Lecture 05 Crisis Management in Organization Development

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Agenda

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

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How should an organization conduct a risk audit?

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

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What are the stages of crisis management?

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

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Gossip / Rumors Personal Networks The Culture Crisis Mechanisms Types of Signals

People

Communities Special Interests Media Consumers

Internal

Personal Data Bases PCs IT

Technical

Remote Sensing Government Monitoring Industry

External

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

Risk Categorization

High Impact

Amber Zone Red Zone

Low Probability Hazard Likelihood

I I I I I I I I I I I I Green Zone Gray Zone

High Probability Low Impact Hazard Severity

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Stages of Crisis Management 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: Fink’s Crisis Lifecycle Prodromal

Risk cues that potential crisis can emerge

Crisis breakout

Triggering event with resulting damage

Chronic

Lingering effects of crisis

Resolution

Crisis no longer a concern to stakeholders

Mitroff’s Five 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

Recovery

Return to normal operations asap

Learning

Review & critique CM efforts for improvements 5

Ecomap of Stakeholders 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.

Primary Effect Secondary (Vicarious) Effect Tertiary Effect

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Crisis Management Team Formation– selling the idea

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Team Composition:

Membership should be based on representation, knowledge, and skill.

Key roles :

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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 Typical team composition :

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Facility management Legal department Risk management Information technology Human resources Financial services Real estate management Corporate security Public relations/ communications

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Define the duties of the team:

• 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 9

CM Team Training

Ensure that all CMT members are trained before the crisis occurs • 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 10

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

Four responsibilities:

• To the customers • To the employees • To the communities they serve • To the stockholders 11

Tylenol Case Analysis

Background

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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…

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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

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Formed 7-member strategy team

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Stop the killings

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Reasons for the killings

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Provide protection & assistance to people

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…and snowballs!

Poison Madness in the Midwest --Time Magazine

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Police drove through streets with loudspeaker warnings

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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) Tylenol, killer or cure?

-- Washington Post The Tylenol Scare --Newsweek

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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

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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

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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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Strategies

Most public recovery strategies incorporate the following five components: • 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

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Employee Response

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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

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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– Credo & having a functional credo worked they lived their 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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(learning cont’d) • • • • • • •

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

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“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.

Copycat tamperings:

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Lipton Cup-A-Soup (1986)

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Exedrin (1986) Tylenol again (1986)

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Sudafed (1991) Goody's Headache Powder (1992)

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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?

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Summary

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Crisis Mechanisms Risk Categorization Crisis Management Team Formation Strategies Consequences

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Thank You

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