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Crisis Management 101

The way business executives react when a crisis hits can have a game-changing impact on a company's bottom line. Does your business have a clear crisis management plan?

Oct/Nov 09
Crisis situations can severely impact your customer, public, and government relations and even drive you out of business, as so many financial and automobile firms have found out in recent months. Crises can take many forms, including but not limited to such events as the recent worldwide financial downturn/panic, natural disasters, industrial accidents, and environmental incidents. Without warning, your company could be thrust into a crisis situation with loss of revenues as well as unwanted newspaper headlines or television coverage.

Realistically, it's not a matter of whether or not a crisis can strike your company, it's a matter of when such an occurrence will happen and how you can best prepare and react. According to the 2008 Annual Crisis Management survey by the Institute for Crisis Management headquartered in Louisville, Kentucky, crisis management events created by outside forces account for only 18 percent of the total, while executives and management are responsible for more than half of the crisis situations, and employees for the remaining 31 percent.

"While crisis situations appear random and sudden, it's the failure to recognize problem situations and accept their probability of occurring that puts companies of all sizes in jeopardy," says Larry Smith, president of the Institute for Crisis Management. "Two-thirds of all business crises are what we call `smoldering crises,' the kind of issues and problems that start out small and could be spotted and fixed before they get big enough and out of control. Companies need to take a proactive stance and use forward-thinking crisis management planning as a positive tool to manage their business." He suggests that executives follow three guidelines to form a successful crisis management program: an operational plan, a communication plan, and a continuity/business recovery plan.

Bill George is a professor of management practice at Harvard Business School, former chair and CEO of the medical technology company Medtronic, and author of 7 Lessons for Leading in Crisis (Jossey-Bass, 2009). "What we saw in the financial crisis was sub-prime leadership that ignored warning signals for years," he says. For example, "General Motors management ignored the crises it faced, treating them as short-term events to get through rather than opportunities to transform the company. When the automobile market collapsed in late 2008, it was too late for GM, and management was forced to turn to the U.S. government to bail the company out." On the other hand, he says, Ford went outside automobile ranks to recruit Boeing's Alan Mulally as CEO; he positioned the firm to withstand the collapse in consumer automobile demand and avoided a government bailout.

Be Proactive
George's book offers a roadmap that promises to help any business leader develop crisis management skills and programs:

• Face reality and acknowledge the crisis. George recommends that executives develop a culture of openness by not blaming others and instead evaluate themselves and their own role in the crisis. "Everyone fails at some point," he says "It's important to recognize those failures and rebound. Ignoring problems won't make then go away."

• Get the world off your shoulders. George advises creating a support network early, both inside and outside of the organization. "When a crisis hits, it's too late to begin looking for help," he says. "There's a great danger in turning inward and avoiding wise counsel. External mentors provide great sounding bounds and a fresh perspective on the problems you face."

• Dig deep for the root causes of the crisis. "Avoid making GM's mistake of depending on quick fixes," George advises. "Get to the bottom of the problem in order to implement permanent solutions. Often, leaders are too anxious to solve the problem before they determine the real cause of the crisis."
• Get ready for the long haul. "Forget the `hunker down' mentality," says George. "Things can, and probably will, get much worse before they get better. Concentrate on survivability and remember that cash is king during a crisis situation."

• Don't waste a good crisis. "Move aggressively," he says, "and make major changes that will transform the company"; you'll be better positioned for the eventual turnaround.

• Follow true north. When your company is in the spotlight, George believes you need to be highly transparent. "The first 48 hours are critical to get your message across," he says. "Admit what you know and don't know. In many cases you'll have to run the risk of being open and honest, and your actions will run counter to what the attorneys and public relations people are telling you. This is when you will need to fall back on your core beliefs and values, your true north."

• Go on offense. George suggests you implement dramatic changes to put your firm in the position to benefit from a transformed market. "This is a great opportunity to win," he says. "Invest during the downturn and take strategic positions in new market opportunities and changes in purchasing behavior."

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