Business crises occur every day, from serious accidents to the infamous coffee spill at McDonald’s. In the introductory chapter of his book “The crisis manager: Facing risk and responsibility”, Otto Lerbinger writes about the present as an era of crises, reflecting the increasing size and complexity of modern technology and industrial organizations. In the 1980s, indications of the rising frequency of corporate crises were found by the dramatic increase in product-injury lawsuits since the 1970s. Later on, in the 2000s, crises were occurring more frequently, and a general agreement among corporate customers, media and communications professionals, risk and insurance management practitioners, academics and government officials supported the contention that crisis frequency was increasing in an increasingly volatile world.
Without a doubt, the globalized economy has intensified the competition and shortened the product life cycle, with an increased risk of failure. There is also an increased focus on corporate social responsibility as a competitive advantage, vouching for companies to address social issues and act responsibly with respect to the environment, labour standards, and human rights.
Another aspect of crisis management has also emerged over the last years; the constant media coverage through Internet news sites and social media. Companies are constantly confronted and battered with new information resulting in a crisis to evolve from hour to hour, necessitating that the crisis must be managed through rapid response.
Living in an era of crises makes the likelihood of managers facing a crisis at some time ever more present. Thus, any company that relies on public opinion and reputation should, therefore, at least in some sense, be prepared if a crisis occurs. Being prepared implies the development of a management regime that assesses potential threats and handles any crises that may emerge. Thus, crisis management deals with not only the reactive behaviour after the outburst of a crisis but also the proactive precautions made to prevent the crisis from emerging. Prevention, where possible, is always better than response after things have gone wrong.
Nevertheless, although crises could challenge the reputation and survival of a company, there seems to be a reluctance to adopt crisis management plans. Moreover, being proactive in order to prevent a crisis is usually skipped altogether, even though it is the least costly and easiest way of control. One of the characteristics of crises today is lack of recognition and understanding of numerous warning signs. They are often detected but not collectively identified and analysed at appropriate management level.
Planning in order to prevent crises requires a strategic approach and mindset. Managers, when developing corporate strategies, should be aware of potential events that may lead to crises. In their book, “Crisis management in the new strategy landscape”, Crandall et al argue that there is a reciprocal relationship between the various strategies organizations follow and their relation to crisis planning. At the same time as crisis management should be part of the strategic management process, the strategies that a firm chooses to implement can be a factor with respect to the frequency and types of crises that are faced.
Other experts in the field have also identified the common long-term property of the two management fields and how they deal with emergent situations and are concerned with organisational survival in the future. The strategic plan of an organisation or a nation is incomplete unless it includes the integration of crisis management.
Crisis management steps can be related to different processes of strategic management such as strategy formulation, implementation and evaluation. The extent to which organisations can shift from being crisis-prone to being crisis-prepared may well relate to the extent to which they are able to integrate crisis management and strategic management processes. Further, the strategic assessment does not fully address problems that could be encountered in the long-term in executing and maintaining the chosen strategy, caused by changes in the business environment. Consequently, the common aspect of strategic and crisis management when analysing the organization’s environment, indicate that some strategies are more crisis-prone than others.
Still, there are indications of this relationship not being utilized and taken into account when developing and implementing strategies. Strategic management and crisis management evolve separately, despite their potential for synergistic integration. Strategic management pays inadequate attention to defensive actions that could act to prevent unwanted, undesirable and unexpected crises from happening. And the academic world still takes an uncritical view of strategic management. It is taught using a variety of techniques that rely on a stable internal and external environment.
Although the situation has improved over the last years, traditional crisis management is still viewed as a separate planning process and not intertwined with strategy. And despite the growing interest in the strategic importance of crises, our understanding of the area is quite limited. One key issue is that the precise relationship between a firm’s strategic environment and its crisis management decisions remains to be completely specified. Moreover, the few articles discussing the crisis and strategic integration focus mostly on the coordination of activities within two separate management fields.
The Bottom Line
The indicative lack of focus on the crisis aspect in strategic management could be a problem in future crisis handling and should be addressed more thoroughly by business managers.