Critical Analysis of Crisis Management Theory and Frameworks Essay

Crisis is defined as any critical or decisive or influential point or situation. Crisis is basically unstable conditions in political, social, or economic affairs linking an awaiting unexpected or crucial change. Crisis is also considered as an affecting worrying event or shocking change in a person’s life. It is an event that can create or that is expected to lead to an unbalanced and unsafe situation that can affect an individual, group, group of people or it can be whole society. They are believed to be an unconstructive changes in the security, economic, political, social or environmental affairs when they occur unexpectedly, with small or no caution. Crisis has many defining traits but the three main traits are that the event is

• Unexpected
• Creates uncertainty/risk
• Is seen as a threat to important goals.

If the event of September 11, 2001 is recalled then one would realize that the events of September 11, 2001 were an overwhelming reminder of the need to be prepared for crises. They are not often as enormous and terrible as the attacks of September 11, but there is a need of constant cautions and readiness because of the possibility of crises. Companies should have the proper resources and pliability to continuous operations because being prepared for a crisis involves more than the ability to manage the crisis itself. The organizations that were impacted by the event of September 11, 2001 were best able to recover if they:

• Took punctual, important actions to deal with the immediate crisis and start again their operations and communicate punctually and honestly with the employees, with customers, with suppliers, and with other important stakeholders and as well as with the media and established sensible sympathy for the injured, scared and bereaved.
• Were prepared – not for such an unbelievable event but for the more ordinary and unsurprising problems of business permanence. If they had alternative computers, communications systems and proper backup of important records like contact information.
• Had strong financial statements (balance sheet, positive cash flows and good cost control) and had all kind of resources to take in the effects of the crisis and return to normal position.

Research has shown this that one of the key elements of good governance is avoiding and being prepared for the crises. Efficient organizations are less expected to have crises and are superior at solving them.

Types of crisis

It is very important to identify the type of crisis because without identifying the type one can’t make the crisis management process. Identify the type is necessary because every crisis require the use of different crisis management strategies (Davidson, 1999). Potential crises are the ones who have big impacts, but such crises can be carefully clustered to the outside world from the organization. There are many sources of crises and some of which are common to all organizations. And some of the types of the crises are specific to certain industries. Now based on the harshness, occurrences and timing of the crises, crises are fit into the three groups.

Operational crises

These types of crises are daily basis and small/negligible crises of running the organization and satisfying or providing services to individual customers. These types of the crises can easily be avoided or quickly resolved with the good management.

Sudden crises

These types of crises are the events that occur unpredictably and have a main effect on the organization. These crises include natural disasters, damages of vital services such as power, water or computers. In order to protect from these kinds of crises companies should do the proper planning and make the crises management process and it is also better to test their plans through realistic scenario- based simulations.

Potential crises

These types of crises are the serious problems that rise bigger over time and if they are not properly addressed it will become very dangerous for the organization. They include financial difficulties, investigations by the regulators, failure to respond to new completion, decline in share prices, profits decline and declining in the sales revenue (Friedman, 2001).

The groups of the crises that have been discussed above also have a close relationship or links with each other’s. For example, the signs of the potential crises can be the operational crises. And sudden crises can be build or blow up because of the operational crises. An organization can be deteriorating because of the operational crises to the point that it can’t cope with a sudden crises.

There are also different types of crises are:

• Crisis of management misconduct
• Technology crises
• Natural disaster
• Financial crises
• Confrontation
• Energy crises

Let’s have a little description of all these types.

Crisis of management misconduct

These types of crisis occur “because of the skewed values and deception but deliberate amorality and illegality” (Barton, 2007, p.2).

Technology crises

These types of crises are caused “by human application of science and technology. We have observed this that most of the time when technology becomes complex and coupled then the technological accidents inevitably occur. Technological crises can also be occurring because of the human error which causes the disruptions” (Borodzicz, 2005, p.5).

Natural disaster

Natural disaster or natural crises considered “as acts of God like earthquakes, volcanic eruptions, flooding, tsunamis that create negative effects on the life, property and on the environment” (Ferdman, 2002, p. 44). Like 2004 Indian ocean earthquake (tsunami).

Financial crises

When major portion of value of an organization’s asset is unexpectedly lost, such situation is named as financial crisis. During 19^th century as well as 20^th many banks faced crisis situation. Crash of Stock market, fluctuations in exchange rate are also the part of financial crises. Because of the financial crises people and companies tend to lose huge monetary amounts.

Confrontation

Sometime “it happens that individuals or groups fight against business , governments and various groups to win their acceptance of their demands and expectations so it create the confrontation crises” (Barton, 2007, p.4). It includes boycotts, sit-ins, disobeying police, and occupation of buildings ultimatums to those in authority (Ferdman, 2002).

Energy crises

Energy crisis occurs because of the shortage of supply of the energy. It is no secret that supply of energy resources is vital to an economy. As we know that the “demand of the energy in the global market is increasing day by day because of the industrial development and population growth and supply of the energy is therefore, far less than the actual demand” (Ferdman, 2002, p.44).

Crisis management

In order to protect the organization from the harm effect of the crises company should have proper crisis management process. Crisis management is basically “the way through which the organization deals with the important events that threatens to harm the organization, its stakeholders, or the general public. There is a difference between the risk management and crisis management. In the risk management companies are basically assessing the potential risks and finding the best way to avoid those risks and to minimize risks, but on the other hand in the crisis management companies are dealing with the threats after they have occurred” (Borodzicz, 2005, p. 5).

It is one of the fields of the management that involves “skills and techniques, expertise to identify, predict, assess and understand the serious situations especially from the moment it first occurs to the point that recovery procedures start” (James and James, 2008, p. 12).

Crisis management is basically the new field of management. It includes the forecasting of the possible crises and planning how to deal with them. For an organization it would be better that a crisis finds them prepared with time and resources prior to the beginning of the crisis.

Crisis management is the over-arching procedure through which the organization provides the suitable leadership, decision making and management of the impact of a crisis (James and James, 2008).

Crisis management process

Crisis management process is a process that includes the guidelines resources, investigation, communication and decision making that go away from a single organizational function.

Conditions that produce a crisis are normally uncontrolled and spontaneous; however steps can be taken to mitigate the effects of the crisis by:

• Predicting area of concern
• Set up the response rules to these perceived concerns
• Take action in a timely and prepared manner.

The process of crisis management has been divided into three different stages

1. Pre crisis stage
2. Crisis response stage
3. Post crisis stage

Pre crisis stage

This phase is all about the prevention and preparation. In this phase the company is looking for to decrease the identified risks that might lead to a crisis. This is the first stage of an organization’s risk management program. It is during this stage that an organization, or a company, prepares the crisis management plan. It is during this stage that the company chooses and trains management team which will deal with the crisis and conducts simulations to test the management plan and crisis management team. Organizations should update their crisis management plan annually in order to have better ability to handle the crises. Organizations should also have excellent and nominated crisis management team.

What is crisis management plan?

Basically speaking the crisis management plan is not even a plan, but a tool managers use to overcome crisis situations. CMP offers important contact information and reminds what should be done in crisis situations. Besides this it contains other significant documents as well. Most of the CMP pre assign some tasks that save too much time. Pre-assigning tasks to a group means “that there is a designated crisis team and that team members should be communicated the tasks and responsibilities they have to perform during the crises” (Davidson, 1999, p. 23).

Crisis management team

As far as crisis management team is concern it must include members from all the departments of the organization. Barton in 2007 said that “crisis management team comprises of people belonging from different departments like legal, operations, finance, public relations and human resource” (2007, p. 5).

However their composition would vary from company to company and from one situation to other. Scholars have stressed on training team members to make decisions in crisis conditions because every decision is different in a crisis. Coombs in 2007 concluded that practice could improve the decision making skills of a team.

Crisis Response

Whatever the management team does and says about a crisis situation after that crisis has hit the organization, “it is called the process of crisis response. In responding to the crisis public relations are very important. They do play a critical role and help develop the messages that are sent to various publics” (Pauly and Hutchison, 2005, p. 4). There are two main components of the crisis response.

1. The early crisis reaction
2. Reputation repairs and behavioral intentions.

Mainly, the initial crisis response guidelines focus around three main areas. These areas, or points, are the following:

• Be swift
• Be precise
• Be unswerving

It is also proved by the research that there is a need of repair the reputational damage a crisis imposes on an organization.

Post- crisis stage

This phase is then the organization returns to business as usual, or at least it thinks to do so. This is the stage where management’s attention on the crisis lowers. They tend to think that the worst is over by now. Nevertheless, during this phase there is much need for a proper follow-up communication situation. In this post crisis stage, a promise should be made by the crisis manager to give further information.

It is time now for the crisis manger and his team to provide additional information regarding the cause and effects of the crisis. The idea behind this is to regain public trust that may have been lost during the crisis. Organizations need “to communicate and update about the recovery process, corrective actions analysis of the whole crisis” (Seeger, Sellnow & Ulmer, 1998, p. 26). It is very necessary that crisis manger must agree that a crisis should be learning experience and there is also requirement of proper evaluation of crisis management process. A crisis should be a learning experience for the team as well as for the organization.

Theories and models associated with crisis management

In order to properly successfully pass through a crisis, the organization and its management team needs to understand adequately the way a crisis should be handled. A good example of this situation is the four phase model of crisis management prepared by Gonzalez-Herrero and Pratt in 1995. This is a model which includes; issues management, planning-prevention, the crisis, and post-crisis.

Business continuity planning

A business continuity plan “can help minimize the commotion, when a crisis will certainly cause a significant commotion to an organization. Before this happens there must be identification of the critical functions and process that are necessary to keep the organization running” (Friedman, 2001, p. 3).

The next logical step is to have a separate contingency plan which addresses each of the critical function. Another requirement is to test each plan separately. This is done in order to be prepared in the event of an actual crisis.

Structural- functional systems theory

In order to have effective crisis management there “should be a proper and efficient structure to provide the information to the organization in the time of crisis. Structural functional systems theory talks about the details information networks along with levels of command making up organizational communication” (James, and James, 2008, p. 36).

Examples of organizations experienced crisis

Johnson & Johnson and Tylenol

Sometime the situation is created which cannot be answerable on the company but the company finds out quickly that it takes an enormous amount of blame if it mishandles the ball in its response.

Crisis need not hit a company merely as a result of its own carelessness or misfortune. This is one of the classical stories of how a company responds to a crisis. In our case it is the Johnson & Johnson response to the Tylenol poisoning.

Story was that in 1982, 35 percent of the US market in painkiller section was captures by the Johnson & Johnson’s Tylenol tablets. This product of the Johnson &Johnson was representing something like 15 percent of the company’s total profit. Precisely at the moment when Tylenol was achieving a good market positioning and share, one person succeeded in lacing the drug with cyanide. Because of this action seven people died and an extensive panic developed about how extensive the infectivity might be. And its result was that everyone knew that Tylenol was linked with the panic. And its result was that market value of the company had reduced by $1 billion that influenced the financial position of the company negatively. The company acted immediately and recalled back its Tylenol product from every outlet. They decide that it is their duty to provide better product protection. Tylenol would not be reestablished on the shelves. Johnson & Johnson created tamperproof covering making it harder for such events to happen again.

Analysis of the crisis

As far as the cost of the above crisis is concern, that was too high. Johnson &Johnson has lost its share price because of this crisis and it has also created the loss in the production and because of the recall the goods was destroyed. But on the other hand the company’s quick and suitable action was also remarkable. Because of that crisis competitors have tried their best to become prominent in the market and capture the market. Because of this fast reaction consumer anxiety, Johnson and Johnson achieved the status of consumer champion. Johnson & Johnson was succeeding to recover the 70% of its market share within the 5 months of the disaster. One of the key victories was that it preserved the long term value of the brand. And as a result many of the customers changed from painkillers to Tylenol.

Learning behind this crisis

The techniques that made Johnson & Johnson management of the crisis in a positive manner included the following:

Company acted very quickly with the complete directness about what had happened and without delay hunted to eliminate any source of danger based on the worst case scenario. They were not waiting for the proof to see whether the infectivity might be more extensive. Johnson & Johnson also wanted to make sure that all the actions that they have taken would prevent and protect themselves as far as possible a reappearance of the problem. They demonstrated that for them consumer safety is essential.

Odwalla and the E-coli outbreak

Odwalla is a juice company that emphasizes a lot on offering health conscious juices. The company started with Greg Steltenpohl, Gerry Percy and Bonnie Bassett offering fresh oranges on a $200 juicer. Company recorded good growth with 30% annual increase. Company was able to create a good brand image in the market and create several loyal customers. However all this changed on 30, October 1996 everything was altered. The State of Washington informed the company about the connection found between the cases of Ecoli 0157:h7 and Odwalla fresh juice. The connection got verified on November 5. There were more than 60 people died in Western US and after sometime people in Canada also got sick after having these juices.

This had a negative effect on the sales of the company and its stock price decreased by 34%. More than 20 personal injury cases were filed. The CEO of the company Stephen Williamson acted fast in recalling those products which contained apple and carrot juice. He apologized for this situation and promised to pay medical costs. This helped the company in improving customer satisfaction level. In order to achieve this CEO was involved in the process of daily interaction and communication with the staff. This enabled him to extract the important and more relevant information and the view points of the employees. In order to show that the company was considerate about the customers, the company launched a special website for the customers so that they can post their complaints and feedbacks over there. Apart from this the spokesperson of the company also communicated through press and media and provided information online. The management of the company ensured that correct information and data is made available for the people. After taking all requires measures for providing correct information and for collecting feedbacks and reviews of the customers and employees, the company started to solve the issue of the contagion. For this purpose the process of ‘flash pasteurization’ was initiated by the company. This process initiated by the company ensured that the harmful bacteria E-coli will be damaged and killed and the juice will be free from any infection. With the help of all these measures the company was able to improve the image and was able to implement the most efficient system of quality control.

Learning behind this crisis

This crisis management approach helped the company in the process of rapid recovery. All these steps and measures ensured that the company is able to retain the trust and confidence of the customers and improve the sales and profits of the business. This case provides good example of crisis management which could be followed and implemented by other companies. Whenever there is any such situation the first step should be to stop the production and supply of the product. The company should also take steps to inform the customers and at the same time should listen to their problems and feedbacks in order to win their confidence. This approach not only helps company in improving the reputation and image but also contributed towards the progress and growth of the business.

Pepsi

The Pepsi Corporation had a similar crisis as the above mentioned in 1993. During that time, syringes were reported to be found in the cans of diet Pepsi. Immediately the company opened an investigation but at that time it didn’t remove these products from the shelves. What they did was to air a video of the whole process of production to the public. This was done in order to demonstrate that such tempering was impossible within their factories.

The other video released showed that the man was arrested. Then another video was released showing a woman was found copying the tampering accident.

So the made public communication throughout the crisis and that was the main tool that Pepsi has adopted to solve the crisis. Then the company had also run the series of the special campaigns to thanks to the public in order to create good image of the company (The Pepsi Product Tampering Scandal of 1993)

Conclusion

Crisis management is all about the preparation, planning and handling of the crisis. But to plan for crises seems to be an inconsistency in itself because how can a company prepare for something that is unidentified? Whenever the crisis actually appears it can be a real life struggle for survival so there is a requirement of the logical and rational manager investments. Crises are unexpected but company should be prepared for different crises because through such situations, company can have critical head start and company act quickly and directly without being surrendered to fear like other non-prepared companies. Companies should include the crisis management in the overall strategic planning of the company.

It is true that it is hard to refine all that is identified about crisis management into one, brief entry. Nevertheless, a company can, and should, try to implement the best practices and lessons of crisis management. It is also true that effective crisis management can “minimize the damages and in some cases allow an organization to come out stronger than before the crisis. And no organization is protected from a crisis so all must do their best to prepare form one” (Seeger et al., 1999, p. 46).

References

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Borodzicz, P. 2005. Risk, Crisis and Security Management. West Sussex, England: John Wiley and Sons Ltd.

Coombs, W. 2007. Ongoing Crisis Communication: Planning, Managing, and Responding (2nd ed.), Thousand Oaks, CA: Sage.

Davidson, M. 1999. The value of being included: An examination of diversity change initiatives in organizations, Performance Improvement Quarterly, vol. 12, no. 1, pp. 164-180.

Davidson, M. 2001. Diversity and inclusion: What difference does it make? Industrial-Organizational Psychologist, vol. 39, no. 2, pp. 36–38.

Davidson, M. 2004. Here and There: A Conversation about Identity, Industrial-Organizational Psychologist, vol. 41, no. 3, pp. 47-53.

Ferdman, B. 2002. Drawing the line: Are some differences too different? Industrial-Organizational Psychologist, vol. 39, no. 3, pp. 43–46.

Friedman, R. 2001. Managing diversity and second-order conflict, Journal of Conflict Management, vol. 12, no. 2, pp. 132-153.

James, E. & James, H. 2008. Toward an Understanding of When Executives See Crisis as Opportunity, Journal of Applied Behavioral Science, Vol. 44, No. 1, pp. 94-115

Pauly, J. Hutchison, L. 2005, Moral fables of public relations practice: The Tylenol and Exxon Valdez cases, Journal of Mass Media Ethics, vol. 20, no. 4, pp. 231–249.

Seeger, M, Sellnow, T & Ulmer, R. 1998, Communication, organization and crisis, Communication Yearbook, vol. 21, pp. 231–275.

The Pepsi Product Tampering Scandal of 1993. Web.