The 6  Common Mistakes Or 6 Best Practices That Will Hurt Or Save A Compnay

A crisis happens quickly.  Speed, knowledge and communication are vital if a crisis is to be handled correctly with minimal impact on a company’s bottom line or reputation.  Unfortunately, some companies fail to resolve the crisis and fall into the trap of the 6 deadly mistakes.  Those that successfully resolve the crisis instead, follow the pattern of using the 6 basic crisis management steps. In essence, it is 6 behaviors or steps that will dictate how a company reacts to a crisis and whether it emerges unscathed or mortally wounded.

There are 6 basic common, predictable and avoidable mistakes that companies or organizations make during a crisis that will have a major negative impact on the company’s reputation or brand.  The mistakes cause negative effects including making the crisis worse and failing to solve the crisis which in turn has major legal and reputational implications. The 6 common mistakes are:

1. Ignoring the problem- Management fails to take the problem seriously until it is too late.
2. Assigning blame- Instead of acknowledging the mistake and resolving the crisis, management blames a third party.
3. Paralysis- Instead of taking action to resolve the crisis, management panics causing a negative reaction throughout the company  with a loss of productivity as well as talent.
4. Not telling the whole story- Management tells only a part of the story to the public, causing more bad news to come out during regular news cycles causing negative public opinion.
5. Failure to engage stakeholders- Management fails to reach out to its stakeholders at the beginning causing them to develop their own negative opinions from the news or lack thereof.
6. Killing the messenger- Management punishes those that deliver bad news or allows a corporate culture of punishing employees who raise problems.

Other companies, that don’t fall into the trap of 6 common mistakes, survive an international crisis situation by following the 6 basic steps for crisis resolution- or the 6 best practices of crisis management.  The 6 steps to a successful resolution are:

1. Planning- Management anticipates a potential crisis and plans for it.
2. The appointment of a Crisis Manager- Management has already appointed a Crisis Manager who is familiar with the company, its operations and products.
3. The formation of a Crisis Response Team- Management has already appointed a Crisis Response Team that enables a quick response to the legal, reputational, operational and media issues.
4. Knowledge of the foreign situation impacted by the crisis- In case of a cross border crisis, management has taken steps to learn what the issues are on the ground.
5. Proper international communications and PR- A communications team has been set up to deal with the international and domestic news and media.
6. Management of the crisis claims (legal, etc.)- Legal has taken steps to properly manage the claims and government investigations caused by the crisis.

An example of a crisis that involved most of the 6 basic or common mistakes centers on a recent acceleration/gas pedal recall involving a car manufacturer.  The manufacturer was apparently put on notice of a large number of complaints involving acceleration/gas pedal problems.  However, it did nothing to thoroughly investigate the issues or communicate to the public that it was seriously investigating the issue (It ignored the problem).  It denied such problems were due to mechanical issues.  Several years after it first became aware of the potential acceleration issues, it was forced to seriously investigate the matter because of several fatal car crashes potentially involving unintended acceleration.  The car crashes were widely reported in the media.  Because it failed to handle the crisis properly at the beginning, the car manufacturer was severely criticized in the media for its lack of response and apparent disregard of its customers' safety (Management had become paralyzed). The public became outraged when it learned  the car maker began investigating the acceleration problems in earnest only after the fatal car crashes- 2 years after numerous reports had been made ( It didn’t tell the whole story).  The US Congress then got into the act holding hearings on the acceleration issue.( It didnt understand the cross border issues).   The company ended up recalling over 8 Million cars worldwide and finally appointing a safety officer, etc. in the US.  Though it began to communicate more effectively, the car maker's penchant for secrecy, failed communications and lack of a crisis management plan at the beginning severely impacted the company (It didn’t reach out to its Stakeholders).

In the end, the company was hit with over 130 class action lawsuits in the US.   Billions of dollars in share value evaporated due to its stock's decreased share value. Because of its failure to properly manage the crisis, it lost almost 6% market share in the US - reflecting a tarnished reputation.  Though it is now regaining market share, it continues to have recall problems and brand issues.

So, whether a company survives a crisis intact depends to a certain degree of whether it makes the 6 basic common mistakes or uses the 6 best practices of crisis management. Either way, it’s a 6 step process to defeat or victory.

Use KRIs To Create An Early Warning System 

During the lazy days of Summer, companies or organizations tend to slow down.   People   go on vacation, customers or vendors go into Summer mode, organizations think less about  risk management and more about company picnics or other fun events. People start thinking more about vacations and less about reality.  When companies least expect things to go wrong they sometimes do. Not only do minor things go wrong but major crises tends to pop up, threatening the existence of the corporation itself!  Companies are not only blindsighted when a crisis happens  but sometimes they are completely unprepared.

A crisis is defined as a major unpredictable event that has potentially negative or catastrophic results.  In today's business climate, where the culture of attack looms over any corporation that is unfortunate enough to receive bad publicity, companies cannot afford to conduct business without a proper crisis management plan in effect. Remember, unlike twenty years ago, a company can no longer handle a crisis by issuing a simple PR statement or marketing statement.  A full fledged crisis management operation is usually required.

When a crisis happens people are often caught off guard.  Some don’t even prepare for crisis or are blissfully unaware of the  crisis lurking outside.  And in the case of cross-border crisis, they  are of course harder to manage than  pure domestic ones.  As international commerce and business adds an additional layer of complexity to any crisis situation, cultural and communication issues become front and center to any crisis management plan.

Therefore, when considering a crisis management plan, it helps to be proactive.  It helps to identify potential crisis scenarios and prepare for the worst by running simulations.  How will the company handle major crisis such as injury or death caused by its products?  Or how will the company handle a  media crisis resulting from the theft of its IP or customer data?  Sometimes, however, it may be harder to identify areas of potential crisis.  When that happens, I recommend that a company seriously considers developing effective, high-quality key risk indicators ( KRIs) that can provide metrics on risk exposure and early warning indicators.

KRIs , if developed properly can be used as an early warning system that may prevent crisis before they happen or at least warn the company in time of a potential crisis.  That way, a company may be able to take proactive steps prior to a crisis to contain it or even prevent it. Examples of KRIs includes:

1. A review of industry data showing incidents and losses throughout the industry ( if it happened to a competitor, it might happen to you) that could have an impact on your company as well.
2. A review of actual losses and incidents in the company. How many product failures did the service department report?  Check to see if your company has loss event databases that could provide input on the kinds of events that could cause major losses.
3. A review of regulatory standards in your industry.  Regulatory standards can give you an idea of the policies and regulations that govern your business activities and the underlying reasons why.
4. Risk assessments- what risk assessments have been already done?
5. A look at historical data.  Historical data could give you an insight into expected losses.
6. Stakeholder requirements- what are the requirements and expectations of your stakeholders?  Especially in a crisis?  Perhaps you can use these requirements when confronting a crisis or in developing an early warning system.

Once you have obtained these reports ( note they are data intensive) you have the beginning of KRIs and a good early warning system.  Create a dashboard on your computer tailored to providing you with a picture of potential risks that could result in crisis.  The dashboard can provide an excellent early warning system as to certain events that may result in a potential crisis. Remember, some crisis can be avoided if proper steps are taken before an incident evolves into a mega-crisis.

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