Slide 1
Stages of Crisis & Crisis Management
ObjectivesDescribe stages of crisis processIdentify key
principles of crisis interventionDiscussion of classic Tylenol
poisonings caseApply stage management approach to team
caseMalaysian Flight CrashSystem Map of Financial CrisisCartel
System
Although it seems as if crises just occur suddenly and we are
swept up in their turmoil of confusion, they actually are spread
out over several stages. In this unit we will overview and describe
some models of crisis stages, identify some key principles of
crisis intervention, and examine some classic cases.1The stage
approach: Segmenting complex processes
Stages refer to relatively distinctive segments of a more
complex or lengthy processStages are differentiated by identifying
the beginning or end of some important event, reaction, or
processStages enable the user to communicate clearly about change
over time, adapt interventions to what is needed at each stage,
& monitor progress across stages.Stages also imply development
from one stage to another; this enables changing outcomes at a
later stage by intervening at an earlier one
You are already familiar with the idea of stages or phases. As
humans, we go through stages of development from childhood to
maturity and then decline. In addition, there are product
lifecycles of products as well as stages of product development.
The advantage of thinking about crises in stages is that we can
bring clarity to an otherwise chaotic and disruptive process.
Stages are useful in identifying the beginning or end of some
process or event. They also enable people to clearly describe and
refer to particular stages during crisis, respond to them more
accurately, and monitor progress as people move through the stages.
Stage thinking also implies that there is movement and change
during what seems an interminable mess, which can give people hope.
2Stages of Crisis ManagementSignal detectionWarning signs &
efforts to preventProbing & preventionSearch risk factors &
reduce potential for damageDamage containmentKeep from spreading to
uncontaminated areasRecoveryReturn to normal operations
asapLearningReview & critique CM efforts for
improvementsMitroffs Five Stages of Crisis ManagementFinks Crisis
LifecycleProdromalRisk cues that potential crisis can emergeCrisis
breakoutTriggering event with resulting damageChronicLingering
effects of crisisResolutionCrisis no longer a concern to
stakeholdersLike most human events, crises can be described in
terms of stages, or relatively identifiable sequences of events and
reactions. Stages enable planners to monitor risks, progress,
target stakeholders, and take strategic action appropriate to the
stage. Jack Welchs CEO of GEDenialAvoiding or
minimizingContainmentKeep quiet or buck-passingShame Mon-gering
Self defense, blame & creditBlood on the Floor Somebody
paysCrisis Fixed Life goes on, prevent future crises
There are many different models of crises. I like the example of
a loaf of bread that can be sliced into any number of slices,
although it is the same loaf of bread. Likewise, crises can be
differentiated into as many stages are one wants the key is to find
a manageable number that have meaning and practicality for
intervention.
The bottom model here is by GE CEO Jack Welch. Although not a
crisis expert, he certainly has had his share of crises and his
stages reflect his understanding of how they are often dealt with
from the top. Notice how his labels tend to emphasize the defensive
nature of crises.
Ian Mitroff identifies five stages that are commonly
acknowledged. Of particular importance is his noting the early
warning stage where there are indications of risk or pending
problems. His model also emphasizes learning from the experience
following resolution of the crisis.
Stephen Finks model is similar to Mitroffs, although he shortens
the number of stages but adds the chronic effects of the
crisis.
You might see if you can combine these into your own model that
makes sense to you in your setting and the kinds of crises you
would expect to encounter.3
The long view
This model is an even longer stage sequence. In addition to each
of the stages it suggests actions to be taken and also shows a
sample timeline during which the crisis unfolds. It is more
designed around disasters where life is threatened, but those kinds
of crises are also encountered by many businesses.4Ecomap of
Stakeholders: Who is affected?Primary EffectSecondary (Vicarious)
EffectTertiary EffectAn ecomap or ecological map of stakeholders
can help to identify all involved parties in the crisis. Concentric
circles are used to set parameters on primary or direct stakeholder
involved, secondary or spillover effected, and tertiary or very
indirect affected. These help prioritize response to them and
ensure that no one is left out of consdieration.
It is essential to identify all potential stakeholders who are
affected by the crisis, although they may be affected at different
stages. An Ecomap is one way to identify stakeholders by the degree
of impact on them. The center primary effect circle are those
people who are immediately and directly affected by the crisis. In
a flood or storm for example, it would be the homeowners and
business owners who have their places damaged.
Secondary or vicarious effect comprise the second ring. These
are people who are indirectly affected, either by being related to
or working with victims/survivors, or view the devastation and are
affected by it. Rescuers, crisis counselors, and leaders for
disaster recovery likely comprise this group.
Tertiary effects are generally for those people who are not
directly or vicariously affected by the crisis, but who are
affected by knowledge of the event or personalize it to themselves.
Although often distant, they can be seriously affected. An example
here would be the 911 terrorist attacks on the World Trade Center
or Katrina Floods that affected people around the country; indeed
around the world.5ProdromalCrisisConsequences &
RecoveryLearningStage CharacteristicsWhat stakeholders needWhat
should be doneCrisis Stage Worksheet
Too often, leaders do not anticipate crises, or even when they
do they may take more global approaches to managing it. This table
helps identify the stages, what people need during each stage, and
what leaders should so for each. When done in detail, specific
stakeholder groups should be identified in the stakeholders
category. For our purposes here, identify a specific crisis in your
work setting, describe what each stage might be like, what your
immediate stakeholders need (your office staff perhaps), and what
management can do to facilitate their coping with the demands of
that stage.6
Regardless of the crisis model used, crisis management involves
four strategic considerations, or the Four Cs. All plans should
include at least these aspects.
While there are various models of crises, there is good
agreement on what should be done during them. The four Cs cover
some of the most important aspects.
Command requires that there is an identifiable person (role and
responsibilities) in charge to give directions and make decisions.
This also implies a hierarchy of people to whom actions can be
delegated.
Control involves allocating resources, setting limits and
constraints, and monitoring development of the situation. It also
implies self-control of ones emotions during stressful periods in
order to calm others and think clearly.
Compassion is an important quality when interacting with others
in crisis. It provides confidence and solace when people are
frightened and distraught.
Communication is essential for coordinating efforts, updating
information on crisis development, and dealing with the media and
other stakeholders.
Other criteria could easily be added to the four Cs. What other
ones would you add?7
Classic Crisis Case: J&Js 1982 Tylenol TamperingIn this
presentation you will cover: stages of the crisis key
considerations for intervention constructing an ecomap description
of the case impact of the case on the industry what was learnedCase
Overview
One of the classic cases of crisis management is the 1982
Tylenol tampering case. In this case we will cover several aspects
of stage development. Please click on the case overview to review a
YouTube video of the case.8
Four responsibilities:To the customersTo the employeesTo the
communities they serveTo the stockholdersWhen the Johnson &
Johnson Company faced the Tylenol poisonings in 1982 they applied
the Four Cs quite effectively. They relied on the value and
strength of their culture credo which also identified the
stakeholders
Reviewers of the case often refer to the J&J credo and its
mission statement by which all employees guided their behavior, and
more importantly, that which guided the executives dealing with the
crisis. Again, click on the four responsibilities to view a brief
videoclip.9Tylenol Case AnalysisBackgroundIn the mid 1950s Tylenol
became a needed and popular substitute for aspirin for such
conditions as flu and chicken pox, since aspirin was related to
Reyes Syndrome (liver degeneration, brain edema, 20-30%
fatality)Large market: 100 million users, 19% of corp profits, 13%
of year to sales growth, 37% market share of painkillers,
outselling other top analgesics combinedJ&J was one of the Best
100 companies to work forTylenol became a product trusted by
physicians and families alikeNumerous other Tylenol products were
developed for an active marketJ&J strong family corporate
culture
Johnson & Johnson and its flagship Tylenol had become one of
the most trusted names and products in the pharmaceutical industry
since the 1950s. It has accrued large market share, was widely
recommended by health care professionals and families, and led to
even more related products. It appeared that by the early 1980s,
J&J was continuing on a fast rising track to success.10Tylenol
CaseThe Crisis BeginsSeptember 1982 Extra Strength Tylenol bottles
of at least 6 pharmacies and food stores were opened, &
capsules were filled with cyanide (10,000 x fatal dose)Media
reporter asked PR Asst. Dir Andrews about poisoned Tylenol then it
hit the news!7 people died in the Chicago areaCEO James Burke
refers to the Credo, alerts to the danger, & assigns team to
discover the sourceFormed 7-member strategy teamStop the
killingsReasons for the killingsProvide protection & assistance
to people
On a late September morning in 1982, 12 year-old Mary Kellerman
of Elk Grove Village, Illinois died after taking a capsule of Extra
Strength Tylenol. She was followed by six others in the Chicago
area. A reporter contacted the PR Assistant Director at J&J
about the deaths which was the first that J&J had considered
the risk. James Burke immediately formed a crisis team who then
reminded them of the credo as a guide, and then proposed to work
with the FBI to stop the killings, find out why they had occurred,
and providing assistance to victims and families. It was not their
role to conduct the first two, but they entered the third with
intensity that has become a reference in the field. They needed to
help stop it before it became worse11and snowballs!Police drove
through streets with loudspeaker warningsChicago hospital received
>700 calls in one dayImmediate stories in major magazines and
newspapersOver 100,000 separate news stories ran in US
papersHundreds of hours of national and local TV coverage>90% of
Americans had heard of the Chicago deathsWidest coverage since
Kennedy assassination & Viet NamCopycat tampering 270 reported
incidents (36 true)Poison Madness in the Midwest--Time MagazineThe
Tylenol Scare--NewsweekTylenol, killer or cure?-- Washington
PostJ&J stock fell 7 pointsMarket share dropped from 37% of
pain-reliever market to 7%; from $400 million in annual revenue to
$70
but it did become much worse! The news spread about the killings
with police going through neighborhoods with loudspeakers warning
people, radio and T stations announcing not to take the
medications, and papers pouring out details of the case. As you
note in this slide, over 100,000 news stories ran in US papers, and
more than 90% of Americans knew of the poisonings.
The immediate response to the incident was that J&J stock
fell from 37 to 7% of market share with catastrophic drop in
revenues.12Initial Response Phase 1 Crisis responseImmediate alert
to consumers not to use any type Tylenol product or resume use
until extent determinedLive TV satellite feed of press conferences;
media exposure via 60 Minutes, Donahue, etc.800# Hotline for
customers (30,000 calls in Oct-Nov)Toll-free phone for news
organizations; pre-taped messages and updated statements for
distributionStrict production, different lot $, & crisis only
in Chicago indicated post-production tamperingWithdrew bottles from
Chicago area; ordered recall of >31 million bottles nationally
at a cost of >$100 million (against FDA & FBI)It temporarily
ceased all production of capsulesHigh public profile and repeated
reassurance by BurkeWorking relationship with law enforcement
agenciesNotification of health professionals nationwide &
FDA
The crisis management team responded with admirable clarity.
Rather than deny, blame, or divert they immediately told consumers
to stop using their products and recalled over 30 million bottles
nationally. They used every media possible to reach people, worked
closely with law enforcement investigators, stopped production, and
leadership had a high profile. 13Initial ResponsePhase 2, PR
ReboundFive-Point PlanReplaced them with tamper-resistant caplets
(triple safety seal within 6 months) Incentives: free replacement
of caplets for capsules, special coupons ($2.50 off) easily
obtainedNew pricing program: discounts up to 25%New advertising
program: national 1 minute commercial, News & talk shows, New
presentations by 2250 sales personnel made to medical
stakeholderspositive press articles regarding J&J, products,
& safetyindications of regaining market shareheld up as
positive example of ethics & responsibility450,000 e-mail
messages
As the crisis reached a peak but warnings had been distributed,
the crisis team formulated a five point plan changed the landscape
of pharmaceutical sales. Most importantly, they were the first to
implement tamper resistant caplets with safety seals. This set a
new standard for all other pharma companies to duplicate. They also
used incentives, new pricing and advertising, and made new
presentations to health professionals and media with emphasis on
safety and ethics.14Forgiveness: win forgiveness from stakeholders
and create acceptance for the crisisSympathy: portray organization
as unfair victim of attack by outside persons; willing to accept
lossesRemediation: offer compensation for victims and families
(counseling & financial assistance)Rectification: take action
to reduce recurrence (triple sealed & increased random
inspection)Effective leadership: clear, visible, consistent
role-modeled message from beginning by CEOStrategies
Most public recovery strategies incorporate the following five
components:
J&J followed what are now key strategies for responding to
crises. These five areas should be considered as part of every
crisis response.15Employee ResponseStrong family-oriented culture,
we care about our employeesOpen and current communication with
employees; 4 video programs on the unfolding processEmphasizing
plant workers were innocentCEO speech in a week to employees, Were
coming back (wearing buttons)Idle employees given tasks to keep
involved & reduce rumoring and boredomIndications of market
recovery bolster spiritsCongruence and consistency in demonstrating
the Credo
In addition to being committed to health providers and families,
J&J has had a strong commitment to its employees as well and
has been considered as having family-friendly culture. In addition
to its contact with external media, it quickly communicated with
employees, updating them on the crisis and its development. Without
such clear and frequent communication it would have been likely
that many more rumors would have emerged. They emphasized innocence
of workers, started a recovery campaign, keep people involved and
busy, showed indications of recovery, and demonstrated consistency
with the credo.16Consequences Lessons learnedJ&J showed that
they were not willing to risk public safety even at excessive
costJ&J could be trusted all the way to the top they lived
their Credo & having a functional credo workedJ&J set a new
standard for protection thereby requiring competitors to
expensively follow suitJ&J was viewed as a co-victim of the
crimeStakeholder involvement and relationships is essentialOne must
anticipate and prepared for crises; expect the unexpectedCynicism:
Be aware that 75% of people dont believe companies take
responsibility for crises or tell the truthNo matter what you do in
the beginning, in the end you will have to tell the truthReact
fast, openly and decisively1983 Tylenol Bill by Congress made
malicious tampering of consumer products a federal offense1989
federal legislation to make consumer products tamper resistant
Following Mitroffs model, it is important to review what was
learned from the crisis in order to avoid crises or be better
prepared the next time. The next two slides highlight some of the
points deduced from the case. Compare these to some of the more
recent crises in the news and how leaders responded to
them.17Report your own bad news dont wait for reporters to root it
outSpeak with one voiceGather facts and disseminate from one info
centerBe accessible to the media so they wont go to other
sourcesTarget communications to those most affected by the crisis,
and can affect the mediaIf you cant discuss something, explain
whyProvide evidence for your statementsRecord events via video and
documents so you can later present your side of the story(learning
contd)
18Copycat tamperings: Lipton Cup-A-Soup (1986)Exedrin
(1986)Tylenol again (1986)Sudafed (1991)Goody's Headache Powder
(1992)Dj vu all over again
In 1982 FDA estimated 270 product tampering cases. Following the
Tylenol crisis, several other tamperings plagued other companies.
Impact could have been reduced by learning from J&Js
experience.The Tylenol comeback (and how they did it)
The visibility of the tamperings also contributed to a series of
other product tamperings in following years. Many of them could
have been handled better if they had learned from J&Js
experience. Click on the Tylenol Comeback at the bottom of the
slide to view a brief video on J&Js comeback.19
The Toyota Recall
Lets take another case the recent Toyota recall due to
accelerator problems. For this portion of the presentation, see if
you can keep track of the stages of crisis from prodromal through
crisis and response stages. Since it is still developing, even
after several years, it has not been resolved. However, also see if
you can identify some learnings that Toyota should make from
this.20
When its material for the cartoon strips, you KNOW its
serious
By the time that late nite talk shows and newspaper cartoons
start panning an organization for its crisis response, the crisis
is probably well developed and public opinion is being formed. This
is just one of the reputation issues that the organization must
deal with.21
The next three slides highlight some of the key events as the
crisis has unfolded, but it still not resolved.22
Although speculation of cover up of electronic defects has
waned, there is much criticism about Toyotas crisis
responseOverreaction by the U.S. media, a shift in the business
environment, the American political mood at the time, and Japans
response to global economic problems likely contributed to the
furorSeries of recalls created initial doubt: January 2009 recall
of seatbelts & exhaust system problems; August 2009 recalls due
to faulty window switchesThe reputation for high quality was
further damaged by a lack of early statements on recalls, delays in
notifying customers whether they owned at-risk cars, and failure to
scrutinize driver complaints and seriousness of risksToyota should
have reacted much sooner: in 2007 when there were Tundra pickup
complaints, or as early as 2004 when the Natl. Highway Safety
Administration investigated acceleration of the Lexis ES and
CamryAlthough findings showed there was no electronic defect,
sticking accelerator, floor mat accelerator interference and
sticking pedals were founded
Too slow of a
responsehttp://insurancenewsnet.com/article.aspx?id=223320&type=newswires
Here are some of the findings and opinions about the Toyota
crisis, primarily related to a slow response. Consider how these
problems are a function of culture, organizational hierarchical
structure, lack of attention to early warning signs, and
insufficient crisis plan.25What did Toyota do: Halt production.
Halt sales. Find the problem. Fix it. Recall vehicles. Fix them.
The gas pedal issue in question affects eight of Toyota's top
selling models: RAV4, Corolla, Matrix, Avalon, Camry, Highlander,
Tundra, and Sequoia. It doesn't affect the Prius, other hybrid
models, Yaris, or Sienna. It also does not affect Lexus or Scion
models. They sell roughly 2 million vehicles per year in the United
States. A halt of production of only one month could mean the loss
of roughly 100,000 salesor, assuming an average profit of $3,000
per vehicle, roughly $300 million. Each month.
http://tcbmag.blogs.com/stateofthebrand/2010/02/toyota-in-crisis-tylenol-extra-strength-or-ford-explorer.html
Although Toyota made efforts to respond, it seemed to be too
little and too late, as well as costly for
them.26ProdromalCrisisResponseLearningsShift in Toyotas emphasis on
growth & boosting profit rather than maintaining
qualityComplaints as early as 2004Expansion of the workforce
without 100% adoption of the Toyota cultureCulture emphasizing
quality so that anything less is shameful & embarrassing,
leading to denying, minimizing and mitigating problemsHierarchical
structure & lack of upward communicationinitial $2 billion
recall and the loss of 17% of share value; subsequent recall of
millions of carsQuality reputation severely damagedDecrease in
consumer intention to buy ToyotaTotal recall cost could surpass $5
billionSales and reputation decline across many countrieshalt
production and issue recalls across the board of RAV4, Corolla,
Matrix, Avalon, Camry, Highlander, Tundra and SequoiaAdmission of
the problem has been half-hearted and reluctant, it has failed to
apologize to victims and families, and communicate what it will do
to regain controlDelayed replies to online posts and
complaintsCongressional committee found misleading statements about
repairsEstablish and attend to early warning indicatorsMonitor
mainstream as well as social media for opinionsReact quickly when a
crisis breaksCreate & support open culture with 2-way
communicationStages of Toyotas Response
Herre is an example of the stage model we are using and how it
lends itself to describing the Toyota crisis. See if you can add
more to the learning column.27
Some conclusionsStages are a useful way to describe, monitor and
facilitate movement toward resolution & learningEarly warning
systems can significantly help reduce risk and enable more
effective responseInformation about stages continues to be
available as the crisis unfolds use multiple sources of
informationOrganizational culture operates on how the organization
responds evaluate it as part of risk assessmentWhen a crisis
occurs, be active, honest, take the initiativeWhenever possible,
develop good relationships with stakeholders before a crisis
occurs
There are many conclusions that can be drawn from the Tylenol
and Toyota casesthese are only a few. What others would you
add?28
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