Crisis management
Crisis management is the process by which an organization deals with a disruptive and unexpected event that threatens to harm the organization or its stakeholders.[1] The study of crisis management originated with large-scale industrial and environmental disasters in the 1980s.[2][3] It is considered to be the most important process in public relations.[3]
Three elements are common to a crisis: (a) a threat to the organization, (b) the element of surprise, and (c) a short decision time.[4] Venette argues that "crisis is a process of transformation where the old system can no longer be maintained".[5] Therefore, the fourth defining quality is the need for change. If change is not needed, the event could more accurately be described as a failure or incident.
In contrast to risk management, which involves assessing potential threats and finding the best ways to avoid those threats, crisis management involves dealing with threats before, during, and after they have occurred. It is a discipline within the broader context of management consisting of skills and techniques required to identify, assess, understand, and cope with a serious situation, especially from the moment it first occurs to the point that recovery procedures start.
Crisis management is a situation-based management system that includes clear roles and responsibilities and processes related organizational requirements company-wide. The response shall include action in the following areas: crisis prevention, crisis assessment, crisis handling, and crisis termination. The aim of crisis management is to be well prepared for crisis, ensure a rapid and adequate response to the crisis, maintaining clear lines of reporting and communication in the event of crisis and agreeing rules for crisis termination.
The techniques of crisis management include a number of consequent steps from the understanding of the influence of the crisis on the corporation to preventing, alleviating, and overcoming the different types of crisis. Crisis management consists of different aspects including:
Crisis-management methods of a business or an organization are called a crisis-management plan. A British Standard BS11200:2014 provides a useful foundation for understanding terminology and frameworks relating to crisis, in this document the focus is on the corporate exposure to risks in particular to the black swan events that result in significant strategic threats to organizations. Currently there is work on-going to develop an International standard.
Crisis management is occasionally referred to as incident management, although several industry specialists such as Peter Power argue that the term "crisis management" is more accurate.[6]
A crises mindset requires the ability to think of the worst-case scenario while simultaneously suggesting numerous solutions. Trial and error is an accepted discipline, as the first line of defense might not work. It is necessary to maintain a list of contingency plans and to be always on alert. Organizations and individuals should always be prepared with a rapid response plan to emergencies which would require analysis, drills and exercises.[7]
The credibility and reputation of organizations is heavily influenced by the perception of their responses during crisis situations. The organization and communication involved in responding to a crisis in a timely fashion makes for a challenge in businesses. There must be open and consistent communication throughout the hierarchy to contribute to a successful crisis-communication process.
The related terms emergency management and business continuity management focus respectively on the prompt but short lived "first aid" type of response (e.g. putting the fire out) and the longer-term recovery and restoration phases (e.g. moving operations to another site). Crisis is also a facet of risk management, although it is probably untrue to say that crisis management represents a failure of risk management, since it will never be possible to totally mitigate the chances of catastrophes' occurring.
Models and theories associated with crisis management[edit]
Crisis management strategy[edit]
Crisis management strategy (CMS)[15] is corporate development strategy designed primarily to prevent crisis for follow-up company advancement. Thus, CMS is synthesis of strategic management. It includes projection of the future based on ongoing monitoring of business internal and external environment, as well as selection and implementation of crisis prevention strategy and operating management. This is including current status control based on ongoing monitoring of the internal and external environment, as well as crisis-coping strategy selection and implementation.
Crisis management model[edit]
Successfully managing a crisis requires an understanding of how to handle a crisis – beginning with before they occur. Alan Hilburg speaks about a crisis arc. The arc consists of crisis avoidance, crisis mitigation and crisis recovery. Gonzalez-Herrero and Pratt found the different phases of Crisis Management.
There are 3 phases in any crisis management as shown below
Lessons learned in crisis management[edit]
[edit]
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 (1996, 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.[41]
Crisis as opportunity[edit]
Hilburg proffers that every crisis is an opportunity to showcase an institution's character, its commitment to its brand promise and its institutional values. To address such shareholder impact, management must move from a mindset that manages crisis to one that generates crisis leadership.
[11] Research shows that organizational contributory factors affect the tendency of executives to adopt an effective "crisis as opportunity" mindset.[42] Since pressure is both a precipitator and consequence of crisis, leaders who perform well under pressure can effectively guide the organization through such crisis.
[43]
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.[11] Additionally, companies may stagnate as their risk management group identifies whether a crisis is sufficiently "statistically significant".
[44]
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.
[12]
Professional organizations[edit]
There are a number of professional industry associations that provide advice, literature and contacts to turnaround professionals and academics.
Some are:
1. International Association of Emergency Managers (International)
2. Turnaround Management Society (International / Focus on Europe)
3. Institute for Turnaround (England)
4. Turnaround Management Association (International)
5. Institut für die Standardisierung von Unternehmenssanierungen (Germany)
6. Disaster Recovery Institute (International)