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The Art of Preparing for a Corporate Crisis


11/1/2013 9:48:21 AM

Insights SmallExcessive financial risk taking, lack of value-chain control in the food industry and grey-area business practices on developing markets. There are numerous examples in recent years of how corporate crises have put companies and their executives on a fast track to public humiliation and plunging stock prices. How can others avoid making the same mistakes

Preparation is the key to good crisis management. We have seen, however, that CEOs often overestimate the extent to which they can prepare and the types of preparation that are most important.

An organisation’s crisis management capabilities often rely on frequently updated crisis manuals, checklists, policies and escalation routines. These are all of crucial importance in ensuring business continuity and mitigating potential reputational consequences when facing a corporate crisis. And most companies do a fairly good job of producing these and keeping them up to date.

However, and as many of our clients have experienced, none of these measures are sufficient to prepare an organisation for a real crisis. Crisis management should be approached as more of an art than it is usually perceived to be – less instruction and more practice.  

"A crisis is an event or series of events in which an organisation lacks or risks losing control of developments."

 

A Crisis Never Comes Alone

A crisis is an event or series of events in which an organisation lacks or risks losing control of developments. A crisis can be the result of ‘hard’ issues such as business interruptions, disasters, accidents and injuries. But many crises also erupt due to ‘soft’ issues that affect confidence and trust in the organisation. Most crises are combinations of the two, especially in cases where a ‘hard’ crisis is handled poorly and therefore becomes a ‘soft’ crisis as well. We have seen several examples of this in recent years.

A crisis is essentially two crises occurring simultaneously – the actual crisis and the communication crisis. The actual crisis usually centres on solving the problem, while the communication crisis focuses on communicating with all important stakeholders involved. Most companies put the majority of their efforts into solving the problem, and rightly so. But if they don’t also succeed in handling the communication crisis, it will appear as though they haven’t solved the actual crisis either. A crisis team should therefore involve representatives from all different functions and business units, but should also have strong communication resources tied to the team. 

DiagramThe Consequences of Mistakes are Getting More Severe

In a recent survey, JKL asked 100 leading companies headquartered in the Nordic region about their crisis management capacities. The survey painted a positive picture of the companies’ crisis management capabilities, with most respondents considering themselves well prepared to meet a corporate crisis.

Several other general conclusions emerged, three of which are summarised below:

1. Most companies update their preparation after a crisis. But institutional memory of a crisis is short-lived

The best crisis team you can have is a team that has recently gone through a crisis. For good or for bad, however, this is not the case for most companies. Documenting the knowledge and experience gained through handling a crisis is important, but many communication managers testify that institutional memory is short-lived despite these efforts. Learning from going through a real crisis also requires that participants are able to distinguish elements that are of a general nature from those that are particular to the situation. The same crisis strategy may result in completely different outcomes, depending on the situation.

Diagram22. The consequences of mistakes are becoming more severe

Social media has undoubtedly changed the rules of the game. Corporate crises are not only harder to avoid, but the potential damage to corporate reputation resulting from poor crisis management has become substantial. With a 24/7/365 news cycle in which everyone can be a journalist, organisations have to respond not only faster than before, but also through a more diverse set of channels. Everybody knows when a crisis is happening.

"Many crisis teams are good at knowing what to do, but find it harder to identify when it is appropriate to do it, and in what order."

 

3. From elaborate to simpler planning

Most companies still maintain an elaborate collection of crisis material. But role definitions, manuals and fixed routines for raising the alarm and commencing crisis procedures are often more of a burden than an aid during the first crucial stages of a corporate crisis. As companies have started to realise this, crisis preparation is trending toward encompassing only simple guidelines and overall responsibilities.

 

The Best Way to Prepare for a Crisis, Is to Go Through One

Based on these conclusions, we approach crisis preparation assignments in a new way. Crisis simulation exercises now constitute the core of our crisis management offer. A crisis simulation is a 3-hour exercise in which management groups or crisis teams are forced to experience a realistic crisis scenario, giving them the opportunity to assess their ability to co-operate and handle the crisis. What we usually find when we conduct these simulations is that many crisis teams are good at knowing what to do, but find it harder to identify when it is appropriate to do it, and in what order. Assigning responsibilities within a group can also be challenging when people are absent and information about the situation and scope of the crisis is scarce. Training is required in all of these dimensions.

JKL has conducted crisis simulations with a wide range of companies in different industries. The simulations have given our clients the opportunity to gain the experience and to build the knowledge capital normally gained through managing a real crisis, but without the associated risks. A crisis simulation is followed by an evaluation session in which areas of improvement focus on general guidelines and best practices in the crisis management structure.

A crisis simulation gives an organization the opportunity to strengthen its crisis management experience, rather than just relying on documentation. In my experience, this is the only approach that treats crisis management as the art it really is. 

Klas Landelius

Klas Landelius