspapers...
and an increasingly internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
-savvy audience with ever-changing technology at its fingertips.
Public leaders have a special responsibility to help safeguard society from the adverse consequences of crisis. Experts in crisis management note that leaders who take this responsibility seriously would have to concern themselves with all crisis phases: the incubation stage, the onset, and the aftermath. Crisis leadership then involves five critical tasks: sense making, decision making, meaning making, terminating, and learning.
A brief description of the five facets of crisis leadership includes:
- Sense making may be considered as the classical situation assessment step in decision making.
- Decision making is both the act of coming to a decision as the implementation of that decision.
- Meaning making refers to crisis management as political communication.
- Terminating a crisis is only possible if the public leader correctly handles the accountability question.
- Learning, refers to the actual learning from a crisis is limited. The authors note, a crisis often opens a window of opportunity for reform for better or for worse.
Professional Organizations
There are a number of professional industry associations that provide advice, literature and contacts to turnaround professionals and academics.Some are:
1. Turnaround Management Society (International / Focus on Europe)
2. Institute for Turnaround (England)
3. Turnaround Management Association (International)
4. Institut für die Standardisierung von Unternehmenssanierungen (Germany)
See also
- Common Alerting ProtocolCommon Alerting ProtocolThe Common Alerting Protocol is an XML-based data format for exchanging public warnings and emergencies between alerting technologies. CAP allows a warning message to be consistently disseminated simultaneously over many warning systems to many applications...
- Contingency planContingency planA contingency plan is a plan devised for an exceptional risk which is impractical or impossible to avoid. Contingency plans are often devised by governments or businesses who want to be prepared for events which, while highly unlikely, may have catastrophic effects. For example, suppose many...
- CrisisCrisisA crisis is any event that is, or expected to lead to, an unstable and dangerous situation affecting an individual, group, community or whole society...
- Cross-cultural communicationCross-cultural communicationCross-cultural communication is a field of study that looks at how people from differing cultural backgrounds communicate, in similar and different ways among themselves, and how they endeavour to communicate across cultures.- Origins :The Cold War, the United States economy...
- Emergency services
- Emergency managementEmergency managementEmergency management is the generic name of an interdisciplinary field dealing with the strategic organizational management processes used to protect critical assets of an organization from hazard risks that can cause events like disasters or catastrophes and to ensure the continuance of the...
- Federal Emergency Management AgencyFederal Emergency Management AgencyThe Federal Emergency Management Agency is an agency of the United States Department of Homeland Security, initially created by Presidential Reorganization Plan No. 1 of 1978 and implemented by two Executive Orders...
- ISO/TC 223 Societal Security
- ManagementManagementManagement in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
- Management by exceptionManagement by exceptionManagement by Exception is a "policy by which management devotes its time to investigating only those situations in which actual results differ significantly from planned results. The idea is that management should spend its valuable time concentrating on the more important items...
- Risk ManagementRisk managementRisk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
- Social ResponsibilitySocial responsibilitySocial responsibility is an ethical ideology or theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. Social responsibility is a duty every individual or organization has to perform so as to maintain a balance between the economy and the...
External links
- Crisis management and business continuity planning. 2007. United Kingdom Government Business Link.
- Crisis Manager Newsletter, a free collection of 600+ articles on crisis management-related topics.
- Crisis Management and Communication Entry Institute for Public Relations article
- CRISIS MANAGEMENT AND BUSINESS CONTINUITY A short program offered at MIT
- TURNAROUND MANAGEMENT ASSOCIATION Certifying Body for Certified Turnaround Professionals/Crisis Managers
- The International Research Group on Crisis Communication Publications and crisis institutions database