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Stages of Crisis & Crisis Management

ObjectivesDescribe stages of crisis processIdentify key principles of crisis interventionDiscussion of classic Tylenol poisonings caseApply stage management approach to team caseMalaysian Flight CrashSystem Map of Financial CrisisCartel System

Although it seems as if crises just occur suddenly and we are swept up in their turmoil of confusion, they actually are spread out over several stages. In this unit we will overview and describe some models of crisis stages, identify some key principles of crisis intervention, and examine some classic cases.1The stage approach: Segmenting complex processes

Stages refer to relatively distinctive segments of a more complex or lengthy processStages are differentiated by identifying the beginning or end of some important event, reaction, or processStages enable the user to communicate clearly about change over time, adapt interventions to what is needed at each stage, & monitor progress across stages.Stages also imply development from one stage to another; this enables changing outcomes at a later stage by intervening at an earlier one

You are already familiar with the idea of stages or phases. As humans, we go through stages of development from childhood to maturity and then decline. In addition, there are product lifecycles of products as well as stages of product development. The advantage of thinking about crises in stages is that we can bring clarity to an otherwise chaotic and disruptive process. Stages are useful in identifying the beginning or end of some process or event. They also enable people to clearly describe and refer to particular stages during crisis, respond to them more accurately, and monitor progress as people move through the stages. Stage thinking also implies that there is movement and change during what seems an interminable mess, which can give people hope. 2Stages of Crisis ManagementSignal detectionWarning signs & efforts to preventProbing & preventionSearch risk factors & reduce potential for damageDamage containmentKeep from spreading to uncontaminated areasRecoveryReturn to normal operations asapLearningReview & critique CM efforts for improvementsMitroffs Five Stages of Crisis ManagementFinks Crisis LifecycleProdromalRisk cues that potential crisis can emergeCrisis breakoutTriggering event with resulting damageChronicLingering effects of crisisResolutionCrisis no longer a concern to stakeholdersLike 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. Jack Welchs CEO of GEDenialAvoiding or minimizingContainmentKeep quiet or buck-passingShame Mon-gering Self defense, blame & creditBlood on the Floor Somebody paysCrisis Fixed Life goes on, prevent future crises

There are many different models of crises. I like the example of a loaf of bread that can be sliced into any number of slices, although it is the same loaf of bread. Likewise, crises can be differentiated into as many stages are one wants the key is to find a manageable number that have meaning and practicality for intervention.

The bottom model here is by GE CEO Jack Welch. Although not a crisis expert, he certainly has had his share of crises and his stages reflect his understanding of how they are often dealt with from the top. Notice how his labels tend to emphasize the defensive nature of crises.

Ian Mitroff identifies five stages that are commonly acknowledged. Of particular importance is his noting the early warning stage where there are indications of risk or pending problems. His model also emphasizes learning from the experience following resolution of the crisis.

Stephen Finks model is similar to Mitroffs, although he shortens the number of stages but adds the chronic effects of the crisis.

You might see if you can combine these into your own model that makes sense to you in your setting and the kinds of crises you would expect to encounter.3

The long view

This model is an even longer stage sequence. In addition to each of the stages it suggests actions to be taken and also shows a sample timeline during which the crisis unfolds. It is more designed around disasters where life is threatened, but those kinds of crises are also encountered by many businesses.4Ecomap of Stakeholders: Who is affected?Primary EffectSecondary (Vicarious) EffectTertiary EffectAn 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.

It is essential to identify all potential stakeholders who are affected by the crisis, although they may be affected at different stages. An Ecomap is one way to identify stakeholders by the degree of impact on them. The center primary effect circle are those people who are immediately and directly affected by the crisis. In a flood or storm for example, it would be the homeowners and business owners who have their places damaged.

Secondary or vicarious effect comprise the second ring. These are people who are indirectly affected, either by being related to or working with victims/survivors, or view the devastation and are affected by it. Rescuers, crisis counselors, and leaders for disaster recovery likely comprise this group.

Tertiary effects are generally for those people who are not directly or vicariously affected by the crisis, but who are affected by knowledge of the event or personalize it to themselves. Although often distant, they can be seriously affected. An example here would be the 911 terrorist attacks on the World Trade Center or Katrina Floods that affected people around the country; indeed around the world.5ProdromalCrisisConsequences & RecoveryLearningStage CharacteristicsWhat stakeholders needWhat should be doneCrisis Stage Worksheet

Too often, leaders do not anticipate crises, or even when they do they may take more global approaches to managing it. This table helps identify the stages, what people need during each stage, and what leaders should so for each. When done in detail, specific stakeholder groups should be identified in the stakeholders category. For our purposes here, identify a specific crisis in your work setting, describe what each stage might be like, what your immediate stakeholders need (your office staff perhaps), and what management can do to facilitate their coping with the demands of that stage.6

Regardless of the crisis model used, crisis management involves four strategic considerations, or the Four Cs. All plans should include at least these aspects.

While there are various models of crises, there is good agreement on what should be done during them. The four Cs cover some of the most important aspects.

Command requires that there is an identifiable person (role and responsibilities) in charge to give directions and make decisions. This also implies a hierarchy of people to whom actions can be delegated.

Control involves allocating resources, setting limits and constraints, and monitoring development of the situation. It also implies self-control of ones emotions during stressful periods in order to calm others and think clearly.

Compassion is an important quality when interacting with others in crisis. It provides confidence and solace when people are frightened and distraught.

Communication is essential for coordinating efforts, updating information on crisis development, and dealing with the media and other stakeholders.

Other criteria could easily be added to the four Cs. What other ones would you add?7

Classic Crisis Case: J&Js 1982 Tylenol TamperingIn this presentation you will cover: stages of the crisis key considerations for intervention constructing an ecomap description of the case impact of the case on the industry what was learnedCase Overview

One of the classic cases of crisis management is the 1982 Tylenol tampering case. In this case we will cover several aspects of stage development. Please click on the case overview to review a YouTube video of the case.8

Four responsibilities:To the customersTo the employeesTo the communities they serveTo the stockholdersWhen the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four Cs quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders

Reviewers of the case often refer to the J&J credo and its mission statement by which all employees guided their behavior, and more importantly, that which guided the executives dealing with the crisis. Again, click on the four responsibilities to view a brief videoclip.9Tylenol Case AnalysisBackgroundIn the mid 1950s 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 combinedJ&J was one of the Best 100 companies to work forTylenol became a product trusted by physicians and families alikeNumerous other Tylenol products were developed for an active marketJ&J strong family corporate culture

Johnson & Johnson and its flagship Tylenol had become one of the most trusted names and products in the pharmaceutical industry since the 1950s. It has accrued large market share, was widely recommended by health care professionals and families, and led to even more related products. It appeared that by the early 1980s, J&J was continuing on a fast rising track to success.10Tylenol CaseThe Crisis BeginsSeptember 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 areaCEO James Burke refers to the Credo, alerts to the danger, & assigns team to discover the sourceFormed 7-member strategy teamStop the killingsReasons for the killingsProvide protection & assistance to people

On a late September morning in 1982, 12 year-old Mary Kellerman of Elk Grove Village, Illinois died after taking a capsule of Extra Strength Tylenol. She was followed by six others in the Chicago area. A reporter contacted the PR Assistant Director at J&J about the deaths which was the first that J&J had considered the risk. James Burke immediately formed a crisis team who then reminded them of the credo as a guide, and then proposed to work with the FBI to stop the killings, find out why they had occurred, and providing assistance to victims and families. It was not their role to conduct the first two, but they entered the third with intensity that has become a reference in the field. They needed to help stop it before it became worse11and snowballs!Police drove through streets with loudspeaker warningsChicago hospital received >700 calls in one dayImmediate stories in major magazines and newspapersOver 100,000 separate news stories ran in US papersHundreds of hours of national and local TV coverage>90% of Americans had heard of the Chicago deathsWidest coverage since Kennedy assassination & Viet NamCopycat tampering 270 reported incidents (36 true)Poison Madness in the Midwest--Time MagazineThe Tylenol Scare--NewsweekTylenol, killer or cure?-- Washington PostJ&J stock fell 7 pointsMarket share dropped from 37% of pain-reliever market to 7%; from $400 million in annual revenue to $70

but it did become much worse! The news spread about the killings with police going through neighborhoods with loudspeakers warning people, radio and T stations announcing not to take the medications, and papers pouring out details of the case. As you note in this slide, over 100,000 news stories ran in US papers, and more than 90% of Americans knew of the poisonings.

The immediate response to the incident was that J&J stock fell from 37 to 7% of market share with catastrophic drop in revenues.12Initial Response Phase 1 Crisis responseImmediate alert to consumers not to use any type Tylenol product or resume use until extent determinedLive 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 distributionStrict production, different lot $, & crisis only in Chicago indicated post-production tamperingWithdrew 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 capsulesHigh public profile and repeated reassurance by BurkeWorking relationship with law enforcement agenciesNotification of health professionals nationwide & FDA

The crisis management team responded with admirable clarity. Rather than deny, blame, or divert they immediately told consumers to stop using their products and recalled over 30 million bottles nationally. They used every media possible to reach people, worked closely with law enforcement investigators, stopped production, and leadership had a high profile. 13Initial ResponsePhase 2, PR ReboundFive-Point PlanReplaced them with tamper-resistant caplets (triple safety seal within 6 months) Incentives: free replacement of caplets for capsules, special coupons ($2.50 off) easily obtainedNew pricing program: discounts up to 25%New advertising program: national 1 minute commercial, News & talk shows, New presentations by 2250 sales personnel made to medical stakeholderspositive press articles regarding J&J, products, & safetyindications of regaining market shareheld up as positive example of ethics & responsibility450,000 e-mail messages

As the crisis reached a peak but warnings had been distributed, the crisis team formulated a five point plan changed the landscape of pharmaceutical sales. Most importantly, they were the first to implement tamper resistant caplets with safety seals. This set a new standard for all other pharma companies to duplicate. They also used incentives, new pricing and advertising, and made new presentations to health professionals and media with emphasis on safety and ethics.14Forgiveness: win forgiveness from stakeholders and create acceptance for the crisisSympathy: portray organization as unfair victim of attack by outside persons; willing to accept lossesRemediation: 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 CEOStrategies

Most public recovery strategies incorporate the following five components:

J&J followed what are now key strategies for responding to crises. These five areas should be considered as part of every crisis response.15Employee ResponseStrong family-oriented culture, we care about our employeesOpen and current communication with employees; 4 video programs on the unfolding processEmphasizing plant workers were innocentCEO speech in a week to employees, Were coming back (wearing buttons)Idle employees given tasks to keep involved & reduce rumoring and boredomIndications of market recovery bolster spiritsCongruence and consistency in demonstrating the Credo

In addition to being committed to health providers and families, J&J has had a strong commitment to its employees as well and has been considered as having family-friendly culture. In addition to its contact with external media, it quickly communicated with employees, updating them on the crisis and its development. Without such clear and frequent communication it would have been likely that many more rumors would have emerged. They emphasized innocence of workers, started a recovery campaign, keep people involved and busy, showed indications of recovery, and demonstrated consistency with the credo.16Consequences Lessons learnedJ&J showed that they were not willing to risk public safety even at excessive costJ&J could be trusted all the way to the top they lived their Credo & having a functional credo workedJ&J set a new standard for protection thereby requiring competitors to expensively follow suitJ&J was viewed as a co-victim of the crimeStakeholder involvement and relationships is essentialOne must anticipate and prepared for crises; expect the unexpectedCynicism: Be aware that 75% of people dont believe companies take responsibility for crises or tell the truthNo matter what you do in the beginning, in the end you will have to tell the truthReact fast, openly and decisively1983 Tylenol Bill by Congress made malicious tampering of consumer products a federal offense1989 federal legislation to make consumer products tamper resistant

Following Mitroffs model, it is important to review what was learned from the crisis in order to avoid crises or be better prepared the next time. The next two slides highlight some of the points deduced from the case. Compare these to some of the more recent crises in the news and how leaders responded to them.17Report your own bad news dont wait for reporters to root it outSpeak with one voiceGather facts and disseminate from one info centerBe accessible to the media so they wont go to other sourcesTarget communications to those most affected by the crisis, and can affect the mediaIf you cant discuss something, explain whyProvide evidence for your statementsRecord events via video and documents so you can later present your side of the story(learning contd)

18Copycat tamperings: Lipton Cup-A-Soup (1986)Exedrin (1986)Tylenol again (1986)Sudafed (1991)Goody's Headache Powder (1992)Dj vu all over again

In 1982 FDA estimated 270 product tampering cases. Following the Tylenol crisis, several other tamperings plagued other companies. Impact could have been reduced by learning from J&Js experience.The Tylenol comeback (and how they did it)

The visibility of the tamperings also contributed to a series of other product tamperings in following years. Many of them could have been handled better if they had learned from J&Js experience. Click on the Tylenol Comeback at the bottom of the slide to view a brief video on J&Js comeback.19

The Toyota Recall

Lets take another case the recent Toyota recall due to accelerator problems. For this portion of the presentation, see if you can keep track of the stages of crisis from prodromal through crisis and response stages. Since it is still developing, even after several years, it has not been resolved. However, also see if you can identify some learnings that Toyota should make from this.20

When its material for the cartoon strips, you KNOW its serious

By the time that late nite talk shows and newspaper cartoons start panning an organization for its crisis response, the crisis is probably well developed and public opinion is being formed. This is just one of the reputation issues that the organization must deal with.21

The next three slides highlight some of the key events as the crisis has unfolded, but it still not resolved.22

Although speculation of cover up of electronic defects has waned, there is much criticism about Toyotas crisis responseOverreaction by the U.S. media, a shift in the business environment, the American political mood at the time, and Japans response to global economic problems likely contributed to the furorSeries of recalls created initial doubt: January 2009 recall of seatbelts & exhaust system problems; August 2009 recalls due to faulty window switchesThe reputation for high quality was further damaged by a lack of early statements on recalls, delays in notifying customers whether they owned at-risk cars, and failure to scrutinize driver complaints and seriousness of risksToyota should have reacted much sooner: in 2007 when there were Tundra pickup complaints, or as early as 2004 when the Natl. Highway Safety Administration investigated acceleration of the Lexis ES and CamryAlthough findings showed there was no electronic defect, sticking accelerator, floor mat accelerator interference and sticking pedals were founded

Too slow of a responsehttp://insurancenewsnet.com/article.aspx?id=223320&type=newswires

Here are some of the findings and opinions about the Toyota crisis, primarily related to a slow response. Consider how these problems are a function of culture, organizational hierarchical structure, lack of attention to early warning signs, and insufficient crisis plan.25What did Toyota do: Halt production. Halt sales. Find the problem. Fix it. Recall vehicles. Fix them. The gas pedal issue in question affects eight of Toyota's top selling models: RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra, and Sequoia. It doesn't affect the Prius, other hybrid models, Yaris, or Sienna. It also does not affect Lexus or Scion models. They sell roughly 2 million vehicles per year in the United States. A halt of production of only one month could mean the loss of roughly 100,000 salesor, assuming an average profit of $3,000 per vehicle, roughly $300 million. Each month. http://tcbmag.blogs.com/stateofthebrand/2010/02/toyota-in-crisis-tylenol-extra-strength-or-ford-explorer.html

Although Toyota made efforts to respond, it seemed to be too little and too late, as well as costly for them.26ProdromalCrisisResponseLearningsShift in Toyotas emphasis on growth & boosting profit rather than maintaining qualityComplaints as early as 2004Expansion of the workforce without 100% adoption of the Toyota cultureCulture emphasizing quality so that anything less is shameful & embarrassing, leading to denying, minimizing and mitigating problemsHierarchical structure & lack of upward communicationinitial $2 billion recall and the loss of 17% of share value; subsequent recall of millions of carsQuality reputation severely damagedDecrease in consumer intention to buy ToyotaTotal recall cost could surpass $5 billionSales and reputation decline across many countrieshalt production and issue recalls across the board of RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra and SequoiaAdmission of the problem has been half-hearted and reluctant, it has failed to apologize to victims and families, and communicate what it will do to regain controlDelayed replies to online posts and complaintsCongressional committee found misleading statements about repairsEstablish and attend to early warning indicatorsMonitor mainstream as well as social media for opinionsReact quickly when a crisis breaksCreate & support open culture with 2-way communicationStages of Toyotas Response

Herre is an example of the stage model we are using and how it lends itself to describing the Toyota crisis. See if you can add more to the learning column.27

Some conclusionsStages are a useful way to describe, monitor and facilitate movement toward resolution & learningEarly warning systems can significantly help reduce risk and enable more effective responseInformation about stages continues to be available as the crisis unfolds use multiple sources of informationOrganizational culture operates on how the organization responds evaluate it as part of risk assessmentWhen a crisis occurs, be active, honest, take the initiativeWhenever possible, develop good relationships with stakeholders before a crisis occurs

There are many conclusions that can be drawn from the Tylenol and Toyota casesthese are only a few. What others would you add?28

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