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Crisis management
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A crisis is a major, unpredictable event that threatens to harm an organization and its stakeholders. Although crisis events are unpredictable, they are not unexpected (Coombs, 1999). Crises can affect all segments of society – businesses, churches, educational institutions, families, non-profits and the government and are caused by a wide range of reasons. Although the definitions can vary greatly, 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 (Seeger, Sellnow & Ulmer, 1998).
The practice of crisis management involves attempts to eliminate technological failure as well as the development of formal communication systems to avoid or to manage crisis situations (Barton, 2001).
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Encyclopedia
A crisis is a major, unpredictable event that threatens to harm an organization and its stakeholders. Although crisis events are unpredictable, they are not unexpected (Coombs, 1999). Crises can affect all segments of society – businesses, churches, educational institutions, families, non-profits and the government and are caused by a wide range of reasons. Although the definitions can vary greatly, 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 (Seeger, Sellnow & Ulmer, 1998).
The practice of crisis management involves attempts to eliminate technological failure as well as the development of formal communication systems to avoid or to manage crisis situations (Barton, 2001). It is a discipline within the broader context of management consisting of skills and techniques required to assess, understand, and cope with any 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, although several industry specialists such as Peter Power argue that the term crisis management is more accurate.
Types of crises:
- Sudden crisis, such as fires, explosions, natural disasters, workplace violence.
- In smouldering crisis problems or issues that start out small and could be fixed or averted if someone was paying attention or recognized the potential for trouble.
- Bizarre crisis like the finger in the Wendy's Restaurant Chili.
- A one-of-a-kind crisis
- Perceptual crisis such as the long-running problem Proctor & Gamble used to have with their former corporate logo, that included a half-moon and stars, which critics would claim were symbols of devil-worship, calling for boycotts of P&G products. (Smith & Millar, 2002)
The credibility and reputation of organizations is heavily influenced by the extent of their active and consistent 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.
A Framework for crisis management and crisis management planning
The United Kingdom’s Department for Business, Enterprise and Regulatory Reform describes a crisis asan abnormal situation, or even perception, which is beyond the scope of everyday business and which threatens the operation, safety and reputation of an organization.
The department advocates that businesses treat crisis management planning with the same attention as other business plans:
... The crisis should be dealt with as an operational management issue that is simply being undertaken in extreme circumstances. The crisis management framework for response is normally based on existing management structures and responsibilities. It must also reflect (or improve upon) existing lines of communication, both within the company, and with other organizations which may be affected. This approach, when developed in conjunction with the operational managers, will confirm ownership of plans and prepare the proposed framework for practical implementation.
A theoretical approach from an organizational viewpoint suggests that factors such as a corporation’s size, ranking, and type of ownership and operations have specific influences on corporate responses to crisis events ([Bromley, 1993] and [Fomburn, 1996]).--KalliChap (talk) 23:55, 1 March 2009 (UTC)
During the next five years, 83% of companies will face a crisis that will negatively impact the profitability of a company 20 and 30%, according to new research by Oxford-Metrica, an independent adviser on risk, value, reputation and governance (Aon, 2006). Crisis management is the process by which the organization manages a wider impact, such as media relations, and enables it to commence recovery.
Irrespective of the size of an institution affected, the primary aims or benefits of crisis management would normally include:
- Ability to assess the situation from inside and outside the Institution as all stakeholders might perceive it.
- Techniques to direct action(s) to contain the likely or perceived damage spread.
- Better institutional resilience for all stakeholders.
- Compliance with regulatory and ethical requirements, e.g. corporate [social responsibility].
- Much better management of serious incidents or any incident that could become serious.
- Improved staff awareness of their roles and expectations within the institution.
- Increased ability, confidence and morale within the institution.
- Enhanced risk management insofar that obvious risks will be identified, mitigated (where possible) and through crisis and business continuity management - as prepared for.
- Protected and often enhanced reputation a much reduced risk of post event litigation.
Apology compared to other crisis response strategies: Experimental research in the past has established the apology in crisis management to be favorable to other methods. Critics 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.” (Timothy W. Coombs, 2008)--KalliChap (talk) 23:55, 1 March 2009 (UTC)
Models and theories associated with crisis management
Crisis Management Model
Successfully diffusing a crisis requires an understanding of how to handle a crisis – before it occurs. Gonzalez-Herrero and Pratt created a four-phase crisis management model process that includes: issues management, planning-prevention, the crisis, and post-crisis (Gonzalez-Herrero and Pratt, 1995).
The art is to define what the crisis specifically is or could be and what has caused it or could cause it.
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. (12Manage, 2007)
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. (12Manage, 2007)
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. (12 Manage, 2007)
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 (Infante, Rancer, & Womack, 1997).
Diffusion of Innovation Theory
Another theory that can be applied to the sharing of information is Diffusion of Innovation Theory. Developed by Everett Rogers, 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 management success stories
Tylenol (Johnson and Johnson)
In the fall of 1982, a murderer added 65 milligrams of cyanide to some Tylenol 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.
Johnson & Johnson was again struck by a similar crisis in 1986 when a New York woman died on Feb. 8 after taking cyanide-laced Tylenol capsules. Johnson & Johnson was ready. Responding swiftly and smoothly to the new crisis, it immediately and indefinitely canceled all television commercials for Tylenol, established a toll-free telephone hot-line to answer consumer questions and offered refunds or exchanges to customers who had purchased Tylenol capsules. At week's end, 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 (Rudolph, 1986).
When Odwalla'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 Inc., the country's biggest 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.
One crisis management success story revolves around the Pepsi Corporation. The crisis started with claims of syringes being found in cans of diet Pepsi. Pepsi, confident that the tampering was not their fault, urged stores nation-wide not to remove the product from shelves. The company had the cans and the situation thoroughly investigated. This led to an arrest, which Pepsi made public and then followed with their first video news release. This showed viewers the company’s steps in the factories and how it was impossible to happen within their factories. A second video news release displayed the man arrested and proved to the public that he had committed the scam. A third video news release showed surveillance from a convenient store where a woman was caught replicating the tampering incident. The company simultaneously publicly worked with the FDA during the crisis to get to the bottom of the scam. Basically the Corporation was completely open with the public throughout the entire ordeal. Every employee of Pepsi everywhere in the world was completely aware of all of the details as well. This made the internal public communications very effective throughout the crisis. Once the allegations were finalized the corporation launched 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. The management and public relations worked together stupendously throughout the entire organization.--KalliChap (talk) 23:55, 1 March 2009 (UTC)
Lessons learned in crisis management
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, (1995, Templeton College, University of Oxford - commissioned by the Sedgewick Group). This 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 value 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
Bhopal
The Bhopal disaster 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 (Shrivastava, 1987).
The Ford-Firestone 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.
On March 24, 1989, a tanker belonging to the Exxon 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 (Pauly and Hutchison, 2005).
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 Massacre, the September 11, 2001 attacks, 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 (Kansas City Public Schools, 2007). In a similar fashion the plans aim to address all audiences in need of information including parents, the media and law enforcement officials (Virginia Department of Education, 2002).
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 Guard 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. (Quick Reference, 2006)
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. (Quick Reference, 2006)
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.
Elected officials and crisis management
Historically, politics and crisis go hand-in-hand. In describing crisis, President Abraham Lincoln 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 (Boin, A., Hart, P., & Stern, E., 2005).
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-saavy audience with ever-changing technology at its fingertips. (Boin, A., Hart, P., & Stern, E., 2005).
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. (Boin, A., Hart, P., & Stern, E., 2005)
A brief description of the five facets of crisis leadership includes:
1) Sense making may be considered as the classical situation assessment step in decision making.
2) Decision making is both the act of coming to a decision as the implementation of that decision.
3) Meaning making refers to crisis management as political communication.
4) Terminating a crisis is only possible if the public leader correctly handles the accountability question.
5) 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. (Hellsloot, 2007) JP
Examples of organizational crises
- Extortion
- Bribery
- Hostile Takeover
- Terrorist Attack
- Last minute LARA RFC
- Copyright infringement
- Vehicular fatality
- Information sabotage
- Product tampering
- Workplace bombing
- Natural disaster that destroys organizational office
- Computer tampering
- Sexual harassment
- Natural disaster that disrupts product/service
- Confidential data loss
- Kidnapping, (Key person; Tiger)
- Product/service boycott
- Work-related homicide
- Malicious rumor
- Hazardous material leak
- Plant explosion
- Personnel assault
- Assault of customers
- Product recall
- Counterfeiting
- Natural disaster that destroys corporate headquarters
- Natural disaster that eliminates key stakeholders
See also
Further reading
- Barton, L. (2007). Crisis leadership now: A real-world guide to preparing for threats, disaster, sabotage, and scandal. New York, NY: McGraw-Hill.
- Borodzicz, Edward P. (2005). Risk, Crisis and Security Management. West Sussex, England: John Wiley and Sons Ltd.
- Coombs, W. Timothy (2006). Code Red in the Boardroom: Crisis Management as Organizational DNA. Westport, CT: Praeger.
- Coombs, W. Timothy (2007). Ongoing Crisis Communication: Planning, Managing, and Responding, Second Edition. Thousand Oaks, CA: Sage.
- . Office of Security and Risk Management Services. Fairfax County Public Schools. October 2007.
- Dezenhall, E. (2003). Nail 'em!: Confronting high-profile attacks on celebrities & businesses. Amherst, New York: Prometheus Books.
- Dezenhall, E., & Weber, J. (2007). Damage control: Why everything you know about crisis management is wrong. Portfolio Hardcover.
- Erickson, Paul A. (2006). Emergency Response Planning for Corporate and Municipal Managers, Second Edition. Burlington, MA: Elsevier, Inc.
- Fink, S. (2007). Crisis management: Planning for the inevitable. Backinprint.com.
- Mitroff, Ian I. (2000). Managing Crises Before They Happen: What Every Executive Needs to Know About Crisis Management. With Gus Anagnos. AMACOM, New York.
- Mitroff, Ian I. (2003). Crisis Leadership: Planning for the Unthinkable. John Wiley, New York.
- Mitroff, Ian I. (2005). Why Some Companies Emerge Stronger And Better From a Crisis: Seven Essential Lessons For Surviving Disaster. AMACOM, New York.
- Public Relations Review Volume 35, Issue 1 contains a collection of articles on crisis management. http://www.sciencedirect.com/science/journal/03638111
- . Department of Homeland Security, Federal Emergency Management Agency. September 2007.
- Smith, Larry and Millar, Dan PhD (2002), Before Crisis Hits: Building a Strategic Crisis Plan, Washington, DC, AACC Community College Press
- Smith, Larry and Millar, Dan PhD (2002), Crisis Management and Communication; How to Gain and Maintain Control, Second Edition, San Francisco, CA, International Association of Business Communicators
- Ulmer, R. R., Sellnow, T. L., & Seeger, M. W. (2006). Effective crisis communication: Moving from crisis to opportunity. Thousand Oaks, CA: Sage Publications.
External links
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- . 2007. United Kingdom Government Business Link.
- RMI Limited.
- Visor Consultants Limited.
- ,an international company specializing in crisis communication management planning, training and consulting.
- . Center for Media and Democracy. Crisis Management Entry.
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- The Essential Knowledge Project from the Institute for Public Relations
- - The Crisis Management and Security program is free web-based tool that can be used by organizations to test their crisis management programs. This program allows users to test their crisis management plan through use of scenarios and programmed information “injects”. Program is part of Illinois Institute of Technology Crisis Management Student Professional Project.
- An open, online forum for the discussion of all things involving corporate crisis management: strategies, best practices, crisis plans, mock disasters, media training, etc.
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