What are the differences between risk, problem, emergency, crisis, disaster, and catastrophe?
How should an organization conduct a risk audit?
How is a crisis team formed and what does it do?
What are the stages of crisis management?
What do managers need to know and do to facilitate a recovery?
The Changing Nature of Business Crises 1990 2001 Catastrophes 5.5% 5.0% Casualty accidents 4.8% 4.6% Environmental 7.8% 1.8% Class action 2.2% 23.1% Consumer action 2.8% 2.6% Defects/recalls 5.4% 14.9% Discrimination 3.3% 2.7% Labor disputes 10.3% 12.4% White collar crime 20.4% 7.8% Workplace violence 3.8% 12.3%
89% of Fortune 500 execs believe that crises are inevitable today
50% of F500 execs do not have a crisis management plan
Of those who have had a crisis, 42% STILL do not have a plan!
yet…97% felt confident that they could respond well to a crisis
less than 25% of Global 2000 Enterprises have a business continuity plan
only 50% have tested their disaster recovery plans
only 63% of businesses with continuity plans have enterprise wide plans
only 20% of plans are shared with critical third parties
Crisis Survey of Fortune 500 Executives
WTC Business Fallout
An estimated 14,600 businesses inside and around the World Trade Center were impacted by the disaster
13.4 million square feet of space in six buildings in and surrounding the WTC complex were destroyed
36 miles of new cable had to be installed by Consolidated Edison
652 companies occupying 28.6 million square feet of space were temporarily or permanently displaced by the destruction
200,000 Verizon Communication lines were knocked out by network failures
12,000 Con Edison customers had their power cut
Indirect impact to U.S. businesses has been estimated at $151 billion in the first year
90% of businesses that lose data from a disaster shut down within 2 years of the disaster
80% of businesses without a well structured recovery plan close within 12 months of flood or fire
43% of companies experiencing a disaster never recover
50% of a company experiencing a computer outage are forced to close within five years
43% of companies that have a business continuity plan do not test it annually
80% of companies have not developed CM to provide IT coverage for business continuity
25% of financial institutions have no continuity plan
40% of companies that have CM plans do not have a team dedicated to disaster recovery
58% of UK organizations were disrupted by 9-11, with 13% severely affected
… and the King’s business fares no better… (UK statistics)
Only 23% of businesses have no early warning of some kind; about 75% of crises result from inappropriate action or inaction by top management
13 months before the 3-Mile Island disaster a senior engineer warned of the pending accident
Evidence of threats against the US, use of planes as weapons, and infiltration by Islamic terrorists to the US were all known before 9-11
Years before Enron collapsed, Arthur Anderson found $51 million of accounting problems in Enron’s books
Executives Cynthia Cooper of WorldCom and Sherron Watkins of Enron both tried to give warnings of accounting irregularities before the crisis
Roger Boisjoly, O-ring engineer for Morton Thiokol warned that there was “blow-by” on the Challenger shuttle O-rings
Early Warning Systems don’t work if you don’t use them
72% crises escalated
72% were subject to close media scrutiny
32% received government scrutiny
55% interfered with normal business operations
52% damaged company bottom line
35% damaged company’s reputation & image
When crises occur, they are disruptive. A survey of Fortune 500 execs showed:
Companies that did not have a crisis plan performed poorly over time
Companies that have a crisis plan may have an increase in price share after an event
Types of Signals External Internal People Technical Communities Special Interests Media Consumers Remote Sensing Government Monitoring Industry Gossip / Rumors Personal Networks The Culture Personal Data Bases PCs IT Crisis Mechanisms
Red flags may include
increasing numbers of consumer complaints;
a growing number of safety problems or accidents;
a rash of lawsuits;
more frequent quality control issues;
labor unrest, including poor morale or tension among employees.
A survey of Fortune 500 execs showed that 57% had identified warning signs in the previous 12 months, and 38% said it developed into crisis
Survey of colleges and comparison of training (preparation) vs actual crisis experience Ian I. Mitroff, Michael A. Diamond, and C. Murat Alpaslan (2008).How Prepared Are America's Colleges and Universities for Major Crises? Assessing the State of Crisis Management. URL: http://www.scup.org/knowledge/crisis_planning/diamond.html
To what kinds of crises (industry & organizational) is your organization most vulnerable?
What is the likelihood of their occurrence?
What would the degree of impact be?
Red Zone Amber Zone Gray Zone Green Zone I I I I I I I I I I I I I I I I I I I I I I I I Risk Categorization Hazard Severity Hazard Likelihood You can also categorize types of risks in terms of their impact and probability Low Impact High Impact Low Probability High Probability
Stages of Crisis Management Signal detection Warning signs & efforts to prevent Probing & prevention Search risk factors & reduce potential for damage Damage containment Keep from spreading to uncontaminated areas Recovery Return to normal operations asap Learning Review & critique CM efforts for improvements Mitroff’s Five Stages of Crisis Management Fink’s Crisis Lifecycle Prodromal Risk cues that potential crisis can emerge Crisis breakout Triggering event with resulting damage Chronic Lingering effects of crisis Resolution Crisis no longer a concern to stakeholders Like most human events, crises can be described in terms of stages, or relatively identifiable sequences of events and reactions. Stages enable planners to monitor risks, progress, target stakeholders, and take strategic action appropriate to the stage. There are many models; below are two prominent ones:
Ecomap of Stakeholders Primary Effect Secondary (Vicarious) Effect Tertiary Effect An “ecomap” or ecological map of stakeholders can help to identify all involved parties in the crisis. Concentric circles are used to set parameters on primary or direct stakeholder involved, secondary or “spillover” effected, and tertiary or very indirect affected. These help prioritize response to them and ensure that no one is left out of consdieration.
Crisis Management Team Formation– selling the idea
Team discussion questions
What are the likely objections & barriers to implementing a Crisis Management Team (CMT)?
If you were going to prepare an argument promoting a CMT, what are the key points and sequence in your argument?
Who in an organization (general positions) should be selected as a CMT member?
What are the technical skills and personal qualities that members should have?
What training in CM and team process should be required?
What are the effects of stress on decision making and what countermeasures should be taken?
Presenting the CM Concept
What are the risks in your industry & examples of crises?
What are the adverse outcomes of not preparing, and advantages to preparing?
How would CM be compatible with the mission & vision of the organization?
What would it take to implement a CM team?
What are the downsides to implementing a team and how can such objections be overcome?
What special areas of representation, knowledge, and skill are necessary for selection?
What kinds of skill training are necessary in CM and teamwork?
What kind of resources and allocation would be necessary for a CM system?
What would a comprehensive system of CM look like and how would it change the organization?
Typical team composition :
Real estate management
Public relations/ communications
Team Composition: Membership should be based on representation, knowledge, and skill.
Key roles :
Executive/CEO– responsibility & authority
Team leader (may be CEO)– keep team updated and focused
Spokesperson– public relations, central source of information, communications, rumor control
Legal representative– legal guidance & implications of actions
Researchers– gather facts & compile information for position statements
Coordinate all crisis related activities
Gathering and reviewing facts of the crisis
Determining crisis response activities
Specifying internal and external communications
Establishing working relationships with external stakeholders
Monitor progress and continuing situation assessment
Define the duties of the team:
CM Team Training
Acquaintance & awareness of styles
Openness & trust
Cohesion, constructive team norms, groupthink countermeasures
Understanding of risks & crises, impact & consequences unique to the organization & industry
Understanding of key crisis concepts and practices
Overview of crisis planning and management process
Ensure that all CMT members are trained before the crisis occurs
To the customers
To the employees
To the communities they serve
To the stockholders
When the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four C’s quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders
Tylenol Case Analysis Background
In the mid 1950’s Tylenol became a needed and popular substitute for aspirin for such conditions as flu and chicken pox, since aspirin was related to Reyes Syndrome (liver degeneration, brain edema, 20-30% fatality)
Large market: 100 million users, 19% of corp profits, 13% of year to sales growth, 37% market share of painkillers, outselling other top analgesics combined
J&J was one of the “Best 100” companies to work for
Tylenol became a product trusted by physicians and families alike
Numerous other Tylenol products were developed for an active market
J&J strong “family” corporate culture
Tylenol Case The Crisis Begins…
September 1982 Extra Strength Tylenol bottles of at least 6 pharmacies and food stores were opened, & capsules were filled with cyanide (10,000 x fatal dose)
Media reporter asked PR Asst. Dir Andrews about poisoned Tylenol– then it hit the news!
7 people died in the Chicago area
CEO James Burke refers to the Credo, alerts to the danger, & assigns team to discover the source
Formed 7-member strategy team
Stop the killings
Reasons for the killings
Provide protection & assistance to people
… and snowballs!
Police drove through streets with loudspeaker warnings
Chicago hospital received >700 calls in one day
Immediate stories in major magazines and newspapers
Over 100,000 separate news stories ran in US papers
Hundreds of hours of national and local TV coverage
>90% of Americans had heard of the Chicago deaths
Widest coverage since Kennedy assassination & Viet Nam