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There are so many situations that can be considered a crisis in the business world. From a social media problem to a security issue that leads to someone in a company being hurt, there are nearly endless potential crises that can feel like they’re lurking around every corner. To be proactive, you have to know what you’re up against, though. With that in mind, the following are some of the core things to know about crisis management.
What Is a Crisis?
In business, a crisis is an event with the potential to be threatening to the success and health of the company. The event could cause damage to the company’s reputation, damage operations, affect finances negatively, or harm employees.
There are things savvy companies can do to reduce the risk of a crisis. For example, having a dedicated security team can keep your personnel and clients safe and secure. Having policies guiding personal social media use can be helpful. Also, having in place a formalized crisis management plan can guide you through a possible storm.
There are external and internal causes of a business crisis. Some of the types of crises that most commonly affect businesses globally are:
- A financial crisis. This can occur when a business faces a drop in demand for its products or services. There is lost value, and the company may not be able to pay debt.
- A personnel crisis is a wide variety of scenarios that can occur when an employee or someone who has an association with a business is involved in conduct or an activity that’s illegal or unethical. Misconduct can occur inside or outside of the workplace. If an executive is part of a high-profile extramarital affair, for example, that could be considered a personnel crisis. In 2019, Adam Neumann, the former CEO of WeWork, stepped down after he lied about how much the company was worth when it first tried to go public. This is also an example of a personnel crisis.
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- An organizational crisis occurs when the business does something wrong to its customers, creating a negative impact on them. If a business isn’t transparent about something their customers need to know and this lack of transparency comes to light, it’s an organizational crisis calling for urgent management. Google faced an organizational crisis at the end of 2020 when there were allegations about the company spying on employees and discouraging unionized organizing by employees. Another example is Wells Fargo. As part of an effort to meet sales quotas, employees illegally opened millions of fake customer accounts without customers’ consent. Employees created fake signatures and records, resulting in billions in revenue.
- Increasingly common are technological crises. For example, maybe a tech system that a business relies on crashes or servers go down. A company can lose revenue. This can diminish their reputation and lead their clients and customers to question whether or not they’re reliable. In 2021, Instagram, WhatsApp, and Facebook all went down for users.
- Natural events can include floods, winter storms, hurricanes, or tornadoes. These natural disasters can disrupt operations and can also damage physical assets and office spaces. COVID-19 is a prime example of a naturally driven crisis.
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You’ll also sometimes see another category when talking about crises in a business—confrontation crises. In this situation, there is a disagreement of some type that the public finds out about.
Not every situation that’s a problem for a business rises to meet the definition of a crisis. There are usually three key elements of a crisis.
First, the problem at hand poses an imminent threat to the organization. The second element of a crisis is that it involves a shock or surprise. The third commonality between crises is that they pressure the business to make decisions quickly.
What Is Corporate Crisis Management?
Corporate or business crisis management is what helps an organization as well as key stakeholders perceive threats and then mitigate them in an organized, strategic way.
Corporate crisis management relies on making a plan that can anticipate the unpredictability of world events. To put it even more succinctly, crisis management is about planning to expect the unexpected.
No matter size, industry, or any other factor, there isn’t an organization that’s immune to a possible crisis. What sets a business apart and paves the way for ongoing success is the ability to survive and then ultimately thrive following a crisis.
When a crisis does arise, if your company does not manage it correctly, it can affect your future ability to remain a viable business.
What Are Some of the Models and Theories?
A crisis management model is a conceptual framework that you can use to prepare for and cope with and recover from a crisis.
The following are some of the models of crisis management:
- Pre-emptive crisis management approaches work to prevent or resolve a crisis as soon as possible. The earliest sign should trigger a response to avoid the situation or clear it up.
- A proactive approach to crisis management means that you take steps early on. Then you can, as a result, have some control over how an event unfolds.
- Responsive crisis management is a model your organization might rely on when there isn’t much warning of a crisis. You can count on thoughtful but fast analysis so you can take decisive, effective action.
- Reactive crisis management is panic-driven, not well-thought-out, and is often a knee-jerk reaction. Emotions can take charge in reactive crisis management, which is what you never want to see happen. Reactive crisis management means the company responds defensively, and the long-term results can be disastrous.
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Professor Can Alpaslan also created a similar model with a focus on stakeholder involvement. In this model, crisis management follows a continuum.
The first part of this is proactive crisis management. All stakeholders that could be affected or harmed should prepare for the crisis.
In accommodative crisis management, an organization accepts the possibility of a crisis. They then involve a broad set of key stakeholders to prepare. In a crisis under this model, a company takes responsibility, meets the needs of whomever the victims may be voluntarily. The organization is honest and transparent.
In contrast, defensive crisis management under this model is when a business prepares only for those scenarios that could have high expected costs. They only involve stakeholders if they’re required to legally.
A company in defensive crisis management doesn’t take full responsibility but might admit to partial responsibility. The company is doing only what they’re required to do in a legal sense.
Then, in this model, with reactive crisis management, an organization denies the crisis and any potential consequences. They aren’t transparent or cooperative.
How Can You Create a Crisis Management Plan?
Regardless of the type of crisis or the specific approach an organization is going to take, when making a plan to deal with it, remember the following:
- Before you can create a plan, you need to think about all the types of crises that could affect you. Consider the ones your business, in particular, is most likely to end up dealing with.
- From there, determine the level of impact a crisis could have on your business as specifically as you can. For example, could it lead to a loss in sales, diminished reputation, or a loss of customer loyalty to your brand? The more you can quantify the effect of each potential crisis, the better you can understand what you’re preparing for and how to best do it.
- Think about the type of action you need to take to bring about a resolution for any of the identified situations. For example, you might use crisis management theories like the ones listed above.
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- Identify not just the potential scenarios you could face and how you’ll respond, but who will be in charge of what. You need to have particular details about who will carry out each component of your action plan. You may need external help, such as from consultants or legal professionals.
- What will your resolution plan be? Each resolution plan is going to depend on the situation. Still, you’ll want to ask yourself for each possible situation how long it will take to resolve. You need to determine the tools and resources you’ll need and whether or not you’ll have to address customers directly. You’ll also need to evaluate the root cause of any crisis and figure out how you can prevent it from happening again.
- Train everyone who needs to know what your plans are, and give specific training based on their anticipated role. Even if you don’t expect some employees to play a role in a given crisis, you should still generally inform them about the plans.
- Revisit your plans regularly and update them as necessary because things change quickly.
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Will You Establish a Dedicated Crisis Management Team?
Depending on your industry and your business, you might have a dedicated crisis management team you work with. Even though the team would handle most elements of a possible crisis, you need to be aware of at least the general strategy and framework that they would undertake.