Crisis management

Crisis management is the process by which an organization deals with a major unpredictable event that threatens to harm the organization, its stakeholders, or the general public. 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.^[1] Venette^[2] 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.

Contents 1 Introduction 2 Types of crisis 2.1 Natural crises 2.2 Technological crises 2.3 Confrontation crises 2.4 Crises of malevolence 2.5 Crises of organizational misdeeds 2.5.1 Crises of skewed management values 2.5.2 Crises of deception 2.5.3 Crises of management misconduct 2.6 Workplace violence 2.7 Rumors 3 Models and theories associated with crisis management 3.1 Crisis management model 3.2 Management crisis planning 3.3 Contingency planning 3.4 Business continuity planning 3.5 Structural-functional systems theory 3.6 Diffusion of innovation theory 3.7 Role of apologies in crisis management 4 Examples of successful crisis management 4.1 Tylenol (Johnson and Johnson) 4.2 Odwalla Foods 4.3 Mattel 4.4 Pepsi 5 Lessons learned in crisis management 5.1 Impact of catastrophes on shareholder value 5.2 Bhopal 5.3 Ford and Firestone Tire and Rubber Company 5.4 Exxon 6 Public sector crisis management 6.1 Schools and crisis management 6.2 Government and crisis management 6.3 Elected officials and crisis management 7 See also 8 References 9 Further reading 10 External links

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. ^[3]

The credibility and reputation of organizations is heavily influenced by the percpetion 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.

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.^[4] Potential crises are enormous, but crises can be clustered.^[4]

Coombs^[4] identified nine types of crises

1. Natural disasters
2. Malevolence
3. Technical breakdowns
4. Human breakdowns
5. Challenges
6. Megadamage
7. Organizational misdeeds
8. Workplace violence
9. Rumors

Lerbinger^[5] categorized seven types of crises

1. Natural disaster
2. Technological crises
3. Confrontation
4. Malevolence
5. Crises of skewed management value
6. Crises of deception
7. Crises of management misconduct

Natural crises

Natural crises, typically natural disasters considered as'acts of God,' are such environmental phenomena as earthquakes, volcanic eruptions, tornadoes and hurricanes, floods, landslides, tidal waves, storms, and droughts that threaten life, property, and the environment itself.^[4][5]

Example: 2004 Indian Ocean earthquake (Tsunami)

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^[4]). 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.^[4] Samples include software failures, industrial accidents, and oil spills.^[4][5]

Examples: Chernobyl disaster, Exxon Valdez oil spill

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/PUSH’s (People United to Serve Humanity) boycott 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.^[4][5]

Example: 1982 Chicago Tylenol murders

Crises of organizational misdeeds

Crises occur when management takes actions it knows will harm or place stakeholders at risk for harm without adequate precautions.^[4] Lerbinger^[5] 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 view the interests of its other stakeholders such as customers, employees, and the community.

Example: Sears sacrifices customer trust^{[clarification needed]}

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.

Example: Martha Stewart fraud case

Workplace violence

Crises occur when an employee or former employee commits violence against other employees on organizational grounds.

Example: DuPont’s Lycra^{[clarification needed]}

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.^[4]

Example: Procter & Gamble's Logo controversy

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.^[6]

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.^[6]

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.^[6]

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.^[7]

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.

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."^[8]

Examples of successful crisis management

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.^[9]

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.^[10]

Odwalla Foods

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.^[11]

Mattel

Mattel 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.^[12]

Pepsi

The Pepsi 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 convenient 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. ^{[13][citation needed]}

Lessons learned in crisis management

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 (1995, 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 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.^{[citation needed]}

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.^[14]

Ford and Firestone Tire and Rubber Company

The Ford-Firestone Tire and Rubber 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).^[15]

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.^[16]

Exxon

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.^[17]

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 attacks in 2001, and shootings on college campuses including the Virginia Tech massacre, educational institutions at all levels are now focused on crisis management.^[18]

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.^{[citation needed]}

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.^[19] In a similar fashion the plans aim to address all audiences in need of information including parents, the media and law enforcement officials.^[20]

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.^[21]

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.^[21]

FEMA offers free web-based training on the National Response Plan through the Emergency Management Institute.^[22]

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.^{[citation needed]}

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.”^{[citation needed]}

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.^[23]

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.^[23]

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.^[23]

A brief description of the five facets of crisis leadership includes:^[24]

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.

See also

• Common Alerting Protocol
• Contingency plan
• Crisis
• Cross-cultural communication
• Emergency services
• Emergency management
• Federal Emergency Management Agency
• ISO/TC 223 Societal Security
• Management
• Risk Management
• Social Responsibility

References

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. T. (2006). Code Red in the Boardroom: Crisis Management as Organizational DNA. Westport, CT: Praeger. 
• Office of Security and Risk Management Services (October 2007). "Crisis Management Workbook". Fairfax County Public Schools. http://www.fcps.edu/fts/safety-security/publications/cmw.pdf. 
• 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. 
• Erickson, Paul A. (2006). Emergency Response Planning for Corporate and Municipal Managers (2nd ed.). Burlington, MA: Elsevier, Inc.. 
• Fink, S. (2007). Crisis management: Planning for the inevitable. Backinprint.com. 
• Mitroff, Ian I.; Gus Anagnos (2000). Managing Crises Before They Happen: What Every Executive Needs to Know About Crisis Management. New York: AMACOM. 
• Mitroff, Ian I. (2003). Crisis Leadership: Planning for the Unthinkable. New York: John Wiley. 
• Mitroff, Ian I. (2005). Why Some Companies Emerge Stronger And Better From a Crisis: Seven Essential Lessons For Surviving Disaster. New York: AMACOM. 
• Public Relations Review 35 (1). http://www.sciencedirect.com/science/journal/03638111. "contains a collection of articles on crisis management.". 
• Department of Homeland Security, Federal Emergency Management Agency (September 2007). "National Response Plan". http://www.dhs.gov/xprepresp/committees/editorial_0566.shtm. 
• Smith, Larry; Dan Millar, PhD (2002). Before Crisis Hits: Building a Strategic Crisis Plan. Washington, DC: AACC Community College Press. 
• Smith, Larry; Dan Millar, PhD (2002). Crisis Management and Communication; How to Gain and Maintain Control (2nd ed.). 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

• 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