Models and theories associated with crisis management

Crisis Management Model

Successfully defusing a crisis requires an understanding of how to handle a crisis – before they occur. Gonzalez-Herrero and Pratt found the different phases of Crisis Management.
There are 3 phases in any Crisis Management are as below
1 The diagnosis of the impending trouble or the danger signals
2. Choosing appropriate Turnaround Strategy
3 Implementation of the change process and its monitoring.

] Management Crisis Planning

No corporation looks forward to facing a situation that causes a significant disruption to their business, especially one that stimulates extensive media coverage. Public scrutiny can result in a negative financial, political, legal and government impact. Crisis management planning deals with providing the best response to a crisis.^[10]

Contingency planning

Preparing contingency plans in advance, as part of a crisis management plan, is the first step to ensuring an organization is appropriately prepared for a crisis. Crisis management teams can rehearse a crisis plan by developing a simulated scenario to use as a drill. The plan should clearly stipulate that the only people to speak publicly about the crisis are the designated persons, such as the company spokesperson or crisis team members. The first hours after a crisis breaks are the most crucial, so working with speed and efficiency is important, and the plan should indicate how quickly each function should be performed. When preparing to offer a statement externally as well as internally, information should be accurate. Providing incorrect or manipulated information has a tendency to backfire and will greatly exacerbate the situation. The contingency plan should contain information and guidance that will help decision makers to consider not only the short-term consequences, but the long-term effects of every decision.^[10]

] Business continuity planning

When a crisis will undoubtedly cause a significant disruption to an organization, a business continuity plan can help minimize the disruption. First, one must identify the critical functions and processes that are necessary to keep the organization running. Then each critical function and or/process must have its own contingency plan in the event that one of the functions/processes ceases or fails. Testing these contingency plans by rehearsing the required actions in a simulation will allow for all involved to become more sensitive and aware of the possibility of a crisisis. As a result, in the event of an actual crisis, the team members will act more quickly and effectively.^[10]

Structural-functional systems theory

Providing information to an organization in a time of crisis is critical to effective crisis management. Structural-functional systems theory addresses the intricacies of information networks and levels of command making up organizational communication. The structural-functional theory identifies information flow in organizations as "networks" made up of members and "links". Information in organizations flow in patterns called networks.^[11]

Diffusion of innovation theory

Another theory that can be applied to the sharing of information is Diffusion of Innovation Theory. Developed by Everett Rogers, the theory describes how innovation is disseminated and communicated through certain channels over a period of time. Diffusion of innovation in communication occurs when an individual communicates a new idea to one or several others. At its most elementary form, the process involves: (1) an innovation, (2) an individual or other unit of adoption that has knowledge of or experience with using the innovation, (3) another individual or other unit that does not yet have knowledge of the innovation, and (4) a communication channel connecting the two units. A communication channel is the means by which messages get from one individual to another.

Role of apologies in crisis management

There has been debate about the role of apologies in crisis management, and some argue that apology opens an organization up for possible legal consequences. "However some evidence indicates that compensation and sympathy, two less expensive strategies, are as effective as an apology in shaping people’s perceptions of the organization taking responsibility for the crisis because these strategies focus on the victims’ needs. The sympathy response expresses concern for victims while compensation offers victims something to offset the suffering."^[12]

Crisis leadership

James identifies six leadership competencies which facilitate organizational restructuring during and after a crisis.

1. Building an environment of trust
2. Reforming the organization’s mindset
3. Identifying obvious and obscure vulnerabilities of the organization
4. Making wise and rapid decisions as well as taking courageous action
5. Learning from crisis to effect change.

Crisis leadership research concludes that leadership action in crisis reflects the competency of an organization, because the test of crisis demonstrates how well the institution’s leadership structure serves the organization’s goals and withstands crisis. ^[8] Developing effective human resources is vital when building organizational capabilities through crisis management executive leadership.^[13]

Unequal human capital theory

James postulates that organizational crisis can result from discrimination lawsuits. ^[14] James’s theory of unequal human capital and social position derives from economic theories of human and social capital concluding that minority employees receive fewer organizational rewards than those with access to executive management. In a recent study of managers in a Fortune 500 company, race was found to be a predictor of promotion opportunity or lack thereof.^[15] Thus, discrimination lawsuits can invite negative stakeholder reaction, damage the company's reputation, and threaten corporate survival.

Examples of successful crisis management

Tylenol (Johnson and Johnson)

In the fall of 1982, a murderer added 65 milligrams of cyanide to some Tylenol capsules on store shelves, killing seven people, including three in one family. Johnson & Johnson recalled and destroyed 31 million capsules at a cost of $100 million. The affable CEO, James Burke, appeared in television ads and at news conferences informing consumers of the company's actions. Tamper-resistant packaging was rapidly introduced, and Tylenol sales swiftly bounced back to near pre-crisis levels.^[16]
When another bottle of tainted Tylenol was discovered in a store, it took only a matter of minutes for the manufacturer to issue a nationwide warning that people should not use the medication in its capsule form.^[17]

Odwalla Foods

When Odwalla's apple juice was thought to be the cause of an outbreak of E. coli infection, the company lost a third of its market value. In October 1996, an outbreak of E. coli bacteria in Washington state, California, Colorado and British Columbia was traced to unpasteurized apple juice manufactured by natural juice maker Odwalla Inc. Forty-nine cases were reported, including the death of a small child. Within 24 hours, Odwalla conferred with the FDA and Washington state health officials; established a schedule of daily press briefings; sent out press releases which announced the recall; expressed remorse, concern and apology, and took responsibility for anyone harmed by their products; detailed symptoms of E. coli poisoning; and explained what consumers should do with any affected products. Odwalla then developed - through the help of consultants - effective thermal processes that would not harm the products' flavors when production resumed. All of these steps were communicated through close relations with the media and through full-page newspaper ads.^[18]

Mattel

Mattel Inc., the toy maker, has been plagued with more than 28 product recalls and in Summer of 2007, amongst problems with exports from China, faced two product recall in two weeks. The company "did everything it could to get its message out, earning high marks from consumers and retailers. Though upset by the situation, they were appreciative of the company's response. At Mattel, just after the 7 a.m. recall announcement by federal officials, a public relations staff of 16 was set to call reporters at the 40 biggest media outlets. They told each to check their e-mail for a news release outlining the recalls, invited them to a teleconference call with executives and scheduled TV appearances or phone conversations with Mattel's chief executive. The Mattel CEO Robert Eckert did 14 TV interviews on a Tuesday in August and about 20 calls with individual reporters. By the week's end, Mattel had responded to more than 300 media inquiries in the U.S. alone."^[19]

 Pepsi

The Pepsi Corporation faced a crisis in 1993 which started with claims of syringes being found in cans of diet Pepsi. Pepsi urged stores not to remove the product from shelves while it had the cans and the situation investigated. This led to an arrest, which Pepsi made public and then followed with their first video news release, showing the production process to demonstrate that such tampering was impossible within their factories. A second video news release displayed the man arrested. A third video news release showed surveillance from a convenience store where a woman was caught replicating the tampering incident. The company simultaneously publicly worked with the FDA during the crisis. The corporation was completely open with the public throughout, and every employee of Pepsi was kept aware of the details.^{[citation needed]} This made public communications effective throughout the crisis. After the crisis had been resolved, the corporation ran a series of special campaigns designed to thank the public for standing by the corporation, along with coupons for further compensation. This case served as a design for how to handle other crisis situations.^{[20][citation needed]}

Examples of unsuccessful crisis management

Bhopal

The Bhopal disaster in which poor communication before, during, and after the crisis cost thousands of lives, illustrates the importance of incorporating cross-cultural communication in crisis management plans. According to American University’s Trade Environmental Database Case Studies (1997), local residents were not sure how to react to warnings of potential threats from the Union Carbide plant. Operating manuals printed only in English is an extreme example of mismanagement but indicative of systemic barriers to information diffusion. According to Union Carbide’s own chronology of the incident (2006), a day after the crisis Union Carbide’s upper management arrived in India but was unable to assist in the relief efforts because they were placed under house arrest by the Indian government. Symbolic intervention can be counter productive; a crisis management strategy can help upper management make more calculated decisions in how they should respond to disaster scenarios. The Bhopal incident illustrates the difficulty in consistently applying management standards to multi-national operations and the blame shifting that often results from the lack of a clear management plan.^[21]

Ford and Firestone Tire and Rubber Company

The Ford-Firestone Tire and Rubber Company dispute transpired in August 2000. In response to claims that their 15-inch Wilderness AT, radial ATX and ATX II tire treads were separating from the tire core—leading to grisly, spectacular crashes—Bridgestone/Firestone recalled 6.5 million tires. These tires were mostly used on the Ford Explorer, the world's top-selling sport utility vehicle (SUV).^[22]
The two companies committed three major blunders early on, say crisis experts. First, they blamed consumers for not inflating their tires properly. Then they blamed each other for faulty tires and faulty vehicle design. Then they said very little about what they were doing to solve a problem that had caused more than 100 deaths—until they got called to Washington to testify before Congress.^[23]

Exxon

On March 24, 1989, a tanker belonging to the Exxon Corporation ran aground in the Prince William Sound in Alaska. The Exxon Valdez spilled millions of gallons of crude oil into the waters off Valdez, killing thousands of fish, fowl, and sea otters. Hundreds of miles of coastline were polluted and salmon spawning runs disrupted; numerous fishermen, especially Native Americans, lost their livelihoods. Exxon, by contrast, did not react quickly in terms of dealing with the media and the public; the CEO, Lawrence Rawl, did not become an active part of the public relations effort and actually shunned public involvement; the company had neither a communication plan nor a communication team in place to handle the event—in fact, the company did not appoint a public relations manager to its management team until 1993, 4 years after the incident; Exxon established its media center in Valdez, a location too small and too remote to handle the onslaught of media attention; and the company acted defensively in its response to its publics, even laying blame, at times, on other groups such as the Coast Guard. These responses also happened within days of the incident.^[24]

Lessons learned in crisis management

Impact of catastrophes on shareholder value

One of the foremost recognized studies conducted on the impact of a catastrophe on the stock value of an organization was completed by Dr Rory Knight and Dr Deborah Pretty (1995, Templeton College, University of Oxford - commissioned by the Sedgewick Group). This study undertook a detailed analysis of the stock price (post impact) of organizations that had experienced catastrophes. The study identified organizations that recovered and even exceeded pre-catastrophe stock price, (Recoverers), and those that did not recover on stock price, (Non-recoverers). The average cumulative impact on shareholder value for the recoverers was 5% plus on their original stock value. So the net impact on shareholder value by this stage was actually positive. The non-recoverers remained more or less unchanged between days 5 and 50 after the catastrophe, but suffered a net negative cumulative impact of almost 15% on their stock price up to one year afterwards.
One of the key conclusions of this study is that "Effective management of the consequences of catastrophes would appear to be a more significant factor than whether catastrophe insurance hedges the economic impact of the catastrophe".
While there are technical elements to this report it is highly recommended to those who wish to engage their senior management in the value of crisis management.^{[citation needed]}

Crisis as Opportunity

To address such shareholder impact, management must move from a mindset that manages crisis to one that generates crisis leadership. ^[6] Research shows that organizational contributory factors affect the tendency of executives to adopt an effective "crisis as opportunity" mindset. ^[25] Since pressure is both a precipitator and consequence of crisis, leaders who perform well under pressure can effectively guide the organization through such crisis. ^[26]
James contends that most executives focus on communications and public relations as a reactive strategy. While the company’s reputation with shareholders, financial well-being, and survival are all at stake, potential damage to reputation can result from the actual management of the crisis issue.^[6] Additionally, companies may stagnate as their risk management group identifies whether a crisis is sufficiently “statistically significant”. ^[27] Crisis leadership, on the other hand, immediately addresses both the damage and implications for the company’s present and future conditions, as well as opportunities for improvement. ^[8]

Public sector crisis management

Corporate America is not the only community that is vulnerable to the perils of a crisis. Whether a school shooting, a public health crisis or a terrorist attack that leaves the public seeking comfort in the calm, steady leadership of an elected official, no sector of society is immune to crisis. In response to that reality, crisis management policies, strategies and practices have been developed and adapted across multiple disciplines.

Schools and crisis management

In the wake of the Columbine High School Massacre, the September 11 attacks in 2001, and shootings on college campuses including the Virginia Tech massacre, educational institutions at all levels are now focused on crisis management.^[28]
A national study conducted by the University of Arkansas for Medical Sciences (UAMS) and Arkansas Children’s Hospital Research Institute (ACHRI) has shown that many public school districts have important deficiencies in their emergency and disaster plans (The School Violence Resource Center, 2003). In response the Resource Center has organized a comprehensive set of resources to aid schools is the development of crisis management plans.^{[citation needed]}
Crisis management plans cover a wide variety of incidents including bomb threats, child abuse, natural disasters, suicide, drug abuse and gang activities – just to list a few.^[29] In a similar fashion the plans aim to address all audiences in need of information including parents, the media and law enforcement officials.^[30]

Government and crisis management

Historically, government at all levels – local, state, and national – has played a large role in crisis management. Indeed, many political philosophers have considered this to be one of the primary roles of government. Emergency services, such as fire and police departments at the local level, and the United States National Guard at the federal level, often play integral roles in crisis situations.
To help coordinate communication during the response phase of a crisis, the U.S. Federal Emergency Management Agency (FEMA) within the Department of Homeland Security administers the National Response Plan (NRP). This plan is intended to integrate public and private response by providing a common language and outlining a chain-of-command when multiple parties are mobilized. It is based on the premise that incidences should be handled at the lowest organizational level possible. The NRP recognizes the private sector as a key partner in domestic incident management, particularly in the area of critical infrastructure protection and restoration.^[31]
The NRP is a companion to the National Incidence Management System that acts as a more general template for incident management regardless of cause, size, or complexity.^[31]
FEMA offers free web-based training on the National Response Plan through the Emergency Management Institute.^[32]
Common Alerting Protocol (CAP) is a relatively recent mechanism that facilitates crisis communication across different mediums and systems. CAP helps create a consistent emergency alert format to reach geographically and linguistically diverse audiences through both audio and visual mediums.^{[citation needed]}

Elected officials and crisis management

Historically, politics and crisis go hand-in-hand. In describing crisis, President Abraham Lincoln said, “We live in the midst of alarms, anxiety beclouds the future; we expect some new disaster with each newspaper we read.”^{[citation needed]}
Crisis management has become a defining feature of contemporary governance. In times of crisis, communities and members of organizations expect their public leaders to minimize the impact of the crisis at hand, while critics and bureaucratic competitors try to seize the moment to blame incumbent rulers and their policies. In this extreme environment, policy makers must somehow establish a sense of normality, and foster collective learning from the crisis experience.^[33]
In the face of crisis, leaders must deal with the strategic challenges they face, the political risks and opportunities they encounter, the errors they make, the pitfalls they need to avoid, and the paths away from crisis they may pursue. The necessity for management is even more significant with the advent of a 24-hour news cycle and an increasingly internet-savvy audience with ever-changing technology at its fingertips.^[33]
Public leaders have a special responsibility to help safeguard society from the adverse consequences of crisis. Experts in crisis management note that leaders who take this responsibility seriously would have to concern themselves with all crisis phases: the incubation stage, the onset, and the aftermath. Crisis leadership then involves five critical tasks: sense making, decision making, meaning making, terminating, and learning.^[33]
A brief description of the five facets of crisis leadership includes:^[34]

1. Sense making may be considered as the classical situation assessment step in decision making.
2. Decision making is both the act of coming to a decision as the implementation of that decision.
3. Meaning making refers to crisis management as political communication.
4. Terminating a crisis is only possible if the public leader correctly handles the accountability question.
5. Learning, refers to the actual learning from a crisis is limited. The authors note, a crisis often opens a window of opportunity for reform for better or for worse.

Professional Organizations

There are a number of professional industry associations that provide advice, literature and contacts to turnaround professionals and academics. Some are:
1. Turnaround Management Society (International / Focus on Europe)
2. Institute for Turnaround (England)
3. Turnaround Management Association (International)
4. Institut für die Standardisierung von Unternehmenssanierungen (Germany)

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References

1. ^ Seeger, M. W.; Sellnow, T. L., & Ulmer, R. R. (1998). "Communication, organization and crisis". Communication Yearbook 21: 231–275. 
2. ^ Venette, S. J. (2003). Risk communication in a High Reliability Organization: APHIS PPQ's inclusion of risk in decision making. Ann Arbor, MI: UMI Proquest Information and Learning.
3. ^ "Incident or crisis? Why the debate?". http://www.continuitycentral.com/feature0447.htm. 
4. ^ ^{a b c d e f g h i} Coombs, W. T. (1999). Ongoing crisis communication: Planning, managing, and responding. Thousand Oaks, CA: Sage. 
5. ^ ^{a b c d e} Lerbinger, O. (1997). The crisis manager: Facing risk and responsibility. Mahwah, NJ: Erlbaum. 
6. ^ ^{a b c} "Crisis Leadership". http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1281843&rec=1&srcabs=224055. Retrieved 2010-06-22. 
7. ^ James, E. (Spring 2007). "Leadership as (Un)usual: How to Display Competence InTimes of Crisis". Leadership Preview. http://www.leadershipreview.org/2007spring/Article4.pdf. Retrieved 2010-06-22. 
8. ^ ^{a b c d} James, E. (Spring 2007). "Leadership as (Un)usual: How to Display Competence In Times of Crisis". Leadership Preview. http://www.leadershipreview.org/2007spring/Article4.pdf. Retrieved 2010-06-22. 
9. ^ James, Erika; Roberts, J (2009). "In the wake of the financial crisis: rebuilding the image of the finance industry through trust". Journal of Financial Transformation 125 (2): 601–7. PMID RePEc:ris:jofitr:1382. PMC 236121. http://econpapers.repec.org/article/risjofitr/1382.htm. Retrieved 2010-06-22. 
10. ^ ^{a b c} "Rigor and Relevance in Management". 12Manage.com. http://www.12manage.com/methods_crisis_management_advice.html. Retrieved 2007-10-11. 
11. ^ Infante, D.; Rancer, A., & Womack, D. (1997). Building communication theory (3rd ed.). Prospect Heights, IL: Waveland Press. 
12. ^ Coombs, W. T. (2007). Ongoing Crisis Communication: Planning, Managing, and Responding (2nd ed.). Thousand Oaks, CA: Sage.