MBA CRISIS MANAGEMENT NOTES

UNIT I CRISIS MANAGEMENT PPAER CODE II-402 Meaning and definition of Crisis management : Crisis management can be defined as a, "Holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience, with the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand, and value-creating activities- as well as effectively restoring operational capabilities." Essentially, it is the process by which an organization deals with a major event that threatens to harm the organization, its stakeholders, or the general public. The study of crisis management originated with the large scale industrial and environmental disasters in the 1980s.Three elements are common to most definitions of crisis: (a) a threat to the organization, (b) the element of surprise, and (c) a short decision time. Venette argues that "crisis is a process of transformation where the old system can no longer be maintained." 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 consists of: 

Methods used to respond to both the reality and perception of crises.  Establishing metrics to define what scenarios constitute a crisis and should consequently trigger the necessary response mechanisms.  Communication that occurs within the response phase of emergency management scenarios. Crisis management methods of a business or an organization are called Crisis Management Plan. 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. A crisis 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.[6] 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.

Need for Crisis Management:  Crisis Management prepares the individuals to face unexpected developments and adverse conditions in the organization with courage and determination.  Employees adjust well to the sudden changes in the organization.  Employees can understand and analyse the causes of crisis and cope with it in the best possible way.  Crisis Management helps the managers to devise strategies to come out of uncertain conditions and also decide on the future course of action.  Crisis Management helps the managers to feel the early signs of crisis, warn the employees against the aftermaths and take necessary precautions for the same.

Essential Features of Crisis Management:  Crisis Management includes activities and processes which help the managers as well as employees to analyse and understand events which might lead to crisis and uncertainty in the organization.  Crisis Management enables the managers and employees to respond effectively to changes in the organization culture.  It consists of effective coordination amongst the departments to overcome emergency situations.  Employees at the time of crisis must communicate effectively with each other and try their level best to overcome tough times. Points to keep in mind during crisis  Don’t panic or spread rumours around. Be patient.  At the time of crisis the management should be in regular touch with the employees, external clients, stake holders as well as media.  Avoid being too rigid. One should adapt well to changes and new situations.

Types of Crisis : During the crisis management process, it is important to identify types of crises in that different crises necessitate the use of different crisis management strategies. Potential crises are enormous, but crises can be clustered. Lerbinger categorized eight types of crises 1. 2. 3. 4. 5. 6.

Natural disaster Technological crises Confrontation Malevolence Organizational Misdeeds Workplace Violence

7. Rumours 8. Terrorist attacks/man-made disasters Natural crises Natural crises, typically natural disasters considered as 'acts of God,' are such environmental phenomena as earthquakes, volcanic eruptions, tornadoes and hurricanes, floods, landslides,tsunamis, storms, and droughts that threaten life, property, and the environment itself. Example: 2004 Indian Ocean earthquake (Tsunami) Technological crises Technological crises are caused by human application of science and technology. Technological accidents inevitably occur when technology becomes complex and coupled and something goes wrong in the system as a whole (Technological breakdowns). Some technological crises occur when human error causes disruptions (Human breakdowns. People tend to assign blame for a technological disaster because technology is subject to human manipulation whereas they do not hold anyone responsible for natural disaster. When an accident creates significant environmental damage, the crisis is categorized as mega damage. Samples include software failures, industrial accidents, and oil spills. Examples: Chernobyl disaster, Exxon Valdez oil spill Confrontation crisis Confrontation crisis occur when discontented individuals and/or groups fight businesses, government, and various interest groups to win acceptance of their demands and expectations. The common type of confrontation crisis is boycotts, and other types are picketing, sit-ins, ultimatums to those in authority, blockade or occupation of buildings, and resisting or disobeying police. Example: Rainbow/PUSH’s (People United to Serve Humanity) boycott of Nike Crisis of malevolence An organization faces a crisis of malevolence when opponents or miscreant individuals use criminal means or other extreme tactics for the purpose of expressing hostility or anger toward, or seeking gain from, a company, country, or economic system, perhaps with the aim of destabilizing or destroying it. Sample crisis include product tampering, kidnapping, malicious rumors,terrorism, and espionage. Example: 1982 Chicago Tylenol murders Crises of organizational misdeeds Crises occur when management takes actions it knows will harm or place stakeholders at risk for harm without adequate precautions. Lerbinger specified three different types of crises of organizational misdeeds: crises of skewed management values, crises of deception, and crises of management misconduct. Crises of skewed management values Crises of skewed management values are caused when managers favor short-term economic gain and neglect broader social values and stakeholders other than investors. This state of lopsided values is rooted in the classical business creed that focuses on the interests of stockholders and tends to disregard the interests of its other stakeholders such as customers, employees, and the community. Example: Sears sacrifices customer trust It has 4 stages] – Pre-crisis -acute -chronic and -conflict resolution

Crisis of deception Crisis of deception occur when management conceals or misrepresents information about itself and its products in its dealing with consumers and others. Example: Dow Corning’s silicone-gel breast implant Crises of management misconduct Some crises are caused not only by skewed values and deception but deliberate amorality and illegality. Workplace violence Crises occur when an employee or former employee commits violence against other employees on organizational grounds. Example: DuPont’s Lycra. Rumours False information about an organization or its products creates crises hurting the organization’s reputation. Sample is linking the organization to radical groups or stories that their products are contaminated. Example: Procter & Gamble's Logo controversy.

Stages of crisis management:

A c0risis can be broken up into three stages; pre-crisis stage, acute-crisis stage, and post-crisis stage. The pre-crisis stage

When someone in an organisation discovers a critical situation, they usually bring it to the attention of their supervisors/managers. This is known as either the pre-crisis warning or precursor. At this point in time, the critical situation is known only inside the organisation and is not yet visible to the general public. When managers are told of the critical situation, their job is to analyse it to determine if it has the potential to become serious. If managers are then comfortable with it and feel it will be resolved without any action on their part, they will not take any action. If, on the other hand, they see the critical situation as a serious problem requiring intervention, they will take action to mitigate it. Once the managers are made aware of it, it is their responsibility to manage it and prevent it from moving into the acute-crisis stage. This is considered a time of opportunity, to turn this from a negative situation into a positive one. The first issue is to recognise the situation for what it is and what it might become. They need to determine if the situation is serious, or if they believe that it will resolve itself. Is it something that could damage the bottom line, or jeopardise positive public image, or cause close media or government scrutiny? If they determine that it could damage the organisation, they need to take appropriate action. Where most managers fail, is in not recognising the seriousness of a problem. In such a case, the pre-crisis situation will move to the acute-crisis stage. The goal of a crisis management plan is to prepare managers to recognise that a pre-crisis situation exists. The acute-crisis stage A crisis moves from the pre-crisis to the acute stage, when it becomes visible outside the organisation. At this point in time, managers have no choice but to address it. It is too late to take preventative actions as any action taken now is more associated with 'damage control'. Once the problem moves to the "acute" stage, the crisis management team should be activated. Generally, a crisis management team is a group of people who specialise in managing a crisis. However, in the situation of a small business, this role might be taken on by yourself, the business owner, and maybe some of your key staff.

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Crisis management team members will need to take the following steps: Take charge of the situation quickly Gather all the information they can about the crisis and attempt to establish the facts Tell your story to the appropriate groups that have vested interest in the organisation, namely, the media, the general public, the customers, the shareholders, the vendors, and the employees. Take the necessary actions to fix the problem. The post-crisis stage A crisis moves from the acute-crisis stage to the post-crisis stage after it has been contained. This is when the organisation will try to recoup their losses. Managers must show the customer, the shareholder, and the community that the organisation cares about the problems the crisis has caused them.

During the post-crisis stage, some of the key goals should be to:  recoup any losses  evaluate the organisation's performance during the crisis  make any changes that were identified during the crisis

UNIT II CRISIS COMMUNICATION PLAN: During a crisis, you have to be able to effectively communicate to all your stakeholders about the situation and keep them regularly updated. One of the greatest challenges you will have in this role is uncertainty. However, there are some strategies that can assist you in responding effectively to a crisis. Determining your goals One of the first things you need to do following a crisis is determine the goal of your crisis response. Goals are often broad value statements that can help guide decision making for the business. For example, your goal might be to reduce the impact of the crisis on those affected. Another can be to keep your business' image intact and maintain your customer base. Determining goals is a key step in preparing for and responding to a crisis. This strategy can also reduce uncertainty because once goals are defined; you'll be better able to consciously think about what strategies are available to accomplish what you want.

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Understanding your stakeholders In order to communicate effectively during a crisis, you have to consider the various stakeholders for your business. The following is a list of potential stakeholders: employees competitors creditors customers the community stockholders the media However, this list can become quite lengthy so it is necessary for you to determine which stakeholders are primary and secondary in order to prioritise accordingly. Primary stakeholders are those groups that are most important to your business' success. Secondary stakeholders are key groups that do not play an active role in the day-to-day activities of the business but are still important to its overall success. Many businesses are aware of their stakeholders but do not communicate with them or, if they do, they converse only on rare occasions. Thus, when businesses need to communicate following a crisis, they are often communicating with groups they do not know very well. This lack of familiarity exists because the business has not established any prior relationships and has no base for the communication. If you have not formed a partnership with stakeholders prior to a crisis, the communication following one can be quite awkward and often ineffective. Therefore, it is crucial that you be proactive and establish strong, positive relationships with all your stakeholders before a crisis arises.

UNIT III

Business Continuity Planning: This chapter describes the process of developing a business continuity plan. It goes through in detail the components of the plan and discusses the key factors to ensure that your plan is as effective as possible. Once you have established who will be working on the project, roles and responsibilities should be assigned. This is also a good time to start collecting relevant reference material such as your business plan and other key financial documents etc. Like any other project plans, the business continuity project plan should:  Continue to develop during the life of the project as more about your business and its risks is learned;  Be prepared by people who understand the business; and  Reflect your business' approach to risk management.

Identifying Key Business Processes: The business impact analysis is the primary input to the business continuity plan. However, prior to doing this, you need to develop a list which ranks the key business processes of your business, that is, the processes that are essential to the delivery of outputs and achieving business objectives.

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This task is best undertaken with a structured approach and essentially requires you to: establish key business processes; Rank key business processes Map activities undertaken within each process; and Match resources to activities Establish key business processes As mentioned previously, it is crucial that the person developing the business continuity plan has full and clear understanding of your business' objectives and key processes. Your business plan is a great reference as it should already detail your business objectives and assessments of strategic and operational risks. Rank key business processes After the key business processes have been identified, you will need to rank them in order of their importance to achieving your business' objectives and delivering outputs When doing this process, you may want to consider the following issues: failure to meet statutory obligations for service delivery; failure to meet key stakeholder expectations; loss of cash flows essential to business operations; and degree of dependency on business processes by internal business units or clients Determine activities that constitute each process The business activities supporting key business processes then need to be identified. These are the activities that produce an output from the key business process. These may be the activities of a single operational area in your business the organisation, or may be the activities of a number of operational areas, which combine to produce the output.

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Once again, a thorough understanding of activities is essential to identify such inter-dependencies. Some activities may rely on the outputs from other activities from within the organisation, or even from outside the organisation. For example, e-business solutions rely not only on the internal network but also on the internet service provider. Match resources to activities The final step in the BIA, is determining the resources necessary for delivery of the key business processes. Without these resources, the business processes would not achieve their goals. Some resources to consider are: People - both the organisation's staff and people external to the organisation which may be critical to the success of the activity; Infrastructure - buildings and other property used by the organisation to deliver its services and produce its outputs; Assets and supplies - equipment and consumables which are used by the people and the processes as part of the activity; and Finance - some activities require money to be available to make payments on time.

Conducting an Impact Analysis After identifying the key business processes to your business, you need to conduct a business impact analysis (BIA). This involves identifying your key products and/or services, deciding how long you can stop delivering them, and identifying your critical inputs. Products and services To reiterate, it is crucial that the business continuity plan is developed by someone that truly understands your business. You need to come up with a list that identifies the key products and services that you offer. You may also wish to prioritise these based on the amount of profit they produce for your business. Maximum acceptable outage For each of your key product and service, identify how long you could stop delivering it before your business would experience difficulties such as cash flow etc. This is also known as the Maximum Acceptable Outage. The length of outage your business can tolerate will vary depending on the time of day, day of the week and time of year. Therefore, it is best to be on the safe side and plan for the worst, that is, use your busiest periods as a benchmark. Every business is different so take your time with this process as there are no standard times you can follow. If anything, the Maximum Acceptable Outage for your key products may potentially differ significantly from that of another business, even if it is the same type, in the same industry and even same location. Hence, it is absolutely critical that you really understand every aspect of your business to ensure the effectiveness of the business continuity plan. Identifying critical inputs When business continuity planning comes to mind, people tend to only think about disasters such bush fires etc. However, the more common forms of business disruption is caused by lost access to a critical input that is needed to operate the business. It is important to understand the critical inputs that enable you to provide each of your business' products and services. These would be essential to restart your business if there was a disruption. To illustrate this, consider an IT company that requires high-end computer parts and has only used one supplier for the last 20 years. Now if something suddenly happened to the supplier causing them to lose all inventory, where would the IT company access the parts? If not resolved immediately, this one incident can cause a chain of events that will most likely reflect very poorly on the IT company. Although this example might seem a bit extreme, it is not. In fact, many small businesses do not have a list of emergency suppliers in case something goes wrong. Some general inputs that you may want to consider include:

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Specialist staff Electricity Suppliers Fuel Vehicles Raw materials Equipment Premises EFTPOS facilities Computer records Developing Business Continuity Strategies:

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After conducting the BIA, you should then develop continuity strategies to operate your business after a disruption before the Maximum Acceptable Outage is reached. The following are some general strategies that you may want to consider: Cross-training staff and skill sharing Hiring equipment Borrowing equipment with another business Having backup equipment Retaining old equipment when it is replaced Practising manual processes to replace computer systems Identifying alternative suppliers Having records and forms stored off site Keeping computer backups off site Contracting out Having insurance policies, contracts and other important documents copied and kept off site Succession planning For each product or service, develop a continuity strategy to restore business before the Maximum Acceptable Outage is reached. Once you have developed your continuity strategies, you need to ensure that the training, equipment, relationships, etc. are in place. If your strategies depend on staff performing tasks that they do not usually do, you will need to arrange regular practice for them. You will also need to ensure staff members know the triggers for activating the Business Continuity Management Plan. The triggers must allow adequate time to implement your contingency strategies before you reach the Maximum Acceptable Outage. The plan should also set out clear accountabilities for staff so they know who is responsible for each action. Before deciding on a strategy, make sure you have thoroughly assessed all your other options to ensure the most appropriate is selected.

Identifying Communication Needs: The success of your plan may depend on ensuring the right people and organisations are contacted quickly. This will ensure you get the help and support you need to maintain your business. Some of the key contacts you need include:  Staff  Key customers

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Insurance companies Financial institutions Suppliers Alternative suppliers Contractors Hire companies Equipment maintenance companies Further, your staff will want to know whether they still have a job and how they can help. Your customers will want to know if you will meet existing orders and to be reassured that you will continue to operate. Your suppliers will want to know if you still need orders already placed and what they can do to help. You may also need to place an advertisement in the local press informing your customers and suppliers of the status of your business. Another key consideration when developing your plan is to think about the best method of communication during a disaster, crisis or event that threatens your business. In a small business, the most common methods would be sending out emails or calling critical staff members. As the owner or manager, you may assign certain staff members to play an active role in the communication process so that you can focus on other areas of implementing the BCP. As such, it is absolutely critical that you have up-to-date contact information for all your key employees etc. Monitoring & Reviewing the Plan Review of the business continuity plan is essential to ensure that it reflects your business' objectives, key business functions, the corresponding processes and resources and priority for recovery. Testing the plan No matter how great and well planned you think your BCP may be, there are always areas that can be improved. This is why it is essential to put your plan to an actual test. However, if the test results flawless, you should examine the adequacy and realism of your tests. The major components of the BCP should be tested annually and updated based on the results of each test. It is important each component be individually tested. Testing can be disruptive as it requires commitment from your staff and the use of valuable resources, so it is recommended that you do not test the BCP as a whole in one go.

UNIT IV CRISIS MANAGEMENT STRATEGY: How to Create a Crisis Management Strategy All organizations should have a crisis management policy which is at the same level of importance as the mission statement and business plan. A proper crisis management policy can rapidly restore normality and confidence for workers in the organization. It also provides a good source of PR material for the media. 1. Determine whether it is a crisis. This question is important to ask, as there are many situations that go wrong because the right person to handle it is not around. You may be in charge of a project until your supervisor comes back and are unable to contact him during a crisis. You have to make your own decisions in his absence and your action is dependent on the level of authority given. 2. See the Big Picture. It is not easy to handle a crisis if you are not aware of the all the facts. The final outcome may not be the way you envisage. If your role is a leader, you have to be detached from the emotional side of the crisis and rationally take stock of how to move on. Again, this is not as easy as it sounds as you may have long time colleagues who are involved in this crisis. 3. Gather the Relevant Team. It is important to be able to meet up with the relevant team to discuss about the situation. This is to ensure that the team is able to analyse and make a united stand about handling this crisis. This team should also comprise of the authorities, if the crisis is serious. 4. Set a Timeline. You must construct a timeline and ensure that each process scenario is highlighted. This practice will be a check to prevent your team from spending too much time in one aspect of handling the crisis. 5. Develop a Procedural Manual. Is there an organizational situational manual that you can use for this situation? Are you able to recollect the tips that were given to you when you participated in a mock drill? 6. Seek External Experts. You should get external experts to access the situation if the crisis is totally unanticipated. However, you must have had a close-door meeting with your inner circle. This is essential, as you do not want to unnecessarily reveal confidential information to external parties. 7. Speak To The Media. It is important to prepare a press kit which provides a full detailed report about the crisis. If you are comfortable to conduct a press interview, you have to ensure that you have the full details first. 8. Fine tune Your Communication Style. You have to ensure that your communication style is in sync with the crisis. Remember to be forthcoming with reliable information and try not to speculate. This will also ensure that the victims' immediate families do not overly worry. It will also not help if you come across as very emotional in the media as you want to communicate that your organization has everything under control. 9. Protect your reputation. If the crisis involves the loss of lives, it is not unthinkable that your credibility and organisation's reputation is put into question. Assuming that the crisis was beyond your organisation's control, you have to stick to your best judgement and not be led into a debate that may open your organisation to possible legal action.

CRISIS MANAGEMENT TEAM Sequence of sudden unwanted events leading to major disturbances at the workplace is called crisis. Crisis arises on an extremely short notice and triggers a feeling of fear and uncertainty in the employees. It is essential for the superiors to sense the early signs of crisis and warn the employees against the same. Once a crisis is being detected, employees must quickly jump into action and take quick decisions. What is a Crisis Management Team ? A Crisis Management Team is formed to protect an organization against the adverse effects of crisis. Crisis Management team prepares an organization for inevitable threats. Organizations form crisis management team to decide on future course of action and devise strategies to help organization come out of difficult times as soon as possible. Crisis Management Team is formed to respond immediately to warning signals of crisis and execute relevant plans to overcome emergency situations. Role of Crisis Management Team Crisis Management team primarily focuses on:      

Detecting the early signs of crisis. Identifying the problem areas Sit with employees face to face and discuss on the identified areas of concern Prepare crisis management plan which works best during emergency situations Encourage the employees to face problems with courage, determination and smile. Motivate them not to lose hope and deliver their level best. Help the organization come out of tough times and also prepare it for the future.

Crisis Management Team includes:     

Head of departments Chief executive officer and people closely associated with him Board of directors Media Advisors Human Resource Representatives

The role of Crisis Management Team is to analyse the situation and formulate crisis management plan to save the organization’s reputation and standing in the industry. How does Crisis Management Team function ? A Team Leader is appointed to take charge of the situation immediately and encourage the employees to work as a single unit. The first step is to understand the main areas of concern during emergency situations.

Crisis Management Team then works on the various problems and shortcomings which led to crisis at the workplace. The team members must understand where things went wrong and how current processes can be improved and made better for smooth functioning of the organization. 

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It is important to prioritize the issues. Rank the problems as per their effect on the employees as well as the organization. Know which problems must be resolved immediately and which all can be attended a little later. A single brain cannot take all decisions alone. Crisis Management Team should sit with rest of the employees on a common platform, discuss prevailing issues, take each other’s suggestions and reach to plans acceptable to all. One of the major roles of the Crisis management team is to stay in touch with external clients as well as media. The team must handle critical situations well. Develop alternate plans and strategies for the tough times. Make sure you have accurate information. Double check your information before finalizing the plan. Implement the plans immediately for results. Proper feedback must be taken from time to time. Crisis Management team helps the organization to take the right step at the right time and help the organization overcome critical situations.

Role of crisis management team during pre-crisis stage, acute crisis & post crisis stage:    

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The responsibilities of the members of the crisis management team will be to: take charge quickly establish the facts tell your story fix the problem 1. Take charge quickly The first step in managing a crisis is to take charge quickly. This involves: Activating the crisis management team Establishing the crisis management communication control Identifying the person who will manage the crisis Informing your staff who the crisis manager is Taking charge quickly before your business weakens. 2. Establish the facts The second step requires you to establish the facts of the crisis. This involves reconstructing the available information to decipher the facts. However, it should be noted that facts are not always known by the time a crisis moves to the acute stage. Often, there will be many versions of the story circulating around the workplace, many of them either being rumours or exaggerations. It is up to you to determine fact from fiction. 3. Tell your story During a crisis, you should communicate with your employees before their loyalties begin to erode. You may find that many of them may feel embarrassed with the association they have with your business and some may even feel like they are being blamed. It is up to you to reassure them and get things straight.

Your customers will also be concerned; so it is critical that you let them know as soon as possible and assure them that you have the situation under control. For example, if you have a large customer base, one of the easiest ways to communicate with them to send an email alerting them of the situation. Alternatively, if your business involves only working with a few select clients, calling them on the phone and speaking to them directly may be more appropriate. Whichever option you choose, the aim remains the same, that is, tell them your side of the story and reassure them that you are working to get things under control. 4. Fix the problem The last step to managing a crisis is to fix the problem. This involves trying to recoup the losses and making any changes that were identified as being needed. One of the best ways to recoup losses is to show consumers that you care about what the crisis did to your business, and furthermore to show them what you are doing to prevent it from happening again. There is no one magic solution for managing all crises. The best you can do is be as prepared as possible and have in place measures that allow you to deal with crises as quickly as possible when they arise.