Natural or company-related events

Two types of crises fall in the category of natural or company-related events: uncontrollable natural events and health and environmental disasters related to a company.

An uncontrollable natural event of catastrophic magnitude can strike unexpectedly. This event may take the form of an earthquake, typhoon, tornado, hurricane, blizzard, flood, fire, or some other natural disaster that crushes buildings, destroys infrastructures, and interrupts communications.

A health and environmental disaster related to a company is a disastrous event that, though not necessarily caused by a company, is directly related to the company. The company is either responsible or perceived to be responsible for dealing with it. For example:

• An outside tampers with your company’s product in a way that not only harms consumers but also damages the overall image of your product and company.
• Serious product problems come to light, such as defective tires or food contamination, for which your company does bear responsibility.
• Catastrophic accidents, such as major oil spills or radiation leakage, occur on your company’s watch.
• Environmental pollution is unknowingly caused by your company in years past. For example, toxic waste with long-lasting harmful effects on wildlife and human health has been dumped into waterways.

Technology breakdowns

Everyone knows what it’s like when a company’s server goes down. In this information age, we are extraordinarily dependent on technology to communicate, store information, do research, buy, and sell. Business today could not function without technology. Here are some common technological problems that could turn into crises:

• Data loss. Most companies in the United States do not have data backup plans. According to a University of Texas study, only 6 percent of companies that undergo major data loss will survive that crisis.
• Security breaches. A 2001 survey run by the Federal Bureau of Investigation and the Computer Security Institute revealed that 85 percent of large companies and government agencies have detected computer breaches in the past year. Moreover, while most computer attacks come from outside, attacks from inside cause the greatest financial loss.
• Communications technology. A retailer’s Web site goes offline during the busiest season, stalling orders and frustrating customers and service representatives. A virtual team’s Web site goes down, making it impossible for team members to meet a critical deadline. An entire phone system goes out, so that no one in the organization can receive or make calls except on their mobile phones.
• Outmoded equipment. When people work on aging equipment or on failing networks, they face a series of ongoing, minor crises every day—inefficient working conditions, difficulty meeting deadlines, lost e-mails, constant frustration. All of these can lead to a major crisis when the systems finally collapse.

Economic and market forces

With a global economy and high-speed information, markets and economies change far more rapidly than they did twenty years ago. These forces can change—or appear to change—quite swiftly. Consider these examples:

• Market swings. An unexpected spike or collapse in buying alters predicted sales, product development, and scheduling. Even though regular market swings can make for difficult times, a major disruption in markets results in crises.
• Trends. An overall change in consumer demand leaves back-ward-looking companies in the dust. The rise of the personal computer is an excellent example. Although it was not predicted, it became the new way of life in businesses and homes. Companies that believed that mainframe technology would always be the only market were caught unaware. And many of them went under.
• Investment bubbles. Periods of rampant speculation and investment frenzy blow business opportunities out of proportion until the economic realities cause the bubbles to burst. The instant deflation of portfolios, life savings, retirement incomes, and job opportunities creates crises for many.

Business-relationship crises

All businesses depend on people within the company and outside it, including business partners, vendors, and customers. What does your company do when a crucial leader dies unexpectedly? When a subcontractor in charge of security allows a serious breach at a major airport? When a vendor fails to deliver critical supplies? When an employee is caught embezzling money from a client account? When a partner is indicted? When a major customer goes out of business? When two managers in your company become embroiled in a destructive personal conflict?

Six stages of crisis management

All crises—whether related to uncontrollable events, health, technology, changing markets, or business relationships—have the potential to affect your company’s reputation, its bottom line, its people, and, ultimately, its ability to do business. Although there is no simple formula for eliminating crises, following the six stages of crisis management can make a big difference in how successfully your firm copes with crises.

The stages are as follows:

1. Avoiding the crisis
2. Preparing to manage the crisis
3. Recognizing the crisis
4. Containing the crisis
5. Resolving the crisis
6. Learning from the crisis

In the chapters that follow, we’ll examine each of these stages in close detail.