By nature, most people avoid planning for crisis situations. After all, there is so much to do in the here and now without trying to second guess the future. Business leaders are no exception when it comes to the often thankless task of crisis planning. Unfortunately, disaster can strike any company, at any time. Even more difficult than actually planning for such an occurrence is the task of determining what possibilities to plan for.
Lately, the list seems endless, from natural disasters like earthquakes or floods, to man-made disasters like terrorist attacks or oil spills. Within the walls of a business, the crisis could be anything from a breakdown in leadership to intentional sabotage. And, while some crisis situations happen in an instant, others evolve over time. It's always important to remember that no matter what type of crisis you may face, the technology is in place to make the news public within minutes. Is your company prepared?
The Best Defense? A Good Offense
Score.org, a non-profit group of volunteer small business counselors, offers tips to help business owners think through the possibilities.
Ask yourself the hard questions ... the "what ifs?" What if the worst happened? Could your business survive if you had to close down for a week, a month, or a revenue season?
Review your business insurance coverage and make updates where necessary. You should at least have enough to allow you to get your business back in operation. You need to know what is covered and what isn't. For example, most general casualty policies do not cover flood damage. You may need riders if you hope to cover such eventualities as windstorms, sewer backups, or earthquakes. Business interruption insurance can help cover ongoing expenses during a forced shutdown, and help you meet payrolls, pay vendors, and purchase inventory until you return to full operation. Plus, don't fail to consider the extraordinary costs of a disaster such as leasing temporary equipment, restoring lost data, and hiring temporary workers.
While crisis situations may present themselves in a variety of ways, each one has the ability to cause serious financial damage and, perhaps more importantly, damage to your company's brand. In 2010, the Japanese automaker, Toyota, faced a crisis of epic proportions. Other notables such as Johnson & Johnson, Exxon, and Pepsi also faced unexpected disasters. Valuable lessons can be learned from their examples -- lessons that can be applied to your business. Let's take a closer look.
For decades, Toyota won customers and market share from American car manufacturers. After all, the Toyota brand was synonymous with quality. At least that was the perception until it became necessary to issue recalls for millions of vehicles with sticky accelerators – sticky accelerators that took innocent lives. Internal issues, including a lack of focus on the company's customer-centric core values, contributed to the decline. In fact, the focus at the top shifted from making a high quality product at an affordable price to becoming the world's largest automaker. In actuality, this shift may date back to the late 1990's when Toyota's shares were listed on the New York Stock Exchange, elevating the need to increase short-term profitability. Regardless of what initiated the change, rapid growth strained engineering resources and taxed the company's revered and widely emulated corporate infrastructure and discipline.
From the simple act of owning up to the problem and expressing concern for lives lost, to identifying the cause and implementing a solution, Toyota was anything but efficient or effective. The company was slow to take responsibility and issue the recalls, unable to quickly identify the exact cause of the acceleration issue, and initially offered a solution that was not, by their own admission, fixing the problem. If quality was their cornerstone, it didn't make sense that they were unable to quickly identify the cause. Had quality, their biggest strength, now become their biggest weakness? No matter what the answers are to these questions, the company not only suffered from exorbitant financial damage, but the Toyota brand was severely tarnished.
Johnson & Johnson
In the early 1980s, Johnson & Johnson experienced a major crisis when numerous bottles of Tylenol capsules were laced with cyanide – a deadly poison that resulted in the loss of lives. Led by their high-profile CEO, Johnson & Johnson took quick action. With a seeming disregard for financial considerations, the company held true to its customer-first philosophy by showing its commitment to safety and the quality of the Tylenol product.
Embracing the media exposure, Johnson & Johnson immediately began alerting people about the potential dangers. It also dispatched scientists to determine the source of the tampering, embarked on a massive recall and ceased production temporarily while tamper-resistant packaging was developed. Preceded by an aggressive campaign to rebuild its brand, the company placed its "triple tamper resistant" product back on the shelves within a few months, along with a number of incentives.
Johnson & Johnson set a new precedent for crisis management with their swift actions. It was the CEO's willingness to be open with the public, investigate the matter, and offer a solution that helped the company maintain public confidence throughout the incident. Certainly there were financial losses. But the integrity of the leadership, combined with smart incentives that were offered as part of the re-launch of the product turned the crisis around. Johnson & Johnson not only held some of its original market share, but within a few months of the incident, exceeded that level.
A few years after the Tylenol incident, Exxon Corporation caused one of the worst environmental disasters in history when the Exxon Valdez oil tanker ran aground, spilling hundreds of thousands of barrels of oil onto the coastline of Alaska's Prince William Sound, a remote habitat for fish and fowl.
Following the spill, Exxon failed at the task of taking responsibility. It took the company a number of hours to even begin containing the spill. And, when these efforts fell short, the company tried placing blame elsewhere. In addition, it took several days for the CEO to make a statement to the media and subsequent communications from company executives were inconsistent. The unwillingness to accept blame, combined with a slow response and highly ineffective communications, severely tarnished the Exxon brand -- a brand which, as a result, was equated with environmental disaster for a number of years into the future.
In the early nineties, the Pepsi Corporation faced a crisis which began with claims of syringes being found in cans of Diet Pepsi. Following an immediate and intense investigation, an arrest was made just eight days later.
Pepsi was open with the public and its employees throughout the crisis. Following the investigation, the company embarked on a public relations campaign beginning with a series of video news releases. One detailed the actual Pepsi production process – a process that clearly demonstrated that tampering of this nature was impossible within their facilities. Another detailed the arrest of the perpetrator. In addition, an FDA official publicly declared Diet Pepsi safe to drink. Finally, Pepsi ran a series of ad campaigns to thank the public for standing by the company and offered coupons for their products. In the end, there was little, if any, lingering effect on Pepsi Corporation.
Managing your Business through a Crisis: Six Steps to Success
As these four cases suggest, being prepared in the face of a crisis is essential to securing a successful outcome for your business. With no plan in place, your leadership team will inevitably be tasked with the responsibility of making critical decisions about your company's future under extreme stress and often, without all the facts. So, what can you learn from these examples?
Following are six steps to successfully managing your business through a crisis:
1. Ensure Strong Leadership. Strong, highly visible corporate leaders build strong corporate cultures, rich in values. These values will not only serve as a foundation for your crisis planning initiative, but, in the face of a crisis they will determine how well your company responds. A sound, value-based response is far more likely to be favorably received. The leadership exuded by Toyota and Exxon fell short whereas the leaders at Johnson & Johnson and Pepsi rose to the occasion.
2. Assemble a Crisis Management Team. This should include individuals from multiple disciplines within your organization, to develop your crisis management plan. Legal, financial and public relations executives, for example, often have differing viewpoints, yet a compromise resulting from these differing points of view should be represented in the final plan.
3. Develop a Crisis Management Plan. As previously alluded to, your crisis management plan should be rooted in the philosophy and values of your organization. Key to the process of developing this plan is generating a list of all the potential catastrophes that your company could face. Crisis plans should then be developed to detail the exact response needed for each possible situation. In fact, the more details you include, the less chaos will ensue when a catastrophe does occur. Both Johnson & Johnson and Pepsi Corporation demonstrated the beneficial effects of having an effective crisis management plan in place.
4.Train your Employees. This step is essential. As they engage in their daily activities, they should have the training and background required to not only perform their jobs, but to identify potential issues. They should also be empowered to bring issues to the attention of senior personnel. Analysis and a corrective course of action early on often keep crisis situations from arising. In addition, your employees should receive training such that they have a thorough understanding of their role in the face of a disaster. A lack of training and/or empowerment clearly proved to be detrimental for Toyota.
5. Communicate Timely and Consistently. Your company's brand is directly dependent on timely communications with internal and external stakeholders, beginning with problem acknowledgment and ending with air-tight solutions. Message consistency is also key. Differing messages damage corporate credibility. With timeliness and consistency in mind, a very thorough communications plan should be developed as part of the crisis management plan. In addition to addressing stakeholder and media concerns, it should have provisions for updates to your corporate website as well. After all, your company's Web site may be the only place your side of the story can be told, without losing something in the translation. Again, both Exxon and Toyota failed this test; Pepsi and Johnson & Johnson passed with flying colors.
6. Update the Crisis Management Plan. A crisis management plan is a living document that needs to be reviewed on a regular basis for possible updates and changes.
Anticipating a crisis is a matter of strategic planning and risk management. Following the six steps to success, as outlined above, will not only prepare your company for a catastrophe, but will position your management team to better handle both the expected, and the unexpected fallout. In the face of a crisis, general preparedness can go a long way to help your company emerge financially sound, and with an enhanced corporate brand.