Crisis Management- a Strategic Leadership Approach

At the beginning of the decade people all over the world scrambled to tackle the potential technological disruption of the YAK bug which was one of the utmost crises. Then in 2001 the US was thrown off balance by the terrorist attack on September 1 1, which led to a world wide upshot. A few years later the Hurricane Strain disaster that hit the gulf coast region which led to an ineradicable images of a community and the government struggling to respond and also the Tsunami in 2004.

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The close of the decade was through the collapse of financial markets 2008 and the HI IN virulent disease in 2009. A glimpse of the events of the last decade suggests that crises are inevitable. In most instances the leadership team is not prepared to manage a crisis, and the mishandling f an organizational crisis can have negative, long-term consequences for an organization’s profitability, reputation, market position, and human resource management systems. It is very much necessary for the leaders and the organizations to manifest positivist in crisis.

Although executives are aware of the negative consequences associated with organizational crises, their formal training and on-the-job learning experiences do not prepare them for leading a crisis situation. When leadership training addresses crisis situations, the focus is on communications to stakeholders and public relations. However, leading a crisis situation is more than communication and public relations since public speaking and positive spin alone will not solve the majority of crises that leaders deal with.

So there is a need for management to develop the competencies to lead in a crisis situation. Anticipating crisis is a matter of strategic planning and risk management, but each crisis that manifests itself, must be dealt with adeptly by leaders, who also must consolidate the lessons learnt and communicate the same to the people as organizational learning and thus drive sense for initiating hanged in the organization. A leader must institutionalize the process of crisis management to anticipate, prepare and mitigate an impending crisis.

To ensure an effective crisis management mechanism leadership support and involvement is absolutely essential. Defining Crisis: Dutton described a business crisis as a type of strategic issue that, in the absence of corrective action, can lead to a negative outcome. Pearson and Claire defined a crisis as a low-probability, high-impact event that threatens the security and well being of the public, and is characterized by ambiguity of cause, effect, and means of resolution, and consequently requires decisions to be taken swiftly.

Thus a business crisis can be defined as a rare and significant situation that has the potential to become public and bring about highly undesirable outcomes for the firm and its stakeholders, therefore requiring immediate corrective action by firm leaders. Crises are clearly complicated events. Although many crises seem to happen instantaneously, in truth they generally unfold over a period of time. There are primarily two types of crises situations- Sudden crisis and smoldering crises.

Sudden crises are significant and unexpected events that disrupt the lily operations of business for some period of time. Natural disasters and other potentially calamitous events represent typical examples of sudden crises in that they occur suddenly and with limited warning. Smoldering crises are business problems that start out as small, internal problems within a firm, which when they become public to stakeholders can escalate to crisis status as a result of inattention by management. Most of the business crises fall into smoldering crisis.

Smoldering-like crisis situations typically result from the simple day to day work performed in an organization and often take the form of management stakes that have built up over a period of time. Phases of crisis Management: Phase 1: Signal Detection While these are less evident in many crisis that occur suddenly and without warning (e. G. , natural disaster), most other types of crisis have a number of early warning signs that lead an enlightened manager to know something is wrong. A slowly building increase in customer complaints or defect rates, for example, can be a sign of trouble in product quality.

Phase 2: Preparation/Prevention The preparation and prevention phase is one in which managers engage in activities to plan for or avert a crisis. These activities may include developing crisis policies and procedures, identifying a crisis response team, performing crisis drills, and more. As the preparation and prevention stage of crisis management should not imply that the goal for managers is to prevent all crises, but rather engage in realistic planning in order to better position the organization to prevent some crises and to manage those that are unavoidable.

Phase 3: Containment/Damage The goal of the containment/damage control phase is to limit the reputation, financial, and other threats to firm survival in light of the crisis. This is achieved through activities that limit the encroachment of a localized crisis into otherwise unaffected parts of the business or the environment. Containment and damage control tend to preoccupy management time and attention when crises occur. Indeed, it is these activities that people associate with crisis management, and represent an important step toward the next phase: business recovery.

Phase 4: Business Recovery: One of the ultimate goals of any crisis situation is to return the organization to its pre-crisis condition. Leaders constantly try to reassure stakeholders that, despite he disruption, business affairs are operating smoothly or will be returning to normal soon. In the business recovery stage, crisis handlers should have a set of short- and long-term initiatives designed to return the business to normal operations Phase 5: Learning Organizational learning is the process of acquiring, interpreting, acting on, and disseminating new information throughout the firm.

When it comes to managing crisis situations, however, firm leadership runs the risk of adopting a reactive and defensive posture that prevents learning. Firms taking a learning stance would till be subject to the earlier crisis phases and would be enhanced by an explicit attempt to understand the underlying organizational factors contributing to the crisis.

Leaders could then leverage this insight to facilitate fundamental change in firm systems and procedures Leadership and Crisis Management: Leadership can be conceptualized as a collective phenomenon where different individuals contribute to the organization by straightening a course of action for achieving organizational goals and monopolizing members to adapt their behavior to achieve goals so that an environment can thrive. Leaders transform their organization by inspiring followers to perform beyond expectations.

Leadership competency, in refer to a state of being well-equipped or capable to perform a task. A leadership competency is a dynamic process that evolves over time and is influenced by the individual’s attributes and the collective interactions of the leader within the context of the organization and external environmental circumstances. In a crisis situation, leadership evolves into creating a situation where organizational members make sense of the reality of the crisis and become reflective and proactive in preventing the crisis from escalating and solving the crisis.

This is a challenging task for executives since crisis leadership somewhat differs from leadership as usual. This is because organizational crises are low-probability/high-consequence events, characterized by ambiguity, time pressures, some type of system failure, and limited authority. Role of leadership in each phase of crisis: Leadership in Signal Detection phase of crisis: Signals of a possible crisis are less evident in most of the sudden crisis but a smoldering crisis always leaves a trail of red flags or warning signals that something is wrong.

Unfortunately these warning signals often go unheeded by he management. This likely occurs due to several reasons. First, is an illusion of exception leading people to think that serious problems only happen to other people. Second, are ego defense mechanisms such as denial that allow leaders to preserve a pristine image of themselves and their organizations even in light of information or evidence to the contrary. Third is a failure in signal detection precisely because it is the decision making and behavior of organizational leaders that are contributing to the pending crisis.

Consequently, this limits a leader’s ability for sense making or perspective taking by narrowing the set of people, sources, and other sources of data to those that he or she feel reasonably confident will support their viewpoints In the signal detection phase, the role of leadership is to interpret triggers that may alert the organization of an impending crisis. The ability to respond to a crisis signal demands scanning the internal and external environment. The early detection, processing, and responding to signals of a crisis can lead to an organization directing energy to prevent the crisis from occurring or the ignoring of the signals.

The task of crisis leadership includes sense making and perspective taking. In the framework of sense making the questions such as how does something come to be an event? What does the event mean? What should do relative to the event? And answering these questions in the signal detection phase can result in effective actions that may prevent a crisis. In addition to answering these questions, leaders need the ability to make sense of a series of events that, superficially, may seem unrelated.

In the case of the Ford-Firestone product crisis, where defective tires were used on their Explorer vehicles, there were also numerous signs of a pending crisis that went ignored or undetected by Ford’s leadership. Some of these warning signals included a memo about supplier quality problems, reports of accidents, complaints about the vehicles in overseas markets, and reports from their own risk management department that went unheeded. Leaders failed in their sense making by not adequately comprehending or taking the necessary actions on key events that presented themselves prior to the crisis.

Perspective taking, which is the ability to entertain or assume the perspective of another, has been identified as a key element of detecting crisis signals. During a crisis, one of the core responsibilities of a leader is that of ensuring the well- Ewing of those affected by the crisis. Perspective taking allows leaders to better understand and empathic with others and, in turn, act in the best interest of stakeholders. However, when scanning for signals, leaders are inclined to focus on the perspectives of those who are most vocal in a crisis or who hold the most power of the organization (e. . , activists or shareholders). This potentially misplaced attention can result from narrow perspective taking and may lead the crisis handler to neglect other warning signals of a crisis. Taking the example of Ford, if the firm leaders put themselves in the place of the victims or victims’ implies they likely would had a more empathic and strategic response before the crisis smoldered. During the signal detection phase of the crisis, Freestone’s leadership focused on the data (rather than the people) and interpreted the data as being of acceptable risk.

In this case, the target of interest was the shareholder rather than the consumer. Leaders should recognize that their own ability to detect a crisis can be accurate, but it should be talked about with others by soliciting perspectives from a variety of sources. This is particularly true if leaders are seeking input from subordinates. Leaders have to recognize the Peers and supervisors who may be more willing to challenge the assumptions of leaders and encourage them to think about the crisis signals from an alternative perspective.

Effective crisis leaders examine all the signaling data with equal severity and pause and reflect. Moreover, these leaders specifically identify someone to challenge their point of view of the crisis signals by asking the person to play the devil’s advocate by countering or questioning the assumptions. Leadership in Preparation/Prevention phase of crisis: The preparation and prevention phase is one in which leaders engage in activities to plan for or prevent a crisis. These activities may include developing crisis policies and procedures, identifying a crisis response team, and performing crisis drills.

The preparation and prevention stage of crisis management should not imply that the goal for leaders is to prevent all crises. This would be impossible. However, with some realistic planning and expectations, leaders will be better positioned to prevent some crises and better able to manage those that are unavoidable. When an organization invests time and resources into preparing for a crisis, it becomes alert in its response to a crisis. For an organization to be alert, its leaders must have a thorough knowledge of all aspects of the business, and how the work across organization or departments, or task functions.

In preparing or planning for a crisis, the ability to be organizationally agile is critical because although a crisis event may initially affect one aspect of the business, ultimately the entire organization, including its reputation, may be at stake. Thus, when planning for a crisis, leaders should consider the organization in its entirety. When leaders understand all aspects of the organization and create networks in efferent areas, they can make more comprehensive crisis prevention plans and span organizational boundaries to get things done.

For example, Wall-Mart demonstrated organizational agility in its preparation and management of Hurricane Strain. In contrast to government agencies that did not react until days after Hurricane Strain hit land, Wall-Mart lined up its extensive distribution network and stocked its stores with the frequent supplies that are normally purchased during a natural disaster. Wall-Mart was able to serve gulf coast areas better than other companies or public institutions. Wall-

Mart’s efficiency, in contrast to government agencies was the result of a CEO who used his previous logistics experience to manage stores Wall-Mart’s efficiency, in contrast to government agencies was the result of a CEO who used his previous logistics experience to manage stores during Hurricane Strain and was able to assemble a cross-functional emergency operations designed to quickly bring together people from different groups in Wall-Mart for decision making and to set priorities for tasks. So Creativity can be one of the leadership competency associated with the preparation and planning phase of a crisis.

The concept of creativity in the workplace most often refers to the production of new or useful ideas, products, services, processes, or procedures. Creativity is necessary during the crisis preparation and prevention phase because leaders need to think about how an organization is vulnerable to a crisis, and then plan for multiple contingency. This requires an ability to brainstorm and imagine in ways that go beyond the traditional thinking about corporate concerns. Competent leaders go beyond brainstorming the organization’s vulnerability to identify full-fledged scenarios of possible events.

Scenario planning for a crisis helps leaders create cognitive maps that provide a reference point and increase one’s ability to navigate unfamiliar conditions. Leadership in Crisis Containment and Damage Control: When most leaders think about a crisis, the responsibilities associated with containment and damage control tend to preoccupy their time and attention, since these are the critical steps to business recovery. Crisis containment is defined as the decisions and actions aimed to keep the crisis from getting worse.

During the crisis containment phase, leaders focus on limiting the reputation, uncial, and other threats to the organization’s survival in light of the crisis. Leading in this phase of the crisis entails: a) Acting quickly and decisively b) creating an adaptive organizational culture c) communicating liberally Acting quickly and decisively: Leaders should have the ability to make decision at times of pressure. Crises are high impact situations that require immediate and decisive action by organizational leaders. Given the speed with which decisions must be made and actions taken, there is presumably little time to think retrospectively.

For example the quick response and outpouring of support by firm leaders following the 1982 Johnson & Johnson product tampering crisis. In response to the Ethylene crisis, firm leaders were guided by the firm’s credo in their decision making, which included pulling the product from store shelves all across the country despite the incidences of poisoning being localized to the Chicago region. This action clearly made J & J vulnerable to potentially severe financial ramifications, and yet it was precisely their willingness to put the company in this position of vulnerability i. . , to take the risk on behalf of their consumers that allowed them o sustain their reputation of trust. In turn, customers remained loyal to the firm, and almost 30 years later J & J continues to be lauded for its actions and preserved its trustworthy reputation. Creating an adaptive organizational culture: During a crisis, an organization’s culture adapts its shared basic assumption as members solve problems by working together and adapting to external pressures.

Since the rules of the game change in a crisis situation, leaders may recreate norms for how to get work done, such as redistributing power, new communication patterns, a different orientation to stakeholders, and innovative irking styles. The adaptive cultural norms help organizational members respond to the environment by providing a shared approach for collective action and reducing uncertainties. The example of role that Gene Grants played in the crisis of damaged Apollo 13 space shuttle’s journey.

Grants adapted the organizational culture during a crisis by building collaborations and enforcing a positive frame of mind to work through problems and develop solutions in a time pressure, emergency environment. Grant’s cultural ideology centered around a sense of hope that required the team to airframe the problems in terms of attention solutions, and enabling resourcefulness by encouraging the innovative use of talents, supplies, and equipment. Communicating liberally: The competency most closely identified with crisis leadership is the ability to communicate effectively.

Very often, the type of communication observed during a crisis event is one that is rooted in the public relations tradition and attempts to position the firm or the problem in relatively favorable terms. Crisis communication is used to positively shape the stakeholders’ perceptions of the crisis and the organization. During the damage control or containment phase f a crisis, leaders will identify and connect with key organizational personnel, provide or solicit necessary information and instruction, and attempt to restore calmness or provide reassurance to affected constituents.

Depending on the type of crisis, leaders also may need to be persuasive, confident, or empathic in their messaging. What elevates a leaders competency in communicating effectively during a crisis is his or her ability to connect emotionally and psychologically with an audience and influence the audience’s opinion of the organization in such a way that opinions are the same or more favorable in the midst of and following a rises. What often hurts an organization in crisis is a lack of transparency, as well as communication messages that are interpreted as defensive.

Hence, effective crisis leaders will be proactive and forthcoming in their communication during a crisis, and will adopt a posture of acknowledgement and accountability Leadership in Business Recovery: One of the ultimate goals of any crisis situation is to get back to ?business as usual. In a midst of a crisis, executives are constantly trying to reassure stakeholders that, despite the disruption, business affairs are operating monthly or will be returning to normal soon.

In the business recovery stage, smart crisis leaders consider both short- and long-term recovery efforts and think beyond the business as usual paradigm to a business anew paradigm. This calls for thinking differently about what is possible for the organization. The ability to lead an organization to such an outcome can be described as resiliency. Resilience is the maintenance of positive adjustment under challenging conditions. Resilience is a competency that reflects a capacity for individuals to absorb strain and improve functioning in the face of adversity.

From an organizational perspective, resilience is the capacity for continuous restoration when bouncing back from a crisis by innovating values, processes, and behaviors. Leadership in Learning and Reflecting: The prior crisis management phases mainly address leadership responsibilities and requisite competencies at the outset and during a crisis. As we have discussed, effective crisis management skills in these prior stages can bring an organization back to at least a pre-crisis level. Unfortunately, there is often a tendency for leaders to stop crisis management activity at the business recovery phase.

Crisis management also includes post-crisis activity in the form of learning and reflection. Crises can be seen as sources of opportunity, rather than threats, when organizational decision makers adopt a learning orientation and use prior experience or the experience of others to develop new routines and behaviors that ultimately change the way the organization operates. The best leaders recognize this and are purposeful and skillful in finding the learning opportunities inherent in many crisis situations.

Bringing a learning orientation to a crisis situation enables leaders to be more adaptive in their response o challenges and setbacks. Learning and reflection throughout the crisis management process and following the crisis resolution stages can promote innovation and creative problem solving, and institutionalize systems that help the organization prepare for future crisis events. Conclusion: Crisis situations have the tendency of accelerating whatever trajectory an organization is already traveling.

Dysfunctional firms that encounter crisis will quickly become more dysfunctional and the likelihood of these organizations realizing positivist is small. Conversely, well managed and high performing firms hat experience crisis are more likely to use the crisis as an opportunity to gain positively (for example through additional learning or seizing opportunities for innovation) from the experience. Therefore leadership plays an important role in how firms respond to and experience crisis.

Leadership orientations consistent with learning and adaptation, affinity for seeing possibilities, and expectations of trust are more inclined to bring about positive individual and organizational outcomes post crisis than orientations that are more neutral. Crisis leadership is about confronting threats and taking appropriate risk at precisely the moment at which one’s natural human tendency would be to retreat and become defensive and risk averse. Crisis leadership is about being open to learning, especially learning from failure, whether it is one’s own or others.

It is about making consequential decisions under enormous pressure for circumstances never before experienced. Crisis leadership is about leading teams and inspiring the capabilities of organizational members throughout the organization. It is about fostering trust with stakeholders so that they devote their full energy to work with leaders and not against them. It is about fostering a global mindset so that organizations can work across borders and share information that will facilitate crisis handling.

Finally, it is about doing all of the above in full view of every possible stakeholder each of who have different needs to be met and will pull leaders in different directions. Hence, these are the competencies required by the leaders to face the crisis situations.