Complete Guide to Crisis Management

Introduction

Types of Crises

In the art of war, it is said a danger is no longer a danger if you know it in advanced. This basically means one has to be prepared for danger (or crisis). In fact, one can learn much from relief and disaster management team. They anticipated disaster and are well prepared for one!

Business crises come in 3 main forms namely financial, process and reputation crisis. Of course we can expand crises to all 7 pillars of a business where each can have their own crisis. The first two are internal to the company while the last is somewhat external. Financial and process crises can be mitigated via risk assessment and planning. Reputation crisis is external to the company that needs monitoring.

The key to crisis management is to be responsive rather than being reactive. Being responsive does not mean slow. Crises can set a company backward many years of efforts building that business.

Financial Crisis

Financial crisis comes about when a business goes into cash flow issues and requires additional funding to keep the company afloat. Sometimes it could be bad debt or delayed payment from vendors. Crisis Management for issues like these can be avoided usually by:

  1. Planning for adequate cash flow for at least 3-6 months of operation.
  2. Not to over-commit to production (of services or products) without taking into consideration in the event of delayed payment.
  3. Diversify revenue model.
  4. Avoid over-dependent on a few main customer to generate revenue.

Process Crisis

Process crisis occurs more often with manufacturing companies when a downtime of machines means unable to fulfill orders and therefore revenue generation. Crisis Management for such process crisis can be mitigated by:

  1. Rotating between machineries therefore allowing some downtime for machinery recovery.
  2. Service machineries whenever possible.
  3. Avoid procurement of machineries based on costs. It may cost you more in the long run.

Crisis Beyond Control

There are, however, certain crisis that are beyond the control of businesses. Such events may include:

  1. War
  2. Taxes – like those in a trade war.
  3. Huge currency fluctuations due to major economic shifts – especially for businesses that have cross borders trading.
  4. Sudden death of many key personnel not planned for.

Currency fluctuations can be mitigated by FX options. Sudden death of key personnel can be a major disruption to the business but can be better managed with a succession plan. Sudden death of many key personnel can be avoided by not allowing all key executives to be on board a plane at the same time.

Reputation Crisis

The last crisis we identified is the reputation crisis. This form of crisis may affect reputation of the company and therefore customers’ confidence and acceptance of the company and its products and services. One golden rule applies to solving all crises – Preparation! Especially in reputation crisis, you do not know when your company might be in the center of trending topic (for the wrong reasons). This can happen at any level of your organisation. It could be your sale assistance’s difficult encounter with a customer who had a bad day or it could be a mistake in your marketing campaign.

A bad review can end up snowballing into a major crisis if not handled properly. Reputation crisis can take in a form of media crisis. Reputation crisis could also be recalling your product(s) due to a design fault (like a air-bag malfunction) which shaken customers’ confidence. A cyber breach compromising clients’ profile could also be a reputation crisis.

In this digital age, being prepared in media crisis is probably an essential tool all businesses ought to have. There is a Chinese saying, Good news has not stepped out of home but bad news had already travelled a thousand miles. Somehow we must reckon the fact that bad news tends to draw more attention than positive ones.

SUT Crisis Management Model

Introduction

At SUT, our model for reputation crisis management is AIMSS, which stands for:

  • A – Anticipate the crisis
  • I – Identify the crisis management team
  • M – Monitoring system
  • S – Stakeholders to be identified and informed
  • S – Solve the crisis

A-I-M steps are usually done at the pre-crisis stage. If you are already in the midst of a crisis, you must be able to anticipate how this crisis may grow. The last 2 steps are involved during the crisis. After solving a crisis, the team learns the experience and is able to better anticipate the next potential crisis.

SUT Crisis Solving Model

SUT Crisis Solving Model

A – Anticipate the crisis

Knowing where the likelihood of a danger to happen reduces the damage caused by that danger when it happens. Note that the keyword here is “where” and not “when”. In the social media age, companies that are in the B2C (business to consumers) business are more prone to having a reputation crisis. In fact, the larger the consumer base, the higher the chances of a reputation crisis. It takes only that 1 in a million customer to post something negative about your business that may go viral. Therefore, in anticipating crisis, the 2 most important questions companies need to ask themselves are:

  • Where is the crisis likely to come from
  • Who is likely to be creating the crisis

 These 2 common crises can derive from internal or external matters. For example, an internal staff that is not happy with how the management handles retrenchment may resort to talk to the media. Although the company might already have protocols in place, however, such news leaked to the public will cause a bad image to the company.

Crisis may also come from external matters. Your sales assistant may accidentally offend a customer and the angry customer decided to take a video and their argument and put it up on Stomp or YouTube. Whether the sales assistant is right or wrong is a separate matter. But the video might have gone viral and the company may suffer from its reputation loss.

Therefore at this initial stage of crisis management, the company is to identify within the company’s operation, where a crisis is likely to occur and who is most likely to create the crisis.

In anticipating crisis, the company must also prepare emergency funds so that in the event of crisis, can engage professionals or implement strategies to solve the crisis. This may include making good faulty products or provide compensation or even legal costs in some cases.

I – Identify the crisis management team

The company needs to identify the crisis management team, which must include the company CEO and the 2ndOIC (Overall In-Charge) of the company (such as Chief Operations Officer) in the event CEO is not around to handle the crisis. Why is the CEO or top manager of the company has to be part of the team? This is to show that the company takes the matter seriously, both internally and also public perception.

The crisis management team should also include a member who writes well so that the company can develop statements to address the issues of the crisis. Some companies may outsource to PR (Public Relations) companies to do this. However, unless your company can afford the budget, we suggest you can keep this member in-house for the start.

Remaining of the team members can be from various departments of the company. Inclusive of members from various departments is to get feedbacks and suggestions on solving the crisis on hand. The total number for the team is to be an odd number so that in the event a voting for certain course of actions to be made, it avoids a tie situation. We suggest to keeping the team to not more than 7 people as too many people involved may increase the time needed to make decisions, which in the event of a media crisis, the company does not have that luxury of time. When identifying the members, it is important to have cool-headed and objective personnel so that during the crisis, while managing the external issues, you are not caught with the need to handle internal issues.

From the team members, the company has to identify and train the main spokesperson. Ideally it would be the CEO of the company. If the company so decides to have someone other than the CEO as the main spokesperson, this person must be from the higher management of the company with a heavy title. As explained before, this is to give the public confidence and that the company is taking the matter seriously. We suggest you should never outsource this main spokesperson to a PR company. Public will perceive the company has no sincerity in solving matter.

The main spokesperson has to be trained to handle various media including speaking to the media. Confidence and sincerity are two essential traits of this spokesperson.

M – Monitoring system

With the crisis management team in place, the next step is to draw out a monitoring system. As explained in the anticipation of crisis section, crises can derive form internal or external factors. Internal factors are easier to manage and control.

There are generally 2 areas that the team should monitor namely:

  1. External – Online reviews (Google, Trip Advisor, Facebook, Amazon, YellowPages)
  2. Internal – Own site(s) where contents are generated

For example, if the company is active on social media platforms such as Instagram, Facebook, LinkedIn, Twitter etc., efforts has to be made on who is monitoring each of these media. Checks are to be done for any content released to the public must take into consideration of

  • Politics
  • Religion
  • Race
  • Culture
  • Gender including LGBT issues

Other things to be totally avoided on the company’s social media platform(s) are:

  • Complaints about customers or staff
  • Providing fake news
  • Anything illegal
  • Images that do not portray positively about the company

If any content is seen to be not appropriate, the first action to be taken is to remove the post/ content. If the public saw the content and someone had taken pictures of it, then we will need to solve it (to be discussed the sections later).

Crisis derived from external factors and public posting on their own personal media like Facebook or platforms like Stomp and Hardwarezone are more difficult to monitor. The company should inform all their staff about the need to feedback any news deemed to be negatively impacting the company’s reputation. Any of the staff noticing such news is to feedback immediately to the crisis management team. The crisis management team will then decide how to handle the negative news.

One of the free tool available online is the Google alerts. The team can set it up so that if there is any negative article mentioning about your company, you can be alerted immediately. There are paid software like reviewtrackers that allows you to track reviews over major review platforms.

There is one thing that is very important in the monitoring system is set in place – the kneejerk effect. If your company is well exposed to the media, some negative comments are inevitable. Does the company have to react and “entertain” to each and every of these negative comments? It would be impractical to answer all negative comments. In fact, some of your loyal customers can help protect company’s reputation by providing their positive experience with your company’s services or products. In the end, the company should do its best in delivery excellent products and services and there is no compromise to this. Only by product and service excellence, your company is able to win the hearts of users and social media exposure in the long run.

Therefore when your team sees a negative comment or news about the company, they should identify on a scale of 1 to 10 the severity of the negative comment, with 1 being least severe and 10 very severe. Example of comment or news that is rated 1 are complains of the customers about your slow product delivery, fault in your product and seeking for a refund. On the other hand, a company’s mistake in their marketing campaign that resulted in audience thinking the company is being racist would have a rate of 10.

The team should collectively decide whether a rating of 8 would classify as a crisis. The relevant department for immediate rectification would deal any rating below the threshold before it blows out of proportion into a crisis. It is important for the team to run through examples and be trained to rate comment and news. As the team becomes more mature, it can better handle crisis of different scale and level.

Together with the monitoring system is a communication map. With communication tools like Whatsapp or Telegram nowadays, it is easy to manage information sent to the crisis management team. A chain of command is also to be established such that the team is aware of the decision making process during a crisis.

S – Solve the Crisis

Crisis Solving Map

In solving a media or reputation crisis, the company should develop a crisis-solving map. Below is a simple map to manage negative media contents.

It is important that the crisis management team run through several scenarios and be familiar with to categorize and communicate among the team members. Chain of command is also important and has to be established. This is also to make sure that communication is effective internally and externally during such crisis when time is of the essence.

Principles of Solving Reputation Crisis

Remember, timing is of the essence in solving a reputation crisis. At SUT, we identified the underlying 3 principles to solving any of such crises:

  • Transparency (or at least perceived to be transparent)
  • Sincerity
  • Taking responsibilities

We do understand the difficulty of an organisation to be totally transparent at times. However the worst thing is for the public to find out otherwise later and creates more mistrust with the company. Sometimes the higher management may not be telling the team or the advisers the entire truth. This could pose a challenge in trying to manage a crisis.

Crisis Solving Map provides the flow to handle negative media contents

Crisis Solving Map

There is much to learn from top brands in the way they handle reputation crisis. For example, Dolce & Gabbana (D&G) was to do a show in Shanghai in November 2018. They did a marketing video showing a Chinese lady trying to eat Italian popular food like pizza and spaghetti with Chinese chopsticks. The Chinese felt the video was an insult to the Chinese culture. Following that video, Stefano Gabbana, co-founder sent racist messages that triggered outrage on China’s social media. D&G issued its first statement claiming its instagram account had been hacked.

The Chinese did not buy the reason. It took the founders many days later to officially apologize in a video. But the damage had been done. The major online platforms like JD.com and Alibaba took down all products of D&G. The Chinese boycotted the shops and D&G lost its China market overnight.

The Chinese felt that the company was not transparent and there was no sincerity in resolving the issues and no one was taking responsibility but an excuse of a hacked account.

Yet if you can recall, just earlier to the D&G’s incident was Google’s struggle to calm its then 90-odd-thousand work force over how the company handled sexual harassment and its workplace culture. The CEO Sundar Pichai sent an email to its  employees and was committed to making changes.

Develop Holding Statements

A holding statement is an official statement given by your company that contains initial information about an incident. It can include basic facts and inform people that your company is currently dealing with the matter. In developing the holding statement, it is also important to:

  • Step out – and identify objectively the core issue
  • Rule out – any speculation or suspicion
  • Say out – what you want your audience to hear

We recommend putting out your holding statement within 24 hours from the occurrence of the crisis. As it is a holding statement, it has to be brief and concise. For example, a customer and your company sales assistant got into a fight and there was a video of it circulating among the social medias blaming the fault is the sales assistant. Your holding statement to the public could be,

“We are both disturbed and sorry about the incident at one of our stores. We seek to work closely with the authorities to investigate the matter. Customer service is our priority and thanks all our customers for their understanding.”

You will also need to provide an internal statement to your staff as you do not want to be seen marginalising your staff. Your internal statement could be,

“We had taken notice of the incident at one of our stores. We are working closely with the authorities to investigate the matter. Customer service has always been our company’s priority and we believe our sales staff should also be treated with respect. We urge not to speculate the matter until the final findings and conclusion of the matter is made. Meanwhile we encourage all employees to remain calm and exercise patience with all customers and the public.”

In general, if there is no legal implication, putting out holding statements are easier. In the case of Disneyland’s June 2016 incident where an alligator snatched and killed a toddler at Disneyland Orlando, Florida, there was a possibility of a legal action against the company. CEO Bob Iger publicly offered condolences and a statement of sympathy from George Kalogridis, President of Walt Disney World was posted on the official Disney Parks Blog.

The possibility of a lawsuit makes any response from Disney very complicated; the more they say, the more liability they could potentially create themselves. Therefore one can learn that as long as you stay with the 3 principles of solving a crisis, you would be in the “safe zone”.

After the first holding statement, there could be a second or even third holding statements depending on the severity of your crisis. You can then work on your full statement media release. You should have ample time for this working with PR Company and your legal counsel if needed. Your full statement should include what are the findings and who your company intends to resolve the matter.

Your holding statements are probably more important than your full statement. The media feeds on trending topics. By the time you work are on your full statement, there could already be other news in the public. People are likely to remember your initial respond and not your final findings and statements.

Post-Crisis Analysis

It is important to learn from a crisis. The crisis management team should review what was done right and what areas to be improved. Recovery for reputation lost is a long road. Building trusts and relationships are keys.

Executing rectification plans are as important as announcing them in your statements. Once you are able to rectify, the public is usually forgiving.

Conclusion

Crisis management starts from identifying the potential threats of where the crises are likely to occur. It is also important to train the crisis management team to identify crises at various levels and appropriate actions to be taken to resolve the crisis.

The company may engage an external crisis advising team. Objectively, this is a good option as the advising team are not emotionally attached the company and can provide non-biased views. However the company staff knows the company products and services best. Therefore the external advising team must work closely with internal staff/ crisis management team to develop a plan of execution.

External advising team other than the main consulting team can also include the Public Relations (PR) Specialist and a Legal Adviser. This will then form a complete crisis management team and probably cover all necessary ground to handle any difficult crises.

In this digital age, your company’s digital footprint can be permanent. While it takes great efforts to build a positive print, a negative print can set your company backwards for your online reputation. You may not be able to erase the negative prints but how you manage through such prints to turn it positive will always be remembered. A Chinese saying, win the hearts of the people and you will win over the world. As long as you follow the principles of transparency, sincerity and able to take responsibility, the market is forgiving enough and your company will emerge stronger.