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Crisis Management in Organization Development

Agenda
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 5.5% 2001 5.0%

Catastrophes

Casualty accidents Environmental Class action Consumer action Defects/recalls Discrimination Labor disputes White collar crime Workplace violence

4.8% 7.8% 2.2% 2.8% 5.4% 3.3% 10.3% 20.4% 3.8%

4.6% 1.8% 23.1% 2.6% 14.9% 2.7% 12.4% 7.8% 12.3%

Crisis Survey of Fortune 500 Executives


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! yet97% 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

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

and the Kings business fares no better (UK statistics)

90% of businesses that lose data from a disaster down within 2 years of the disaster

shut

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

Early Warning Systems dont work if you dont use them

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 Enrons 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

When crises occur, they are disruptive. A survey of Fortune 500 execs showed:

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 companys reputation & image

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

Crisis Mechanisms Types of Signals

People
Gossip / Rumors Personal Networks The Culture Communities Special Interests Media Consumers

Internal
Personal Data Bases PCs IT Remote Sensing Government Monitoring Industry

External

Technical

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

Red flags may include


increasing numbers of consumer complaints; a growing number of safety problems or accidents; a rash of lawsuits;

troubling rumors;
more frequent quality control issues; labor unrest, including poor morale or tension among employees.

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

Risk Assessment
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?

You can also categorize types of risks in terms of their impact and probability

Risk Categorization
High Impact

Amber Zone

Red Zone

Low Probability

Hazard Likelihood
Green Zone

I
I I

High Probability

Low Impact

Hazard Severity

Gray Zone

Stages of Crisis Management


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: Finks 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

Mitroffs Five 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

Ecomap of Stakeholders
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.

Primary Effect

Secondary (Vicarious) Effect

Tertiary Effect

Crisis Management Team Formation selling the idea

Team discussion questions

1. What are the likely objections & barriers to implementing a Crisis Management Team (CMT)? 2. If you were going to prepare an argument promoting a CMT, what are the key points and sequence in your argument? 3. Who in an organization (general positions) should be selected as a CMT member? 4. What are the technical skills and personal qualities that members should have? 5. What training in CM and team process should be required? 6. 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?

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

Typical team composition:


Facility management Legal department Risk management Information technology Human resources Financial services Real estate management Corporate security Public relations/ communications

Define the duties of the team:


Coordinate all crisis related
Gathering and reviewing facts Determining crisis response activities Allocate resources Specifying internal and external communications Training staff Establishing working relationships with external stakeholders Monitor progress and continuing situation assessment

activities
of the crisis

CM Team Training
Team building

Ensure that all CMT members are trained before the crisis occurs

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

When the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four Cs quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders

Four responsibilities: To the customers To the employees To the communities they serve To the stockholders

Tylenol Case Analysis


Background
In the mid 1950s 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 at least 6 pharmacies and food opened, & capsules were x fatal dose) bottles of stores were filled with cyanide (10,000

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!

Poison Madness in the Midwest --Time Magazine

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 >90% of Americans had heard of the Chicago deaths Widest coverage since Kennedy assassination & Viet Nam Copycat tampering 270 reported incidents (36 true)

Hundreds of hours of national and local TV coverage

Tylenol, killer or cure? -- Washington Post


The Tylenol Scare --Newsweek

J&J stock fell 7 points Market share dropped from 35% of pain-reliever market to 8%

Initial Response Phase 1 Crisis response


Immediate alert to consumers not to use any type Tylenol product or resume use until extent determined Live TV satellite feed of press conferences; media exposure via 60 Minutes, Donahue, etc. 800# Hotline for customers (30,000 calls in Oct-Nov) Toll-free phone for news organizations; pre-taped messages and updated statements for distribution Strict production, different lot $, & crisis only in Chicago indicated post-production tampering Withdrew bottles from Chicago area; ordered recall of >31 million bottles nationally at a cost of >$100 million (against FDA & FBI) It temporarily ceased all production of capsules

High public profile and repeated reassurance by Burke


Working relationship with law enforcement agencies Notification of health professionals nationwide & FDA

Initial ResponsePhase 2, PR Rebound


Five-Point Plan 1. Replaced them with tamper-resistant caplets (triple safety seal within 6 months)

2. Incentives: free replacement of caplets for capsules, special coupons ($2.50 off) easily obtained
3. New pricing program: discounts up to 25% 4. New advertising program: national 1 minute commercial, News & talk shows, 5. 2250 sales personnel made new presentations to medical stakeholders

positive press articles regarding J&J, products, & safety indications of regaining market share held up as positive example of ethics & responsibility 450,000 e-mail messages

Strategies
Most public recovery strategies incorporate the following five components:

Forgiveness: win forgiveness from stakeholders and create


acceptance for the crisis

Sympathy: portray organization as unfair victim of attack by outside


persons; willing to accept losses

Remediation: offer compensation for victims and families (counseling


& financial assistance)

Rectification: take action to reduce recurrence (triple sealed &


increased random inspection)

Effective leadership: clear, visible, consistent role-modeled message


from beginning by CEO

Employee Response

Strong family-oriented culture, we care about our employees Open and current communication with employees; 4 video programs on the unfolding process Emphasizing plant workers were innocent CEO speech in a week to employees, Were coming back (wearing buttons) Idle employees given tasks to keep involved & reduce rumoring and boredom Indications of market recovery bolster spirits Congruence and consistency in demonstrating the Credo

Consequences what was learned


J&J showed that they were not willing public safety even at excessive cost J&J could be trusted all the way to the top Credo & having a functional credo worked to risk they lived their

J&J set a new standard for protection thereby requiring competitors to expensively follow suit J&J was viewed as a co-victim of the crime

Stakeholder involvement and relationships is essential


One must anticipate and prepared for crises; expect the unexpected Cynicism: Be aware that 75% of people dont believe companies take responsibility for crises or tell the truth No matter what you do in the beginning, in the end you will have to tell the truth React fast, openly and decisively

(learning contd)

Report your own bad news dont wait for reporters to root it out Speak with one voice Be accessible to the media so they wont go to other sources Target communications to those most affected by the crisis, and can affect the media If you cant discuss something, explain why Provide evidence for your statements Record events via video and documents so you can later present your side of the story

Gather facts and disseminate from one info center

Dj vu all over again


Following the Tylenol crisis, several other tamperings plagued other companies. Impact could have been reduced by learning from J&Js experience.

Copycat tamperings: Lipton Cup-A-Soup (1986)

Exedrin (1986)
Tylenol again (1986) Sudafed (1991) Goody's Headache Powder (1992)

Virginia Tech Shooting Columbine Shooting

Post-Campus Shooting: Revising the organization

Assume that your team has been invited to help a small campus of 1000 students recover from a shooting incident (similar to Virginia Tech). The school does not have a crisis management team or plan but now recognizes the need What are some recommendations you have for them regarding the following: How should they go about forming a crisis management team (who should they select and what kind of training might they need)? What should they expect as fall-out from the crisis (e.g., longer term impact on people and the organization)? What can they do to reduce the adverse impact of the crisis on the organization? How can the campus be better prepared for crises in the future?

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