Crisis? What Crisis?

Crisis management

Crises are for multinationals, aren’t they? It could never happen to you, could it? If not managed correctly, however, a crisis can spell the end for a company’s brand reputation.

There have been plenty of high-profile crises in the media over the last few months. In the UK we have had the phone hacking scandal and the recent Barclay’s Libor-fixing debacle to name but two. As we watch the media dissect these cases and inform the world of every last detail, it’s hard to imagine ourselves being in such a position. The crises we have seen of late have involved huge, multinational enterprises so if you are a smaller organisation, you could be forgiven for thinking this could never happen to you.

However, all businesses are at risk of crises – they can happen to anyone at any time. If not managed correctly, a crisis can spell the end for a company’s brand reputation. Avoiding a crisis completely is not always possible, so what can you do to limit the damage? And what exactly constitutes a crisis?

Managers perform their roles in environments over which they do not have absolute control. From time to time life throws them a curve ball which causes disruption to their orderly lives. When the disruption is severe, they become exposed to a crisis.

Characteristics of a crisis
Crises can have a serious impact upon the organisation or individual manager. They can arise from external or internal events, but they have a number of common characteristics. They are most often unexpected, their causes are not always obvious, their outcomes tend to be unpredictable, but above all, they require immediate attention—an unattended crisis can lead to disaster.

External events include market shifts, regulative impacts, competitor actions, customer events and economic factors. Internal events include product failure, staff resignations, technical problems, cash shortage and sales failures.

When a crisis arises it has a similar impact to being told that one has a serious disease. Reactions include:

  • Shock – how did this happen?
  • Defensive denial – I don’t believe it!
  • Acknowledgement – so what does it mean?
  • Adaptation and change – so how do I fix it?

These are human reactions that occur in any crisis. The first point is to recognise their existence and the second is to decide how to manage them. The other aspect to recognise is that crises are part and parcel of the life of a manager; they occur with some regularity due to the fact that management is an art not a science.

Behavioural scientists have identified three stages in crisis management:

  • Pre-crisis: the period leading up to the actual crisis. Although most crises are described as being unexpected events there are generally indicative signs that a crisis is looming. Unfortunately these signs are frequently ignored. A useful management technique is to ask the question – ‘if this set of events continues what will be the outcome?’ This is crisis avoidance and is much preferable to crisis management.
  • Crisis: where the pre-crisis signs have been ignored or the event was entirely unpredictable before the crisis stage is reached.
  • Post crisis: the typical post crisis stage is characterised by recrimination. This takes a number of forms ranging from personal acceptance of failure to shedding the blame on others. The important dimension is to ‘learn lessons’ from the crisis and take steps and actions to seek to ensure that it does not occur again.

Some management thinkers maintain that a manager has not fully matured in the job until a crisis has been experienced and coped with.

Managing a crisis
A crisis is often caused by operational failure – quality management, market analysis, poor people management, sales performance or inadequate cash management. Whatever the cause, the first stage of crisis management is impact analysis. I have found it useful to develop three impact scenarios:

  • Direct impact – what it does to my area of responsibility
  • Indirect impact – what it will do to the company
  • Disaster impact – the worst case scenario – if it all goes wrong.

By taking a cold look at the impact in this way, it becomes possible to identify the range of corrective actions needed. Just fixing the direct impact may cause further crises to occur in the future – beware of the ‘quick fix’ approach. The financial crisis we’re still going through now demonstrates what happens when a ‘patch-and-go’ approach is taken – the sacking of Fred Goodwin from RBS for example, kept the public happy for a while, but RBS failed to do anything about the huge pension and reward scheme in operation, leaving the banks vulnerable to greedy fat cats and public outrage.

Following on from this, the effect analysis will help to identify the actions that need to be taken. As an example – I once had a crisis caused by the failure to win a large deal. This would have insulated our profit target for the year. We confidently expected to win the order, but at the last moment, the prospect was acquired by another company and the deal was cancelled.

The impact analysis was about the effect of the loss of revenue, but the effect analysis told a bigger story – without the expected revenue, we could breach our banking facilities and could go bust. I had to cut headcount immediately to avoid this and introduce an austerity programme – I also had to find a replacement opportunity very quickly so there was huge pressure put on the sales team.

Impact identifies what has happened, effect identifies what it means.

Communication and problem resolution
Any major crisis will have a large audience—bad news travels. The immediate and natural response to a crisis is denial, but a better strategy is open and honest recognition of the problem, coupled with a statement about how it will be dealt with.

This is the next step in crisis management – problem resolution. Clearly this will depend upon the nature of the crisis but the key point is to let all involved know that the problem is being addressed and that it has high priority. Attempts at cover-up almost always fail and tend to make the crisis bigger.

The final stage in crisis management is reconciliation. All parties affected by the crisis need to be kept in touch with the resolution actions, along with regular progress reports and action plans. Once the problem has been solved, it is important to let all who have been affected by the crisis know, and inform them that measures have been taken to ensure this doesn’t happen again in future.