Lecture 05

Crisis Management in Organization Development

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• What are the differences between risk, problem, emergency, crisis, disaster, and catastrophe?

• How should an organization conduct a risk audit?

• How is a crisis team formed and what does it do?

• What are the stages of crisis management?

• What do managers need to know and do to facilitate a recovery?

Agenda

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Types of Signals

ExternalInternal

People

Technical

Communities

Special Interests

MediaConsumers

Remote

Sensing

Government

Monitoring

Industry

Gossip / Rumors

Personal

Networks

The Culture

Personal Data

Bases

PCs

IT

Crisis Mechanisms

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Low Impact

High Impact

Low Probability High Probability

Red ZoneAmber Zone

Gray ZoneGreen Zone

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Risk Categorization

Hazard Severity

Hazard Likelihood

You can also categorize types of risks in terms of their impact and probability

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Stages of Crisis Management

Signal detection

Warning signs & efforts to prevent

Probing & prevention

Search risk factors & reduce potential

for damage

Damage containment

Keep from spreading to uncontaminated

areas

RecoveryReturn to normal operations asap

LearningReview & critique

CM efforts for improvements

Mitroff’s Five Stages of Crisis Management

Fink’s Crisis Lifecycle

ProdromalRisk cues that potential crisis can emerge

Crisis breakoutTriggering event with resulting damage

ChronicLingering effects of crisis

ResolutionCrisis no longer a concern to stakeholders

Like most human events, crises can be described in terms of stages, or relatively identifiable sequences of events and reactions. Stages enable planners to monitor risks, progress, target stakeholders, and take strategic action appropriate to the stage. There are many models; below are two prominent ones:

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Ecomap of Stakeholders

Primary Effect

Secondary (Vicarious) Effect

Tertiary Effect

An “ecomap” or ecological map of stakeholders can help to identify all involved parties in the crisis. Concentric circles are used to set parameters on primary or direct stakeholder involved, secondary or “spillover” effected, and tertiary or very indirect affected. These help prioritize response to them and ensure that no one is left out of consdieration.

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Crisis Management Team Formation– selling the idea

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Typical team composition:• Facility management • Legal department • Risk management• Information technology • Human resources • Financial services • Real estate management • Corporate security • Public relations/

communications

Team Composition: Membership should be based on representation, knowledge, and skill.

Key roles:• Executive/CEO– responsibility &

authority• Team leader (may be CEO)– keep team

updated and focused• Spokesperson– public relations, central

source of information, communications, rumor control

• Legal representative– legal guidance & implications of actions

• Researchers– gather facts & compile information for position statements

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• Coordinate all crisis related activities• Gathering and reviewing facts of the crisis• Determining crisis response activities• Allocate resources• Specifying internal and external communications• Training staff• Establishing working relationships with external stakeholders• Monitor progress and continuing situation assessment

Define the duties of the team:

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CM Team Training

• Team building• Acquaintance & awareness of styles• Openness & trust• Cohesion, constructive team norms, groupthink countermeasures

• Understanding of risks & crises, impact & consequences unique to the organization & industry

• Understanding of key crisis concepts and practices• Overview of crisis planning and management process

Ensure that all CMT members are trained before the crisis occurs

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Four responsibilities:• To the customers• To the employees• To the communities they serve• To the stockholders

When the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four C’s quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders

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Tylenol Case Analysis

Background

• In the mid 1950’s Tylenol became a needed and popular substitute for aspirin for such conditions as flu and chicken pox, since aspirin was related to Reyes Syndrome (liver degeneration, brain edema, 20-30% fatality)

• Large market: 100 million users, 19% of corp profits, 13% of year to sales growth, 37% market share of painkillers, outselling other top analgesics combined

• J&J was one of the “Best 100” companies to work for• Tylenol became a product trusted by physicians and families alike• Numerous other Tylenol products were developed for an active market• J&J strong “family” corporate culture

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Tylenol Case

The Crisis Begins…

• September 1982 Extra Strength Tylenol bottles of at least 6 pharmacies and food stores were opened, & capsules were filled with cyanide (10,000 x fatal dose)

• Media reporter asked PR Asst. Dir Andrews about poisoned Tylenol– then it hit the news!

• 7 people died in the Chicago area

• CEO James Burke refers to the Credo, alerts to the danger, & assigns team to discover the source

• Formed 7-member strategy team

• Stop the killings

• Reasons for the killings

• Provide protection & assistance to people

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…and snowballs!

• Police drove through streets with loudspeaker warnings• Chicago hospital received >700 calls in one day• Immediate stories in major magazines and newspapers• Over 100,000 separate news stories ran in US papers• Hundreds of hours of national and local TV coverage• >90% of Americans had heard of the Chicago deaths• Widest coverage since Kennedy assassination & Viet Nam• Copycat tampering– 270 reported incidents (36 true)

Poison Madness in the Midwest--Time Magazine

The Tylenol Scare--Newsweek

Tylenol, killer or cure?-- Washington Post

• J&J stock fell 7 points• Market share dropped from 35% of pain-reliever market to 8%

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Initial Response– Phase 1 Crisis response

• Immediate alert to consumers not to use any type Tylenol product or resume use until extent determined

• Live TV satellite feed of press conferences; media exposure via 60 Minutes, Donahue, etc.

• 800# Hotline for customers (30,000 calls in Oct-Nov)• Toll-free phone for news organizations; pre-taped messages and updated

statements for distribution• Strict production, different lot $, & crisis only in Chicago indicated post-production

tampering• Withdrew bottles from Chicago area; ordered recall of >31 million bottles nationally

at a cost of >$100 million (against FDA & FBI)• It temporarily ceased all production of capsules• High public profile and repeated reassurance by Burke• Working relationship with law enforcement agencies• Notification of health professionals nationwide & FDA

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Initial Response—Phase 2, PR Rebound

Five-Point Plan

1. Replaced them with tamper-resistant caplets (triple safety seal within 6 months)

2. Incentives: free replacement of caplets for capsules, special coupons ($2.50 off) easily obtained

3. New pricing program: discounts up to 25%

4. New advertising program: national 1 minute commercial, News & talk shows,

5. 2250 sales personnel made new presentations to medical stakeholders

• positive press articles regarding J&J, products, & safety• indications of regaining market share• held up as positive example of ethics & responsibility• 450,000 e-mail messages

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• Forgiveness: win forgiveness from stakeholders and create acceptance for the crisis

• Sympathy: portray organization as unfair victim of attack by outside persons; willing to accept losses

• Remediation: offer compensation for victims and families (counseling & financial assistance)

• Rectification: take action to reduce recurrence (triple sealed & increased random inspection)

• Effective leadership: clear, visible, consistent role-modeled message from beginning by CEO

Strategies

Most public recovery strategies incorporate the following five components:

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Employee Response

• Strong family-oriented culture, “we care about our employees”• Open and current communication with employees; 4 video programs on

the unfolding process• Emphasizing plant workers were innocent• CEO speech in a week to employees, “We’re coming back” (wearing

buttons)• Idle employees given tasks to keep involved & reduce rumoring and

boredom• Indications of market recovery bolster spirits• Congruence and consistency in demonstrating the Credo

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Consequences– what was learned

• J&J showed that they were not willing to risk public safety even at excessive cost

• J&J could be trusted all the way to the top– they lived their Credo & having a functional credo worked

• J&J set a new standard for protection thereby requiring competitors to expensively follow suit

• J&J was viewed as a co-victim of the crime• Stakeholder involvement and relationships is essential• One must anticipate and prepared for crises; expect the unexpected• Cynicism: Be aware that 75% of people don’t believe companies take

responsibility for crises or tell the truth• “No matter what you do in the beginning, in the end you will have to tell the

truth”• React fast, openly and decisively

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• Report your own bad news– don’t wait for reporters to root it out• Speak with one voice• Gather facts and disseminate from one info center• Be accessible to the media so they won’t go to other sources• Target communications to those most affected by the crisis, and can

affect the media• If you can’t discuss something, explain why• Provide evidence for your statements• Record events via video and documents so you can later present your

side of the story

(learning cont’d)

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Copycat tamperings:

• Lipton Cup-A-Soup (1986)

• Exedrin (1986)

• Tylenol again (1986)

• Sudafed (1991)

• Goody's Headache Powder (1992)

“Déjà vu all over again”

Following the Tylenol crisis, several other tamperings plagued other companies. Impact could have been reduced by learning from J&J’s experience.

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Post-Campus Shooting: Revising the organization

• Assume that your team has been invited to help a small campus of 1000 students recover from a shooting incident (similar to Virginia Tech).

• The school does not have a crisis management team or plan but now recognizes the need

• What are some recommendations you have for them regarding the following:

• How should they go about forming a crisis management team (who should they select and what kind of training might they need)?

• What should they expect as “fall-out” from the crisis (e.g., longer term impact on people and the organization)?

• What can they do to reduce the adverse impact of the crisis on the organization?

• How can the campus be better prepared for crises in the future? 22

Summary

• Crisis Mechanisms• Risk Categorization• Crisis Management Team Formation• Strategies• Consequences

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Thank You

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