Crisis Management – An Introduction to Dealing with Organisational Crisis

Crisis management is a critical element in an organisation for business continuity. There are various leadership and managerial factors that businesses must take into account. Learn more about it.

It is essential to know the meaning of an organisational crisis, which is an unexpected event that can threaten the reputation or survival of a company if not taken care of at the right time. That’s where crisis management comes in, where decisions are to be made at an apt time, strategically for the future. 

Crisis management is important when effectively preparing for and dealing with a negative event. This preparation helps in reducing the snowballing effect of crises. It can also help organisations even while implementing change. In fact, a business must be cautious of various crises ranging from financial to public relations situations. Companies have dedicated crisis management teams that create suitable plans to deal with them.

COVID-19 is a clear example of an unexpected, unplanned crisis. During the first wave of the pandemic, India saw a centralised lockdown in the beginning, which helped prevent the spread of the virus (Financial Express). Apple stores in China got temporarily shut in ‘the first days of the pandemic’, while Starbucks converted itself into a ‘drive-thru mode’ (Forbes). 

The time of pandemic created an ‘international health crisis’ and an ‘economic downturn’ according to CL Chang et al. It was a critical moment which needed the adoption of the right changes in a very short time both by the society and leaders. There was a need for rethinking appropriate leadership in every country and company.

Let’s try to explore crisis management in some more detail today that has been studied throughout the world of management research. 

What is Crisis Management? 

Crisis management refers to a strategic corporate initiative in an organisation that looks into potential threats or negative events. It is all about being prepared, as a crisis can occur anytime. 

To explore more about crisis management, the nature of crises should be understood further beyond that they are naturally occurring and/or caused by humans. Researchers have further focused on defining crises as

• Being highly ambiguous, unknown, and unexpected (Dutton, Quarentelli, and Hermann)
• Having a low probability of occurrence yet high impact on organisations and their stakeholders (Hermann, Nystrom and Starbuck)
• Offering little time to respond (Pearson and Clair)
• Presenting a challenge for decision making that leads to better or worse results (Augilera)

There is a difference between emergency and crisis to understand, too. An emergency is localised and requires immediate action. A crisis, on the other hand, is unpredictable. It requires planned and coordinated responses that help restore stability. But, managing a crisis means fixing a current problem and looking at long-term consequences so that the future is secure. Handling an emergency is not necessarily about the long term. 

Crisis Management Strategy: A Historical Perspective

The focus on studying crisis management became streamlined in the mid 1980s, according to researchers, Thierry C Pauchant and Ian I Mitroff. They have mentioned that the earlier studies show that while implementing a crisis management program, the main elements are 

• Foresight
• Planning
• Effects

Foresight today involves identifying potential risks and anticipating scenarios that could develop into crises. One could assess risks such as market trends, technological vulnerabilities, operational weaknesses, and even geopolitical shifts.

Planning, more specifically, contingency planning, is the foundation of a crisis management program. It involves creating a structured approach for addressing crises when they occur. Also see Contingency theory of leadership as a concept to explore how crises are managed from a high-level perspective. 

There can be a change in the perception of the public negatively. There can be financial losses, or loss of stakeholder trust. Concerning these after effects of averting crises, the direction should be about identifying areas for improvement, and incorporate lessons learned into future plans.

How Top Level Managers Implement Crisis Management

The authors, Thierry C Pauchant, Ian I Mitroff and Patrick Lagadec, in the Industrial Crisis Quarterly (1991) discuss adopting a ‘systemic perspective’ to managing crisis in an organisation. 

They went as far as to conduct 350 interviews across the United States, Canada, and France with 120 Fortune-1000-like companies. 

According to the authors, the systemic approach can be seen in crisis management by looking at least at one of the five interconnected families mentioned in the table below. 

Families	Crisis Management Strategies
Strategic	1. Drastic changes in corporate philosophy 2. Integration of Crisis Management (CM) into corporate excellence 3. Integration of CM into the strategic planning process 4. Inclusion of outsiders on board, crisis management unit (CMU), etc. 5. Training and workshops in CM 6. Crises simulations 7. Diversification and portfolio strategies
Technical and Structural	8. Creation of a CMU 9. Creation of dedicated budget for CM10. Developing and changing emergency policies and manuals11. Computerized inventories of plants’ employees, products and capabilities12. Creation of an emergency room or facility13. Reduction of hazardous products, services and productions14. Improved overall design and safety of products and production15. Technological redundancy, such as computer backup16. Use of outside expert and services in CM
Evaluation and diagnosis efforts	17. Legal and financial audit of threats and liabilities18. Modifications in insurance coverage19. Environmental impact audit and respect of security norms20. Ranking of most critical activities necessary for daily operation21. Early warning signals detection, scanning, Issues Management22. Dedicated research on potential hidden dangers23. Critical follow-up of past crises
Communication efforts	24. Media training for CM25. Major efforts in public relations26. Increased information to local communities27. Increased relationships with intervening groups (police, media, etc.)28. Increased collaboration or lobbying among stakeholders29. Use of new communication technologies
Psychological and cultural efforts	30. Strong top management commitment to CM31. Increased relationships with activist groups32. Improved acceptance of whistleblowers33. Increased knowledge of criminal behaviour34. Increased visibility of crises’ human impact to employees35. Psychological support to employees36. Stress management and management of anxiety37. Symbolic reminding of past crises and dangers

Adhering to any of the self-explanatory perspectives in the table makes the company or the upper management ‘crisis-prepared’ instead of ‘crisis-prone’.

These authors clearly state that crisis management is not about returning to operations swiftly. Instead, it is an ethical obligation of leaders to their organisations, stakeholders, and the environment. This perspective should be within the corporate philosophy. 

Additionally, you may want to explore the functions of the top level management common to organisations. 

Modern Approach to Make Crisis Management Effective

Over the decades, crisis management started covering important relational aspects of organisational crises. 

Researchers, Pearson and Claire, in the Academy of Management Review describe how psychological, socio-political, and technological-structural aspects should be integrated into the definition and approach of change management. 

According to Pearson and Claire, 

“Crisis management efforts are effective when operations are sustained or resumed (i.e., the organization is able to maintain or regain the momentum of core activities necessary for transforming input to output at levels that satisfy the needs of key customers), organizational and external stakeholder losses are minimized, and learning occurs so that lessons are transferred to future incidents.”

Importance of Crisis Management 

As a scenario, let’s consider you’re the manager of a small yet popular restaurant. One day, a customer falls ill after dining there and claims it’s due to food poisoning. News of the incident spreads quickly on social media. This escalates the situation and concerns among other customers and potential damage to your restaurant’s reputation.

If you have a crisis management plan with a team, you can make a significant difference. Here are a few important steps this team should take to avert the situation in the eyes of the public. 

• The team will use accurate information about the incident and craft a clear, honest, and transparent message to share with the public. Having a pre-established communication strategy ensures that there’s no delay in addressing concerns and starting rumours. For instance, they could implement an immediate review of your restaurant’s hygiene and food safety practices to identify any potential sources of contamination.
• The response has to be adjusted. It is crucial to keep an eye on social media and news outlets to gauge public sentiment and adjust your response accordingly. If necessary, you might temporarily close the restaurant to address the issue and prevent any further cases of illness.

In this example, you can see the team and plan for crisis management could do a couple of things 

• The response time for crisis management implementation was not too long
• The impact could be minimised easily with the right steps that could restore the public opinion
• There was proper coordination and communication between the team so that everything could be solved accordingly and periodically
• The team was already prepared for the unpredictable nature of the crisis
• The solution could resolve the future stability of the restaurant

So, handling of crises by managers and employees reveals an organizational culture of resilience. Based on the outcomes of this above example, crisis management shows to be vital for various reasons. 

Prevents Reputation Damage

One of the most significant after effects of a crisis is reputational damage. Negative media coverage, misinformation, and public perceptions can erode trust and tarnish an organisation’s image. Rebuilding a damaged reputation takes time, consistent efforts, and transparent communication.

Helps in Recovering Financial Losses

Crises often entail financial implications. Loss of revenue, increased expenses (legal fees, crisis management costs), and potential lawsuits can strain an organisation’s financial health. Recovering financially may require careful planning and allocation of resources.

Brings Back Stakeholder Trust 

Stakeholders, including customers, employees, investors, and partners, may lose trust in an organization if they perceive its response to the crisis as inadequate. Rebuilding this trust demands open communication, demonstrating commitment to rectification, and delivering on promises made during the crisis.

Improves Employee Engagement

Employees can be emotionally affected by a crisis, especially if it directly impacts their job security or well-being. Addressing their concerns and providing support is crucial for maintaining morale and productivity.

Brings Positive Change in Public Perception

A crisis can shift public perception of a company. If handled well, an organisation’s response can position it as resilient and responsible. Conversely, poor crisis management can lead to public perception that an organization is negligent or untrustworthy.

Stages of Crisis Management

The crisis management process unfolds through these distinct stages.

Pre-Crisis

Also called the prodormal stage, this phase entails proactive risk assessment and pre-emptive planning. Identifying potential risks and formulating crisis response strategies are central. Organisations anticipate crises and develop comprehensive response plans to minimise damage.

It is important to answer a few questions clearly at this stage. 

• How will you structure your strategy for crisis communication when the need arises for immediate information dissemination? 
• What methods will you employ to maintain consistent contact with your workforce to ensure their safety and well-being? 

Crisis Response

When a crisis hits, immediate actions and effective communication are essential. Swift responses include activating a designated crisis management team. This team coordinates crisis-related tasks and ensures timely communication to stakeholders.

It is important to answer these questions with as much clarity as possible before responding to the crisis situation.

• What constitutes the precise threat or crisis?
• Who are the parties implicated or vulnerable?
• Which course of action, among the response plans, is most fitting for activation?

Recovery

Post-crisis evaluation gauges the impact and guides recovery efforts. Adaptation and restoration strategies are devised to steer the organisation back on track.

Here are some important questions to answer. 

• What measures need to be taken to ensure employees’ well-being and their reintegration into work, considering individual timelines?
• In the aftermath of negative media coverage due to the crisis, how can efforts be focused on rebuilding the organisation’s reputation, particularly by the public relations department?

Best and Worst Examples of Crisis Management

How Johnson & Johnson Managed Crisis Effectively

One of the most well-known examples of crisis management is Johnson & Johnson’s Tylenol incident in 1982 in Chicago. Tylenol capsules were laced with cyanide and that caused seven deaths 

How did the company respond?

The company immediately halted all advertising for its products and sent 450,000 messages to healthcare facilities. Consumers also received safety warnings.

Although the evidence suggested that the harmful substance entered inadvertently through store shelves, the company revealed the truth. The brand took steps to introduce tamper-proof packaging. James Burke, the CEO, later expressed remorse for not promptly transitioning to a more secure caplet after the incident.

How Volkswagen Didn’t Manage Crisis Properly

In 2015, the EPA accused Volkswagen of deliberately violating the Clean Air Act by employing software to manipulate emissions tests. This not only broke the law but also eroded customer trust by presenting its cars as more environmentally friendly.

The company’s reaction exacerbated the situation. Initially, executives denied awareness of the manipulation, later admitting involvement. Additionally, news surfaced that while rectifying vehicles, the company laid off 300,000 employees.

To many, this seemed like Volkswagen was using layoffs to offset scandal losses, impacting unrelated staff. During the investigation, consumers accused the company of intentional deception, compounding the crisis.