Crisis Management

• Suggested Readings:
Management – by V.S.P. Rao , Chapter 27, Pg. 758
 AGENDA
• What is Crisis Management?
• Crisis Management objectives
• Crisis Management Life Cycle
• Example
 What is Crisis Management?
• The overall coordination of an organization's response to a crisis, in an
effective, timely manner, with the goal of avoiding or minimizing
damage to the organization's profitability, reputation, or ability to
operate.

• Crisis management involves identifying a crisis, planning a response to

the crisis and confronting and resolving the crisis.
 Crisis management objectives
Crisis management has four objectives:

• Reducing tension during the incident;

• Demonstrating corporate commitment and expertise
• Controlling the flow and accuracy of information
• Managing resources effectively
 The Crisis Life Cycle
• Stage one: The Storm Breaks

• Stage two: The Storm Rages

• Stage three: The Storm Passes

1- The Breaking Crisis (The Storm Breaks)

• Control seems to be slipping out of the company.

• Lack of solid detail about the crisis. Hard-to-provide information

demanded by the media, analysts and others.

• Temptation to resort to a short-term focus, to panic and to speculate.

• For a period of time, everyone loses perspective.

2- Spread and Intensification of Crisis (The Storm
Rages)

• Speculation and rumours develop in the absence of hard facts.

• Third parties- regulators, scientists and other experts – add weight to

the climate of opinion.

• Corporate management comes under intense scrutiny from internal

and external groups.
3- Rebuilding Needs (The Storm Passes)

• To manage reputation - There are opportunities in a crisis to build

positive perceptions of the company or product that last beyond the
crisis period.

• Company communication/ culture - The company embarks on a long-

term programme to tackle management issues and communication
problems that exacerbated the crisis.
Eg – Johnson & Johnson
 Introduction

• Founded by three brothers Robert wood Johnson, James wood

Johnson and Edward mead Johnson .

• Company introduced first commercial first aid box, baby powder, no

more tear shampoo and modern form of medicine packaging along
with many medicines.
 Problem
• 1982 , Tylenol leading painkiller sold by Johnson and Johnson was
tempered with cyanide and 7 people died in US.
• Reported that an unknown suspect put 65 milligram cyanide into
Tylenol capsule and tampering occurred when product reached to the
shelves.
• Company immediately call back the product from the shelves and
faced loss of about 100 million .
 Effect of this crisis
• In 1982 Tylenol was covering the 37% of market share with revenue
of 1.2 million.
• After this incident market share reduced to 7 %.
CHALLENGE FOR COMPANY:
• To find a best way to deal with this problem without destroying the
company’s image and its most profitable products.
• They have to provide a better product protection before re-
establishment of product.
 COMPANY’S MOVE

• Reintroduced the product with triple seal temper resistant packaging.

• Offered a $ 2.50 off coupon on the purchase of their products. They
were available on news papers and toll free numbers.
• 25% off on the purchase of product to recover the loss in stock crisis.
• 2250 sales people made presentations for the medical community to
restore trust on the product.
 Cost and the benefit
• Company won praise on its quick and appropriate action.
• Within five months company had recovered 70% of market share for
the drug.
• So there is a evidence that consumer rewarded the company by
switching from other painkillers to the Tylenol.
 Causes of success
• Acted quickly , removed any source of danger and does not wait for
the other evidences.
• Showed that measures had taken which would prevent such type of
problem.
• Showed themselves as to be prepared to bear the short term cost in
the name of the consumer safety
 SMARTEST WAY TO HANDLE CRISIS

• Avoid crisis in the first place.

• Quickly address and resolve crisis before they escalate
• Seek possible ways to turn your crisis into an
opportunity
Lessons to be learned for companies
 Prepare a system that will allow you to respond to
the emergency.
Develop policies to deal with emergencies.
Create a crisis management team.
Assemble an organize resources.
Distribute an emergency procedures guide.
 Conclusion
• Crisis can come at any time you should be prepared for it.
• A proper planning and decision making.
• Johnson and Johnson’s has set an impressive example in Tylenol case.
• Other companies can learn a lesson from it.
THANKS