As illustrated in the crisis management diagram above a crisis can come in many forms, we talk through six examples of a crisis which a business may face.
Crisis: Computer System Failure
The majority of businesses rely heavily on computer systems, so if there is a problem with a firm's computer system it will have a detrimental effect. A quick internet search will reveal a large number of companies affected by computer system failures. A computer system failure can include third parties attempting to hack into the firm's computer system to steal data or sabotage the business. A computer system breakdown is likely to
- result in lost sales as the firm will find it difficult to process transactions during the failure
- affect business reputation
- affect future business if the failure results in the media and consumers questioning the security and reliability of the firm's computer systems.
A computer system failure needs to be resolved very quickly or at the very least, the firm needs to have a contingency plan to minimise losses during the computer system failure.
Crisis: Product or Service fault
If a product is faulty and if this product puts customers at harm, then the firm must take action to deal with the danger. In 2010 Toyota recalled millions of cars worldwide after discovering faulty brakes on a number of their vehicles. Massive recall rates and fixing the problem are now helping the firm with rebuilding their brand.
Strikes can bring a company to a standstill and have a major impact on profitability. British Airways settled dispute with their cabin union after major strikes over busy periods crippled the airlines capabilities during 2010 and 2011.
Crisis: Natural Disasters
The massive earthquake in Japan in April 2011 resulted in many firm's production capabilities being destroyed. As a result of this, many car manufacturers ran short of supplies or had lengthy waits for new supplies. This can have a serious impact on profitability and business reputation. BP's oil spill in April 2010 in the Gulf of Mexico had a major impact on the image of the firm culminating in the US President, President Obama commenting on BP's handling of the affair. This resulted in people at top level losing their jobs
Crisis: Paretos Law
If 80% of your business comes from 20% of your customers, then what would happen if half of these customers decided to leave? There is a danger that the firm may collapse. It is important for an organisation to move its reliance away from the few customers that contribute to the majority of the firms turnover and increase its customer base.
Civil Unrest and War
Any form of civil unrest or war in a country that your firm operates in, will impact on your business. An example is the current crisis in Syria which began in Tunisia and spread to other countries in that region. War and civil unrest affects customers that are based in the region affected, it may impact on your distribution arrangements and could place any of firm's sites that are based in the region in danger. There could also be international sanctions which make trading in a country affected by war difficult. Taking all of these factors into account, firms need to decide when and whether to withdraw trade in a country affected by civil unrest and war. If a firm decides to continue trading in a war region, they should make arrangements to protect company assets which are based or pass through the affected areas.
If a firm is not doing too well and the share price drops dramatically, they may become the subject of a takeover. If there is an wanted takeover bid, the firm has to organise action to deal with the threat including convincing shareholders not to sell the shares to the company that wants to take them over.
As you can see crisis management must plan for a number of different crises; any one of these crises can have a negative impact on an organisation. Sometimes you can not prevent a crisis (e.g. natural disaster, recession), so it is important to identify a crisis quickly and have a plan ready to deal with it, in order to minimise losses. The first step in crisis management planning is to make a list of crisis scenarios likely to affect your business. Next write a contingency/crisis management plan to deal with each crisis on your list.