Read this essay to learn about the process of crisis management in a firm.
Forecasting methods are primarily used to project market conditions and performance levels that are at least somewhat predictable. Unfortunately, however, any organization can be faced with largely unpredictable and uncontrollable negative circumstances that can threaten its very existence. Crisis management refers to the process of planning for and implementing the response to a wide range of negative events that could severely affect an organization.
The terrorist attacks of September 11, 2001, highlighted the need for organizations to anticipate, prepare for, and respond to crises events. For some organizations, the attack resulted not only in the tragic loss of a substantial number of employees, but also a loss of key facilities and data. In addition to terrorism, however, a number of other potential organizational crises should be considered, such as fires and other natural disasters, economic crises (e.g., extortion, boycotts, bribery), information crises (e.g., computer system sabotage, copyright infringement, counterfeiting), and political unrest such as urban riots. The effects of crises on an organization can vary widely around the world and can be especially traumatic in emerging nations.
In addition to the events of September 2001, a number of large firms faced major crises at some time during the past few decades. In 1984, for example, gas leakage from a methyl isocyanate tank at a Union Carbide plant in Bhopal, India, killing approximately 3800 per sons and totally or partially disabling about 2,700 more.
It was later learned that the leak occurred when a disgruntled employee sought to spoil a batch of the chemical by adding water to the storage tank. The incident was reported to officials at company headquarter in the United States after 12-hour delay, an event which sparked a widespread view that the firm was negligent and “covering up” details. India’s Supreme Court later provided a $470 million settlement for victims and their families.
As a second example, in 1989, the Exxon Valdez tanker hit a reef in William Sound, Alaska, spilling approximately 250,000 barrels of oil. Although there was no loss of human life, the loss of animal and bird life was extensive, and negative press was daunting. The company’s untested crisis management plan said such a spill could be contained in five hours, but it was not implemented for two days. Exxon eventually spent about $2 billion to clean up the spill and another S1 billion to settle claims associated with the disaster.
Bioterrorism-the use of biological agents for terrorist purposes-has become a major concern for top executives. One recent survey reported that approximately two thirds of executives are not confident that their organizations would be safe in the event of a biological or chemical attack, even though 80 percent of the organizations in question have crisis management plans in place.
It is helpful to view crisis management as a three-step process. Before the crisis, organizations should develop a crisis management team to develop and plan for worst-case scenarios and define standard operating procedures that should be implemented prior to any crisis event. For example, organization anticipating labor unrest at a company facility may hire additional security guards or contract with a private agency to provide additional security.
Proactive organizations that continually assess their vulnerabilities and threats and develop crisis management plans tend to be adequately equipped when a crisis occurs. Proper preparation requires research of the literature, of the industrial sector, and of the company itself. Information is needed to properly prepare for the crisis events. When managers understand which crisis events are more likely to occur, they can plan for the event more effectively and foster a business culture that is ready to meet the challenge if and when a crisis occurs.
During the crisis, an organizational spokesperson should communicate effectively with the public to minimize the effect of the crisis. For example, after being unprepared when Tylenol capsules were laced with cyanide, killing seven people in 1982, Johnson & Johnson improved its preparation, responding to a 1986 lacing incident by acknowledging the crisis with the public and instructing all consumers to return products for a refund. Presentations to the public should be prompt, honest, professional, and streamlined through a single person or office.
After the crisis, communication with the public should continue as needed, and the cause of the crisis should be uncovered. Understanding the cause can help executives minimize the likelihood that the crisis will occur again and improve preparation for the crisis if it does.