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Crisis management in businesses

Many catastrophic events befall on businesses. The question arises whether or not companies give enough thought to know that how these situations might impact their businesses and how to cure them. These events usually happen within a compressed period and have the potential to critically impact a company’s ability to achieve its mission. These vents bring in financial or reputational loss.

All catastrophic events usually occur within a compressed period of time and critically impact a company’s ability to fulfil its goals. Such events may result in significant financial or reputational loss and such crises may occur due to natural and manmade disaster, weather and environment conditions, product safety failure, equipment failure, data security breach, operational failures, loss of key staff, supply chain interruption, regulatory enforcement action, false or untrue financial reporting and fraud and leadership misconduct. Businesses are very well aware that their reliance on technology, networks and software necessitates a disaster recovery response and mitigation plan, and that personally identifiable information, commercially valuable information or intellect property, must be protected from a data intrusions or breach. One has to think beyond these top of mind risks to probe: “Are we ready to face the unexpected?” The question would be how to organise response to a confronting crisis. For to respond such a situation, the management processes revolve around four phases namely, planning, response, recovery and remedy. May be sometimes these phases follow a sequential path, however, many times all the phases of the path may occur and be followed simultaneously?

In order to plan a crisis management, which is a cross functional dynamic process, and in the process a company establishes a co-ordination wing to oversee legal and operating implications of a crisis. In fact internal and external communication plans are developed to keep the critical stakeholders well informed. The response to the crisis is actually the execution of the crisis plan.

In real time, the plans in place to manage the crisis may need to be changed due to the reality of a particular crisis situation. The phase relating to emergency response to the catastrophe is largely resolved through the process known as recovery or restoration and the same is complimented by recovery and restoration process.

During this period the organisations deals with: 

(I) Regulatory proceedings relating to claims.

(II) Re-establishing the processes to the extent possible.

(III) Curing the ongoing financial and operational obligations.

(IV) Improving fallout and emerging negative impact for the business.

(V) Bringing the business to normalcy.

This phase naturally leads to the final phase of resilience, which includes the lessons learned, and taking steps to prevent or mitigate the damage from future crises, and modifying plans to more effectively and to efficiently address and manage future crises.

What are the effective tools in crisis management, the critical tools include communication planning and its effective execution. The next question would be to find out effective steps for decision-making, these include: gathering the accurate and timely information, this factor helps in resolving the crisis; in fact the effective communication helps to find facts necessary to respond. Due to crisis, the customers, shareholders, employees and other company stakeholders all experience the event in a different way. A clear and timely communication, based on accurate facts goes a long way in assuaging the ensuing concerns. These situations trigger regulatory scrutiny and media attention and one is required to reveal more accurate and timely disclosures to counter frequent speculation, rumours or even fear-mongering.

In order to confront such situations, the sub-components of the plan include: scenario planning simulations and drills, these steps are critical and are to be taken well in advance. An effective fact-finding process and communication strategy is spread ores all phases. It may be remembered that periodic assessment of the overall crisis management plan and knowing its components is necessary. Understanding possible infrastructure challenges, and challenging assumptions about the availability of such basic items as electricity or access to employees or facilities, is particularly important in the natural disaster context.

Third parties also influence and gain benefit from such situations, that is, why an effective organisational crisis management plan must deal with these key issues. Inter-dependencies and intricacies of the supply chain at different levels either locally based or multinational dimension must be kept in mind. A crisis may both be caused by extreme financial pressures and may similarly manifest itself in the form of severe liquidity challenges, or an imminent breach of financial covenants or share price plunge. An integral work step in developing an effective crisis management plan is thus to retain key advisers having sufficient experience. The businesses must rely on crisis communication professionals, forensic accountants, financial advisers, lawyers, cyber intrusion, information technology professionals, and other consultants in order to take effective remedial measures:

These risks need to be contemplated, prevented, planned for, and responded to and recovered through a well-designed and executed crisis management process. It is not always the case that an identified risk triggers a crisis – for example, an unlikely confluence of events or risks might trigger a crisis not otherwise foreseen. An effective fact-finding and communication approach is an essential component of an effective crisis management plan, although these efforts are not typically in scope for an enterprise risk management exercise.

Access to critical business systems and data is a key prerequisite in order to have accurate and timely information upon which to make decisions, and to communicate to key stakeholders. Business continuity and resilience can be viewed as an essential, but sometimes overlooked, step in the routine business operations of an organisation. In the absence of effective planning or visibility to crisis scenarios, regardless of whether third parties are involved, the move to cloud computing or outsourcing other IT functions only increases the challenge of keeping information flowing during a crisis. While a crisis is ongoing, the business needs to maintain operations to the extent practicable, so that supply chain and distribution network may rely upon and generate data for others to rely on. The phrase ‘knowledge is power’ comes to mind as an inspirational goal by which to maintain clear communication channels and a solid IT infrastructure.

Perhaps the best way to illustrate this is through a series of examples. It is sometimes the case that a single business unit of an organisation supplies a key component relied on by the remainder of the business. Understanding whether there are ‘choke points’ in the supply chain or an avoidable concentration of risk in a single third party or product, and planning for shortages or unavailability for an extended period, is a worthwhile exercise, not to mention locating alternative sources or even alternative components. There may be key distribution choke points in terms of both the logistics operations involved in product delivery as well as with organisations which act as wholesalers, or are responsible for a disproportionate amount of a company’s sales. Similar planning for or even avoiding that sort of concentration risk is a time well spent for every organisation.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)

Copyright Business Recorder, 2015

Zafar Azeem, "Crisis management in businesses," Business Recorder. 2015-10-08.
Keywords: Economics , Business enterprises , Natural resources , Law Enforcement , Financial crises , Industrial management , Information technology , Electricity