by
Barry Cross
On January 15, 2009, US Airways Flight 1549 took off from New York’s
LaGuardia airport for Charlotte, North Carolina. Shortly after takeoff,
the plane went through a flock of geese at 3,000 feet and both engines
were knocked out. Captain Chesley “Sully” Sullenberger later said that
he felt an “adrenaline rush” right to his core. As his heart rate
increased, he forced himself to ignore the physical symptoms and face
the situation.
Most of us know what happened next. Captain Sullenberger and the crew
were able to guide the crippled Airbus A320 to an emergency landing on
the Hudson River. Despite the fact that “no modern airliner has ever
ditched in water without fatalities”, all 155 passengers
survived. Sullenberger certainly hadn’t landed on water before, yet his
training allowed him to make rational decisions and take appropriate
actions in an extreme situation.
Though many of us have been or eventually will be involved in a
crisis, surprisingly few organizations will be ready with a plan to
manage the crisis. In surveying over 200 managers and executives from
firms in diverse industries, I found that less than one-third could say
that their organization had a crisis management plan. Moreover, very few
of those managers and executives had been formally trained or rehearsed
in how they would handle a crisis situation.
While organizations allot substantial resources to the development
and execution of strategies and operating plans, few of them account for
the management of such high uncertainty in an effective, proactive
manner. Whether through chance or poor execution, many of these plans
de-rail, and the crises that arise lead to lost time, failed innovations
and projects, wasted investment, contentious customer issues, and
potentially, legal quagmires.
The intent of this article is to highlight the benefits of planning
for a crisis. We’ll start with the premise that “stuff’ will happen in
our companies, whether we have a well-thought-out business plan or fly
by the seat of our pants. Acknowledged, well-led organizations tend to
see fewer crises, but situations will arise that demand an immediate,
clear response and a series of activities to prevent the issue from
getting out of hand. Recent examples will highlight some companies that
have reacted well in a crisis, and others, where delayed acknowledgement
and resolution of the issues led to substantial negative press, lost
consumer faith and potential lawsuits. A ten-step plan will provide
readers with effective strategies and tactics to manage and survive a
crisis.
The nature of a crisis
On a two-by-two matrix presented, crisis
situations are what we would categorize as low-probability /
high-consequence events. Typical risk management planning, even if done
effectively, would not focus on these eventualities. Risk mitigation
tactics become too costly and time consuming if we try to manage for all
eventualities. In the end, most crises aren’t predicted, and
organizations are left with the fact that events will occur that are
outside their normal operating scope and that the consequences will be
severe.
While assigning blame for the events will often be clear enough, our
intent here is to focus on resolving the crisis. More important than
identifying the cause of the crisis is that, once detected, it is dealt
with effectively and efficiently. Not long ago, I worked for a company
that supplied General Motors. As my company was emerging from a
particular crisis, a senior supplier development executive from GM told
me, “All companies have problems. We know that. What set you apart in
this situation is how you dealt with the crisis.”
At the time, I could honestly say that our reaction to that crisis
was appropriate, because we had been through too many crises in the
past. As our organization grew and matured, a plan began to take shape
that streamlined our reactions to various situations in our business –
some random, some caused by suppliers’ actions and others by internal,
organizational factors. In this case, we reacted quickly, notified GM
immediately of a potential supply issue, and worked together to prevent a problem in a particular process from becoming a real
supply issue that would impact the production schedule in their
assembly facility 90 minutes from our plant. Yes, we funded significant
expedited freight to GM, getting parts to their line truly just-in-time
in small batches as they came out of our production process, so their
line suffered no disruptions. GM helped by providing us with
hour-by-hour build schedules and some leverage with the logistics
providers, and we worked through it.
Since then, my research focused on various and diverse organizations
(See Research Methodology.) The research spelled out a clear theme –
companies that plan for a crisis have a much better chance of emerging
from that crisis successfully, especially where success is measured by
preserving employee morale, timeliness in problem resolution, and
generating customer enthusiasm. Solid planning protects the integrity
business plans, supply chain management, projects, and service
operations. Great companies display clear, decisive leadership in
challenging situations, leading to reduced stress internally and in the
market place. Conversely, a company without a crisis plan will take
longer to react, have varying results once they do react, lose employees
and customers, and generally spend more funds solving the problem. In
some of these cases, companies do not emerge from the crisis intact.
Two examples, in this case based solely on information published in
the business press, are The Gap and Mattel. The Gap was accused of
employing child labour in the manufacture of certain clothing items.
Within 24 hours, Gap President Marka Hansen had conducted an interview
on CNN, commenting that the incidents involving sweat shops and child
labour were, “deeply disturbing,” effectively presenting the company’s
position4. The Gap’s clothing supplier that had allegedly
recruited the local labour in India was immediately suspended, and key
executives from the clothing chain were on their way to India to
investigate the situation.
As the largest clothing retailer in the United States, The Gap had a
lot to lose. Their reaction to the reports, however, was swift and
unequivocal. They reminded the public of their Code of Conduct that
spelled out the appropriate use of labour and environmental practices,
and that they had fined or fired 23 suppliers in the past year for
violating that Code. Specific to the products in question, seasonal
clothing for the upcoming holidays, The Gap announced that none of that
clothing would be brought to the U.S. and sold, despite the costs
already incurred and resulting loss in revenues. As well, 90 supplier
quality reps from The Gap would be increasing the frequency of their
unannounced visits to subcontractors.
Consumers and industry watchdogs alike in this situation were left
with the impression that the crisis occurred despite the best efforts of
The Gap, and that the retailer reacted appropriately to the
circumstances. Indeed, The Gap’s stock price, as an indicator of public
opinion, did not change materially after the event. Internally, employees remained confident in leadership’s ability to execute in times of need.
Contrast this situation with that of several toy and pet food
companies supplied by manufacturers in Asia over the past year. In the
case of contaminated pet food, the initial problems were reported by
consumers on February 20th, 2007, but responses from the manufacturer,
including a widespread recall, did not happen until March 16th, a lag of
almost a month. The company, it was stated, was more concerned about a
court of law than the court of public opinion. That court of law recently awarded $24 million to owners of dogs and cats that were sickened after eating the pet food.
In August through October 2007, Mattel Inc. announced a series of
recalls for toys produced in China that were suspected of having excess
levels of lead in the paint. Mattel attempted to keep initial recalls
quiet until all the product had been removed from stores. It
wasn’t until September 7, 2007 that the company took out full-page
advertisements in national newspapers proclaiming how seriously they
were taking the incidents. There was a lag of a month
before the company addressed the public. Shares of Mattel Inc. fell
about 20 percent in the three months following the initial events.
The point here isn’t the crisis itself. Indeed, some advocate that these types of problems are “Made in America”,
as competition and the drive to reduce costs force companies to
off-shore products to low-cost countries in search of supply-chain
efficiency. While the use of unvetted suppliers and unclear
supply expectations are significant issues, our focus here is on how the
ensuing crisis was handled. With The Gap, the reaction was prompt and
clear, while the toy and pet food companies procrastinated, looking for
opportunities to salvage a win. In the case of a crisis, however, it’s
about managing the outcome, and less about winning.
Managing outcomes
How a company manages through a crisis cannot be left to chance or
good “management reflexes.” Indeed, entire consulting practices and
advisory groups have been formed in the interest of supporting
companies’ needs in crisis management. In most cases, however, a plan,
sound communication, and employee training will go a long way towards effectively managing the majority of crises.
Consider firefighters, who go through hundreds of hours of training
every year. Firefighters generally acknowledge that training actually
mimics very few real life occurrences. However, the
repeated training does teach the firefighters how to think clearly in a
crisis situation by keeping stress levels low. The firefighters’
experience and training levels help them think rationally, make
decisions in an emergency, and react well to whatever crisis they are
in. In effect, they practice feeling competent, and preserve the ability to make decisions.
The military bases its training exercises on similar principles. The
flight simulator exercises employed by US Airways, other airlines and
the military can’t predict every situation that could develop on the
aircraft, but running pilots through the process in a virtual
environment helps prepare them for real-life emergencies, such as the
one that occurred on Flight 1549.
Effective risk-management planning should account for most
high-probability events and even some low-probability situations when
the investment is justified. Crisis management plans are broad-brush
strategies and tactics to help the firm manage those events without
specific risk management plans or tactics. Some organizations, however,
take things to the next level, and spend significant time and resources
developing plans to deal with worst-case scenarios.
The Kroger Co., the U.S.-based grocery chain, developed a Discreet
Event Simulation program that presents its supply chain as an entity,
and allows it to evaluate what happens if one of its 31 Distribution
Centers(DCs) goes “off-line” due to fire, hurricane, tornado, a labor
strike, or some other event. How well does the rest of the
supply chain react to protect their 2,500 grocery stores? Though the
program was costly (several hundred thousand dollars), Kroger determined
that its supply chain was robust, in that it could take a hit in one of
the distribution centers. With the help of the software, Kroger could
re-route goods from other DCs and maintain delivery to its retail
locations.
GE’s Aircraft Division spent $300 million developing and implementing
its Business Continuity Plan to ensure the delivery of aircraft
engines, components and other industrial goods whenever and wherever
needed. At one point, this included maintaining two Boeing
747s “on-call” to transfer product should no other transport be
available. This may sound extreme, but the products involved included
engine components for F16 fighter jets stationed in the Middle East that
could not afford to be grounded.
Progressive organizations will learn from the crises and build
specific risk management procedures around potentially similar events to
ensure it doesn’t happen again. Crisis Management, on the other hand,
is a broader, generalized plan developed prior to events like this, that
helps the organization react when they do happen. Without the time and
resources to develop risk management plans for every eventuality,
organizations need to build “planned reaction.”
Developing a company’s plan starts by defining what is core to the
business’s strategy and operating plan, and consequently, what needs to
be protected. In some service organizations, it is simply a matter of
training employees in “What if” scenarios that mimic basic customer
problems. Call centers do this all the time. Some manufacturing
companies carry an extra day of finished-goods inventory to protect
against production, quality or shipping issues. Whatever plans a company
makes, however, the true crises are those that happen outside the
best-made plans. Ultimately, a firm will be judged by its customers,
peers and employees on how they react to that crisis.
Below are 10 Steps an organization can take to develop an effective
crisis management plan. (See Figure 2). The core principle is to have a
plan in the first place, communicate that plan, and train your
employees.
Ten steps to crisis management
-
The best defense is a good offence. Establish
guidelines for all key supervisors, managers and executives for Crisis
Prevention, Early Detection and Management. Communicate the fact that
you have a plan and ensure that all parties know their roles. Then,
train employees to execute that plan. Conduct practice runs; simulate a
truck going off the road or a supplier having a labour issue in Mexico.
How do employees react in the case of a simulated illness that keeps a
third of the workforce at home?
-
Tell me now. Communicate quickly, according to
internal guidelines, when something comes up. When in doubt, always have
your people contact the most senior person in the organization who may
be available. Keep in mind that junior employees may be overconfident in
their ability to resolve the situation themselves. In other cases,
employees are less comfortable waking people up in these situations. If
it’s three o’clock in the morning when you get the call, you have a
four-hour jump on the situation compared to your normal arrival time at
seven o’clock.
-
Rally the team. Gather the affected team members,
key decision makers and problem solvers as soon as possible. Have a
pessimist or devil’s advocate or two in the room as well to make sure
people see the worst in the situation while reactions are being crafted,
but keep the team size to a functional 6-8 people and blitz the
problem.
-
Identify and verify the issue. Is the customer
involved? Do we need to inform them? (Generally, the answer is “Yes”).
What about the media? Toyota has a principle in its management
philosophy called, essentially, “Go and See”19. Like The Gap
executives, get someone you trust, or perhaps yourself, on the scene to
witness exactly what is going on. Being able to say, “Yes, I’m there
now, and this is what I see…” is extremely powerful and goes a long way
towards soothing affected parties and facilitating a problem-solving
environment, rather than a hostile one.
-
The truth is easier to remember. The Spin Doctors
will always try to make it sound better, and that may be OK. Stick to
the main thread of the truth, however, as the truth will always come out
eventually. Don’t think it didn’t hurt The Gap to admit that its
sub-contractor violated clear expectations, which basically meant their
Supply Chain Management group had dropped the ball. That issue can be
resolved internally, while untruths aren’t easily forgotten.
-
Appoint a champion. This is one key spokesperson for
any customer, employee or press release. Who this is depends on the
severity of the issue (with The Gap, it was the president). This person
is responsible for any “spin” associated with #5.
-
Isolate and contain the problem. This step could be
anywhere on the list, and is usually carried out concurrently with other
steps. Go further, however, and ensure that upstream and downstream
processes or products are not affected by the crisis, and ensure
unequivocally that no further suspect product is shipped or a sub-par
service is provided. This was not done in the case of the contaminated
pet food or toys with lead paint, as third and fourth recalls occurred
over several months and destroyed any remaining consumer confidence.
-
Fix it. Correct the problem and prove to customers
that the correction is irreversible; this means trying to get the system
to fail or be disrupted by a similar event again. Our friends at GM
called this Irrevocable Corrective Action.
-
Train all team members. Ensure that everyone
understands what went wrong and what was done right. Fine tune detection
and prevention practices if necessary, especially quality guidelines
that suppliers must follow off site. In some cases, (as with GE and
Kroger), actual events can facilitate the tuning of your risk management
plans.
-
Congratulate the team. You’ve worked through a crisis.
In reviewing this plan, you will see that the first two and last two
points are “environmental” steps, activities that embody a proactive
crisis management culture in the firm. Steps 3 through 8 are situation
specific and are tailored by the firm to suit the specific event. Your
Top 10 may differ from this list. As long as you have a process,
however, the firm is well positioned.
In some firms, managers I have talked to apply a theory of “Deny,
deny, deny” in the case of a crisis. They express outrage with the
accusation, or worse yet, fail to acknowledge that there is really a
situation at hand. Crises like that, however, tend to fester and get
worse very quickly. Shortly, the press or lawyers (or both) are
involved, and it becomes like wrestling with a pig – you both get dirty,
but the pig likes it.
Properly managed, however, a crisis enhances morale in your company,
and even customer and public enthusiasm. Also, key team members develop a
bit of a swagger. Consider our final example, Stella Artois, the
European beer company. In 2007, six (6) bottles of beer were suspected
of being tampered with, likely after the beer had been sold by
Stella. The company’s reaction was swift and clear, and full-page ads in
national papers again proclaimed the ‘facts’ to consumers, in most
cases before any had heard of the situation.
It is the nature of business that a crisis will happen at some point.
Projects and innovations increase the level of uncertainty in our
operations, yet it just isn’t possible to account for all the
uncertainty inherent in our risk management. An effective crisis
management plan and preparation will distinguish an organization as a
company that manages well in those situations that do happen,
whether it’s a result of an internal fault or one in the supply chain,
or just plain dumb luck. Forewarned is forearmed.
In Summary,
Top 10 Steps To Crisis Management
- The Best Defense is a Good Offence
- Tell Me Now
- Rally the Team
- Identify and Verify the Issue
- The Truth is Easier to Remember
- Appoint a Champion
- Contain and Isolate the Issue
- Fix it
- Train All Team Members
- Congratulate the Team
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