Term Paper: Crisis Management

A Term Paper for APLE3
(Crisis Management)

Crisis Management

Crisis, according to Venette, happens when there is a need for change. It may be a “threat to an organization, a surprise, or a short decision time.” That is why there is also a need to learn how to manage crisis. This so-called “crisis management” is a course of action in which harmful risks are dealt with. It should be taken notice that it is different to “risk management” which is engaged to evaluating inherent threats and finding the best things to keep clear of such, because crisis management deals with those risks after they have already occurred. By then, since the situation has already taken place, the person or organization involved has to exercise their skills and formulate a modus operandi on how to resolve the problem.

Crisis management, sometimes referred to as “incident management”, includes methods (which are also called Crisis Management Plan in business), indicators to define the scenario in crisis, and of course, open and consistent communication.

The term emergency management refers to short-term responses, while business continuity management is focused on long term recuperation stages. Although crisis is a component of risk management, it is never right to say that crisis management is a failure of the risk management because not everything is in our control. Some things just happen; it is never possible to totally eradicate the probabilities of those things occurring.

Since the topic is crisis, it might also be considered important to know its types since different types of crises have different needs of management strategies. There are seven types of crises: natural disaster, technological, confrontation, malevolence, organizational misdeeds, workplace violence, and rumors. Let us go to them one by one.

One is natural disasters such as earthquakes, tsunamis, etc. They are considered as “acts of God”—a situation when no one is in control but nature. This is where crisis management is very applicable since one/a group can’t help but let the catastrophe take place first before he/she/they could try to resolve the problem caused by those tragedies.

Another is technological crisis. Technological crises are the result of the application of science and technology. Unlike natural disasters, someone is held responsible for accidents caused by technology because the latter is subject to human exploitation. Examples of such accidents are the Chernobyl disaster, and Exxon Valdez oil spill.

Confrontation crises happen when people are not contented with the fulfillment of their own demands and expectations. Boycotts and strikes, which happen nowadays in many countries, are some forms of confrontation crises.

Crises of Malevolence are some sort of crab mentality. They occur when antagonists devise tactics in order to put down or even destroy someone, an organization, or a government administration, thinking of their own desires.

Crisis of organizational misdeeds takes place when people take known risks without safety or careful precautions. This comes in three types, which are the following:

✓ Crises of skewed management values are caused when short-term economic gain is only focused by the management. This will cause a huge degrade of the level of trust of the customers if they feel they are neglected by the company services rendered.

✓ Crises deception occurs when the organization creates false statement to their customers about the products and services of the company for their own personal gain.

✓ Crises of management misconduct are caused by the activities which are immoral illegal in nature.

Workplace violence occurs when employees commits violence against each other in the workplace.

Rumors and false advertisement about the company or its products can reduce the organization’s reputation that creates crises between its organization and the consumers.

Crisis leadership

One organizational psychologist identifies two primary types of organizational crisis. It is being defined as “any emotionally charged situation that, once it becomes public, invites negative stakeholder reaction and thereby has potential to threaten the financial well-being, reputation, or survival of the firm or some portion thereof. The two types of organizational crisis are the sudden crisis and smoldering crisis.

Sudden crises. As its name imply, this type of crises are sudden and occur without warning and beyond an institution’s control.

Smoldering crises. It differs to the sudden crises in a way that they begin with as minor internal issues that, due to the negligence of the leader it transforms into a crisis status.

Five phases of crisis that require specific crisis leadership:

• Signal detection – leader have a sense for early warning signals that suggest the possibility of crisis.

Preparation and prevention – simply prepare and prevent.

Containment and damage control – usually the most vivid case; this is to limit the reputational, financial, safety, and other threats to the firms survival.

Business recovery – even in crisis, the organization must stand firm while planning for the future recovery of the damaged caused by the crisis.

• Learning – after the crisis end, the leaders must learn from their mistakes and use their prior experience to develop new ways that will change the organization for the better.

Models and Theories associated with crisis management

Crisis management model:

An effective way to approach crisis is actually easy, you only have to know how it works. In this approach, Gonzales-Herrero and Pratt had found a pattern of Crisis Management. First pattern is the diagnosis of the impending trouble or the danger signals. Next is choosing appropriate turnaround strategy. Last is the implementation of the change process and its monitoring.

Management Crisis Planning talks about the most effective response action in dealing with crisis situation. It talks about how an individual or a group has/have the capability to deal easily with crisis. Preparation and planning is the most effective system to achieve objectives. Without planning, an organization can be easily disrupted and can amplify negative results.

Contingency Planning. It simply means a plan designed to deal with a particular problem, emergency, or state of affairs if it should occur. The first step for a crisis management plan is to prepare the contingency. In this plan, it includes the development of the simulated scenario to use as a drill. It is an important factor to be considered whenever to speak publicly about the crisis is to strictly specify only to the authorized spokesperson. Working with speed and accuracy is always been a skill for crisis management. The plan should also indicate the technique on how to quickly execute the function and the performance. Also, the contingency plan should contain detailed information that will help decision makers to have not only a short term defense, but also for a long term consequences.

Business Continuity Planning functions as one of a back-up solution whenever an undoubtedly crisis occurs. First function step is identifying the critical processes that are required in order to keep the organization efficient. Next is to ensure that each function must have its own contingency plan. The purpose of this step is to make sure that in the event of the failure or the miscarriage of the plan, there will be a backup solution. In these steps, it can benefit team members especially when the actual scenario occurs.

Structural-functional systems theory talks about a system wherein it addresses the details of information and levels of command- an important component for an effective organizational communication. This system includes “natural flow of information” through networks or links.

Diffusion of innovation theory is another way of allocating information to the system. This theory was developed by Everett Rogers. It describes the flow of information through a channel technique. This channel technique is communicated over a period of time. This process involves improvement, a person that has knowledge or experience in the improvisation, another person that has no knowledge of the improvisation, and a communicating channel for the two units.

Role of apologies in crisis management is also an important factor in the crisis management is the ability to have a request for forgiveness, a compensation and sympathy given to people’s perception taking responsibility for the crisis. Evidence shows that these strategies can lessen the suffering and can be an effective shape shifter in people’s impression.

Crisis Leadership contains list of skill to be used during an event of crisis. First is building an environment of trust, next is the reforming the organization’s mindset, next is to identify the obvious and obscure vulnerabilities of the organization, next is making wise and rapid decisions as well as taking courageous action and finally, the learning from crisis to effect change. All this concludes that to make best use of the crisis management plan, leadership structure should be considered and taken into account. Developing and improving human capabilities makes it easier to build organizational management executive leadership, an essential step to have an innovative and effective crisis management theory.

The last but not the least theory, the unequal human capital theory states that organizational crisis can result from discrimination lawsuits. Meaning to say, the economic theories of human and social can affect structural organization’s performance and can cause negative impact on the system. This indicates that crisis could amplify if discrimination lawsuits exist among individuals. For example, ethnicity and race are among the common misperception leading to human capital discrimination lawsuits.

Examples of successful crisis management

Crisis management can be successful if the person involves knows how to deal the factors that will affect and harm the status and the face of their organization. Therefore to avoid the unwanted results to be revealed and uncovered, communication within the organization and to the public by using media, have specific methods of solving that certain issues and problems, and back plans are necessary.

When an incident happens, crisis on the management will also appear and it is the organization’s tasks on how to fix the problems. The case of Tylenol of Johnson and Johnson which killed 7 people were successfully solved by their CEO, James Burke. Burke appeared to the public to answer the questions of the media. Being open and transparent, and active about the issue without ignoring and anticipating the situation will help to uplift the mode and feelings of the people who concerns about the issue.

Another example of a successful crisis management is the tampering incident of Pepsi Corporation when syringes being found in cans of diet Pepsi cans which is a type of crisis which is malevolence. Pepsi Corporation managed the issue by investigation and surveying together with National Organization like FDA and publicized the production process of making the Pepsi diet can, plus compensations to as what the issue has done to the customers and coupons for the loyalty of their customers.

Examples of unsuccessful crisis management

Unlike from the previous cases of successful crisis management, the cases of Bhopal, Exxon, and Ford and Firestone Tire and Rubber Company were unsuccessful on managing the crisis within their management. These three organizations did not overcome the issue because they did not paying attention to their current issues, instead they were just shifting of blaming, an indication of an organizations which had difficulty in consistency applying of management standards and lack of clear management plans.

Bhopal’s main cause of unsuccessful crisis resolution was poor of communication which is important in incorporating cross-cultural management plans. While the biggest mistake made by the CEO of Exxon Corporation Lawrence Rawl is that he is not active and did not react quickly in the part of the public relations effect and avoid purposely in public involvement in which media has a great impact to the public whether they would believe the company or not and for the worst, people will lose their trust to the credibility of Exxon Corporation. As well as the Exxon and Bhopal, Ford and Firestone Tire and Rubber Company also drag themselves by blaming each other and their customers which is not appropriate and give a limited solution to their customers which led to a hundred deaths.

Lessons learned in crisis management

The “Crisis as opportunity” mindset generates crisis leadership. The Pressure of crisis, namely, the precipitator and the consequences trigger the leader to perform well under pressure. This can also effectively guide the organization through crisis. As an immediate move, executives focus on communications and public relations. Crisis can damage reputation in terms of company’s aspect. As their risk management, companies may stagnates if they identified the crisis is “statistically significant”. As a counter attack, crisis leadership points both the damage and implications of company’s condition and opportunities for improvement.

Public sector crisis management

No sector of society is immune to crisis, as a response, the formulation of crisis management policies, strategies and practices have developed.

School and crisis management. A study conducted that many schools have severe deficiencies in their emergency and disaster plans. Incident such as bomb threats, drug and child abuse, disaster suicide, etc. are covered by Crisis management plans.

Government and crisis management. Government at all levels has a large role in crisis management. Emergency services were considered to be one of crisis management plans. This includes fire and police department at local level. In the US, as a response phase for crisis is the National Response Plan (NRP), which is intended to provide a common language and outlining change-of-command when multiple parties are mobilized in both private and public response. They believed that if possible, incidences should be handled at the lowest organizational level. Also, the National Incidence Management system is a buddy of NRP in acting to incident management regardless of cause, size and complexity. Another mechanism that facilitates crisis communication is the Common Practical Protocol (CAP). It creates consistent emergency alert format through both audio and visual mediums.

Elected official and crisis management. “Politics and crisis go hand-in-hand.” Public leaders are expected to minimize the impact of the crisis at hand as the communities and members of organization anticipate whereas critics and bureaucratic competitors are blaming their rulers and their policies. As crisis rises, factors such as strategic challenges, political risks, opportunities, errors, pitfall and the path away from crisis must be dealt by the leader. Special responsibility are granted to public leaders to help safeguard society from adverse and consequences of crisis. These leaders who take their responsibility seriously have to be aware themselves to crisis phase: incubation stage, the onset and the aftermath.

Crisis leadership involves five critical tasks:

• Sense making – classical situation assessment step in decision making • Decision making – implementation of that decision • Meaning making - political communication • Terminating a crisis – only possible of leader correctly handles the accountability question. • Learning – opportunity to reform for better or worse.