Crisis Management-Harvard business course

By Joel Perez,2014-08-27 18:29
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Crisis Management-Harvard business course

    What would you do if your best employee quit tomorrow? What if your office building caught on fire and you were unable to access your computer or files for weeks or

    worse, lost your personal desktop files altogether? Would you be able to continue to do your job and keep your commitments to your customers, vendors, and contractors? Many people think of crisis management as a job for internal audit groups, senior executives, and public relations professionals. And it’s true in part — crises such as

    product tampering, food contamination, or fraudulent earnings reports are best handled by these people. But there are other unplanned events that could have a devastating impact on your group and organization. Crises such as a vendor’s failing to complete a critical deliverable, or the long-term illness of a crucial staff member, could make it difficult or impossible for you to carry out your business operations. But with good planning you can minimize the impact of a potential disaster or even avoid one


    Although there is no simple formula for eliminating crises, the following six stages of crisis management can make a difference in how successfully you cope with your next crisis. The six stages are:

    Perform a crisis audit

    Prepare a contingency plan

    Recognize a crisis situation

    Contain it

    Resolve it, and

    Learn from it

    The following example demonstrates each of these stages in practice. Don recently

    started a new position as product manager for an electronics manufacturer. He knows he has much to learn about his new group and commits his first several months to strategic planning. As part of his efforts, he wants to take a close look at his division’s weaknesses and vulnerabilities. He’s at stage one of the crisis management process: performing a

    crisis audit.

    He generates a risk list by asking himself two questions: “What are the worst things that

    could go wrong?” and “What are the most likely or probable crises that could occur?” He

    narrows the list by focusing on the crises that would have the worst result and are the most likely. His list includes: loss of design data and customer relationships if key team members were to leave; manufacturing delays due to aging equipment; and difficulty delivering client orders if transportation workers were to strike.

    Having selected key what-if scenarios and analyzed possible consequences, Don is ready for stage two of the crisis management process: preparing a contingency plan. He looks

    for ways to avoid each potential disaster, including identifying qualified people to succeed key personnel should they leave; repairing or replacing aging equipment if it malfunctions; and investigating the possibility of a short-term contract with independent

    delivery companies if transportation workers strike. As he goes through the exercise, Don considers who should make decisions and who should be notified in each scenario. He thinks about when to notify people of a potential crisis. For example, if transportation workers threaten a strike, Don would contact senior executives, other product managers, vendors, and customers immediately. If a piece of equipment malfunctions, Don would notify senior management right away, but communicate with customers only if their shipment would be delayed.

    With his crisis audit and contingency plan completed, Don is feeling pretty good and turns his attention back to day-to-day operations. The following week, however, he is confronted with troubling news. He hears a rumor that a major customer may file for bankruptcy. He just shipped this customer a $300,000 order and has yet to receive payment.

    Don is suddenly thrust into stage three of crisis management: recognizing a crisis

    situation. He quickly gathers as much information as he can to determine the severity of the situation. He calls the accounts receivable department and discovers that this customer not only hasn’t paid for this shipment, but is also 30 days overdue on a payment for a previous order from another department. While Don knows he has a tendency to overreact in times of stress, he decides this potential financial loss is indeed a crisis. He’s ready to move on to stage four of crisis management: containing the situation.

    Don hadn’t anticipated this particular crisis during his stage-one crisis audit, so he has to

    make decisions on the fly. While he is tempted to keep the information to himself until the rumors are confirmed in hopes that the customer won’t actually declare bankruptcy he believes the right thing to do is to notify his boss and the legal department immediately. When he contacts them, he communicates all the bad news at once. He is

    careful not to speculate, and does his best to provide as much detail as possible. Don is also tempted to spend time looking for someone to blame. After all, he wonders why accounts receivable didn’t notify him that there was an outstanding bill before he sent the more recent shipment. But he reminds himself he’ll have time to analyze the causes after the crisis is over. Right now he needs to focus his energy on stage five of

    crisis management: resolving the crisis. He phones the customer to gather information

    on the status of his bill, while the legal department gets documents ready in case the customer files for bankruptcy before payment.

    A week later, Don hears that the customer has indeed filed for bankruptcy. Despite his efforts, Don has been unable to secure any payment for the shipment before the filing. Now he must wait to see if the legal department has any success getting at least partial payment through court proceedings.

    Don is disappointed and frustrated. He gives himself some time to recover from the stress of the situation before scheduling a meeting for stage six of crisis management: learning

    from the crisis. In his review, he learns that a mistake he made during the first stage

    conducting a crisis audit contributed to the situation. Instead of performing the audit by himself, Don should have consulted others. Had he involved individuals from the legal and accounts receivable departments, as well as other product managers, they might have identified the possibility of this crisis before it occurred. And had they discussed it, they

    might have come up with ways to mitigate the risk, such as requiring at least partial payment before shipping a large deliverable a policy Don immediately implements for

    the future.

    Like most crises, this situation was a painful one for Don. But it was also a learning opportunity, and will help him minimize or even prevent similar problems in his future.

    You’ll likely face similar difficult situations as a manager. You can’t predict or prevent every crisis. But using the six stages of crisis management can help you plan for and

    mitigate the potential disasters in your future.

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