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Managing Crisis Situations: No Company is Immune - How to Deal with Disaster

Companies should create detailed plans and guidelines to handle worst-case business crises, but disaster planning is the ultimate key.

Spring 2011
The recent earthquake and tsunami that devastated Japan remind all corporate executives that crisis management programs are crucial to their operations - and possibly their survival. A major crisis can severely impact your operation; damage relations with customers, suppliers, and the public; and even drive you out of business.

Crises can take many forms. Natural disasters, as in Japan, often receive intense news coverage. But other crises can also take a toll on your company. Industrial accidents, a devastating fire, financial disruption, management scandal, government intervention, labor strife, white-collar crime, physical accidents like explosions and chemical spills, and workplace violence can cripple your business.

"Any manager who thinks his or her company is immune from a crisis situation is only fooling themselves and putting their company in jeopardy," says Larry Smith, president of the Institute for Crisis Management (ICM).

"While most crisis situations appear random and sudden, it's the failure to recognize potential problem situations and accept their probability that puts companies of all sizes in jeopardy," he says. "Two-thirds of all business crises are what I call `smoldering crises,' the kind of issues and problems that start out small and could be spotted and fixed before they get large and out of control. You can plan, prepare, and minimize."

Crisis management events created by outside forces only account for 19 percent of the total, according to ICM's 2010 Annual Crisis Management Survey, while executive and management account for more than half of crisis situations, and employees the remaining 30 percent. "Companies must take a proactive stance and use forward-thinking crisis management planning as a positive tool to manage their business and lessen the impact of crisis situations. Companies need three crisis management plans: operational, communications, and continuity/recovery to return to normal operations," Smith says.

Setting Out
When establishing an effective crisis management program, first thoroughly review your business and operations to determine crisis risks particular to your company. For example, what risks are associated with your location, type of operation, and supplier base?

"Recognize that you may not have the expertise in-house to establish your crisis management program," says Andy O'Hearn, a communications consultant who established Reckitt Benckiser's North American crisis management. "You may have to lean on outside crisis management professionals to get your program up and running. Find seasoned crisis management professionals and put their brains to work for you. Have them walk you through various crisis situations point-by-point."

Brainstorming the five worst events that could damage your company and how you would handle them can also be fruitful. Besides professional and your own expertise, you can also gain knowledge from industry trade groups.

"Front and center, look at all of your business's critical assumptions," says Sandy Pundmann, an audit and advisory partner at Deloitte. "In the age of cost-cutting, companies have moved to [fewer] suppliers and have assumed greater risk in the process without realizing it. Company management needs to sit back and assess their risk dependencies, and assess how prepared it needs to be." (Read Deloitte's Risk Intelligent Enterprise Management paper for more information.)

Pundmann outlines three pitfalls:
  • Precedence: "Management relies on the fact that it has never happened before," Pundmann says. "History is not a predictor, as the management of TEPCO [Tokyo Electric Power Corporation] found out."

  • Speed: Management needs to deal with the situation quickly before letting social media and the 24/7 news cycle turn a minor crisis into a major problem.

  • Preparation: Failing to prepare for an issue can turn it into a crisis - and bad publicity. "Management needs to be prepared to handle all situations," Pundmann says.

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