Crisis management is a crucial managerial task which calls for continuous preparedness because of the uncertainty of occurrence of a crisis which could be disastrous or form a platform for catapulting the organization to another echelon. Crisis management is a widely used terminology which applies to diverse occurrences which disrupt the normalcy of organization’s operations.
The term is unique in various companies or organizations; however, irrespective of the name given, the mannerism of dealing with the situation still remains unanimous across the organizations. The environmental factors are both potentially beneficial and potentially destructive to the running of an organization and therefore the management should be on a high alert in order to detect any possible occurrences of interruption.
Crisis is subject to a domain of several variables particularly in international business which include; the features of the event, the significance to both parties, the magnitude of the impact on both parties and the extent to which the event is influential to the neighbouring community (Chemical Engineers, 2005).
Crisis has affected most organizations though this is only clear to the external environment when the effects that come with it are allowed to spill to the surrounding. In some instances the effects are positive hence instrumental promoting the image of the company however in some instances it smears the otherwise good image with mad.
The main focus here will be on two companies which have been greatly affected by crisis leaving behind outstanding effects. In order to clearly demystify the two sides of this phenomenon Toyota Company’s accelerator pedal and toy security crisis whose effects have negatively impacted on the exemplary image of the company will be subject of analysis. Parallel to this, the European Union banking crisis that caused tension among the financial institution is a case in point for successful quenching of a crisis.
Toyota motor Company is a renowned motor vehicle manufacture company for the “Toyota” brand of vehicles. It was established in 1933 as a branch of Toyoda and become an independent company in 1937.
The company has improved its business territories across the world and become one of the major car manufacturing companies in the world, making massive profits as well as upholding a high profile in the international business community. As a result of this the company opened branches in most countries across the world and concurrently increased the production of the motor vehicles.
The company’s production has also widened its base introducing several other products and attracting the world market. The company became outstanding among the lead competitors such as Chrysler and General Motors among others. The company was flourishing with a very outstanding reputation for genuine quality products which gave them economic mileage over their counterparts. Despite this attributes the company was not insulated from the impending crisis.
Owing to the financial crisis of 2007-2010, the company suffered a huge loss reporting immense loss of US $4.2 in 2009. This was due to reduced sales and increased production. The company was caught unaware by this world wide crisis and therefore was not ready at the moment to counter the eventuality. Further the company was forced to recall the Toyota toys in 2007 due to security problems, incurring losses and losing customers trust.
This should have been a perfect lesson for the company and act as a warning for any upcoming hazards. However the company suffered a great setback this year not only incurring losses but also damaging the reputation of the company name further when the company was fined by the National Highway Traffic Safety Administration for their tardy response to the faulty accelerator pedals of the vehicles that they had released to the market.
These crises have negatively impacted the operations of the company and therefore the crisis management was not of positive consequences to the company. The consequences of this are the long term degradation of the image of the company at the same time creating a strong hold for their competitors to take the advantage of this loophole (Hemus, 2010).
The great challenge of any crisis irrespective of the company is the timely detection of the chances of its occurrence. This is important in determining the possible causes of action to avert the crisis since prevention is better than cure. The effects in such cases are mild and in many cases not noticeable by the external environment. It is also of essence in order to have the knowledge of the effects of the crisis to all the concerned individuals.
Toyota Company had a weakness in detecting the signs and symptoms of the creeping crisis. The company also had a weakness rooted in their culture of high quality production of motor vehicle as a result slight deviation in quality became very outstanding. The hierarchical communication system of the company hindered the individualistic nature of crisis resolution where individual’s voluntary deals with the problem at individual level (Littlejohn, 1983).
Prodromal crisis stage is the initial and most important stage in crisis management where the management preplans for the actions for any anticipated crisis. This is the stage where a company focuses on the possible crisis, effects on the operations of the company and what can be done to deal with the situation. At this level the crisis can be averted upon effective execution of appropriate antidotes.
Toyota Company despite early symptomatic signals did not plan effectively to curb the crisis. The response to the security problems of 2007 by recalling the toys did not form a perfect platform for crisis preparedness in the company and therefore when the case of fault accelerators cropped up the company was also caught unaware and a repeat of the earlier eventuality occurred. This unpreparedness caused the crisis to move to the next phase (Erika, 2008).
Acute crisis phase management is the level at which a crisis cannot be averted and thus the future of the company greatly depends on how the company deals with the situation. Toyota Company had the opportunity to deal with the crisis as soon as it occurred but instead they allowed their products with fault accelerator to spread across the market before intercepting it.
The company further incurred losses by sluggish response hence causing them to be fined. At this very stage the integrity, quality and the welfare of the company’s workers is very colossal though this was not the case for Toyota. It is evident therefore that the company did not satisfactorily deal with the crisis at this level (Marr, 2009).
The chronic phase also known as clean up stage is an important stage in protecting the self image of the company. This stage calls for the managerial skills of the company’s leadership to respond to the crisis by using the available tools to clear all the consequences of the crisis such as auditing.
Toyota company were not keen enough at this stage to clear their name off the mess in time and therefore the crisis eroded their image across the world at the same time causing the company to lose enormous finances through the reclamation of their products (Darling, 1994).
Crisis resolution is the final and important phase in crisis management where the crisis is resolved through the application of the planned actions during the prodromal stage. It is this very stage which can act as the prodromal stage of the next crisis because crises are always uncertain and thus requires preparedness.
Toyota Company faced security problems in Toys which was a clear indication of what was standing a head of the company, the fault accelerators. The fact that the crisis still made immense disaster to the company points to the ineffective resolution of the previous crisis and therefore did not act as a prodromal phase to the preceding crisis as is the case in the crisis management theory (Coombs, 2007).
On the other hand successful crisis management can be exemplified by the winning of the confidence of financial institutions to invest in the European banking systems.
The European banking system is a financial institutional that labours to harmonize financial institutions across the territorial boundaries through introduction of transnational institutions and financial stability provisions which would alleviate the tension and thus create a favorable atmosphere for financial transactions across the countries. This saw the introduction of one market and a single passport applicable across the divide ( Fonteyne, et al. 2010).
The crisis that faced European Union was that of fear against financial freedom. The crisis management by the union was very successful in that they were very effective at each phase of the crisis development. The prodromal stage of the crisis saw the union identify the potential occurrence of a tension that would curtail financial transactions across the institutions and therefore they preplanned to effectively solve the situation. The identification being the major task of crisis management was therefore a success.
The next phase of the management being the acute phase was when the tension was at its peak and therefore financial transactions were very expensive forcing individual to restrict themselves within their financial institutions. It is during this phase that saw introduction of single passport and one banking market. The development of tension could not be reverted at this stage but contained.
The European Union was quick in ensuring that the tension did not exceed beyond controllable limits through timely interventions such tax reduction. This phase saw the protection of the welfare of the parties involved at the same time upholding the integrity and the impartiality of the financial institutions. Consequently this led to the offset of the failing cross-border banking and intelligibility of financial institutions and overhaul of the attitude towards increased costs.
During the chronic stage the European Union was successful in clearing the tension through the effective strategies that were put in place which included the assurance of the participants of cost effectiveness of the implementation of the action plans through reduced collateral destruction to the economy as well as lack of costs in the government budgets.
This was efficient in clearing the tension and restoring the confidence of the two parties who were shying off from financial investment in the European Union banking system. The timely response and the application of managerial tools at the disposal of the European Union leadership were instrumental in the effective management of the looming tension among the financial institution.
The actual crisis resolution is the final phase which was authentically approached by European Union through the various action plans which aided in effective financial freedom. This has sufficiently served as a prodromal phase for an impending crisis keeping the union on its toes.
Some of the crisis resolution actions undertaken included; formation of European Resolution Authority (ERA) which was taxed with the role of resolving cross border cost-effectiveness, development of European Deposit Insurance and Resolution Fund (EDIRF) which derived its funds from the industry, systemic levies as well as premiums emanating from deposit insurance and the establishment of legal structure throughout the involved parties (Aghion, Oliver and John, 1992).
Crisis management therefore is a critical and inevitable phenomenon which applies to all organizations irrespective of the nature of the organization and can occur at any time (Fink, 1986). The manner in which the crises are managed is imperative for the future of the company.
It is important therefore to invest in training the management to be ready to deal with crisis because of its uncertainty nature. The crisis of the Toyota has been a very big lesson to many of the world’s large organizations to be prepared for any crisis irrespective of its status or size since crisis does not discriminate.
The organizations’ integrity and prosperity is greatly dependent on the manner in which the crises are solved and the ability of the company to learn from the past crises. The European Union crisis management parallels the Toyota companies approach and act as a blueprint for successful and effective crisis management.
In conclusion planning is a very effective tool for effective running of an organization. It is important therefore to forecast success and keep an eye on the eventualities that might unfold during service execution of individual and organizational duties. Crisis management is as important as it is disastrous depending on what actions are done prior and after the crisis (Darling, 1994).
List of References
Aghion, P., Oliver, H. and John, M.,1992. The Economics of Bankruptcy Reform. Journal of Law, Economics and Organization, 8 (3), pp. 523-546.
Chemical Engineers, 2005. American Institute of. Corporate Crisis Management. New York: CCPS.
Coombs, W.T., 2007. Crisis Management and Communications. Illinois: Institute for Public Relations.
Darling, J.R., 1994. Leadership & Organization Development. MCB University Press Limited, 15 (8), pp. 3-8.
Erika, H.J., 2008. Toward an Understanding of When Executives See Crisis as Opportunity. Applied Behavioral Science, 39 (2), pp.2-7.
Fink, S., 1986. Crisis Management: Planning for the Inevitable. New York: AMACOM
Fonteyne, et al., 2010. Crisis Management and Resolution for a European Banking System. International Monetary Fund, 3 (4), pp. 7-33.
Hemus, J., 2010. Accelerating towards crisis. a PR view towards Toyotas recall. UK: guardian.co.uk.
Littlejohn, R.F., 1983. Crisis Management. New York: American Management Association.
Marr, K., 2009. Toyota Passes GM as World’s Largest Automaker. The Washington Post, 1 (22), pp. 1-22.