What is Crisis?
I owe him 2 million Dollars and I only have 1 million dollars in my bank. No one will advance me any money and I need to pay him tomorrow. I don’t have the rest of the money in my hands but I do have something else. I have a crisis. Everyone faces a crisis once or more in their lifetime. It may economic or psychological hidden but devastating. These crisis can pose great threat to our person, mind reputation and more. Like humans businesses also faces crisis during their existence and it is imperative that both humans and businesses effectively manage those.
Crisis refers to an unexpected unplanned situation or rather threat that suddenly dawns upon from a business out of nowhere. It means an event that threatens the very stability of a business. The process by which such events or threats are effectively managed and dealt with is known as Crisis Management. A crisis implies a situation where time is short and an effective decision has to be taken immediate. The crisis perpetuates a sense of a lack of control throughout the business worsening the whole situation. Thus crisis management needs to be rapid and effective with the required flexibility to the plans made to meet further shocks. It requires the ability to lead the business out of the unfavorable situation by motivating and inspiring the employees.
A crisis may be described as shortly as ‘a time of intense difficulty or danger’. Crisis can be critical and may even completely knock down the business. From a business perspective, a crisis usually impacts sales and business reputation. A very recent example is the battery issue of Samsung Galaxy Note 7, wherein the batteries started exploding while in the use.
Three elements generally represent primary attributed to a crisis: (i) threat to the organization, (ii) the element of surprise, and (iii) a short decision time.
Crisis management is the process through which an organization tackles an unfavorable event that negatively affects the organization, its stakeholders, or the general public. It consists of following steps:
Establishing metrics to predict the particular situations may cause a crisis and mechanism of automatically triggering the necessary responses.
Communication is another important aspect and quick communication is usually considered a superior way of tackling the crisis. The integrity and character of organizations are dependent on the perception of their responses during the crisis. Well thought out and uniform communication throughout the hierarchy are a support to the successful crisis management process.
Types of Crisis
Crisis are of different types and nature and imply different responses and thereby different means of its management. The following are the major types of Crisis:
Financial Crisis occurs when the business is hit with the crisis financially. An example of a financial crisis is a business not having funds to pay its dues such as paying dividends, interests, making repayments of loans etc. Such crisis arises when the business incurs losses over considerable periods of time or when due to lack of accountability loses consumers’ trust among other situations. This crisis is handled by mobilizing requisite funds as a short term solution and in taking major financial decisions such as restructuring, changing business operations etc as long term solutions.
Technological crisis occurs as a result of break downs in the common scientific and technological tools and appliances that we use in a business. If the servers of Facebook gets overloaded and all the user accounts and details are thereby deleted then such a crisis will be a technological crisis.
Common technological crisis includes software failure, industrial accidents etc. The usual means of management would include primarily mitigating the losses and stopping the effects of the failure from affecting more people or elements. The next step would include trying to gain back what was corrupted or lost with the help of experts in the field and would also involve finding the source and reason of the crisis.
Crisis of Malevolence
All businesses compete with each other. But some competitors take such extreme steps that they in fact try to go below the belt and ruin the other business for their own success. Crisis that happens as a result of the extreme tactics employed by a competitor or a miscreant to ruin the business is known as a crisis of malevolence.
These crisis include those which are created by hacking into a company’s server, tampering with their products etc. The measures includes finding the source and minimizing the damage as soon as possible with identifying who perpetrated the crisis.
Natural Crisis refers to those that are created as a direct result of a natural event such as volcano or earthquake etc. These crisis are completely out of a management’s hands and cannot be prevented unlike the other crisis. The crisis management steps include evacuating the area and taking mitigating actions as precautions such as building Earthquake resistant building, preparing evacuation plans etc before hand.
Crisis of Organisational Misdeeds
Crisis of Organisational Misdeeds includes Crisis of Deception, Crisis of Skewed Management Values and Crisis of Management Misconduct.
Crisis of deception is the result of concealment of material information from the management or the consumers by the management. This is done so as to achieve illicit gains out of the business and earn undue wealth. Such concealment often causes huge amounts of losses to parties from whom such facts are concealed. The steps of crisis management includes relaying the information to the relevant parties, understanding how much has gone wrong and commencing activities to mitigate the losses etc.
Crisis of Skewed management values are created when short term economic gains are sought by neglecting social values, stake holders and investors. It arises when the business gives more importance to revenue over its functioning and its commitment to customers or employees or to the world. These can be resolved by changing the policies of the business and by embracing what it really should.
Crisis of Management misconduct are a result of illegal activities taken by the management for achieving its ends or achieving the personal ends of those in power.
These are the different types of crisis that a business could under normal circumstances encounter. All these crisis have different approaches for containing and tackling them and it is imperative that such measures are taken without a moment’s hesitation to ensure the continued existence and survival of the business. Crisis management is a skill and requires personal qualities to be carried out efficiently.
Example of Successful Crisis Management
In 1993, many people claimed of finding syringes in cans of diet Pepsi. Pepsi investigated the situation, leading to an arrest, which Pepsi communicated publicly. This was followed by their first video news release, clearly showcasing the production process to demonstrate that such incident cannot happen within their factory premises. A second news release showed the guilty arrested. A third video displayed surveillance footage from a convenience store where a woman was caught inserting a syringe into a can. The company also publicly worked with the FDA during this crisis, to come out clean. Even after the resolution of the crisis, the corporation thanked the public for standing by the corporation.
Unsuccessful Story of Crisis Management
Bhopal Gas Tragedy
The Bhopal gas tragedy 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. Local workers and residents of Bhopal could not understand warnings of potential threats from the Union Carbide plant installed by an American organization, Union Carbide. Operating manuals were also printed only in English. As claimed by Union Carbide, a day after the crisis Union Carbide’s upper management arrived in India but they were house arrested by the Indian government and were unable to contribute to the relief efforts. More than 2,250 people were killed in the crisis.
Image credit: geralt
Latest posts by Management Study HQ (see all)
- Features, Importance and Limitations of Planning - May 17, 2018
- Expectancy Theory of Motivation - May 16, 2018
- The Boston Consulting Group Matrix and It’s Limitations (BCG) - May 2, 2018