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Crisisradicallychangesbusinessofshiftinggoodsdoc

CrisisManagement

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Whatwouldyoudo?

Calisthemanagerforasuccessfulchainofretailstores.Overthepastyear,businesshasbeenbooming.Earningsareupandprofitmarginsaregrowing.Becausebusinesshasbeensopositive,Calwassurprisedwhenhereceivedamemofromthecompany'svicepresidentaskinghimtoperformacrisisaudit.Whatdidthevicepresidentmeanbya"crisisaudit"andwhydidCalhavetoworryaboutacrisiswhenbusinesswasgoingsowell?

Caldidn'thaveacluewheretobegin.

Whatwouldyoudo?

Calmightbeginbytalkingwithcolleagueswhoworkindifferentareastobetterunderstandwhatmightgowrongintoughertimes.Ifyouwereresponsibleforatowndam,youwouldcertainlyperformanauditofitsstructuralintegritybeforeastormcausedthewatertorise.Likewise,itisimportantforCaltoperformacrisisauditwhenthingsaregoingwellatworksothathecanbebetterpreparedshouldacrisisarise.Oneofthefirststepsinperformingacrisisauditistotalkwithmanydifferentpeoplewithintheorganizationtogatherdifferentperspectivesofwhatcouldhappen.Next,CalshouldconductaSWOTanalysistodeterminethecompany'sstrengths,weaknesses,opportunities,andthreatsforeachpotentialcrisis.

Inthistopic,you'lllearnhowtopreparefor,manage,andresolvecrises.

AtCal'scompany,profitmarginsaregrowingandearningsareup—sowhymightacrisisauditbenecessarynow?

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TopicObjectives

Thistopichelpsyouto:

∙Avoidacrisisthroughplanning

∙Preparetomanagecrisesyoucan'tavoid

∙Recognizeacrisisandcontainitbeforeitspreadsevenfurther

∙Resolveacrisisinthemosteffectiveway

∙Learnfrompastcrises

∙Takecareofyourselfduringacrisis

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AbouttheMentor

NormanR.Augustine

Whenitcomestocrisismanagement,NormanR.Augustineisagraduateoftheschoolofhardknocks.HavingservedaschairmanandCEOofLockheedMartinCorporation;directorofBlack&Decker,PhillipsPetroleum,andProcter&Gamble;andundersecretaryfortheU.S.ArmyduringtheVietnamWar,Augustinehasyearsofexperiencemanaginginturbulentanduncertaintimes.HeistheauthorofAugustine'sLaws（VikingPenguin,1986）and"ManagingtheCrisisYouTriedtoPrevent"（HarvardBusinessReview,1995）.

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WhatIsaCrisis?

September11,2001—Howonecrisiswasavoided

Acrisisisaneventthatcanaffectordestroyanentireorganization.

—IanMitroff

September11was,withoutadoubt,theworstcrisisonUnitedStatessoilinmoderntimes.ThousandsofliveswerelostinNewYork'sWorldTradeCenter,thePentagon,andinruralPennsylvania.BecausetheWorldTradeCenterwashometomanyoftheU.S.'sleadingfinancialinstitutions,inadditiontotheterriblelossofhumanlifeinthecollapseofthetwotowers,financialrecords,personalcomputers,servers,andback-uptapedrives—andalltheinformationtheycontained—weredestroyed.

Sowhathappenedtoallthedata?

Themortgages?

Creditinformation?

Investmentdata?

Allbut5%ofthecompaniesinvolvedintheattackrecoveredtheirdata.Why?

MostcompaniesintheWorldTradeCenterhadlearnedfromthe1993attackonthetowersbycreatingandimplementingplanstoregularlystorecriticalinformationoffsite.OnSeptember11,2001,almostallthedatahousedintheWorldTradeCenterexistedelsewhereinduplicate.

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CrisisDefinition

Simplyput,acrisisisachange—suddenorslowlyevolving—thatresultsinanurgentproblemthatmustbeaddressedimmediately.Acrisiscanoccurinmanyforms:

∙Life-threateningproductdefectsarediscovered

∙Computerhackersshutdownacompany'sentiresystemanddenyaccesstocustomers

∙Ahardfreezedestroysaregion'scitruscrops

∙Aterroristattackdestroyslivesandproperty

∙Akeymanagerdieswithnoimmediatereplacement

Crisesarenotthenormalups-and-downsofabusinesscycle,thoserecurringproblemsfacedinthecourseoftakingrisksandexploringnewavenuesofopportunities.

Crisesarewrenching,painfulevents.Yetsomegoodcancomeoutofthesedifficultexperiencesbecausethelearningthatcomesfromdealingwithacrisiscontainswithinittheseedsforfuturesuccessincrisisprevention,crisismanagement,and,insomecases,evennewopportunities.

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Naturalorcompany-relatedevents

Twotypesofcrisesfallinthiscategory:

∙Uncontrollablenaturalevents.Anaturaleventofcatastrophicmagnitudecanstrikeunexpectedly—beitanearthquake,typhoon,tornado,hurricane,blizzard,flood,fire,orsomeothernaturaldisaster.Forexample,earthquakescancrushbuildings,destroyinfrastructures,andinterruptcommunications.

∙Healthandenvironmentaldisastersrelatedtothecompany.Unlikenaturalevents,somehealthandenvironment-relateddisasters,thoughnotnecessarilycausedbythecompany,aredirectlyrelatedtothecompany.Thecompanyisresponsible—orisperceivedtoberesponsible—fordealingwiththem.

Considerthefollowingexamples:

oProducttamperingbyanoutsiderthatcandamageyourcompany'sproductsandharmconsumers,andaffecttheoverallimageofyourproductandcompany

oSeriousproductproblemsordefects,suchasdefectivetiresorfoodcontamination,forwhichyourcompanydoesbearresponsibility

oCatastrophicaccidentsthathappenonthecompany'swatch,suchasmajoroilspillsorradiationleakage

oEnvironmentalpollutionunknowinglycausedbyyourcompanyinyearspast—forexample,toxicwastewithlong-lastingharmfuleffectsonwildlifeandhumanhealththathasbeendumpedintowaterways

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Technologybreakdowns

Everyoneknowswhatit'slikewhentheservergoesdown.Inthisinformationage,weareextraordinarilydependentontechnologytocommunicate,storeinformation,doresearch,buy,andsell.Businesstodaycouldnotfunctionwithouttechnology.

Thefollowingaresomecommontechnologicalproblems:

∙Dataloss:

MostcompaniesintheUnitedStatesdonothavedataback-upplans,despiteaUniversityofTexasstudyfindingthatonly6%ofcompaniesthatundergomajordatalosswillsurvivethatcrisis.

∙Securitybreaches:

A2001surveyrunbytheFederalBureauofInvestigationandtheComputerSecurityInstituterevealedthat85%oflargecompaniesandgovernmentagencieshavedetectedcomputerbreachesinthepastyear,andwhilemostcomputerattackscomefromoutside,attacksfrominsidecausethegreatestfinancialloss.

∙Communicationstechnology:

Aretailer'sWebsitegoesofflineduringthebusiestseason,stallingordersandfrustratingcustomersandservicerepresentatives.Avirtualteam'sWebsitegoesdown,makingitimpossibletomeetacriticaldeadline.Anentirephonesystemgoesout,sothatnooneinacompanycanreceiveormakecallsexceptontheirmobilephones.Allofthesearecrisesgeneratedbytechnologicalfailures.

∙Outmodedequipment:

Whenpeopleworkonagingequipmentoronfailingnetworks,theyfaceaseriesofongoing,minorcriseseveryday—inefficientworkingconditions,difficultymeetingdeadlines,loste-mails,constantfrustration—allofwhichcanleadtoamajorcrisiswhenthesystemsfinallycollapse.

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Economicandmarketforces

Withaglobaleconomyandhigh-speedinformation,marketsandeconomieschangefarmorerapidlythantheydid20yearsago.Theseforcescanchange—orappeartochange—quiteswiftly.

Considerthefollowingexamples:

∙Marketswings:

Anunexpectedspikeorcollapseinbuyingcanalterpredictedsales,productdevelopment,andscheduling.Eventhoughregularmarketswingscanmakefordifficulttimes,amajordisruptioninmarketsresultsincrises.

∙Trends:

Anoverallchangeindemand,oftenduetoaparadigmshift,leavesbackward-lookingcompaniesinthedust.Theriseofthepersonalcomputerisanexcellentexample.Althoughitwasnotpredicted,itbecamethenewparadigm.Companiesthatbelievedthatmainframetechnologywouldalwaysbetheonlymarketwerecaughtunaware.

∙Investmentbubbles:

Periodsoframpantspeculationandinvestmentfrenzyblowbusinessopportunitiesoutofproportionuntiltheeconomicrealitiescausethebubblestoburst.Theinstantdeflationofportfolios,lifesavings,retirementincomes,andjobopportunitiescreatescrisesformany.

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Relationshipcrises

Allbusinessesdependonpeople,boththosewithinthecompanyandthoseoutside—businesspartners,vendors,andcustomers.Whatdoesacompanydowhenasubcontractorinchargeofsecurityallowsaseriousbreachatamajorairport,whenavendorfailstodelivercriticalsupplies,whenanemployeeiscaughtembezzlingmoneyfromaclientaccount,whenapartnerisindicted,orwhenamajorcustomergoesoutofbusiness?

Relationshipproblems,eventhoseassmallasapersonalconflictwithinagroup,canleadtoaseriouscrisis.

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Sixstagesofcrisismanagement

Allcrises—whetherrelatedtouncontrollableevents,health,technology,changingmarkets,orrelationships—havethepotentialtoaffectthecompany'sreputation,itsbottomline,itspeople,and,ultimately,itsabilitytodobusiness.Althoughthereisnosimpleformulaforeliminatingcrises,followingthesixstagesofcrisismanagementcancertainlymakeabigdifferenceinhowsuccessfullyyoucopewithcrises.

Stage1:

AvoidingtheCrisis

Stage2:

PreparingtoManagetheCrisis

Stage3:

RecognizingtheCrisis

Stage4:

ContainingtheCrisis

Stage5:

ResolvingtheCrisis

Stage6:

LearningfromtheCrisis

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AvoidingtheCrisis

Thequiet