The Concept of Crisis Management, Research Paper Example

Abstract

This paper examines the concept of crisis management and emergency planning in the event of a disaster. The paper is split up into a number of discrete parts. (1) Introduction – Defines the meaning of crisis management and they types of crisis that may occur today (2) Crisis situations – discusses the different types of crisis situations (3) Leadership Crisis – definition of leadership crisis, the types that may occur, preparation and prevention and concepts of business recovery (4) Business Models used in crisis management – An introduction to techniques and crisis management business modelling techniques (5) Case study examples – Case studies outlining effective crisis management in industry (6) Conclusions – Mitigations and corrective action, critical success factors and SWOT of crisis management.

Literature review

There is a great deal of published work in this area.  The main source of reference for this paper will be based on the book “Key readings in crisis management” by Denis Smith and Dominic Elliot (Eliot, 2006). This being a compendium of different author contributions in the field and as such providing a wide cross section of opinions and analysis. This will be supported by a number of academic journal articles, particularly covering the scientific business modeling component and the case study analysis.  There are no significant gaps in this area as it is well trodden ground.

Introduction

The concept of crisis management involves the identification of a potential crisis type and then developing a plan in order to respond to that crisis. This is sometimes referred to as a Disaster Recovery Plan. This should not be confused with the Business Continuity Plan that examines the procedures required in order to continue and sustain business immediately after the crisis situation.  Crisis Management applies to virtually any form of business but it is commonly used in Financial Services, Manufacturing Industry and business involved with international branches or subsidiaries.  There are five main types of crisis situations that may impact business today:

1. Natural Crisis
2. Technological Crisis
3. Confrontation Crisis
4. Malevolence Crisis
5. Organizational misconduct crisis

Types of crisis situations

The best approach to Crisis Management is one of proactive planning, as opposed to reactive planning or dealing with the crisis once it has impacted.  Proactive planning means closely examining the business that you are in and defining potential areas of vulnerability.

Natural Crisis

A natural crisis is one that might occur as an act of nature, for example Fire, Flooding, Earthquakes, storm damage, power cuts etc.  These types of crisis situations can be planned for in advance subject to your area of vulnerability.  If you have offices near a river that is in a known flood zone it is obvious that you need to take precautionary measures to mitigate any future occurrence of flood damage.

Technological Crisis

This might be such items as Cyber (computer attacks) via hacking, transmission of viruses or possible sabotage.  It equally considers vulnerability to the business via communication links i.e. solid state wire links, disruption of radio or satellite transmission links. IT Systems failures due to malfunction or sabotage.

Confrontation Crisis

The risk to the business by means of a terrorist attack or penetration of a disruptive force to your business.  It is important to remember you do not necessarily have to be the target victim to be impacted.  Terrorist bombs in London impacted literally hundreds of business operations.

Malevolence Crisis

A threat to the business, organization, shareholders or its customers.  The IRA in London tried to plant a bomb in the building where a major insurance Company held its international director board meeting.  The plot was foiled but if it had succeeded it would have wiped out the Executive of a major insurance corporation.

Organizational Misconduct crisis

The impact of the Enron Scandal and Andersen Consulting being amongst the biggest example in recent times “Ethical misconduct disasters constitute serious costly risks to the continuity and survival of a business. Regular headlines reveal that breakdowns of integrity collectively cost businesses billions of dollars in litigation, fraudulent financial acts, increased costs, fines, reputation and image damage, customer/client trust, lost sales and recovery costs, and potentially land senior management in prison” (Chandler, 2010).

Crisis of leadership

A good example of having a leadership crisis thrust upon you is that of 9/11 and the Mayor of New York Rudy Giuliani.  “Everyone recognized that Mayor Giuliani was leading a crisis situation, but fewer realized that he approached the situation as a change management challenge” (Schuler, 2010).  He helped to rally the City and a stunned nation and turned the crisis into one of a temporary trauma and repositioned the people of New York towards a brighter future for tomorrow.  A negative leadership crisis might be that of Enron where Directors are placed in a position of trust by their shareholders and either fail to perform or conduct criminal acts of misconduct.

Leadership crisis may also be broken into one of two types of crisis i.e. sudden crisis or that of a smoldering crisis.

Sudden crisis:  this is where an event unfolds without any advance warning.  These are often called “bombshells” and are often beyond the organizations immediate control.  In most circumstances leaders get blamed for these types of crisis situations.

Smoldering crisis: these are where minor issues, often due to management negligence, manifest themselves later as crisis situations. Sometimes referred to as “smoking gun situations”. Leaders get blamed for these situations and there is often considerable fallout over the organization.

The Prime Minister of Jamaica stated that they have a crisis of leadership across all of the sectors in Jamaican society “A country gets the quality of leadership it deserves. So we have to blame ourselves. Our being quiet has allowed mediocre leaders to rise to the top.” (Reid, 2010).  This is essentially a worst case scenario that shows abdication of leadership is the equivalent of a ship without a rudder.  The situation in Jamaica primarily relates to the high level of crime and corruption that has permeated its way through all sectors of society and the ability of the leadership / administration to find appropriate solutions to resolve the matter.  There is no preparation or prevention measures in place.

Preparation and prevention

Crisis prevention relates to the measures that a business will take in order to mitigate potential losses to the organization in the event of a future crisis or disaster. “Crisis prevention, at its best, is the organizational equivalent of a medical full body scan” (Bernstein Crisis Management Inc, 2010).  One of the first and most important steps is to conduct what is termed as a Vulnerability Audit of the Organization.  This examines 5 specific components of the business under review:

Crisis Document Audit – Essentially looks at what has been done to date on the emergency planning front. It inspects the emergency planning documentation, results of tests, communication plans, disaster recovery and business continuity plans. From this it is able to determine a base point. Just how prepared is the organization? Essentially just what needs to be accomplished?

Executive Vulnerability Audit – Just how exposed are the Executives in terms of understanding the current state of readiness, their roles and responsibilities in a crisis and precisely what is expected of them. This exercise can often be very revealing!

Comprehensive Vulnerability Audit – An in depth organization wide audit examining all of the touch points for potential vulnerability. This involves an extensive amount of staff interviews and examining physical evidence. The aim is to determine the level of exposure to different potential threats

Blended Vulnerability Audit – The bringing together of a sample of the Executive, Management and workforce to discuss potential threat levels and areas of vulnerability. This is aimed at sharing knowledge and different perspectives. This concept of group dynamics is extremely powerful – the concepts of no leaves are left unturned.

Online Reputation Management Audit – An interrogation of internet sites, forums, blogs etc. in order to determine what is being said by external parties applicable to the Management, Executive and Organization. This also looks at the organizations computer security and vulnerability to cyber-attacks.  “A Vulnerability Audit is a multi-disciplinary risk assessment to determine current and potential areas of operational and communications weakness and strength, and to identify potential solutions, because weaknesses may result in emergencies or crises of varying magnitudes if not corrected” (Bernstein Crisis Management Inc, 2010).

Containment and damage control

It is worth re-iterating the works of James and Wooton who discussed the five stages that a crisis passes through.  1) Signal Detection 2) Preparation Prevention 3) Containment / Damage Control 4) Business Recovery and 5) Learning.

This is where the crisis or disaster has impacted “touch down” and you try to mitigate the initial potential damage.  An example might be the flooding of your work premises from a river that has burst its banks.  Your first thoughts are to contain the damage and prevent any more water from getting in.  This requires sand bags, regrettably all local supplies are gone because of the rush on them from other impacted people.  You had not planned for this and as such there were no stocks of the available materials.  You immediately reverted to what materials you could obtain in order to stop the flow of water into your premises.  The next step is to evacuate the water from your building.  The ideal solution would be a number of pumps; regrettably you have none and there are none available.  As such it becomes a major bailing activity involving your entire workforce.  This exercise could have been accomplished in 24 hours with a pump – the bailing activity took a whole week to complete.  The next step involved airing and drying the place.  The power was out and you have no emergency generator and so this lasted two weeks instead of 2 days.  The point being made is that lack of emergency planning and preparation translates to that of lost $ in a disaster situation.  It costs additional labour hours, loss of productivity, and creates more damage (capital expense) in replacing infrastructure and machinery.  Owing to climate change this scenario has been played out many times in England UK where flooding has become a more widespread occurrence. The lack of appropriate preparation and planning for emergencies has put a significant number of businesses into a state of closure. Disasters often occur when you least expect them and to avoid major disruption you need to be prepared.

Early planning

Here are a number of items for early consideration in the emergency planning cycle:

Location:  The precise location of the disaster event via global positioning satellite communication co-ordinates.  The precise address including all contact communication information available at the site.

Nature of Emergency:  The precise nature of the disaster or emergency classification e.g. Fire, Flood, Earthquake, Land Slide, Avalanche etc.  The number of people in the immediate vicinity impacted by the disaster. Number of known casualties to date?  Estimated number of possible casualties?  Wider impact considerations?

Emergency Services:  Location of nearest Emergency Services from the disaster site, particular reference to Ambulance, Paramedics, Fire Services and Police.  The numbers that can be deployed from each?  The number of patient beds at the nearest hospital?  Distance in kilometres to each service together with emergency contact numbers and key contact personnel.

Military Contact:  We may need support from the National Guard or armed services depending upon the extent of the emergency.  We need contact information for a Senior Officer and a 24/7 hotline response number. Details of the nearest military base to the disaster zone.

Government Contacts:  Key government contact numbers including that of the State Police, State Governors Office.

Media Coverage: Preparation of press briefings for media coverage in consultation with the State Government office co-ordinator.

Material Resources:  Early assessment of the material resources that will be required in order to bring initial aid to the disaster site. In the first instance this will be establishing a base of headquarters, provision of adequate communications, emergency medical supplies, drinking water, and location of suitable site for a helicopter pad to airlift in supplies, provision of temporary shelter (tents blankets etc.).

Communications Planning:  Access to the disaster site covering all modes of transportation – Road, Rail, Air and Sea.  Provision of maps illustrating relief roads and main access roads that have not been impacted by the disaster. “The mandate of the Emergency Response Team is to assist in the successful resolution of dangerous situations, thereby enhancing public safety and security.” (RCMP, 2010)

Informed estimates

At this point if we are lacking information we need to make informed and best estimates of the situation.  We first need to access the immediate and direct damage of the disaster.  This will mean taking early data from a number of sources. Visual estimates from those on the ground at the epicentre of the disaster and the collation of early reports.  Gaining aerial observations from satellite and helicopter fly over pictures.  We will need a quick predetermination on the number of people impacted by the disaster and the surrounding support infrastructure. For example, housing, sewage, water facilities.  We will then need to examine the indirect damage and this will be important to determine the amount of resources and relief that we will need to bring to the earliest part of this disaster response.  The most important aspect here is an estimate of how the communications and flow of goods and services has been impacted to the disaster zone. How many roads are out?  Is the nearest airport still functional?  Is the nearest seaport still open?  Identify areas that might be used as helipad and temporary airstrips.  Identify secure zones where relief aid can be dropped in by parachute. Finally we need to look at the Secondary effects. In this case the outer shell or peripheral damage and those potentially in danger from the impacts of the initial disaster.  Early observation estimates are accepted but this might be supported with intelligent research and suitable internet sites might be appropriate here.  For example getting population statistics, infrastructure details, communications data, maps, contact details, etc.  Initially time is of the essence so the importance at this point is getting best estimates of all the information that is available.

One of the most important aspects for the initial response team is communications.  It is useful to determine if Cell phone coverage is still available in the area.  This is the quickest and cheapest form of communication for the response team. If this is down we need to examine additional communication options. It is important to stress that informed estimates are not guesswork. They are assessments based upon the best information known at that time “Informed estimates by knowledgeable local leaders – supervisors, highway/public works, engineers, fire officers, and the Red Cross  – typically provide reliable assessments useful to emergency operations.” (David A Patterson, 2010).

Business models used in crisis management

The following model illustrates the stages that are involved in dealing with Crisis Management situations. From the time of the disaster taking place:

1. Response
2. Recovery
3. Mitigation
4. Risk Reduction
5. Prevention
6. Preparedness

This can then be translated to a Crisis Conflict model using the level of violence as an indicator defining the stage of the conflict.  The interesting part of the model is whereby the level of violence goes above the threshold. Note the height of the conflict emergence, the chaos and complex emergency, a lowering of tension in the conflict settlement.  The example of Hurricane Katrina in New Orleans illustrates the accuracy of this model.  Violence escalated at the time of the levees bursting and flooding in the City. This resulted in chaos and panic with widespread looting and reported shooting incidents.  As the National Guard emerged and took control of the situation, the violence decreased below the threshold level and people in the stadium were evacuated to safety in Houston.

“Caplan’s Crisis Model represents that crisis is the slide towards a low point, coping strategies fail. Here people may seek relief from their helplessness by inappropriate means. The window of opportunity is enhanced by good support networks (helping forces).” (Corrigan, 2010).

Structural functional systems theory

This method looks at the consideration of information networks and the command and control function within an organization.  In a time of crisis it is essential that information is readily available in order to facilitate effective decision making.  The Structural functional model is concerned with the identification of information flows and examination of the networks and linkages within an organization. The more complex this pattern is then the higher the risk profile in a disaster scenario.  The converse also applies.  An example is that of a Trading or Dealer room that is 100% reliant upon the technology to support it.  A trader on the spot market could lose $millions in a single hour if denied access to computerised trading information.  In this case a DR recovery scenario would be measured in hour’s not even days.

Diffusion of innovation theory

This theory was developed by Everett Rogers and also takes in the concept of information sharing. This looks at how innovation is disseminated and distributed throughout the organization. The concept of business knowledge and intelligence being shared between key people within the organization. What happens in the event that this form of communication is disrupted or blocked in any way?  An example might be that of a Scientific Research firm or control of a Nuclear Power station.

Case study examples

Simplifying the airline industry

When the Volcano erupted in Iceland it placed the airline industry into complete chaos and temporarily shut down Trans-Atlantic air travel from Europe to North America. This was a result of the airborne particles of ash that could get into the jet engines and render them inoperative.  At Simpliflying they observed a change in the way that Airlines dealt with the crisis and they developed a five point crisis management plan. (Nigam, 2010)

The illustration to the right shows the five step response plan adopted by Simpliflying. The identified stages being:

1. Prepare
2. Identify
3. Respond
4. Assess
5. Promote

Prepare: Involved the establishment of setting up crisis mitigation measures and the formulation of a cross-functional communications team. Use of the internet to collect as much data as possible from the various media and news sources. Ensure this is made readily available to the emergency response teams.

Identify: Sudden – what might we immediately expect now. Smoldering – what will continue to burn and need to be dealt with and Bizarre – the unexpected occurrences that might result from this.

Respond: Start preparing an action plan to deal with the crisis. Start to get the information into accurate format for communication purposes and eliminate speculative news reports. Address media and viral reports with extreme urgency.

Promote: Don’t control the message but influence the situation only. Eliminate rumours and join with other airlines to establish a single non conflicting news report to the media and public

Assess: Ensure factual honesty in reporting. Keep customers informed and plan for the future.

Malden mills

This related to a textile company that was forced to rebuild after being destroyed by a fire.  Their leadership strategies were deemed to be successful because the company adopted a very open and transparent means of dealing with its employees, the public and customers.  “Organizational values and crisis tactics were established with transparent communication and pre-crisis relationships, thereby promoting a sense of the corporate moral responsibility to the stakeholders of Malden Mills.” (Thain Y. Hagan, 2005).   The ethical and professional responsibility of the Company to its stakeholders and shareholders won the firm the greatest admiration and respect from the business community. It was considered to have the leadership qualities that would not only see the business through the crisis but the resolve to rebuild the business in short order.  The firm continued to assure the employees of continued pay and service during the crisis a highly morale and responsible action for a business faced with such a crisis.

Johnson & Johnson Tylenol scare

It was in 1982 when the pharmaceutical giant ‘Johnson and Johnson’  experienced a huge crisis when it was discovered that one of its brand leader products ‘Tylenol’ had capsules that had been laced with the poison cyanide.  During the crisis 7 people died. “The company was lauded for its quick decisions and sincere concern for its consumers. Despite initial losses, Johnson and Johnson regained and exceeded its previous market share within months of the incident” (Hogue, 2001).

When faced with the impact of the crisis the company quickly resorted to taking control of the media and getting the right messages out.  The CEO James Burke was quick to invoke the founder’s message stating “We believe our first responsibility is to Doctors, Nurses and Patients to Mothers and Fathers all others who use our products and services” (Hogue, 2001). The company immediately made a recall of 31 million bottles at a reported cost of $100 million. It changed the containers to tamper resistant caplets and as such demonstrated to its customers its resolve and concern for public safety. Once again the control of the media enabled the right messages to go out early in the crisis and thus retain a level of credibility in assuming responsibility and control for the situation.

Immediately following the crisis the stock in Johnson and Johnson took a steep dive. Despite this it was only a month after the incident that the company struck back in an aggressive marketing campaign in order to rebuild the brand image of Tylenol. Amazingly the fast paced advertising campaign was extremely successful and by the following spring the company had recovered its market share.  Four years later the Company faced another poisoning incident of a woman in New York and because the company knew all the steps to take from the previous incident it was able to rapidly deal with this situation.  A classic case of lessons learned and building this into future crisis management plans.

Firestones tire fiasco

The firm of Bridgestone/Firestone was faced with a major recall after discovering that the treads on several models were separating from the tires. This impacted its client Ford and the Ford Explorer model “Future investigations would link the faulty tires to 1,400 complaints, 88 deaths and more than 250 injuries. Both companies were forced to take action.” (Hogue, Firestones Tire Disaster, 2010).  Both Ford and Firestone had been studying the crisis management planning resulting from the Exxon Valdez situation and as such had been fine tuning their own emergency plans, based upon lessons learned from Exxon.  Unfortunately for Firestone the Ford team were ahead of the game and reached the customer base first offering to replace the tires and squarely pointing the blame at Firestone. This caught the tire company off guard and the subsequent handling of the crisis deteriorated to the point that it resulted in the statement to above from Daniel Eisenberg.  Firestone should have learned from the Tylenol case and the importance of getting to the customers first. Despite the recall that represented only a small portion of the tires, the customers lost confidence in the Firestone brand and thought that this problem applied to the whole range of Firestone tire products.  The management of Firestone were constantly behind Fords Executive team who handled the situation in favour of protecting Fords product image.

Other crisis management case studies have included that of:

Mattel – A toymaker that has no less than 28 product recalls and more recently in the summer of 2007 became involved with two product recalls for toys made in China. These reflecting in unsafe toys.  The company has been faced with a barrage of media coverage over its products and concern over product safety

Pepsi – In 1993 faced a crisis with syringes being found in cans of diet Pepsi. Pepsi requested the stores to isolate the cans but not remove them whilst the matter was thoroughly investigated. This subsequently resulted in an arrest and a public announcement from the firm stating that tampering with the product in their factories was not possible. They released a video of the man being arrested and surveillance from a video store showing how the product was tampered with. Pepsi converted this into a public campaign against those who would interfere with the product. They later thanked the public for their support and offered vouchers for supporting the campaign.  A good PR example of converting a negative crisis into a positive plan for action.

Bhopal – The Union Carbide disaster in India is probably one of the worst cases of poor emergency planning. The crisis resulted in thousands of deaths and there was no immediate plan to deal with the chemical outfall. The disaster team that arrived on site were placed under arrest by the Indian Government and with no crisis management strategy in place this just compounded the situation and made matters even worse.  Union Carbide learnt the lesson that one crisis management strategy does not fit all situations and this is particularly relevant for multi-national corporations.  Each location may be unique and requires a separate intervention strategy.  The Union Carbide Management team were clearly to blame for a lack of emergency planning and preparedness at a high risk site in a vulnerable country.

Conclusion

The concept of crisis management involves the identification of a potential crisis type and then developing a plan in order to respond to that crisis.  The paper demonstrates the importance of developing a structured response to emergency planning and crisis management. Only by being in an adequate state of preparedness can a corporate entity adequately respond to and deal with an emergency situation.  Only today it has been reported by BP that it has returned to the black after the Deep Horizon oil spill.  Even then it still awaits the many legal claims from many other interested parties that have suffered damages as a direct result of the spill.  In the case of Exxon Valdez the legal cases went on in excess of 10 years and even today there remain unresolved issues.

Both Ford and Johnson and Johnson recognized the importance of taking early mitigation steps and particular the most vulnerable areas e.g. customers and sales. By effective control of the media you can control the messages being broadcast and help to minimize the corporate damage. BP was quick on the scene to control the media coverage of the Deep Horizon spill and limit corporate damage by taking decisive action. The American Administration under Obama delayed before getting a response out and gave BP the upper ground. President Bush was similar in a delayed response to Hurricane Katrina and the lack of FEMA in having an adequate emergency plan to deal with the tragedy that unfolded in New Orleans.

Time shows important correlations between a numbers of these corporate crisis incidents. Those that are well prepared are able to mitigate the damage to the business whilst those who are caught out incur huge sums of money in trying to rectify the damage and recover the situation.

Works Cited

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