Crisis Management A Brief Study Management Essay

An individual, an organization, a government, or the global economy at any point of time may face debacles. This may come in any form and can devastate the present circumstances and can lead to difficult situations. Such occurrences are often termed as crisis. It is therefore defined as a major, unpredictable and upsetting event that intimidates to harm. Even though crisis is an unpredictable form of event, but it is not unanticipated.

This report will present a brief overview of crisis associated with the companies that is, organizational crisis will be the main area of study. In addition, this report will also present insights of the modern crisis management techniques adopted by organizations around the world. Furthermore, the report will also throw light on the cases where companies have faced crisis situation and how they dealt and overcame that situation. In this context the company which has been chosen to depict the importance of crisis management and also to reveal how the company surmounted the situation is Nokia. After that, depending upon the findings of the literature study a conclusion will be drawn. Finally some recommendations will be also provided by which will assist companies to address different forms of crisis.

Defining Crisis

Eminent scholars have stressed on the fact that crisis is a threat to organizations, an unexpected element and short periods of risk (Akers, 2007, p.11). It can affect every segments of the social order that include educational institutions, non profits, churches, business, families, government etc. This study will however focus on the issue in the context of an organization. For an organization crisis can be illustrated as an anomalous and uncharacteristic situation or perception, which is beyond the control of an organization and also threatens to impact their operation. Several cases have also pointed out that if a possible crisis is identified at the initial stage, it will have least impact or the impact can be minimized to a large extent. On the other hand if a company fails to determine the possible crisis at the initial stage, it can adversely affect the operation of an organization. Even in some cases, a crisis can also threaten the survival of a business. Hence for them to survive and operate effectively in the market place, superior crisis management techniques and tools should be in place (Fearn-Banks, 2010, p.2).

Defining Crisis Management

Crisis management is simply defined as a systematic effort to circumvent or manage the crisis that an organization may face during its lifetime. The concept of crisis management was initiated during the 1980s, when large number of environmental and industrial disasters took place (Barton, 2007, p.5). In order to manage a crisis effectively an organization should consider a systematic approach towards the improvement process as it is indispensable to safeguard the reputation of company along with its brands. Therefore companies should enlighten their customers about the happening and to some extent is necessary for survival (Khodarahmi, 2009, p.524). Additionally, eminent scholars such as Appelbaum, Keller, Alvarez & Bédard (2012) added that relatively modern concepts such as strategic planning can also be effective in managing organizational crisis to a satisfactory level. The authors also put emphasis on the fact that a number of US corporations are employing this concept to forecast and deal with the issues, threats or problems that are beyond the operating control of the firms.

Discussion

Eminent scholars such as Dinant and Miller have identified seminal researchers in the same field of study. They categorized the study into two major groups namely macro and micro sizes. The primary intention of their study was to offer insights regarding the most committed and active researches in the field of crisis management (Jaques, 2008, p.192-195). Hence based on their study a number of literatures have been consulted to formulate this report.

Several authors also highlight that effective communication plays an imperative role towards managing any form of crisis (White, 2009, p.177-178). For example cases such as oil spill of Exxon Valdez, issues at the Enron Energy Company and the disaster of Space Shuttle Challenger portrayed the importance of communication to get rid of the crisis situations. However not only having effective crisis management team helps an organization to deal with any form perils, it also needs to know the types of crises that may impact the functioning of the organization.

Types of crisis

A company has to deal with different forms of crisis. Some of the major forms of crisis are detailed below:-

Natural Disaster: – It is about the physical demolition of the organization’s assets due to some naturally occurring disasters. For example flood, earthquake and volcanic eruptions etc (Martin, 2012, p.83).

Industrial Accidents: – In this aspect the crisis occurs primarily due to a collapse in construction, release of toxic substance, fire etc.

Product or Service harm crisis: – This type of crisis does not demolish the physical assets of the organization, but impacts on the cognitive aspect of the firm. Some of the examples of product or service failure crisis are equipment failure, system failure and failure in communication (Siomkos, Triantafillidou, Vassilikopoulou & Tsiamis, 2010, p.770).

Capacity: – This type of crisis arises due to some faulty or defective goods. It may have health related issues if not handled properly.

Public Relation: – This is another type of cognitive crisis that an organization faces. In this context the intangible assets of the company are threatened. In addition, this can have direct effect on the brand image and brand value of the company. Apart from that it can also indirectly affect the net sales. The PR crisis occurs primarily because of poor media attention, negative publicity in the media, or it may also arise to the changes in the management of an organization (Pride & Ferrell, 2010, p.412).

Legal Crisis: – A company may face legal crisis due to product liability, health scare or due to any kind of fraud from the employees of the organization.

Business or Corporate Crisis: – This is one of the most common and vital type of crisis that an organization faces. Some of the common causes for this crisis are sudden shortages in demand, competitor launching a new and advanced product, large number of customer switches, strike by the workforce, strike by suppliers and hostile takeover.

Financial Crisis: – One of the major crises that a company some time faces with is the financial crisis. Often companies deal with financial crisis and ultimately losing their position from the market. It is a situation where the company witnesses shortage of fund to properly operate in the market.

Crisis Management: A Business Case

In order to give a real world example, Nokia has been chosen to depict, how actually a company deals and manages crisis. It was during the time of 2005-2006, when the company was charged with defective batteries. The battery that Nokia used to give with the handsets was BL-5C. Customers complained that the battery gets over heated after certain interval of time. Hence it was a product related crisis and can be termed as Product or Service Failure crisis. However, the situation did not remain curtailed to a product failure; it went on to become one of the largest PR crises of all time. The crisis had struck the company in such a way that the company in the subsequent years went on to record low sales. The company has taken early actions to minimize its impact. The strategy adopted by the company was to simply accept the product and replace the defective batteries. The company well understood that if they do not act in this way, their reputation will be strongly affected that may result in negative public relation. The decision of the company to replace all the affected batteries paid off and the company succeeded to a large extent. Although the company initially lost some customers, but later on after the implementation of this strategy Nokia regained the confidence of the customers. The company not only handled the situation effectively, but also displayed how they are prepared for any such occurrences in the future (IBN Live, 2007).

Meanwhile other companies such as Cadbury have also faced similar situation. It was related with a worm. The chocolate packets had worm in it and several complaints came forward for the same issue. The company managed the concern by launching a PR campaign within two weeks of the news outbreak. Celebrity endorsement also played a major role in the survival of the company. The campaigned helped them to regain consumer confidence within 3 months only. This shows how effective crisis management can actually offer quick and effective results to a company (Manning, 2007, p.506).

Facing Crisis

In order to successfully diffuse a crisis, an organization at first, needs to know how to handle that crisis before it actually takes place. Different authors have given different approaches to effectively handle crisis, but among those the most popular theory has been provide by the Gonzalez-Herrero and Pratt in the early 1996. The authors, Gonzalez-Herrero and Pratt have divided crisis management into three stages. The three phases are named as diagnosis of crisis, planning-prevention, and adjusting to changes. The model developed by them to address the issue of crisis management is demonstrated below:

Diagnosis of Crisis: According to the authors the first stage is about determining the early indicators or signs of the crisis. This is an essential task for the managers and executives to sense the warning indications of the crisis. If they are successful in sensing the early signs, it is the duty of the organization to make the employees ready for facing the situation with firm determination and courage.

Planning: The second step associated in this model is about the proper planning towards addressing the crisis. Once the crisis has been identified the next step is to plan how the crisis can be handled. According to the authors, the management team should take immediate action to minimize its effect. Also in order to avoid urgent situations relevant strategies are developed and take quick decision.

Adjusting the Changes: The final step is to get accustomed with the new situation. It is the duty of the employees to get along with the changes for the purpose of making the organization’s function more effective. Also for getting adjusted to the situation properly, it is also important to evaluate the cause that that led the organization to face the crisis. This will prevent the company from doing any mistakes and will foster them to develop new plans and strategies for the future course of action. This phase is also referred to as the post crisis phase (Coombs, 2011, p.10).

Apart from that there is one more method by which companies can effectively handle crisis and is commonly known as corporate crisis management. In this context, the management of the organizations forecasts, identifies, examines and acts immediately upon the issue that led to the crisis. This approach enables organizations to deal with any form of crisis (Heller & Darling, 2012, p.153).

Conclusion

The report was about the importance of crisis management within an organization. In this study the company used for depicting the importance as well as revealing the way a company actually deals with crisis situations is Nokia. The study has reviewed substantial amount of literature or the works completed by earlier scholars in the same field of study. It revealed that an organization may face with different type of crises. It includes Natural Disaster, Industrial Accidents, Product or Service Failure, Capacity, Public Relation, Legal Crisis, Business and Management Crisis and Financial Crisis. Similarly Nokia in this context, also faced product and service related crisis which further turned into PR crisis, but the company has effectively managed the situation. The company has a well prepared crisis management team and also contingency plans. Hence analysing the situation, it can be clearly highlighted that each organization should have a well defined crisis management framework to continue its operations effectively in the market place.

Recommendation

Some of the ways by which a company can effectively manage crisis are as follows:

Issues Management: – No organization in this world would like to face any situation that may harm their operation process or may disrupt the functioning. Especially, organizations do not like face any circumstances that fuel media coverage. This is because any issues that are scrutinized by the public can result into pessimistic and negative legal, financial and political impacts.

Contingency Planning: It is highly recommended that companies around the world must have contingency plans to deal with different kind of crisis situations. Preparing an emergency plan in advance reflects that a company is aptly prepared for crisis. Thus contingency planning is highly essential in crisis management.

Business Continuity Plan: There are situations when, to some extent, organizations will be affected by a crisis. To deal with such scenarios organizations should have business continuity plan. A business continuity plan highly assists organizations to reduce the impact of the crisis. In addition, organization must understand the important elements that run daily operation. Hence, a backup for each element must be in place so that the company functions even during the time of crisis.

The company should continuously train each employee regarding how to deal with crisis situation. The training should not only be about physical crisis that may occur due to some natural calamities, but also training should be given to deal with cognitive factors.