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Instructor

Dr. Zeenat Ismail

Class
BBA-I/I

Research by
Khwaja Hassam
Jahanzaib Riaz
Jehangir Hansotia
Ayaz Ali Brohi
Yousaf Khan Afridi
CONTENTS
Page
Topic
No

1. The Case of DaimlerChrysler 1

2. Introduction 2

3. What is Crisis? 2

4. Explanation of Crisis 2

5. Types of Crisis
a. On the basis of social settings
b. On the basis of frequency and timing 3
c. Relationship between operational, potential and
sudden crisis

6. Examples of Crisis
a. Karachi Oil Spill
b. Chernobyl 5
c. Hurricane Katrina
d. Tsunami

7. Crisis Management 7

8. What is Crisis Management? 7

9. Purpose of Crisis Management


a. Survival
b. Reduce Personal Liability
7
c. Minimize Negative Reaction
d. Safeguard Company Assets
e. Minimize Financial Losses

10. Critical success factors for effective Crisis Management


a. Leadership
b. Speed of Response
c. A Robust Plan
9
d. Adequate Resources
e. Funding
f. Caring and Compassionate Response
g. Excellent Communications

11. Components of Crisis Management


a. Emergency Response
b. Business Continuity
10
c. Crisis Communications
d. Humanitarian Assistance
e. Drills and Exercises

2
12. Methods of Crisis Management
a. Resource Reallocation
b. Prevention
c. Contingency Planning
i. Recognizing the need to plan 11
ii. Catalogue as many crisis scenarios as possible
iii. Search for ways to prevent each crisis
iv. Formulate plans for dealing with each crisis
v. Stimulate crisis and the operation of each plan

13. Barriers to Crisis Management


a. Psycho-Social Issues
12
b. Cultural and Group Issues
c. Environmental Pressure

14. What to do if crisis could not be prevented? 15

15. DaimlerChrysler case revisited 17

16. Bibliography 18

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THE CASE OF DaimlerChrysler
The merger between German based Daimler-Benz and the Chrysler Corporation decided to
merge into one and on the 7th May 1998. The new company was to be called
DaimlerChrysler AG, with Schrempp and Eaton as co-chairmen.

The merger announcement was widely disseminated with generally positive commentary
and commensurate effects throughout the auto industry and the financial markets. With a
$92 billion market value, annual revenues of $130 billion, and 421,000 employees
worldwide; this was the largest industrial merger in history at that time. It would create the
world’s fifth largest automaker, changing the structure of the automobile industry.

Schrempp and Eaton lobbied extensively for the merger to alleviate stakeholder anxiety and
provide reassurance that the two automakers were, indeed, equal partners in this historic
merger. In light of the very positive predictions presented, shareholders of both companies
overwhelmingly approved the merger on 18th September 1998.

In its first full year of post-merger operation, revenues grew 12 per cent, operating profits
increased 38 per cent, net income grew by 30 per cent, 19,000 new jobs were created, and
more than 4.4 million vehicles were sold.

This positive immediate post-merger picture belied the evolving discord and crisis at
DaimlerChrysler.
Just before the merger, and during the year immediately following the merger, several key
executives who had been credited with Chrysler’s success in the 1990s either retired or
defected to the Ford Motor Company or General Motors Corporation.

On September 24, 1999; the President of DaimlerChrysler’s North American operations was
fired and shortly thereafter, Eaton announced that he was retiring. This left Schrempp, as
Chairman, and in sole control of DaimlerChrysler. By this time, the DaimlerChrysler “merger
of equals” had turned into a German acquisition of a U.S. company.

One of the key by-products of this acquisition was the major brain drain, with key executives
who had led Chrysler to a solid reputation in its domestic and international markets for
creativity, efficiency and profitability, no longer part of the new organization.

This management brain drain at Chrysler was evolving into a crisis situation for Daimler-
Chrysler, and Schrempp began moving members of his German management team into key
Chrysler positions. In fact, Chrysler was on track to post losses of hundreds of millions of
dollars in 2001; and orders from dealers had slowed to such a point that production
shutdowns were forecast by the end of 2000. Chrysler had gone from being one of the
world’s most profitable automakers to being a strong organizational as well as financial drain
on DaimlerChrysler. Skeptical shareholders began leaving, driving DaimlerChrysler’s stock
price to less than half of its post-merger high of $101 per share. Organizational
restructuring, worker layoffs, production cutbacks and other cost-cutting measures were
announced.

However, there was little evidence that the DaimlerChrysler management then in place
attempted to identify and resolve the root problems that led to failed expectations and
unfulfilled synergies.
No one seemed to pay much attention to the basic cross-cultural clashes that played a key
role in causing DaimlerChrysler to fall from the mountaintop of record profits to the valley of
significant losses.

1
Thus, the financial operational data of Chrysler disguised that which can be hypothesized to
have been the trigger for the major crisis at DaimlerChrysler – that of the cultural collision
that occurred in the organizational and operational interrelationships between the Germans
and the Americans.

INTRODUCTION
In this age; crises are more likely to happen, irrespective of whether they are small scale
crises which affect only one household/small business or large scale crises which can have
an impact on the social and economical stability of entire countries. More importantly, a
crisis may initially start out small and localized/contained, but has the potential to spread
and grow at an alarmingly fast rate.

One of the most important reasons perhaps as to why this is so could be because the
business world now operates in a dynamic environment i.e. it is constantly changing. This is
one of the reasons why crisis management has become such an important part of business
management as a whole and why a good leader must also be a good crisis handler. Another
reason for the increasing frequency of crises is the lack of trust between world powers and
the decrease in natural resources. This scarcity issue causes people to play the “blame
game”, whereby they see the lack of resources as a result of different social groups vying for
control of said limited resources.

WHAT IS CRISIS?
Crisis is a very commonly used word and often misused by people. It is often used to state
an emergency situation. But more specifically crisis can be defined as
• a crucial or decisive point or situation; a turning point
• an unstable situation, in political, social, economic or military affairs, especially one
involving an impending abrupt change
• a traumatic or stressful change in a person's life

Crisis has been defined in many different ways. Its other definitions include

“A spontaneous situation, in which we are unsure how to react, but requires an

D immediate response.”
“Complex event that confound the abilities of those who try to manage it.”

EXPLANATION OF CRISIS
A crisis may occur on a personal or societal level. It may be a traumatic or stressful change
in a person's life, or an unstable and dangerous social situation in political, social, economic,
military affairs, or a large-scale environmental event, especially one involving an impending
abrupt change. More loosely, it is a term meaning 'a testing time' or 'emergency event'

Q “A crisis is an opportunity riding the dangerous wind” Chinese Proverb

A crisis is an abnormal situation, or even perception, which is beyond the scope of everyday
business and which threatens the operation, safety and reputation of an organization. It is

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dangerous or worrying time: a situation or period in which things are very uncertain, difficult,
or painful, especially a time when action must be taken to avoid complete disaster or
breakdown.

Any life event can take on crisis proportions if it is experienced as sudden, intense,
unexpected, or emotionally super-charged. We experience crisis as overwhelming leaving us
without means to cope or to adjust. Somehow, we cannot make sense of what is happening
or why it is happening. Without answers to these important questions, we are left helpless.
We simply do not know what to do to control or master the situation. We do not know how to
make it stop. Wave after wave of emotion sweeps over us and we are unable to predict when
or if this awful situation is going to end.

“When written in Chinese, the word "crisis" is composed


Q of two characters-one represents danger, and the other
represents opportunity.”
John Fitzgerald
Kennedy

TYPES OF CRISIS
Crises can be categorized into a wide array of different genres on different bases; they can
be classified according to different social settings or according to frequency or timing of their
occurrence.

ON THE BASIS OF SOCIAL SETTINGS

1. DOMESTIC CRISIS
This kind of crisis is related to domestic life of a person. This type of crisis usually
occurs in the home and involves individual and members of his family. For example
marital problems which can in turn lead to divorce or even separation. While this kind
of crisis does not only affect spouses, it can be very devastating to children, who can
grow up to be abusive or even reclusive members of society. Domestic crises also
include house fire, flood, burglary and many more.

2. INDUSTRIAL CRISIS
Accidents caused due to human error including neglect, miscommunication and cost
cutting techniques employed by businesses so that costs can be minimized and
hence profits may be maximized. These can have serious consequences not only for
the business but also for the society as a whole. Such as Oil Spills near Karachi, the
sinking of the titanic, Cuban missile crisis and nuclear fall outs Chernobyl.

3. NATURAL CRISIS
This natural crisis happens in the environment and more often then not the activities
of human beings has nothing to do with it. Examples of a natural crisis include:
earthquakes, volcanoes, floods, fire and tsunami. However now it is widely believed
that human beings may be the cause of natural crises as well. For example fires are
created either because of natural causes or the pollution of the environment (caused
by human activity). Earthquakes can be caused by shift in the earth’s tectonic plates
or by building on natural fault lines.

4. PROFESSIONAL CRISIS
Perhaps at first glance similar to industrial crisis, there is a significant difference
between the two. Industrial crisis involves disasters such as oil spills and nuclear fall

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outs where not only an organization but also other sections of the society are
affected. A professional crisis on the other hand is one whose effects are limited to
the individual’s profession. For example, when a person is fired from his job, it results
in feelings of inadequacy and even depression. It can also lead to feelings of hate and
anger towards ones boss which could result in a vendetta against that person.

5. SOCIAL CRISIS
Social crisis is one that affects society as a whole. The most simplistic example of this
is crime. Let us assume that the crimes we are referring to is mugging. When such a
crime is committed, everyone in a society is affected, either in a physical or a
psychological way. Individuals are affected by feelings of fear and anxiety which they
can only reduce by believing in a just world a form of defensive attribution where
people assume that bad thing happen to bad people and good things happen to good
people. This in turn increases their susceptibility to these events that they are trying
to defend themselves against.
Furthermore, law enforcement agencies need to reallocate resources towards quelling
the crime rates. In doing so, they also play a part in increasing people’s fears through
a process known as deviancy amplification. The way this works is that as the general
public notices that the police are capturing or even detecting more incidences of a
particular crime, they start to feel greater stress and anxiety. This is further
perpetuated by the media who will invariably over sensationalize these stories. The
end result is that people are fooled into thinking that the incidents of mugging are
worse then they really are.
Finally crimes also have a direct influence on the victims, who suffer on both an
emotionally as well as monetary level. It has been documented that people who are
the victims of muggings are afraid to walk on the streets alone at night, have
sleeping disorders and in some cases also become introverts.

6. FINANCIAL CRISIS
Crises of this nature are usually monetary crisis that an individual may face during
the course of his/her own life. However, perhaps what is so dangerous about this type
of crisis is that it may potentially lead to the other types of crisis mentioned above.
For example, history is riddled with examples of marriages breaking up due to one
partner’s inability to financially support the other. Social crisis such as crime are a
direct result of people not being able to support themselves via jobs that they are
qualified for and as a result have to resort to criminal activities.

ON THE BASIS OF FREQUENCY AND TIMING


1. OPERATIONAL CRISIS

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Operational Crises are the day-to-day, minorD are the day-to-day, minor crises
crises of running the organization and
serving individual customers. Though theseof running the organization and serving individual
crises are minor but cannot be avoided.
However, with small efforts and goodcustomers. With good management these can be
management these can be avoided or
promptly resolved.

2. SUDDEN CRISIS
These are events that occur unexpectedly
and have a major effect on the organization.
These include natural disasters, sabotage
and outages of vital services such as power,
water or computers. The CEO should have
plans for managing crises and business
continuity and test the plans through
realistic scenario-based simulations. Sudden
crises call for prompt, decisive action,
effective communication and teamwork
between the CEO and board.

3. POTENTIAL CRISIS
Potential Crises are serious problems that
grow larger over time and become critical if
they are not addressed. They include
declining sales, profits and share prices,
failure to respond to new competition,
investigations by regulators, and financial
difficulties. These problems affect the long-
term viability of the entire organization and
should be addressed by the CEO through
the strategic planning and risk management
processes. The neglect of potential crises
has become an increasingly severe problem
as the world moves faster, time lines
shorten, expectations heighten and things
become more complex and interdependent.

RELATIONSHIP BETWEEN OPERATIONAL, POTENTIAL AND SUDDEN


CRISES
These groupings of crises are linked. For example:
• Operational crises may be symptoms of potential crises.
• Operational crises can build or blow up into sudden crises.
• Potential crises may weaken an organization to the point that it cannot cope with a
sudden crisis.

This briefing focuses on what directors can do when their organization faces sudden and
potential crises. Directors are not normally involved in operational crises unless they are
symptoms of problems in executive performance or strategic planning.

EXAMPLES OF CRISIS

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1. KARACHI OIL SPILL
On August 14th, the Tasmin Spirit, a 24-year-old Greek oil
tanker, spilled 15,000 tones of crude oil across a 14
kilometer stretch of the Karachi coast. If immediate efforts
were not made, this disaster would have spread on the
entire coast line of Pakistan and in to other neighboring
countries. This had already created a disaster for the marine
life killing thousands of sea animals already including
hundreds of rare species. The stinky smell was so strong
that the adjacent areas of the entire coastline had become
inaccessible for living.

The affects did not end here. An estimated 90,000 fishermen were without work as the crude
oil had devastated the local fisheries.

Clean up operations have begun, but as with the Prestige oil spill which is now estimated to
have spilled 63,000 tones of oil along the Galicia coast in Spain, and the Exxon Valdez
disaster in Alaska, which spilled 38,800 tones, the ecosystem will take years to recover. New
Scientist reports that the Spanish coast may take a decade to return to normal.

Too many people and too many ecosystems have suffered from deadly oil spills. The only
answer is to move toward a clean energy future and phase out the world's deadly addiction
to oil. We can't undo the environmental devastation that's been visited on the Karachi coast,
but we can do something to reduce oil consumption and prevent future spills. That means
implementing the Kyoto agreement on reducing Greenhouse gasses, and taking immediate
conservation steps.

2. CHERNOBYL
On 26 April 1986 at 01:23:40 a.m. reactor
number four at the Chernobyl Nuclear Power
Plant located in the former Soviet Union near
Pripyat in Ukraine exploded. The accident
destroyed reactor and killed 30 people,
including 28 from radiation exposure. Shortly
after the accident, firefighters arrived to try to
extinguish the fires. They were not told how
dangerously radioactive the smoke and the
debris were and many firefighters received high
doses of radiation.

In the aftermath of the accident, two hundred


and thirty-seven people suffered from acute
radiation sickness, of whom thirty-one died
within the first three months. After the disaster, four square kilometers of pine forest in the
immediate vicinity of the reactor turned ginger brown and died, earning the name of the
"Red Forest". Some animals in the worst-hit areas also died or stopped reproducing.
According to official estimates, about 95% of the fuel (about 180 tones) in the reactor at the
time of the accident still remains inside the shelter.

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3. HURRICANE KATRINA
Hurricane Katrina smashes into the Gulf
Coast of the United States, killing an
estimated 1,300 people and causing at least
$125 billion in damage, making it the
costliest natural disaster in U.S. history. The
hurricane’s eye passes just east of New
Orleans before traveling into Mississippi.
Katrina’s tidal surge breaches a levee in
New Orleans, flooding 80 percent of the city
and forcing its evacuation. The tidal surge
and high winds also devastate coastal
regions of Mississippi and Alabama. The
government’s response to the disaster, in particular, that of the Federal Emergency
Management Agency (FEMA) is criticized as slow and shortsighted. Katrina is one of 27
named hurricanes in 2005, which surpasses the previous record of 21 set in 1933.

4. INDIAN OCEAN EARTHQUAKE TRIGGERS DEVASTATING TSUNAMI


DISASTER
December 26, 2004, an undersea
earthquake measuring at least 9.0
on the Richter scale and centered
in the Indian Ocean off the
northwestern coast of Sumatra
generates a tsunami that strikes
the coasts of 14 countries from
Southeast Asia to northeastern
Africa. The disaster, one of the
deadliest in recorded history,
claims the lives of more than
250,000 people. The plight of the
many nations and affected
communities prompts a major international humanitarian relief effort.

CRISIS MANAGEMENT

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Small scale or large scale, natural disaster or industrial accident, Karachi Oil Spill or
Chernobyl, Katrina or Tsunami; a crisis can occur with little to no warning, any where, any
time. It looms on the horizon of every individual, every firm and every nation. It can shock
them, bankrupt them or completely destroy them if they are not equipped with the tool of
crisis management.

“Sooner or later comes a crisis in


our affairs, and how we meet it

Q
determines our future happiness
Robert
and success. Since the beginning
Collier
of time, every form of life has
been called upon to meet such
crisis.”

WHAT IS CRISIS MANAGEMENT?


Crisis Management is the process by which the organization manages a wider impact, such
as media relations, and enables it to commence recovery. It involves identifying a crisis,
planning a response to the crisis and confronting and resolving the crisis. It is a systematic
response to unexpected events that threaten the people, property and operating continuity
of the organization. It is a set of procedures applied in handling, containment, and resolution
of an emergency in planned and coordinated steps.

“Crisis Management is the process of preparing for and responding to an

D unpredictable negative event to prevent it from escalating into an even bigger


problem, or worse, exploding into a full-blown, widespread, life-threatening
disaster.”

PURPOSE OF CRISIS MANAGEMENT


There are several reasons as to why a crisis response is required. As previously mentioned a
crisis can transform from a minor annoyance to a very large and complex problem that may
require the business to shift large amounts of time and resources towards containing it. Also
it can threaten not only the business itself but the society in which the business operates
therefore there is an even greater need to create safeguards and protocols that can help
people to adequately respond to a crisis. Aside from this there are several other reasons as
to why a crisis response should be initiated.

1. SURVIVAL
It is the most important purpose of crisis management. Crises do occur without any
alarm-ringing and if not managed effectively, can make it difficult to survive. Here tools
of Crisis Management play their role and help a firm, an individual or a nation to survive
in and after crisis. Unfortunately, it is not always possible to prevent a crisis, and often
when a crisis has already occurred the only thing a person or company may do is
attempt to survive the crisis hopefully until it is resolved.

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“Failure to have a workable Crisis Management Program Geary Sikich,

Q is akin to playing Russian Roulette with an automatic


pistol. You don’t have the luxury of pulling the trigger on
an empty chamber.”
“All Hazards’ Crisis
Management
Planning”

2. REDUCE PERSONAL LIABILITY


It is generally known and accepted that Directors and Officers of a company are
personally at risk for the action or inaction of the corporation they serve. It is not as well
known that senior managers, agents and sometimes employees can also be at risk.
When there is a catastrophic loss because of a disaster, it is likely that individuals, other
than Directors and Officers, can be held personally liable for the loss if there are actions
that should have been taken but were not. Persons who act for organizations are in a
position of trust with that organization. They manage and protect it in the best interests
of the shareholders, who are owners of the organization. If the responsible persons
breach the duty of trust, they may be liable to the shareholders of the organization.

3. MINIMIZE NEGATIVE REACTION


As history has proven, when an organization experiences a major crisis or physical
disaster, the sudden reactions by external parties can cause more immediate and
permanent harm than the incident itself. A fire, bombing or natural disaster has an
obvious and abrupt impact on an organization’s ability to perform. The reaction of
shareholders and customers is concern for their investment and source of supply and
they will act in a manner that best protects them, without consideration for the affected
organization. These actions could prevent any organization from effectively recovering
from their disaster, either for a long time or permanently.

4. SAFEGUARD COMPANY ASSETS


At the outset of a crisis, most, if not all, company assets could be at risk. Product,
facilities, equipment and people can all be threatened by a disaster situation. Without
implemented and rehearsed emergency response programs, the chaotic atmosphere and
stressful conditions will prevent an organized and immediate response. The losses that
could be suffered will increase substantially with every passing hour. Only the immediate
actions of the organization can minimize the loss or inaccessibility of corporate assets.

5. MINIMIZE FINANCIAL LOSSES


Only a small portion of possible financial losses can be protected through insurance. The
loss of immediate sales, temporary loss of production capacity, inability to provide
services or the disruption of a distribution capability may all be minor when compared to
the permanent loss of market share through lost customers and weakened
product/service allegiance. Not to mention the huge losses of advertising campaigns.
Insurance may cover the short term impact of a disaster but unless the organization has
formal Crisis Management and Crisis Response programs implemented, the problem will
not require a short-term solution. There are many other reasons why formal crisis
response programs are required within every organization. Suffice it to say that actual
survival may be at risk. It should be noted that in the case of small scale businesses
where there is unlimited liability such as partnerships and sole traders there is an even
greater need to ensure the continuation of a firm, since the proprietors actually stands to
lose everything if the business goes under.

As we can see from the above, crises can affect a business in a number of ways. However as
we have also seen usually it is only a group of individuals who are blamed for the havoc
caused by said crisis. This is a dangerous situation for an individual as it could lead to
termination of employment. Also from a psychological perspective such issues can be a very
huge blow to one’s self esteem (people’s evaluation of their own self worth or the extent to

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which they view themselves as good, decent and competent), which in turn can affect the
way in which these individuals behave. They may become disgruntled employees working
towards harming the organization; they may lose their self confidence, they may also
develop psychological problems and illnesses which could negatively impact their physical
well being. It may even cause people to go into a state of perpetual self justification and
counterfactual thinking (mentally changing some aspect of the past as a way of imagining
what might have been).

CRITICAL SUCCESS FACTORS FOR EFFECTIVE CRISIS


MANAGEMENT
Much has been written on the subject of crisis management over the years. The amount of
research has increased exponentially over the past few years following the impact of 9/11,
SARS and more latterly the Asian tsunami. Following are certain factors for effective crisis
management.

1. LEADERSHIP
It is perhaps the most important required factor. To be a good leader, a leader must
possess following capabilities.
◊ The ability to multitask
◊ Excellent delegation skills
◊ Cool under pressure
◊ Ability to empathize
◊ Able to make quick and effective decisions
◊ Listens but comfortable in calling tough choices
◊ Self-awareness
◊ Communication skills
◊ Ability to prioritize
◊ Time management
◊ Empowered to spend company funds

2. SPEED OF RESPONSE
It is often referred to as the ‘golden hour’. This is analogous to the medical golden
hour. If a critically injured person is treated at a centre of excellence within one hour,
their chances of survival increase significantly. Pretty much the same applies to crisis
management. If your crisis response is off to a rapid start, your chances for
reputation damage decrease. This will only occur if you have an effective plan.

3. A ROBUST PLAN
Noah built the Ark before the rains came. It is for this good reason you should
develop robust workable plans before the crisis. Even if you have a plan:
◊ Do you have a comprehensive crisis plan?
◊ Or is it just a communication plan?
◊ When was it last updated?
◊ When were the contact details last checked?
◊ Who is on your nominated crisis team?
◊ When were they last trained?
◊ When did you last contact your team out of hours?
◊ When did you test with a simulation exercise?

4. ADEQUATE RESOURCES

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A big crisis is going to require a lot of help. These are just a few of the possible areas
of support you will require - and remember crises can and often occur at the most
inconvenient times - the recent tsunami is a case in point! Critical success factors
include:
◊ Instant access to cash funds
◊ Ability to handle thousands of phone calls
◊ Able to continue business as usual
◊ Rapid transport to the incident scene
◊ Legal input
◊ Access to your insurance advisors
◊ Incident investigators
◊ Emotional support
◊ Adequately equipped command centre
◊ Ability to manage the media
◊ Able to deal with other communications issues

5. FUNDING
A crisis is not the time to be ‘penny-wise and pound-foolish’. Here is a short list of
where costs can be generated. Very few of these areas are likely to be covered by
your clients’/customers’ travel insurance or your own corporate insurances:
◊ Travel and accommodation costs
◊ Trauma counseling / professional emotional support
◊ Media / PR support
◊ Use of a telephone call handling facility
◊ Crisis advisors
◊ Staff overtime
◊ Replacing lost items for survivors
◊ Refund of holiday / travel costs where appropriate
◊ Possible compensation

6. CARING AND COMPASSIONATE RESPONSE


Often overlooked, but in our opinion VITAL. However good you are managing
everything else, if you are not using every effort to look after your staff and
customers, we guarantee your crisis response is going to fall apart rapidly. Things to
consider are:
◊ Teams have necessary people skills
◊ Communicate clearly with affected people
◊ Provide basic human needs at no cost i.e. food
◊ Look after customers emotional needs
◊ Consider your staff's emotional needs
◊ Be prepared to spend funds

7. EXCELLENT COMMUNICATIONS
Whole books are written on this subject alone! Here are just a few thoughts:
◊ Develop a crisis communications plan
◊ Identify ALL your stakeholders
◊ Consider crisis media training
◊ Understand how the media works
◊ Work and win with the media
◊ Be on the front foot all the time
◊ Get a press release out within the golden hour

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◊ Express Pity, Praise and Promise
◊ Tell it all, tell it fast and tell the truth
◊ Never get defensive - however tough things get
◊ Be prepared with company information packs
◊ Get professional crisis communications support

COMPONENTS OF CRISIS MANAGEMENT


1. EMERGENCY RESPONSE
It consists of all activities pertaining to safe management of immediate physical, health,
and environmental effects of the crisis.

2. BUSINESS CONTINUITY
It is the company's ability to continue delivering goods and services despite the crisis.

3. CRISIS COMMUNICATIONS
It pertains to the internal and external PR management activities during a crisis.

4. HUMANITARIAN ASSISTANCE
The company's efforts to alleviate the physical, emotional and psychological effects of
the crisis on other people

5. DRILLS AND EXERCISES


This component allows personnel to rehearse what they need to do in a crisis situation.

All of these measures help ensure that the crisis is dealt with in most smooth manner
leaving no aspect of the crisis untouched. In the business context, this ensures that even
during the crisis the business (a profit maximizing one) can continue doing business and
look to make profits while simultaneously dealing with the crisis in hand. The basic point is
that by taking crisis management seriously, everyone can be sure to perform well under
crisis situations. However, even then there are certain factors, social and psychological
which will inhibit optimum crisis management.

METHODS OF CRISIS MANAGEMENT


1. RESOURCE REALLOCATION
Businesses will often resort to managing their resources towards ensuring that minimum
damage is sustained, both to the company’s reputation (if this is a Public Relations crisis
caused by harmful defects in products) and to its manufacturing or operations
(destruction of a major plant).

2. PREVENTION
This is perhaps one of the best if not the best ways to handle a crisis. Prevention involves
ensuring that a crisis never even occurs. While it is not always possible to do this as no
one is capable of monitoring every aspect of their daily lives and operations 24/7, it does
make sure that those crises that could have been avoided do not cause any unnecessary
harm. Prevention has several advantages. First, it ensures that very little to no resources
of an individual have to be reallocated towards subduing a crisis as it never allows one to
occur in the first place. Furthermore it shows initiative on the part of a company which
can be used as a unique selling point. However, it should be noted that often
preventative measures need to be planned and built in to a system (especially with

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respect to organization systems). This requires foresight on the part of managers as well
as a very large initial investment. However it is safe to say that the initial costs of
integrating preventative measures are far outweighed by the costs of allowing a crisis to
occur unchecked.

3. CONTINGENCY PLANNING
Often companies with the foresight will adopt pre-placed contingency plans to help them
weather the crisis. It should be noted that contingency planning can be undertaken by
people as well as organizations. Contingency planning is a five stage process:

• Recognizing the need to plan: Indeed the only way to plan for a crisis is to first
admit that such a plan in needed. It was observed that until very recently, most
businesses would never undertake this first step either due to a short sightedness or
ignorance towards the need for planning. It could also have been because of an
overconfidence barrier (the fact that people have too much confidence in the
accuracy of their judgments) that exists in the minds of a few of the higher decision
makers. It is however unknown exactly how many households and individuals
undertake contingency planning, at least with regards to crises on a larger scale than
running out of money or losing all of their possessions. It could very well be that
there is a cultural aspect to this with those in more prosperous countries being a little
more likely to plan ahead as they do not live a “hand to mouth” sort of existence.

Q
Henry Kissinger
“There cannot be a crisis next week. My schedule
(American Political
is already full.”
scientist. b.1923)

• Catalogue as many crisis scenarios as possible: This stage requires a very


pessimistic approach to management and life. This type of analysis is often called
“What If” analysis and should include as many if not all crisis situations.

• Search for ways to prevent each crisis: The third stage is connected in part to
Prevention of a crisis which was discussed earlier. It involves using those strategies
that will help avoid each crisis which has been identified in previous steps.

• Formulate plans for dealing with each crisis: Having identified all possible
crises, plans can be made as to how to deal with them. This should involve a detailed
description of what resources will be required and how they will be used to handle
the crisis situation. Resources would include land, labor and capital (both financial as
well as physical capital). This is of course with respect to firms only.

• Stimulate crisis and the operation of each plan: After preparing all of the above
stages, it is important to try and practice the plan in a simulation of the crisis. This is
done with the idea of gaining enough practice in dealing with specific crisis so that
when the time comes, people will know exactly what protocols to follow. This also has
the added advantage of identifying any weaknesses in the plan and taking steps to
correct it.

Q “Try to relax and enjoy the crisis.”


Ashleigh Brilliant (English Author and
Cartoonist, b.1933)

BARRIERS TO CRISIS MANAGEMENT

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• PSYCHO-SOCIAL ISSUES
The first one is concerned with individuals and is sometimes termed as psycho-social
issues. These relate to perception, assumptions, core beliefs and a range of
psychological processes that shape behavior. Furthermore the difficulties people have
in perceiving nature of problems they face can severely inhibit their abilities to make
sense of a situation thereby increasing the risk of error. There are several ways in
which this error can be made:

1. First there is the use of schemas in our daily lives. Schemas are part of our
automatic thinking process i.e. the type of thinking that is involuntary,
unconscious, uncontrolled and inadvertent. Even social psychologist agree
that schemas are a very good way to make quick, in the moment decisions,
however they will also agree that sometimes the use of schemas as a guide is
a very risky decision as it may result in the wrong action being taken.

2. Furthermore people are likely to be affected by overconfidence barriers where


they place too much faith in the accuracy of their own judgments. This can
prevent people from perceiving a crisis and can also lead to faulty decision
making with regards to how the crisis should be dealt with.

• CULTURAL AND
GROUP ISSUES
The next set of barriers
operates on the cultural
and group level of the
organization. They
reflect the wider set of
issues around the ways
that the organization
works, the behavior of
groups within a specific
organizational setting
and the role that
management style can
play in the creation of
cultural norms and
behaviors.
It is assumed that a
group can make better
decision than individual
and that is why in crisis
situation, group
decision is given more
preference than that of
an individual. But below
are certain factors
which can cause a group to make worse decisions and can create hurdles in crisis
management.

1. Process Loss: Any aspect of group interaction that may inhibit good and
effective problem solving or decision making. While there are several different
forms of process loss, they all invariably lead to the same problems. The following
is a list of the more prominent forms of process loss:

14
o Lack of shared information: It is common for people in a group to focus only
on information that is common to all the members of a group. Even in the
situation of DaimlerChrysler this will hold true. Suppose the group were to
meet up to formulate a plan to solve the crisis. They have just finished
creating a rough idea of a plan to solve the current crisis but the plan is flawed
because the group has not taken one piece of information into account. The
reason for this is that one member had access to this information but was
under the impression that the rest of the group was also aware of it and had,
as a result, taken it into account. Therefore he never brought it up in the
meeting. This lack of sharing information could possibly result in a plan that is
ineffective at averting the crisis or even worse, a plan that worsens the effects
of the crisis.

o Groupthink: A kind of thinking in which group cohesiveness and solidarity is


more important than considering the facts in a realistic manner. As can be
seen from the above situation involving DaimlerChrysler, several of the
antecedents and symptoms of groupthink can be identified:

1. It is stated in the article that one of the co-chairmen left his post thus
leaving his partner as the sole individual in charge of the organization. This
in turn could have lead to a classic groupthink symptom where there is a
directive leader who controls all decision making.
2. Furthermore all of the issues that soon followed such as the lay offs, and
pulling out of shareholders etc. could have created a high stress situation
for the new chairman and (assuming he had any) his team of advisers
considering that naturally the group would itself be blamed for not taking
preemptive action to ensure that the crisis did not get out of hand.
3. The fact that profits initially rose could have meant that group
cohesiveness may have increased. People may have felt that it was the
decision making powers of the top management that led to the success,
and as a result the interest to be part of this group may have increased. It
may have also created an illusion of invulnerability in the group, which
made it think that it was incapable of making mistakes.
4. The fact that several German managers were placed into important
positions at Chrysler could be considered a way of creating a group
isolation environment. It could also have been done as a way to set up
mind guards to protect the leader from conflicting decisions that could
have jeopardized the cohesiveness of the group.
5. It is possible that the decisions made in point 4 could have been due to
poor decision making procedures; also it could have been done due to a
false belief in the moral correctness of the group.
6. It is also worth mentioning that the article mentions that discord (that is to
say disagreement) had erupted behind the scenes of DaimlerChrysler. This
could have resulted in pressures to make the dissenters conform to the
norm. When this strategy did not work, they were fired or perhaps even
forced into retirement. This point of view will be further expanded upon in
the section on social influences.

The end result of all of this (that is group think, group polarization and lack
of shared information) is that it disrupts good decision making in the
following ways: because of a need to maintain high cohesiveness the
group does not consider other points of view or other options that may be
more viable. Also the group becomes isolated. Furthermore a group has a
directive leader, there is high stress in the group, and there are a very
poor set of decision making procedures. To protect itself from these

15
potentially group threatening ideas several steps will be taken including
group isolation, self censorship, pressuring those of other views to
conform, creating a false sense of unanimity and implanting mind guards.
In the end the group ends up doing incomplete surveys of alternative ways
to solve the crisis, fails to examine the risks of the chosen plan, there is
poor information search in this regard as well also there is failure to
develop contingency plans which as we have already discussed is a very
important way to avert or at least contain a crisis. To explain further take
the example of DaimlerChrysler provided above. Suppose that there is a
way to avert the crisis described but it involves creating a disruption in the
group then it will not be taken into consideration. The sad fact is that ever
individual is susceptible to these barriers as invariable we all belong to
some sort of group and we all face a crisis situation at some point in our
life times.

2. Social Influence: This is the effect that the words, actions or even the mere
presence of other people have on an individual’s thoughts feelings attitudes or
behaviorisms. Primarily, there are two different variants of social influence and
both of them can apply here.

o Informational Social Influence: The type of social influence that occurs


when people do not know what is the correct thing to do or say. They
essentially put their faith in the actions of other believing that they may
know more about a given social situation then the individual. As such
informational social influence may not have played too large of a role in
the crisis faced by DaimlerChrysler. However, for the moment let us
assume that one of the members of the advisory team was a relatively
new member of the group. In such a crisis oriented and potentially
ambiguous situation where he is surrounded by people who in his opinion
are experts, he may have had no choice but to conform to the
expectations of his group. It should be noted that in this case there is a
situation of private acceptance in that he individual conforms to group
expectations because he/she genuinely believes what the group is doing
or saying is right.

o Normative Social Influence: A form of social influence that occurs when we


change our behaviors to match those of others as we want to remain a
member of that particular group. This form of social influence can be said
to have a very important and profound effect in this situation. Recall that
we mentioned how there was dissention within the ranks of
DaimlerChrysler. In such a situation very powerful normative pressures are
placed on the individual to conform. Initially other group members will try
to bring the dissenter back into the fold by talking to him and trying to
persuade him to accept the general views of the group. Assuming this
does not work, the individual is ignored by the group and may in fact not
even be allowed to express his/her own feelings. This may in turn create
an illusion of unanimity within the group. Furthermore, if the group
successfully manages to persuade the dissenter to conform to the group
norms, it may lead to him/her self censoring their conflicting viewpoints.
This is because usually normative social influences result in public
compliance a situation where people overtly conform to the group norms
but privately do not believe what the group is doing or saying is correct.
The question of why we change our behaviors to suit the group’s social
norms and rules is in part due to a phenomenon called the “Looking Glass
Self”. Invented by the sociologist Charles Horton Cooley, the “Looking

16
Glass Self” theory is composed of three parts. First it states that we
imagine how we appear to other people. Next we imagine the judgments
other people make about us based on that appearance. Finally, we develop
ourselves via and based on these judgments. In order to gain approval and
hence earn the companionship of the group we must ensure that they
make a positive judgment about us and then do everything in our power to
maintain this favorable judgment.

• ENVIRONMENTAL PRESSURE
Finally the last set of barriers exists at the system level and include a range of
structural and environmental pressures and constraints that impact upon the
organization at various points in time and space. These also include issues around
complexity and its impact upon management.

WHAT TO DO IF CRISIS COULD NOT BE PREVENTED?


As was the case with DaimlerChrysler, it is not always possible to avert a disaster and
invariably in such situations there is very little an organization can do except try and
weather the crisis. This is a process of several steps

1. Do an objective assessment of the cause(s) of the crisis: In order to do this though


people must first start using their own cognitive abilities rather then succumbing to
social influences and becoming, quiet literally in some cases ‘one of the mob’. This is
essential irrespective of whether we refer to an individual or a business. By adequately
and effectively caring out an objective assessment people will be capable of decreasing
the overall impact that the crisis may have on an individual’s life. In the case of
businesses or other social groups, this objective analysis can also be heightened by
bringing in people from outside the organization, who can give their own views on the
situation without worrying too much about the impact conflicting decisions may have on
solidarity of the group. There is also the added advantage that it will prevent a tightly
knit social group from becoming susceptible to group think and group polarization. Group
think is when maintaining group cohesiveness and solidarity is more important that
considering the facts in a realistic manner.

“The easiest period in a crisis situation is actually the battle


itself. The most difficult is the period of indecision — whether

Q to fight or run away. And the most dangerous period is the


aftermath. It is then, with all his resources spent and his
guard down, that an individual must watch out for dulled
Richard M. Nixon

reactions and faulty judgment.”

2. Determine whether the cause(s) will have a long term effect or whether it will be a short
term phenomenon: There are several ways to tackle this and they primarily revolve
around whether we take the crisis to be with regards to an individual or a firm. A firm
may begin to consult graphs in order to look for trends that may give them an idea of
exactly how long the crisis will last. They may also call in experts on the crisis to give
their own professional opinions to ascertain how long the crisis may last. As for
individuals, they may begin to consult their past schemas about similar situations and
what measures were taken to reduce the overall impact of the previous crisis. Further
more it should be noted that individuals may also, as stated earlier, utilize informational
social influences (which is the influence of other people that leads us to conform because
we see them as a source of information to guide our behavior) and act in a similar

17
manner to how people around them are reacting to a crisis. While this is a good way to
respond to a crisis situation, care should be taken that they do not fall prey to pluralistic
ignorance where bystanders assume that nothing is wrong in an emergency because no
one else looks concerned. If they see that a group of people are not responding to a crisis
they too will act as if the crisis does not exist. This in turn will not only result in a lack of
focus on the crisis at hand but may also allow the crisis to increase in destructive
magnitude.

3. Project the most likely course of events: Forecasting techniques and referring to similar
situations that may have occurred in the past is a very effective way of properly
predicting how the crisis will run its course. Also a company could construct decision
trees to help them clearly see exactly what options are available to them and the
probabilities associated with those options, that is, how likely those options are to fail or
succeed.

4. Focus all the most capable people (this would include yourself as well) on activities that
will mitigate or eliminate the problem: It should be noted however that this will severely
affect the company’s performance in the short run as more and more resources will be
diverted to reconciling the problem and this may in turn affect short run cash flows.

5. Look for opportunities - there could be a "silver lining": This can best be achieved using
management tools such as SWOT (strengths, weaknesses, opportunities, threats)
diagrams and other management techniques and models that help to make sense of the
social situation.

6. Immediately act to guard cash flow: While this is not something that is too relevant to an
individual, it is important in terms of businesses as this is supposedly the main reason
why most businesses fail within the first year of operation.

H. G. Wells (English Novelist,

Q “The crisis of today is the joke of


tomorrow.”
Journalist, Sociologist and
Historian. Best known for his
science fiction books. 1866-1946)

DaimlerChrysler CASE REVISITED


Each crisis is unique, and managers adjust and respond differently to each situation. In
addition, the same situation may be a crisis at one time, but not at another. As noted in the
case given at the start of the chapter, the cultural differences between Daimler-Benz and
Chrysler were an important foundation for the mutual attraction between the two
companies. The Germans admired the entrepreneurial spirit and innovative thinking of the
Americans, while the Americans respected the methodological engineering and technical
capabilities of the Germans. The leaders of these two corporate giants were attracted to
their opposites. And, like many marriages of opposites, the differences led to a crisis
disaster. No one seemed to know how to discover common ground and act on the crisis
situation at hand.

18
It would have been much better if Schrempp had recognized the crisis as an organizational
culture issue, gathered around him a special team of culturally-sensitive Daimler and
Chrysler management personnel and, in this major crisis situation, taken action to
appropriately inform individuals that he and his team were personally responsible for
managing the process of response.

The language of crisis conditions is very important. In times of crises, words and their use
have great power. Consequently, the public affairs office of the firm needs to be kept
informed of all issues relating to the crisis as well as any element that has the potential of
becoming an issue. In crisis situations, the president and other selected people, particularly
key stakeholders, should be informed as expeditiously as possible if they are not directly
involved. In other words, all appropriate stakeholders should be appropriately informed in a
timely manner.

BIBLIOGRAPHY

• Key Readings in Crisis Management


o System and Structures for Prevention and Recovery

19
o by Dominic Elliot

• Docleaf Crisis & Risk Management

• Microsoft Encarta 2007

• Crisis Management and Disaster Recovery Info


o www.crisismanagement-disasterrecovery.com

• MSN Encarta
o encarta.msn.com

• (www.businessdictionary.com)

• (en.wiktionary.org)

• (en.wikipedia.org)

• (www.dti.gov.uk)

• (www.siliconfareast.com)

• (www.availability.sungard.com)

• (www.greenpeace.org)

• (www.amusingquotes.com)

• (www.thinkexist.com)

• (www.strangewondrous.net)

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