Why all businesses should have one
Disaster can strike at any time, which is why all businesses should have a crisis management plan in place.
When you consider all the events that could send a 21st century business to ruin, it is a wonder that the entrepreneurial spirit is still alive and kicking. While fraud, corruption and natural disasters date back to ancient times, senior management in the modern day workplace needs to be prepared for all sorts of catastrophes, from cyber-terrorism and cancer clusters to avian flu.
But evidence suggests that many Australian companies are not in a position to adequately respond to a crisis.
"A crisis is something unexpected - a single event such as a plant fire, or a series of escalating events such as ethical breaches - that threatens the viability of a company," says Dr Les Coleman, a risk strategy expert at the University of Melbourne.
Each year, approximately three large Australian firms are impacted by a crisis, according to his research. Of these, over a quarter do not survive.
"Crises aren't that common, but they can be deadly. Preparation is well worthwhile," he says.
For this reason, it is vital for a business to develop a strategy to deal with a variety of situations.
Large firms are more exposed to crises and are under extreme pressure when one does occur because the public has higher expectations that it will execute a flawless recovery, according to Dr Coleman.
However, others believe small businesses are equally at risk, and that they too must be prepared for the worst. In fact, Associate Professor Robert Heath of the University of South Australia's School of Management goes as far as saying that all people, not just all businesses, should develop a plan to deal with life's unexpected twists and turns. "People should have a continuity plan for their own lives: 'What happens if I lose my family?'; 'What happens if I lose my home?' "
When disaster strikes
It is perhaps surprising that around 25% of big businesses fail to recover from a crisis, considering the brainpower and financial muscle that are so often behind them.
Yet all too often management fails to recognise that an emerging issue has the potential to transform into a full-blown crisis. By the time it becomes glaringly obvious that a situation is threatening the business, management is either not sufficiently prepared to respond or has left it too late to minimise the damage.
Dr Coleman says the vast majority of crises occur during routine operations and are rarely dramatic acts of God.
"Most firms have a risk management system in place to prevent failure in routine processes: they have auditors, occupational health, safety inspectors and so on continually checking these areas. An operational crisis occurs when one of these processes breaks down, so the exposures are usually well known," Dr Coleman says.
In certain situations it may be possible for a business to prevent a crisis from occurring by identifying any indicators that may point to trouble on the horizon.
"The key to successful crisis control is speed, accuracy and credibility. People lose credibility because they let the crisis go too far," says Ross Campbell, whose company, Ross Campbell & Associates, has developed crisis management plans and training programs for several companies and governments, both in Australia and overseas.
He says businesses should pay attention to "issues", which are often precursors to larger events. Ideally a business should remain proactive, working to prevent emerging problems from getting out of control.
"An issue is a problem in business that's bubbling away or causing some grief or some difficulty in the business process, which has the potential to escalate. I'd suggest that there are hundreds of thousands of millions of crises sitting on people's desks right now that haven't got to that point. They're just issues, they're bubbling away."
External events can also trigger a crisis, as players in Australia's financial services sector are all too aware. If businesses want to decrease the risk of being taken by surprise, they need to take into consideration events in the world around them, according to Prof Heath.
"What you've got to do is look at the big picture, and look at the small picture, and look between the pictures. Think of the world as the big picture and think of your business as the small picture. Your industry and surroundings are the inner-stages of that picture," Prof Heath says.
Planning ahead
A comprehensive crisis management plan is essential for any business that wants to survive and thrive in the long term, but developing an effective strategy takes time and commitment.
A good strategy has three core functions, according to Dr Coleman: "[It must] deal with the cause of the crisis... make good any loss or damage to affected customers and third parties, and secure the firm's reputation throughout the process."
The first step a business should take when developing a crisis management plan, according to Campbell, is to gain the support of senior management. If a crisis does occur and the company chiefs are not willing to stick to the plan, chaos will ensue.
Secondly, it is necessary to identify and measure all threats to the business.
From there it is important to appoint a crisis team and ensure that all members are fully trained in how they should respond in any given scenario. Campbell recommends creating checklists that will act as prompts during a real-life crisis.
One criticism Prof Heath has of many strategies is that they tend to focus too heavily on what steps they need to take to resolve a situation without considering 'Plan B'. He stresses that businesses must also consider alternative methods of achieving a goal in the event that a crisis prevents a particular course of action.
Know the drill
It is not enough to simply develop a crisis management plan - it needs to be put to the test.
Undertaking crisis response drills can help a business detect faults in a plan that, if otherwise gone unnoticed, could cause mayhem during a real-life disaster.
For instance, when one UK company put its strategy into action, it discovered that if its headquarters were destroyed, several key staff members would be unable to temporarily relocate to an alternative office 40km away, as many were single mothers with young children.
"No one had sat down and asked the staff if they were able to do it. They had just made an assumption," Prof Heath says.
He suggests that to help plug any holes in a strategy, it is important to hold a staff briefing every six months or so to discuss aspects of a plan.
It is also essential to train staff members who will be expected to assist during the actual event.
"The last thing you want in a crisis is people wandering around trying to work out if they have a part to play," says Bevan Lisle, director of Hawker Britton, who manages the communications and reputation management practice of the public affairs company.
While management may consider this to be a drain on productivity and resources, it is also important to consider the potential costs to a business if employees are unprepared for a situation.
Developing such a strategy can actually be a rewarding process for a business, as it can inspire staff and help them understand the business better, Prof Heath says.
While senior management will clearly have the most responsibilities during a crisis, it is also important to consider how junior staff will behave under pressure. For instance, it may be important for a company to brief the receptionist on how to handle media enquiries to ensure he or she does not say anything inappropriate.
A crisis can also be extremely traumatic for employees, and a business should take this into consideration when undertaking training and prepare staff for the likely psychological impact, Dr Coleman says.
Media matters
It may be a clich‚, but the old adage that 'honesty is the best policy' is a key component of good crisis management. Any attempt to cover up a crisis is likely to seriously backfire, as chances are the media will eventually pick up on the story.
By distorting facts or failing to disclose information, a company can cause irreversible damage to its reputation, according to Prof Heath. "Never lie to the media," he says.
In fact, the media and public are more likely to respond positively if information is disclosed to them in an open and transparent manner.
The way in which a business communicates with its stakeholders during a crisis is pivotal - it can make or break its chance of emerging intact. Failing to keep interested parties informed of a situation will only make a bad situation worse.
Aside from leading to a negative perception of a brand amongst the broader public, remaining tight-lipped about a situation will cause existing stakeholders to lose faith in the business.
"You've got to be candid and credible, and credibility translates into fair treatment," says Campbell.
As a matter of fact
While it is important to be open and transparent with the media in the face of adversity, there is also a need to ensure all information disclosed is of a factual nature. Gathering accurate information during a crisis can be a challenge, and for this reason it is essential for a spokesperson to get the facts straight before briefing the media.
"Look for information, precise information, because you're in a state of uncertainty. In a lot of events, if they're dramatic, about 60-80% of information can be wrong or missing and you need to be able to deal with that," Prof Heath says.
Consider the way in which former Defence Minister Brendan Nelson responded to the death of Private Jake Kovco, an Australian soldier killed in Iraq. Nelson had to change his account of the soldier's death after it was revealed his initial statement to the media was incorrect. The incident caused distress to the dead soldier's family and embarrassment to the government.
Prof Heath advises against speculating about a crisis before the facts are clear. Admittedly, this can be difficult when persistent journalists are pushing for answers, but there are certain techniques that can be employed to avoid making such a mistake.
"If people force you to speculate, use bale-out clauses," Prof Heath says.
For instance, British Airways has been unable to comment on the reason behind a plane's recent crash-landing at Heathrow, citing the need for a full investigation.
Despite this, crisis experts believe it has, to date, successfully handled a situation that could potentially devastate an airline.
The need for speed
The fast-paced nature of the media makes it challenging for a company to control the news, but with the right media strategy it is possible for a business to emerge from a crisis with its reputation intact.
"During the first 24 hours, if it's an impact-type crisis, people will feel sorry for you and they'll want basic information. [Journalists] will run with what you're saying. Forty-eight hours into an event and they'll hope you're giving them a fair amount of detail. By 72 hours they're looking for the story behind the story," Prof Heath says.
Because time is of the essence during a crisis, a company should contact the media as soon as possible, according to Campbell.
"Talk to the media rapidly ... if you don't get your message out quickly, somebody else will," he says.
Campbell points to the Beaconsfield mine disaster in 2006, in which one man died and two were trapped for days following a rock-fall. While the crisis was handled successfully, according to Campbell, it is important to note that the main spokesperson who kept the media and public informed of the rescue operation's progress was not a goldmine representative.
"[Former Australian Workers Union national secretary] Bill Shorten flew in and took the high ground and communicated to everybody what was happening, but from a union standpoint," Campbell says.
During a serious crisis, a company may even consider giving hourly briefings to the media, in an effort to discourage journalists from seeking out information from other sources, Campbell says. By constructively helping journalists, a company is more likely to be perceived as being transparent and cooperative.
It is also important to liaise with others involved in solving the crisis, for instance the police, because "you don't want two sides to a story", Campbell says.
A business should appoint a spokesperson who will become the 'public face' of the company during a crisis. This does not necessarily have to be a public relations professional, as it can actually be beneficial to assign the role to an employee with no media experience. Prof Heath says this is partly because the public can react cynically to 'spin-doctors', but also because Australians have a high regard for 'action people', or those who have a hands-on role in the company's day-to-day operations.
However, it is vital that the spokesperson has undergone media training. "It's not the easiest thing to talk to the media when things go wrong," Prof Heath says.
In an age where bloggers are becoming increasingly influential, the internet should also be utilised as a way to communicate the status of a situation.
"You've really got to take control of the web because much of the rumour and innuendo doesn't happen on the front page of a newspaper, it happens in blogs with people forming opinions," Campbell says.
Stepping up to the mark
While it may seem obvious that a business should be honest and accountable during a crisis, there are too many examples of companies who have collapsed as a result of a crisis or whose reputations are still scarred by bad crisis management.
Regardless of the sector, all businesses need to be prepared for the worst.
"The basic elements of working through a crisis are the same - not speculating, getting to the facts, being transparent about the problem and what you intend to do about it," says Lisle.
"For the finance sector, like any sector, it's not a time to gild the lilly. It's a time to remember that management will be under intense scrutiny. The performance of management under that spotlight may be far more important for investors than, for example, the full extent of the insurance coverage of the loss brought on by the crisis," he adds.
Steps to success
To succeed in a crisis, firms must take the following key steps, according to Dr Les Coleman, risk strategy expert at the University of Melbourne:
- Adopt a policy of prudent over-reaction on the basis that information is permanently inadequate and crises usually move further than anticipated. Immediately take no-regrets and low cost actions that could be useful.
- Recognise that the crisis has come from a major mistake, and therefore adopt zero tolerance for under-performance and further error. Ensure that excess resources are put in place, skills are contracted in from experts, external scrutiny is welcomed through procedural auditors, and senior management is intimately involved.
- Listen for the voice of the customer and ensure that stakeholder needs - that of the customer, community, employee and shareholder - receive respectful consideration.
- Pay great attention to communications by never making a statement that is not 100% correct and completely comprehensive. Provide an excess of information using all media (not just press releases and interviews, but internet sites, internal communications and background briefings). In addition, keep the firm's best advocates - customers, employees and shareholders - fully informed, and ensure the top person is highly visible.
Expect the unexpected
For mortgage broker Jason Allen, a bicycle accident was all it took to realise the importance of being prepared for unexpected events.
While riding his pushbike in July last year, the owner and manager of Australian Pensioner Equity Finance fell and broke his left wrist and right elbow, as well as a little finger.
Hospital staff told him his arms would be completely immobile for around five weeks.
"Potentially it was catastrophic for my business... I was out of action for five weeks at full capacity," Allen says.
It was a difficult period for his firm, but fortunately Allen had back-office staff and a trainee mortgage broker who were able to assist with additional duties.
Although the business did suffer - Allen was forced to refer a number of clients to other mortgage brokers and response times were delayed - he says the damage was both minor and temporary.
The experience was a wake-up call to Allen who says he had never considered that a personal injury could potentially destroy his business.
Since then, he has developed a comprehensive crisis management plan to ensure his business will survive in any number of possible scenarios, from relatively small incidents - such as the loss or theft of a laptop - to far more serious events, including his office burning down and even his own death.
"After the accident it became very clear that a crisis management plan had to be an integral part of my business plan ... a small business will suffer if it's not prepared for a crisis - no matter how unlikely it seems," Allen says.
What not to do
Mineral water supplier Perrier's reputation was left in tatters after its botched handling of a product recall in 1990.
After the discovery of benzene - a chemical not approved by US authorities - in its mineral water, Perrier announced a voluntary recall of its products in the US.
Company spokespeople gave different accounts for the reason of the presence of benzene, which later turned out to be false.
As media interest in the story grew, it emerged that Perrier's mineral water, which was marketed as being naturally sparkling, was in fact carbonated by the company.
The costs to the company were great. It was eventually forced to recall 160 million bottles of mineral water from around the world. The damage to Perrier's reputation was severe, leading to a loss of market share, which affected company value.
The way in which Perrier handled the situation is now used in the public relations industry as a text book example of what not to do in a crisis. It has been criticised for responding slowly to the crisis, evading the media, making inaccurate statements and failing to issue a public apology in the early stages of the event.
