What Really Constitutes a Business Crisis (in Crisis Management)

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    What Really Constitutes a Business Crisis?

    © Copyright Michael

    There are many types of issues facing businesses, but what counts as a true

    It’s not always immediately apparent when your organization is in the
    initial stages of a crisis. To this effect, I am pleased to bring you a guest
    blog submission by Michael Nayor, founder and CEO of crisis consulting firm
    The Rhodell Group, that investigates “What Really Constitutes a Business

    What is a Business Crisis?

    A business crisis can be anything that can negatively effect a company’s
    reputation or bottom line. Many events at first blush may not appear to be serious.
    HP’s firing of Mark Hurd and the subsequent entanglement with Oracle was
    not a big deal in the scheme of things, even though internally it must have
    been a shocker. However, the death or resignation of a key person in any organization
    could very well be serious for any company depending on just how key that person
    really was. Natural catastrophes, product recalls, labor disputes, computer
    data losses. The list is endless. Some are temporary. Some can cause the demise
    of a company. Most can be handled with honesty and the realization that it may
    be necessary to absorb losses over the short haul in order to achieve a long
    and healthy business life.

    Two Categories of Business Crises

    Two distinct categories of crisis need to be recognized. In one we lump all
    those events over which we have no control, such as product tampering by outside
    forces or natural disasters. Even in these situations there are always some
    actions we can take: tamper-proof packaging, liability insurance, proper protocols.
    But generally these events can blind-side us.

    The second category contains all those events that might have been avoided
    had we chosen to take the actions necessary to protect ourselves and the public.
    Some are obvious. We look at the BP oil spill and see things that surely could
    have been done. Other events are not so obvious and these are the ones that
    can be insidious. When a management believes it is doing the right thing but
    in fact is fueling a potential crisis we have the makings of a catastrophe.
    A couple of examples will make this abundantly clear.

    Market share is usually very important to a company, oddly sometimes more important
    than the bottom line. There is always great competition for new customers. Many
    times the efforts and resources devoted to advertising, marketing and selling
    to new customers are at the expense of a company’s loyal customer base.
    This can even be seen at the local level. Where I live heating oil companies
    consistently offer new customers a deal for the first year in order to lure
    them in. This, of course, is done at the expense of old, loyal customers who
    have to make up the slack. The result is that many savvy oil customers these
    days do a lot of shopping each year to find the best deal. Loyalty is a thing
    of the past. On a national level the problem has gotten even more serious. A
    recent financial story in The New Yorker last month observed that there is almost
    universal recognition that customer service in this country has deteriorated.
    Such service is considered a “cost”. Companies are looking for the
    customers they don’t have so they are willing to spend on marketing and
    advertising but are not as interested in adding to their costs of service. The
    article made it sound a little like cynical dating. Companies are interested
    in luring you in but then once they have you, they don’t quite value you
    as much as the next potential customer they want to corral.

    Lack of service is not just a pain for helpless consumers. In this internet
    age they can do something about it. This is how a company can sow the seeds
    of its own destruction, and inexorably create its own crisis. Companies and
    their products and services are being rated on the internet and consumers don’t
    hold back. They tell it like it is. Granted, competitors may be planting some
    of these negative comments but for the most part product and service evaluations
    are being taken at face value. The moral of the story: be faithful to those
    who brought you to the dance, or the consequences could be severe.

    Another form of self-inflicted crisis involves weathering the storm

    Whether in politics, professional sports, or in business, “players”
    still believe that because of their importance they can ride out any issue or
    problem. They can’t. We can all easily tick off a dozen or so examples,
    but the latest is surprising. Johnson & Johnson has recently gone through
    a spate of recalls of tainted children’s Tylenol and Motrin. The Company
    has generally kept a low profile and even contracted with a third party to buy
    up Motrin off retail shelves rather than announce an actual recall. And for
    the last decade it has been settling with claimants for a variety of injuries
    and death allegedly due from Ortho Evra, a contraceptive patch made by its subsidiary,
    Ortho McNeil. It appears clear that the current management of J&J has not
    followed in the footsteps of the management that handled the Tylenol crisis
    of 1982 which is often cited as the quintessential example of crisis management
    in modern corporate history. Back then cyanide had been found in bottles of
    Tylenol in the Chicago area. J&J immediately issued public warnings, issued
    a product recall, created tamper-proof packaging, and before long was back in
    business. The Company was up-front and willing to bite the bullet in the best
    interests of the public. Unfortunately that does not appear to be the philosophy
    today. There is clearly a danger in believing one’s invincibility. The
    trust and respect of the public is at stake, and once lost, is very difficult
    to retrieve.

    A crisis is not just the obvious explosion at a plant or a mine. Companies
    can and do create their own crises. Companies must evaluate their philosophy,
    their strategy and their honesty. They must take action to minimize their vulnerabilities
    but at the same time be prepared to take action in the best interests of the
    public if they value company longevity.

    For the Category of Crisis Management:

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