Crisis Management 101 — How To Tackle Business Issues Before They Become Problems

As much as you’d like to think that bad tides won’t knock you down, your firm is not disaster-proof. A small tiff in the top management or a sudden uproar among the employees can risk your company’s survival if the issue is not addressed then and there. CEO and founder of Virgin Group Richard Branson says ‘The true test of a company’s leadership, especially of a CEO comes during a crisis.’

From ethics and environmental violations faced by mammoth organizations like Exxon Mobil and British Petroleum to famous PR fiascos suffered by McDonald’s, Krispy Kreme and Lego, you’ll find dozens of classic crisis management examples. Read more cases here.

I know, we do tend to believe that keeping everything under control is key to avoiding a disaster but if you plan on doing nothing, you are planning to fail. The above mentioned companies faced criticism for their mistakes on a national level and some, even overseas because they did not have a strategy in mind to tackle an unforeseen situation beforehand.

In this article, we will discuss in detail the different types of crisis and theories on how to resolves them before they get out of control.

Where There’s Smoke, There’s Fire

A crisis can erupt from an external threat or an internal one. Let’s take a look at the different types of crisis and what they entail.

Natural Crisis

A sudden unseen environmental change can cause a natural crisis. Such natural disasters are termed as ‘force majeure’ meaning ‘a greater force’ beyond the control of human beings. Classic examples of such a disaster are tornadoes, violent storms, earthquakes, hurricanes, etc.

Technological Crisis

A crisis that occurs due to technological failure on a massive scale is called a technological crisis. Such crisis may lead to a temporary loss or closure till the problem is fixed by the technicians. For instance, a malfunctioning machine or a corrupt software may cause a hindrance in the firm’s day to day activities.

Confrontational Crisis

This is one of the most common crisis that a firm may experience due to inconsistencies of the management. Such a crisis may occur when employees get involved in heated arguments or disobey the top management, ultimately leading to boycotts and strikes for indefinite periods till their stipulated demands are fulfilled. Confrontational crisis erupts as a result of poor cross-departmental communication, inconsistencies within the hierarchy or internal disputes among members of the work staff.

Crisis of Malevolence

Lack of supervision is the main cause of this particular type of crisis. When notorious employees partake in criminal activities like theft, forgery, spreading rumors in the press, it may severely hurt the reputation of the firm.

Organizational Misdeeds

When top officials of the firm take wrongful decisions deliberately to serve their ulterior motives, it harms the stakeholders and external parties related to the firm. Crisis of organizational misdeeds usually occurs when the firm’s superiors get involved in shady, rainmaking opportunities that become counterproductive for the firm.

Such a crisis can further be divided into three sub categories.

1) Crisis of Skewed Management Values describes misconduct of managing partners of the firm when their decisions are based on short term gains, turning a blind eye to long term repercussions.

2) A crisis of deception rises when top officials abuse their authority and tamper with facts and figures to manipulate customers or stakeholders. Making false commitments to customers or stakeholders also comes under crisis of deception.

3) Involvement of the management in illegal activities like taking bribes, passing on privileged information, etc. is called crisis of managerial misconduct.

Workplace Violence

As the name suggests, crisis due to workplace violence erupts when two or more employees get involved in violent acts at the office premises. Although not as complicated as some of the other crisis mentioned above, this issue needs to be taken care of before it creates a bigger problem should the police get involved.

Rumors

A rumor may start off as a harmless prank or a deliberate attempt to malign a brand or a firm but it may result in loss of profits or even worse, legal action. Such a crisis is usually started by someone within the organization with the intent to tarnish the firm’s reputation.

Insolvency

The most common yet the most dangerous of all, insolvency arises when the firm is unable to pay its creditors and other parties due to insufficient funds. Some firms face this problem due to a sudden downturn in the economy while other firms get hit by this crisis as a result of insufficient cash flow, overestimation of financial outlays or overspending the budget.

The Way Forward

A 1996 Crisis Management Model by Gonzalez-Herrero and Pratt identified the three stages of crisis management and how it can resolve any conflict effectively.

1) Diagnosis

Detecting the warning signs of a crisis that may occur in the near future can give you time to work on a strategy to check this problem before it becomes a crisis. Diagnosing the early indicators of an imminent crisis is the responsibility of the top management officials.

To stay abreast, schedule routine performance evaluations across the all departments of the firm and maintain strong communication between the employees and the superiors to identify any forthcoming threat that may impede the progress of the firm.

2) Planning

Once a crisis hits the firm, a dedicated crisis management team must step forward to set in motion a strategy to overcome the situation. You must sit and discuss the problem with your team members and come up with an effective solution to control the uncertain circumstances. Don’t rely on any assumptions or guess work as it may backfire. Rely on strong communication to get the message across.

3) Adjusting

Implementing a new strategy means you will have to make way for some drastic changes within the organization. You must help the employees to adjust to the new changes to smoothen the transition process and motivate them to achieve the organization’s new goals.

The crux of crisis management lies in understanding the forthcoming crisis and how you develop a game plan to battle the situation. Remember, adversity only lasts for so long till you push back harder to get back up. I hope you found this article useful in understanding the different types of crises and how to solve them. Be on the lookout! Please leave your thoughts below!

I hope you find this article useful in learning about better managing crisis management. You can find more Management and Leadership knowledge on our website www.MagnaLeadership.com

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