CHAPTER 4
A Strategic Approach to Crisis Management
Opening Case, Part 1: The Professor, “Arrogant Amy”
Dr. Amy Bishop arrived on the campus of the University of Alabama at Huntsville (UAH) in 2003 with impeccable credentials. She had a Ph.D. from Harvard and was by all means a rising star in the field of neurobiology. Her new position was that of a tenure-track assistant professor, a job that would require her to teach and conduct research. A tenure-track professor at UAH has six years to make a case for the long-term stint known as tenure. An assistant professor who is not deemed to be a good fit may be denied tenure, at which time the assistant professor begins anew at another institution.
In general, a tenure-track faculty member must be a good teacher and provide a steady stream of research scholarship in the form of peer-reviewed publications. In addition, being collegial is a term used frequently on university campuses. Albeit subjective, the notion of collegiality means that faculty members are respectful of their students and peers. Put a bit differently, a faculty member must be likeable, although agreement with everything that is said at the university is not required. Indeed, one can disagree with another colleague’s viewpoint but still be respectful and courteous to that colleague. Professors who are overly confrontational or arrogant may find it hard to attain tenure at some institutions. Amy Bishop’s arrogant and abrasive style rubbed many people the wrong way, earning her the informal nickname “Arrogant Amy.” She was even known for introducing herself as “Dr. Amy Bishop, Harvard-trained” (Wallace, 2011).
Bishop’s personal style of carrying herself did not go over well at UAH. Initially, she was described by colleagues and students as funny and extroverted, but she was not universally liked. Students complained that her exam questions went beyond what was covered in the course. A petition was circulated by students complaining about her exams (Dewan, Saul, & Zezima, 2010).
Her relationship with graduate students was also volatile. It was generally known that most students simply did not last long working for her in the laboratory, and many transferred to another lab before completing their degrees. One student was dismissed from her lab in May 2006. The student promised to return notebooks and keys the next day, but Bishop called the campus police to address the situation (Dewan et al., 2010).
Her erratic behavior was noted by a member of her tenure committee, who commented in a report that she was literally “crazy.” When given a chance to restate the word crazy, the faculty member did not change his stance, stating “I said she was crazy multiple times and I stand by that. … The woman has a pattern of erratic behavior. She did things that weren’t normal. … She was out of touch with reality” (Wallace, 2011).
In March, 2009, the university decided not to accept her application for tenure. Bishop’s research was cited as being a low point. She had published one peer-reviewed paper in each of 2004, 2005, and 2006, but none in 2007 and 2008. Then, in 2009, she had three peer-reviewed papers, although one of them was published in a journal that was not considered of very high quality. In addition, her teaching failed to measure up to the standards desired by UAH (Bartlett, Wilson, Basken, Glenn, & Fischman, 2010).
At this point in her career, it would be expected that Amy Bishop would need to move on to another institution. The career prospects, though, can be difficult for some professors, as many in the higher education industry see not getting tenure as being the ultimate rejection from that colleague’s peers (Wallace, 2011). In addition, career mobility for a faculty member who teaches and researches in a very specialized field can be limited. For some professors, there may be only one or two positions each year for which they are truly qualified (Bartlett et al. 2010). Dr. Bishop decided to appeal the tenure decision and requested that various faculty members write letters of support on her behalf. She was the main source of income for her family and she desperately needed the job; the family was already experiencing financial problems and had discussed declaring bankruptcy (Wallace, 2011). Despite her efforts to appeal the tenure decision, her request was still denied. Dr. Bishop would need to seek employment elsewhere.
Opening Case Part 1 Discussion Questions
What can colleges and universities do to help their new faculty be successful in their jobs?
Some take the viewpoint that the institution is at fault if a faculty member fails to attain tenure. Discuss this statement in terms of its merits.
Faculty members who are not granted tenure are often given a final one-year contract before they are required to leave. What potential crisis could emerge during that person’s last year on campus?
Opening Case Part 1 References
Bartlett, T., Wilson, R., Basken, P., Glenn, D., & Fischman, J. (2010, February 26). In Alabama, a scientist’s focus turns deadly. Chronicle of Higher Education, pp. A8, A12.
Dewan, S., Saul, S., & Zezima, K. (2010, February 20). For professor, fury just beneath the surface. New York Times. Retrieved July 26, 2012, from http://www.nytimes.com/2010/02/21/us/21bishop.html?pagewanted=all
Wallace, A. (2011, February 28). What made this university researcher snap? Wired. Retrieved July 26, 2012, from http://www.wired.com/magazine/2011/02/ff_bishop/.
Introduction
Effective crisis management requires that managers understand both the sources of crisis events and the strategies needed to identify and plan for them. A crisis event rarely occurs “out of the blue.” Instead, it usually follows one or more warning signs. Typically, a series of precondition events occur before a crisis can commence. These events eventually lead to the “trigger event” that ultimately causes the crisis (Shrivastava, 1995; Smith, 1990). Recall that in 1984, deadly methyl isocyanate gas leaked from a storage tank at a Union Carbide plant in Bhopal, India, initially killing more than 2,500 people and injuring another 300,000. The trigger event for this crisis was the entry of water into a storage tank that subsequently caused the unit’s temperature and tank pressure to rise. Numerous preconditions contributed to the origin of this accident. These included shutting down a refrigeration system designed to keep the gas cool, failing to reset the tank temperature alarm, neglecting to fix a nonfunctioning gas scrubber, and not performing the maintenance and repair on an inoperative flame tower designed to burn off toxic gases (Hartley, 1993). Each of these four systems was designed to help alert plant workers and contain the toxic effects of a gas leak. Each of them was inoperable the day of the accident.
In the evolution of a crisis, the warning signs may not be identified until it is too late, either because decision makers are not aware of them or because they do not recognize them as serious threats. Sometimes managers are simply in denial. Some assert that a crisis cannot happen to their organization or that the probability of it occurring is so low that it does not warrant spending the time and resources required to prevent it (Nathan, 2000; Pearson & Mitroff, 1993). In some cases, the warning signs are ignored altogether, even though these preconditions are signaling an impending crisis. For example, Toyota’s unintended acceleration problem with its Camry model was preceded by a year’s worth of problems with stuck accelerators (Institute for Crisis Management, 2011). All of this underscores the importance of assessing crisis vulnerability, the practice of scanning the environment and identifying those threats that could happen to the organization.
In this chapter, we examine crisis management from a strategic point of view. First we overview the challenges managers face as they assess the external environment, particularly in terms of its uncertainty. We then proceed to the heart of identifying potential crises and employ the SWOT (strengths, weaknesses, opportunities, and threats) analysis, a tool that is widely used in strategic planning. We close this chapter with a short discussion on the link between organizational culture and crisis planning.
A Strategic Approach to Crisis Management
Crisis management requires a strategic mind-set or perspective (Chong & Park, 2010; Preble, 1997; Somers, 2009). Therefore, understanding effective crisis management requires that we first understand the four key distinctions of a strategic orientation perspective.
1. It is based on a systematic, comprehensive analysis of internal attributes, also referred to as strengths and weaknesses; and of factors external to the organization, commonly referred to as opportunities and threats. Readers familiar with strategic management recognize this process as the SWOT analysis. Approaching this process in a systematic manner is important because it ensures that potential crises are not overlooked. Thus, we must look both inside and outside the organization as we determine the risk factors that must be confronted.
2. A strategic orientation is long term and future oriented—usually several years to a decade into the future—but also built on knowledge of events from the past and present.
3. A strategic orientation is distinctively opportunistic, always seeking to take advantage of favorable situations and avoiding pitfalls that may occur either inside or outside the organization.
4. A strategic orientation involves choices, and very important ones at that. Because preparing for every conceivable crisis can be costly, priorities must be established. For example, resources must be spent to ensure safety in the workplace. The expenditure of resources, however, does take money directly off the bottom line. Because this approach is strategic, the expenditure may ensure the overall well-being of the firm in the long run. Therefore, some expenditures should not be viewed solely as cost items, but as investments in the future longevity (and safety) of the company.
Because of these distinctions, the overall crisis management program must include the top executive and members of his or her management team. The chief executive is the individual ultimately accountable for the organization’s strategic management, as well as any crises that involve the organization. Except in the smallest companies, he or she relies on a team of top-level executives, all of whom play instrumental roles in the strategic management of the firm (Carpenter, 2002; Das & Teng, 1999).
Strategic decisions designed to head off crises are made within the context of the strategic management process, which can be summarized in five steps (Parnell, 2013):
External analysis. Analyze the opportunities and threats or constraints that exist in the organization’s macroenvironment, including industry and external forces.
Internal analysis. Analyze the organization’s strengths and weaknesses in its internal environment; reassess the organization’s mission and its goals as necessary.
Strategy formulation. Formulate strategies that build and sustain competitive advantage by matching the organization’s strengths and weaknesses with the environment’s opportunities and threats.
Strategy execution. Implement the strategies that have been developed.
Strategic control. Engage in strategic control activities when the strategies are not producing the desired outcomes.
Crisis management is an important consideration in each step, in different ways. In the first step, managers identify the sources of crises that exist in the firm’s external environment. Typically, the organization’s external opportunities and threats are identified to determine specific vulnerabilities of concern. The threat of online viruses and other denial-of-service (DoS) attacks, for example, may suggest that the firm invest in upgrading firewall and virus protection measures so that its website is not taken offline by hackers (Robb, 2005). Also related to technology is a new opportunity: the use of social media outlets in addition to the company’s regular Web page. Facebook pages for organizations are common as firms seek to demonstrate their human side to the public. This move can be important when a crisis does strike, because the company can use more personalized media outlets to communicate its side of the story (Jacques, 2009).
Government regulations, formed in response to a previous crisis, are part of the external environment. Following a salmonella outbreak and subsequent recalls of tomatoes in 2008, the U.S. Food and Drug Administration strengthened inspection and other measures to reduce the likelihood of a similar crisis in the future. Initially, the agency focused on tomatoes as the culprit. Later, various types of peppers were also part of the investigation (O’Rourke, 2008). Food-related firms from growers to producers to restaurants should consider how this crisis evolved and what strategic changes might be appropriate (Zhang, 2008). Ultimately, those in the food manufacturing industry must be knowledgeable concerning what is now labeled food traceability, a term that requires all parties processing food to have the ability to track inputs through the entire supply chain (Schrader, 2010).
The second step focuses on vulnerabilities within the organization that may result in a crisis event. Typically, the organization’s internal strengths and weaknesses are identified to determine what vulnerabilities may be present. A poorly trained workforce, for example, could lead to a workplace accident. Likewise, dubious advertising claims about one’s competitors could result in litigation. Aging equipment is another common area of weakness.
The Chalk’s Ocean Airways crash mentioned in Chapter 3 is an example of a company with certain strengths that made it a popular small airline over many decades. In 2003, the airline had been cited in the Guinness Book of World Records as the world’s oldest continuously operating airline (Scammell, 2003). The company was a novelty in south Florida because it flew vintage seaplanes to the Bahamas, a feature that made it popular with local Bahamians who found the arrangement convenient when returning home. Indeed, flying in seaplanes in a time of modern aviation was a strength that the airline possessed. It was a visit back to nostalgic times. Unfortunately, the vintage seaplanes also embodied a weakness that was not apparent to its mechanics: structural fatigue cracks caused by years of use. “This accident tragically illustrates a gap in the safety net with regard to older airplanes,” said Mark Rosenker, National Transportation Safety Board (NTSB) chairman. “The signs of structural problems were there—but not addressed. And to ignore continuing problems is to court disaster” (Vines, 2007, p. 14).
The third and fourth steps concern the development and execution of the firm’s strategies at the various functional levels. Indeed, some strategies are more prone to crisis events than others. For example, a strategy that emphasizes global expansion into less stable emerging nations engenders a greater risk of crisis than one that has a strong domestic market orientation. This is not to suggest that potential crisis-laden strategies be avoided, but rather that they be evaluated closely within the strategic decision-making process.
The final step involves strategic control. This is an evaluative process through which the organization’s managers engage in a serious assessment of the outcomes that are occurring or have occurred in the organization. Once the assessment is completed, the organization must take action to counter undesirable or unanticipated outcomes that emanate from the strategy’s implementation. When a strategy is executed as planned, control may be minimal. When execution difficulties exist or unforeseen problems arise, however, the nature of strategic control may need to change to crisis prevention or even crisis response. Monitoring mechanisms must be established so that corrective action can be initiated when necessary. Strategic control is useful in crisis management because it often signals that a problem may be forthcoming. For example, accounting controls can signal whether there is embezzlement taking place in the organization. Figure 4.1 depicts how these five strategic steps fit within the crisis management framework. Note that Chapter 3 provided the foundation for the second step in the process—examining the external landscape. This chapter builds on that discussion and also focuses on Steps 2 and 3. In the next section, we examine the nature of environmental uncertainty as it pertains to the strategic and crisis management process.
Figure 4.1 A Strategic Approach to Crisis Management
Understanding Environmental Uncertainty
Chapter 3 discussed a number of external sources of crises: political–legal, economic, social, and technological forces. Preventing crises would probably not be so complex if the top management team always had perfect information. Unfortunately, this is not the case. An important step in the strategic management process—analyzing the external environment—presents one of the most critical challenges for preventing crises: understanding and managing environmental uncertainty.
Managers must develop a systematic process to obtain information about the organization’s environment. Ideally, top managers should be aware of the multitude of external forces that influence an organization’s activities. Uncertainty occurs when decision makers lack current, sufficient, or reliable information and cannot accurately forecast future changes. In practice, decision makers in any organization must be able to render decisions when environmental conditions are uncertain.
Environmental uncertainty is influenced by three key characteristics of the organization’s environment. First, the environment can be classified along a simple–complex continuum. Simple environments have few external factors that influence the organization, and the strength of these factors tends to be minimal. Complex environments are affected by numerous external factors, some of which can have a major influence on the organization. Most organizations fall somewhere between these two extremes.
Second, the environment can be classified along a stable–unstable continuum. Stable environments are marked by a slow pace of change. City and county municipalities typically fall under the category of stable environments. Unstable environments are characterized by rapid change, such as when competitors continually modify strategies, consumer preferences change quickly, or technological forces develop rapidly. The computer hardware and software industries reside in unstable environments.
Third, environmental uncertainty is a function of the quality or richness of information available to decision makers (Starbuck, 1976). This information function usually does not present a problem for established firms operating in developed countries. In these settings, information sources are of higher quality and richness; they include business publications, trade associations, and well-developed governmental agencies. In emerging economies, however, reliable data on items such as market demand, economic forces, and consumer preferences may not be as readily available.
Considering these three environmental characteristics, uncertainty is lowest in organizations with simple and stable environments, and where the quality of available information is high. In contrast, uncertainty is highest in organizations whose environments are complex and unstable, and where the quality of information is low (Duncan, 1972). The relationship between uncertainty and the prevalence of organizational crises can now be seen: as uncertainty increases in organizations, so does the likelihood of crises. Hence, organizations whose core competencies are tied closely to technology tend to experience the greatest complexity and instability. Following the terrorist attacks of September 11, 2001, airlines were added to this category because of increased regulatory pressure and fears of further attacks.
Organizations in environments marked by low uncertainty should be managed differently from those marked by high uncertainty. When uncertainty is low, greater formality and established procedures can be implemented to increase predictability, improve efficiency, and lessen the frequency of crisis events. When uncertainty is high, however, procedures are difficult to develop because processes tend to change more frequently. In this situation, decision makers are often granted more freedom and flexibility so that the organization can adapt to its environment as it changes or as better information on the environment becomes available. While this freedom and flexibility may be necessary, it can create a crisis-prone environment. The reason is the possibility of experiencing what management scholar Karl Weick (1993) labels as “cosmology episodes.” Such episodes are characteristic of many crisis events in which the stakeholders involved have encountered a situation unlike any that has been experienced before. Indeed, one of the characteristics of a crisis is its low probability of occurring, and yet, if it does occur, it can appear to be unique and unparalleled. The term cosmology episode was originally applied to the 1949 forest fire at Mann Gulch, Montana, that resulted in the deaths of 13 smokejumpers. The event consisted of a unique interaction of weather, fire, and geography that trapped the smokejumpers fighting the fire (Weick, 1993). Despite the fact that the smokejumpers were experienced and the original fire was not considered large, the events that unfolded were new to those involved and ended in tragedy.
A number of techniques are available for managing uncertainty in the environment. The first consideration, however, is whether the organization should adapt to its environment or, in some cases, attempt to influence or change it. Urban hospitals represent a classic example of adapting to their environments when the surrounding neighborhoods where they are located become crime ridden, a common problem for many urban facilities. Moving the hospital is usually not an option because, geographically, it is located to serve a specific community. To keep it safe from the crime in the external neighborhoods (and hence, free of specific crises), measures are taken to ensure the safety of the buildings and the patients. Employing extra security guards, installing perimeter lighting, using security cameras, and utilizing metal detectors are all methods of adapting to the environment.
Occasionally, a business may seek to change its environment to protect it from a crisis. Farmers have been known to use special cannons to ward off approaching hail that might damage crops. These anti-hail cannons send a loud popping noise into the air, directed squarely at the storm at hand. Although the practice stems back to the 1890s—and is not entirely validated by science—a resurgence of this practice has occurred in both Europe and the United States (Griffith, 2008). Even automaker Nissan has used this unusual method for dealing with hail. The company has a production facility in Canton, Mississippi, with a storage area of 140 acres. Hail is a major concern because of the body damage it can cause to an automobile. To respond to this threat, Nissan installed its anti-hail system using sound-producing hail cannons. Using weather-sensing equipment—when conditions are right for hail—a sonic wave is fired into the air every five and a half seconds to prevent the forming of hail (Foust & Beucke, 2005). Not everybody is happy with the arrangement, however, as the cannons have created a secondary crisis: local neighbors have been complaining about the excessive noise and have petitioned the Madison County Board of Supervisors to make Nissan stop the practice. However, county officials have not found Nissan in violations of existing laws, although they did ask the company to explain to the board how the cannons are supposed to work (Chappell, 2005).
Other techniques for managing uncertainty can also be used. One is buffering, a common approach whereby organizations establish departments to absorb uncertainty from the environment and thereby buffer its effects (Thompson, 1967). Purchasing departments, for example, perform a buffering role by stockpiling resources for the organization lest a crisis occur if they become scarce. Likewise, even companies that follow lean management practices are learning that some buffering is necessary lest there be an interruption within their supply chains (Ganguly & Guin, 2007). Of course, establishing a crisis management team and engaging in formal planning is also a form of buffering. If a crisis occurs, the team takes on a mitigating role by managing the ordeal.
Another technique is imitation, an approach whereby the organization mimics a successful key competitor. Presumably, organizations that imitate their competitors reduce uncertainty by pursuing “safety in numbers.” The concept of imitation is paramount in crisis management as companies seek to learn what other organizations are doing to avoid crises. The literature on high-reliability organizations (HROs) has helped to achieve this goal by extolling how those in high-risk environments manage to stay incident free (Bourrier, 2011; Roberts & Bea, 2001).
Imitating the successful crisis management techniques of other organizations can be advantageous as well. The crisis management plans for many universities and government agencies are publicly available on their websites. One can learn much by studying the examples of these plans. However, imitation must be undertaken with an understanding of the differences that exist between the two organizations. Managers must account for the specific internal and external factors unique to their own organizations, which is why assessing crisis risks must begin with an examination of the organization’s internal and external environments. Imitating an ineffective strategy or structure can also reduce the effectiveness of crisis management (Bertrand & Lajtha, 2002).
Environmental Scanning
Keeping abreast of changes in the external environment that can lead to crises presents a key challenge. Environmental scanning refers to collecting and analyzing information about relevant trends in the external environment. A systematic environmental scanning process reduces uncertainty and organizes the flow of current information relevant to organizational decisions. In addition, scanning provides decision makers with an early warning system about changes in the environment. This process is also an important element in risk identification. Because organization members often lack critical knowledge and information, they may scan the environment by interacting with outsiders, a process known as boundary spanning.
Environmental scanning is meant to be future oriented in that it provides a basis for making strategic decisions. It also must not be too general in nature (Kumar, Subramanian, & Strandholm, 2001), but specific to the needs of the organization. Hence, the goal is to provide effective environmental scanning to produce information relevant to the firm (Groom & David, 2001). Although managers may possess information that could mitigate a crisis or prevent it from occurring, they still need to act on that information and make the appropriate decisions.
The infamous crisis that erupted between Royal Dutch Shell and the environmental activist group Greenpeace illustrates that important cues can still be ignored by management. In fact, this incident has been labeled a “predictable surprise,” one that had plenty of warning indicators, yet still caught the company off guard (Watkins & Bazerman, 2003). The incident involved Shell’s plan to sink an obsolete oil platform, the Brent Spar, in the North Sea. On April 29, 1995, however, Greenpeace activists boarded the platform and announced they would block its sinking because of radioactive contaminants that were stored on the structure. Shell responded by blasting the protestors and their boats with water cannons, a move that turned out to cause a major public relations crisis for the company. After the water cannon incident, opposition to Shell’s plans grew in Europe, leading to a boycott of Shell service stations in Germany. Protestors damaged 50 German gas stations, firebombing two of them and riddling one with bullets (Zyglidopoulos, 2002). Less than two months after the initial Greenpeace protest, Shell gave in and abandoned its plan to sink the Brent Spar.
Watkins and Bazerman (2003) note that Royal Dutch Shell was surprised by the turn of public opinion against it. This occurred despite the fact that the company had an abundance of information indicating that protests by Greenpeace likely would involve the physical occupation of the platform by activists. Even other oil companies protested Shell’s plans. The case illustrates that misreading external signals can still occur even when those signals prove to be reliable.
Environmental scanning should be viewed as a continuous process (Herring, 2003). Top managers must plan for and identify the types of information the organization needs to support its strategic decision making. A system for obtaining this information is then developed. Information is collected, analyzed, and disseminated to the appropriate decision makers, usually within the functional areas of the firm. This information must be acted on, however, as the A. H. Robins case illustrates.
In the early 1970s, A. H. Robins manufactured the Dalkon Shield, a plastic intrauterine contraceptive device (IUD). More than 4 million IUDs were implanted in women by doctors who were swayed by the optimistic research reports offered by the company (Hartley, 1993). However, warnings from the external environment began to surface almost immediately after the product was introduced. Women were afflicted with pelvic infections, sterility, septic abortions, and in a few cases, death (Barton, 2001; Hartley, 1993). An analysis of information coming in from the external environment would have prompted most companies to shut down production of the IUD, but A. H. Robins persisted in marketing the product. It continued to promote the device as safe, even though management knew there were problems. In the end, the company was sued by thousands of victims. Eventually, the firm’s poor financial standings resulting from lawsuit payoffs led to a sale of the company to American Home Products in 1989 (Barton, 2001).
Large organizations may engage in environmental scanning activities by employing one or more individuals whose sole responsibility is to obtain, process, and distribute important environmental information to their organization’s decision makers. These individuals continually review articles in trade journals and other periodicals and watch for changes in competitor activities. They also monitor what is being said about the company on the Internet, including blogs and other social media outlets. Alternatively, organizations may contract with a research organization that offers environmental scanning services and provides them with real-time searches of published material associated with their organizations, key competitors, and industries. In contrast, decision makers at many smaller organizations must rely on trade publications or periodicals such as the Wall Street Journal to remain abreast of changes that may affect their organizations.
A potential lack of objectivity can be a concern when managers evaluate the external environment because they perceive selectively through the lens of their own experiences, professional expertise and operating departments. Managers with expertise in certain functional areas may be more interested in evaluating information pertaining to their functions. The problem with this viewpoint is that key elements from the environment may be ignored—elements that may pose future risks that could develop into a crisis. For example, cutting the budget of a human resource (HR) department to trim overall costs may sound tempting to the chief executive officer (CEO), but lapses in HR can lead to poor training and loosely enforced safety rules, both of which can lead to industrial accidents (Sheaffer & Mano-Negrin, 2003).
In an example of functional bias based on CEO background, Massey Energy has long suffered from a tarnished reputation based on its disregard for safety regulations set forth in the coal mining industry (Barrett, 2011). Under the direction of its former CEO, Don Blankenship, the company performed well financially, but apparently at the expense of miner safety (Fisk, Sullivan, & Freifeld, 2010). The result was a string of mining accidents, some involving fatalities. According to David McAteer, a governor-appointed investigator of the company’s mining accidents between 2000 and 2010, “No United States coal company had a worse fatality record than Massey Energy” (Barrett, 2011, p. 51). During that decade, Massey had 54 mining fatalities. The company did not respond effectively to the external environment for cues to prevent a crisis. Rather, Massey responded by alerting mine staff when inspectors were about to descend on the mine (Fiscor, 2011) and by keeping separate books to cover up safety violations from in-mine safety reports required by federal law (Ward, 2011).
A key problem associated with environmental scanning is determining which available information warrants attention. This is why developing sensitive indicators that trigger responses is so important. Consider the December 2004 Asian tsunami. Although an earthquake had been detected, scientists were unsure of the exact size of the resulting tsunami and were unable to share their observations with countries that would soon be affected because the governments in those countries lacked environmental scanning systems (Coombs, 2006).
Identifying Potential Crises Using the SWOT Analysis
The first step in assessing the likelihood of a crisis specific to a particular organization is to conduct a survey of the internal and external environments. This process involves the collection of data and perspectives from various stakeholders. The data are then integrated into an overall assessment of specific crisis threats that appear to be most prominent. Typically, each threat is ranked in terms of its likelihood and potential impact on the organization. Those crisis threats at the top of the list become the focus of prevention and mitigation efforts.
In strategic planning, the SWOT analysis is the tool used to determine an organization’s strengths, weaknesses, opportunities, and threats. The SWOT analysis should also be used to assess crisis vulnerability during the strategic planning process (Chong, 2004). For example, in 2003, the Pacific Area Travel Association (PATA) provided a framework for its members to use to identify crisis threats to their organizations, most of which are involved with destination tourism. The use of the SWOT analysis to identify such threats is a major planning tool in assessing crises vulnerability (Parnell, 2013; Pennington-Gray, Thapa, Kaplanidou, Cahyanto, & McLaughlin, 2011). In the sections that follow, we identify the four facets of the SWOT analysis and how they are linked to potential crises.
Strengths
Typically, internal strengths would not be thought to contribute to a potential crisis. As Veil (2011, see p. 125) notes, however, a track record of organizational successes can blind management to perceiving warning signals from potential crises.
Location is a key strength in some organizations, particularly those in destination tourism. Certainly, lodging establishments can be worthy retreats for tourists when they are located in exotic places, such as on islands and beaches. However, a coastal location can turn into vulnerability when a hurricane, typhoon, or tsunami occurs. Such was the case for many tourist hotels in South Asia when an earthquake occurred off the coast of the island of Sumatra in Indonesia. This event triggered a devastating tsunami that caused widespread damage and up to 250,000 fatalities in the South Asian region. Many of the victims were staying at resort hotels that were unprepared for such an event (Cheung & Law, 2006).
Management researchers Gilbert Probst and Sebastian Raisch identified a number of organizational strengths that can eventually lead to problems. For example, excessive growth, what many would deem is a desirable performance outcome, can be offset by problems with high debt and an overemphasis on expanding through company acquisitions. In this respect, strength can lead to a crisis. Likewise, a strong leader in the organization can lead to a top-down culture in which the followers put blind faith in the leader and fail to approach the leader’s strategies with skeptical questioning (Probst & Raisch, 2005). This situation is further exasperated when boards of directors rubber-stamp the CEO’s agenda, often failing to challenge top management with tough questions and instead exhibiting groupthink, further putting the balance of power dangerously in favor of the CEO (Zweig, 2010).
Table 4.1 provides examples of internal organizational strengths that could conceivably result in organizational crises.
Table 4.1 Examples of Internal Organizational Strengths and Potential
Weaknesses
While the link between crises and strengths may not be obvious at first glance, the connection between organizational weaknesses and crises is both intuitive and well established. Weaknesses identified in the SWOT should be examined in light of their potential for breeding crises in the organization. For example, an emphasis on the human resource management (HRM) function is directly related to the potential for crisis events in the organization (Lockwood, 2005). Specifically, when good human resources (HR) practices are ignored by an organization, a crisis is more likely to occur. The infamous Rent-A-Center case illustrates how the link between HRM and employee lawsuits can develop. In this example, Rent-A-Center eliminated its HR department when its new CEO, J. Ernest Talley, took over in August 1998. The company also changed to a less female-friendly workplace, according to depositions from more than 300 company officials over a 47-state region. Talley’s own anti-female policy became well known within the company, including several quotes indicating that women should not be working at Rent-A-Center (Grossman, 2002). Without an HR department, women who felt discriminated against had no internal recourse. Charges of discrimination began to increase, plunging the company into a class action lawsuit on behalf of female employees, eventually resulting in a $47 million verdict against Rent-A-Center (Grossman, 2002).
A related HR issue is the decision by some companies, particularly in the retail and service sector, not to offer fringe benefits to their hourly employees. Typically, this strategy is followed by companies that employ a cost leadership strategy, an approach that seeks to offer basic, no-frills products and services to a mass market of price-conscious consumers (Parnell, 2013). Hence, efforts are made to keep costs as low as possible in the production and service-offering process. In the manufacturing sector, companies typically have achieved lower costs via economies of scale and automation of processes through technology innovation (Crandall & Crandall, 2008; Parnell, 2013).
There are potential crises associated with this strategy. For one, there is the irony that these same employees are on the front lines every day and offer the first contact a customer has with the products and services of the company. Ceteris paribus, organizations are better off when these employees are well trained, loyal, and reasonably satisfied with their employment. In addition, large and successful companies are more likely to be criticized for their wages and benefits, as the example of Wal-Mart so often illustrates (Ehrenreich, 2001; Fishman, 2006; Institute for Crisis Management, 2011).
Table 4.2 provides examples of internal weaknesses that could conceivably result in organizational crises.
Table 4.2 Examples of Internal Organizational Weaknesses and Potential Crisis Events
Opportunities
A SWOT analysis also looks at the organization’s opportunities existing in the external environment. While it may not seem readily apparent that organizational opportunities could be a potential source of crises, a closer examination suggests otherwise. The assessment of opportunities can generate strategic alternatives a company may pursue to expand its market share. Problems can surface and escalate into a crisis, particularly as the firm considers globalization options.
One opportunity that most businesses, both small and large, have acted on is the expansion of the Internet, both technologically and socially. Many have responded to this opportunity by shifting to an online sales format. Numerous firms have evolved to assist companies in making this transition, as the learning curve can be quite steep. However, companies that generate online sales are open to crises associated with cybersecurity, including theft of personal records of consumers as well as denial of service attacks (DOS) by hackers.
Table 4.3 outlines three possible scenarios in which a strategic response to opportunities may breed a crisis.
Threats
External threats are a common source of crisis. Some of these factors can be opportunities in some organizations but threats in others. Consider the example of location discussed earlier in this chapter. In some organizations, threats emanate from geographical considerations. For example, in parts of the United States such as Florida, weather concerns such as hurricanes are included as part of the risk assessment (Kruse, 1993). Other regions of the United States such as California are vulnerable to earthquakes. Urban areas of any country can be subject to crises that are different from less populated areas. Events such as riots, power outages, and bad weather can be especially hard on more populated regions.
Certain industries also face external threats. One industry that may be on the horizon for a host of health-related crises is the indoor tanning industry.
Table 4.3 Examples of External Organizational Opportunities and Potential Crisis Events
Evidence is growing of the health risks associated within this industry (“Indoor Tanning,” 2005). In addition, there is an emphasis on keeping teenagers out of tanning booths altogether because of the long-term risk of developing skin cancer (Johnson, 2004; Rados, 2005). The industry has been likened to the tobacco industry, which has a history of denying that cigarettes were harmful to the consumer’s health, despite a long string of research indicating otherwise. Like the tobacco industry, the indoor tanning industry has been working hard to dispel any links to skin cancer (Loh, 2008). As with tobacco processors, executives in the indoor tanning industry downplay the health risks associated with moderate usage. Nonetheless, the warning signs for crises are clear for this industry, with a dawn of litigation about to begin.
Table 4.4 overviews various external threats that can evolve into a crisis.
Table 4.4 Examples of External Organizational Threats and Potential
Organizational Culture and Crisis Planning
Despite the fact that crisis planning is an important part of the strategic management process, not all managers are convinced that its role is important. And yet, an organization’s crisis vulnerability is linked to its cultural norms and assumptions (Smith & Elliott, 2007). In other words, being diligent about crisis planning involves a cultural shift. As a result, organizations often do not have effective crisis management plans because their managers have not cultivated a mind-set that values this process (Weick & Sutcliffe, 2001). Many managers are engrossed with “putting out today’s fires” and do not think they have time to plan for tomorrow’s contingencies. Therefore, they have not developed the critical tools needed for a comprehensive crisis management plan (Simbo, 2003).
Thus, not all establishments have adopted a culture of crisis preparedness. At one end of the scale, many managers carry an “It can’t happen to us” mentality (Nathan, 2000; Pearson & Mitroff, 1993). Coupled with this attitude is the notion that “nobody gets credit for fixing problems that never happened” (Repenning & Sterman, 2001). Other managers are reactive concerning crisis events by contemporaneously planning and managing as the problems unfold. Some organizations, because of their cultures, seem to develop blind spots and completely miss the cues that signal a crisis is on the move (Smallman & Weir, 1999).
Other managers are more proactive in their conduct. They plan for future potential crises by presupposing what could be their worst-case predicaments. Yet another group of managers includes battle-scarred victims who have experienced organizational crises and are now involved in proactive planning so they can manage future crises more effectively (Carmeli & Schaubroeck, 2008).
Indeed, there is a “way of thinking” and a “way things are done” in every organization. Long-term members understand it well and newcomers usually learn it quickly. Organizational theorists refer to this phenomenon as organizational or corporate culture. Culture refers to the commonly held values and beliefs of a particular group of people (Weitz & Shenhav, 2000). Organizational culture is a more specific concept in that it refers to the shared values and patterns of belief and behavior that are accepted and practiced by the members of a particular organization (Duncan, 1989).
An organization’s culture exists at two levels. At the surface level, one can observe specific behaviors and artifacts of the organization such as accepted forms of dress, company logos, office rituals, and specific ceremonies such as awards banquets. These outward behaviors reflect the second level of organizational culture—a deeper, underlying level that includes shared values, belief patterns, and thought processes common to members of the organization (Schein, 1990). The underlying level is the most critical to understand because it lies at the core of how organizational members think and interpret their work. Embracing a culture of crisis planning must occur at the underlying level first before it will be evident at the surface level. Indeed, as crisis expert Timothy Coombs (2006) put it, crisis management must become the DNA of the organization.
An organization’s culture serves as the basis for many day-to-day decisions in the organization. For example, members of an organization whose culture values innovation are more likely to invest the time necessary to develop creative solutions to complex problems than will their counterparts in organizations whose cultures value short-term cost containment (Deal & Kennedy, 1982). An innovative organization is more likely to “do its homework” and take the steps necessary to prevent crises from occurring. This homework includes setting up crisis management teams, developing plans, and practicing mock disasters, which are drills to help the organization learn how to manage a crisis more effectively. Of course, culture also contributes to the success of the firm’s crisis management response. Indeed, as Marra (2004) points out, organizational culture helps determine the success of crisis communications, a main facet of the overall crisis management process.
In the realm of crisis management, there appear to be “crisis-prepared” cultures that support crisis planning, as well as those that do not, sometimes labeled “crisis prone” (Pearson & Mitroff, 1993). Managers should seek to develop and support crisis-prepared cultures in their organizations.
Summary
The entire crisis management process should be viewed from a strategic perspective and should be part of the organization’s overall strategic planning process, including (1) an external analysis of its opportunities and threats, (2) an internal analysis of the firm’s strengths and weakness, (3) a strategy formulation stage, (4) a strategy execution stage, and finally, (5), a strategic control emphasis.
Analyzing the external environment presents a critical challenge for preventing crises because it involves assessing environmental uncertainty. Uncertainty occurs when decision makers lack current, sufficient, reliable information about their organizations and cannot accurately forecast future changes. Uncertainty is lowest in organizations whose environments are simple and stable and where the quality of available information is high. It is highest in organizations whose environments are complex and unstable and where the quality of information is low.
Environmental scanning refers to collecting and analyzing information about relevant trends in the external environment. A systematic environmental scanning process reduces uncertainty and organizes the flow of current information relevant to organizational decisions while providing decision makers with an early warning system for changes in the environment.
The SWOT analysis enables management to identify the crisis threats that are specific to their organization. Ironically, it is not just organizational weaknesses and external threats that can lead to crises. The firm’s internal strengths and external opportunities, under the right circumstances, can breed crises as well.
Finally, the organization’s culture influences the enthusiasm that exists for crisis management. Developing a crisis management plan may involve changes to the company’s culture, including changing the way management and staff view crises in general.
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