Crisis management

tauringhuang.

Aug 18th 2008
From Economist.com

The Institute for Crisis Management (ICM), an American consulting firm that specialises in developing communications strategies for crisis-struck businesses, defines a crisis as “a significant business disruption which stimulates extensive news media coverage. The resulting public scrutiny will affect the organisation’s normal operations and also could have a political, legal, financial and governmental impact on its business”.

The idea that businesses face moments of crisis that require special skills not called upon in the normal course of commercial events is widely accepted. Allied to this is the idea that there are people who are especially good at handling crises, and that there are crisis-management skills that can be learned. Special training courses on the subject can be found in many countries.

Crises are commonplace. The ICM puts their causes into four categories, with over 60% of them falling into the last category (management decisions):

• Acts of God (storms, earthquakes, etc).

• Mechanical problems (metal fatigue, etc).

• Human errors (the wrong valve opened, miscommunication, etc).

• Management decisions/indecision (underestimating a problem, assuming nobody will find out).

In recent years, certain industries have been more prone to crises than others. Airlines, software designers and pharmaceuticals firms headed the ICM’s list for 2006. But tobacco companies have been in an almost permanent state of crisis as the medical evidence against them has unfolded over the years. Oil companies, too, have a crisis on their hands every time a tanker leaves a slick on a beautiful beach.

One of the worst environmental accidents so far, at the Union Carbide factory in India where thousands of people were killed by a leak of poisonous gas in 1984, made companies everywhere think again about how to manage crises on such a scale. Then the Exxon Valdez oil spill of 1989, generally regarded as one of the worst-managed crises of all time, showed how it should not be done. It took two weeks for Lawrence Rawl, Exxon’s chief executive at the time, to visit the scene and make any kind of substantive statement about the tragedy.

There are several elements to good crisis management:

• Be well prepared in advance. Potential members of a crisis management “team” should rehearse how they would manage the impact of an incident. It is a bit like learning the safety instructions on a plane before take-off: you hope you will never need them, but you know it would be unwise to miss the lesson. The team should include the chief executive and a representative of the press office. Thereafter, all external enquiries relating to a crisis should be answered by the team.

• Move fast. It is the first few hours that count, the period when news of the crisis first breaks. One of the most difficult things is handling the ambiguity in those first hours and days. There are sure to be gaps and inconsistencies in the information available.

• Get outside help and advice. Because a crisis is often brought on by employees of the firm, it can be difficult for insiders to view the issue objectively.

• Be honest. Accurate and correct information is crucial. Misinformation invariably backfires. But if a company has a naturally secretive culture this is a difficult policy to pursue.

• Look to the long term. Do not seek just to contain short-term losses. A contaminated product may require the withdrawal of massive stocks to reassure customers over the longer term that the product is safe for consumption.

Further reading
Dezenhall, E. and Weber, J., “Damage Control: Why Everything You Know About Crisis Management is Wrong”, Portfolio Hardcover, 2007

Regester, M. and Larkin, J., “Risk Issues and Crisis Management: A Casebook of Best Practice”, Kogan Page, 2002

Sikich, G.W., “Emergency Management Planning Handbook”, 4th edn, McGraw-Hill, London and New York, 1996

More management ideas
This article is adapted from “The Economist Guide to Management Ideas and Gurus”, by Tim Hindle (Profile Books; 322 pages; £20). The guide has the low-down on over 100 of the most influential business-management ideas and more than 50 of the world’s most influential management thinkers. To buy this book, please visit our online shop.