Transcript of "Crisis Management in Reverse - Capitalizing on Shocks to the System"
Crisis Management in Reverse - Capitalizing on Shocks to the System January |2011
Crisis Management in Reverse - Capitalizing on Shocks to theSystemIn every sector all over the world, companies fail, collapses that are sometimestriggered by seismic events. Such moments present significant opportunities (orthreats, if not seized) for the company that is prepared to capitalize on them.Crisis in the business world can take many shapes and forms. It can come in theform of fraud, the collapse of Barings Bank being an example, whereby a severalhundred year old company can be wiped out over a weekend due to the secrettrading and subsequent losses of just one trader. Or, it can come in the form of anoil spill, a possibly avoidable catastrophe that almost wiped out one of the largestcompanies in the world just last year, BP.These types of shocks to the system are not uncommon, and lately, are happeningin rather high frequency around the world, across dozens of different sectors.Many companies have in place crisis management strategies, tactics they willdeploy in case such catastrophes befall them. Be it financial reserves to get themthrough hard times or a boardroom full of lawyers on standby, companies arerather prepared to handle adverse situations.It’s the rare company, though, that has a plan in place to seize on the failures ofits competitors. Such incidents present golden opportunities for companies insectors that have had a key competitor take a hit, opportunities that can changethe dynamics and structure of that sector for a time to come. Just as companieshave crisis management strategies on standby to deploy should they be needed,so too should they have them ready if and when a competitor is hit with a crisis.On a high level, every company should examine their own sector, from both alocal and global perspective, to identify past crises that have caused a shock to thesystem. The key purpose of such an effort would be to identify learnings to takeaway from the outcomes of the crisis – what happened, how did the companyrespond, how did its competitors respond, what happened to the company and itscompetitors, what was the long-term outcome, etc.Aside from learnings to be had from examining such past crises, we recommendcompanies also take the following four principles to heart, adhering to them if andwhen a shock to the system does occur in the form of competitor failure:1. Maintain Neutrality – Taking a shot at a competitor when they’re down, astempting as it may be, should be avoided at all costs. Failure of a competitor tomaintain ethical standards, have proper oversight, manage risk, or take the rightprecautions are all the kinds of things that can happen to any company at anygiven time. Criticizing a company for a failure today will be impossible to explainshould the same failure affect one’s own company down the road. Not only is itdangerous in this manner, but it also can come off as petty and unnecessary. A
final negative outcome of such behavior can be the long-term grudge it can createbetween the parties, should the company under fire survive the crisis.Companies should maintain neutrality on such issues at all costs, leaving thecriticism to the media and sector watchdogs. Avoiding press exposure as much aspossible is highly recommended at such times.2. Be on Acquisition Standby – Should the company in crisis collapse, be readyto acquire their client base, their assets, etc. Ultimately, some value is left behindin the wake of a company going under, value that one’s competitors will be afteras well. Companies need to be ready at all times to make a move should such asituation occur, before their competitors do. This is exactly what happened in thecase of XL, one of the biggest leisure companies in the UK, which collapsed inJanuary, 2009. Virgin Holidays swooped in to acquire its customer base, which itbrought under a new brand it launched called TCD (as XL’s customer segmentswere quite different than Virgins, thus the launch of a new brand). The acquisitionbrought over one million new customers to Virgin Holidays, nearly one third of itscurrent base.Such a strategy should even be in place even if bankruptcy is not in play – GM,Ford, Chrysler, and Hyundai all went after Toyota’s base, targeting them with cashrebates, when the car-maker suffered its accelerator scandal, which caused themto suspend sales for a period of time. Toyota’s competitors saw a significantopportunity and went after to it, benefiting from this shock to the auto sector.Whatever the strategy, it should be sustainable. Goodyear, for example, saw anopportunity to replace Firestone as the key tire supplier of Ford automobiles,when that relationship fell into crisis due to Firestone’s tire failures. However,though Goodyear benefited in the short-term, their inability to produce thenecessary quantities due to capacity issues prevented long-term success fromoccurring.3. Consider Competitor Coalitions – Crises occasionally present an opportunityfor competitors of the company in jeopardy to unite, to take a group stand oraction as a statement for the positive. Such was the case when Exxon-Mobil,Chevron, Shell, and ConocoPhillips teamed up to put together $1 billion USD intoa venture called “Marine Well Containment Company,” shortly after BP’s Gulf ofMexico disaster – a venture aiming to develop technology and response plans forcapturing and containing oil spills. BP has since requested to join the coalition.4. Become Transparent –When Lehman Brothers collapsed in 2008, consumerconfidence in all financial services companies also collapsed, with assets beingwithdrawn at unprecedented rates. The fear consumers had during those daysthat their own financial services institutions would also collapse drove this panic.Competitors in such situations who have nothing to hide should become astransparent as possible, making it clear in every possibly way that they won’t alsocollapse. This can be done in the form of new and transparent audits,communicated with phone calls to high value customers, and press conferences /releases conveying that there is nothing to worry about. Corporatecommunications need to be ready, with a comprehensive plan as to how tohandle such situations.
Ultimately every company in every sector, no matter how local, regional, orglobal, should take the time and effort to make sure they are ready for shocks tothe system. It can take only one such incident to forever change the future path ofa company, for the better or worse.
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