In today’s unpredictable business landscape, having a solid crisis management plan is essential to protecting your business when trouble strikes. Whether it’s a natural disaster, a data breach, a product recall, or a public relations nightmare, being prepared can mean the difference between survival and complete downfall. But where do you begin?
In this guide, we walk you through the steps needed to create a crisis management plan to safeguard your brand reputation, minimize financial losses, and ensure business continuity. From conducting a risk assessment to establishing a crisis response team, developing communication protocols, and coordinating with stakeholders, you will learn how to navigate any crisis successfully. Without further ado, let’s dive in.
What is crisis management?
Crisis management refers to the identification of a threat to a company or its stakeholders and the subsequent development of a successful response.
Many organizations attempt to identify potential crises and develop solutions to them in advance. To survive, the organization must be able to act quickly and alter its course drastically. A crisis can result in tangible and intangible costs such as lost sales, reputational damage, and income loss.
Implementing a continuity plan in the event of an unforeseen contingency can reduce the impact of an adverse event. Good crisis management requires the business to implement this continuity plan swiftly during a crisis.
Types of crises for a business
1) Financial crisis
A financial crisis occurs when a company suddenly loses a large sum of money, making it hard to meet its financial obligations or service its debts. An example is when a company suddenly and without warning loses clients who account for a big percentage of its revenue. Some of the factors that can contribute to a financial crisis are as follows:
- Loss of revenue
- Bankruptcy
- Loss of market
- Inflation
- Sudden change in market trends
A financial crisis can impair an organization’s ability to serve customers effectively. This kind of event also increases the risk of talent loss. As such, a crisis management plan is necessary to avoid business destabilization.
Examples of financial crises
Delta Air Lines:
Delta Air Lines declared bankruptcy in 2005. The September 11 attacks reduced customer demand, a trend that continued into the mid-2000s. In 2007, the company emerged from bankruptcy and invested in its workforce to improve the customer experience. It established a profit-sharing program for its employees in 2020 and distributed nearly $1.6 billion in profit shares.
Gold’s Gym:
Fitness behemoth Gold’s Gym declared bankruptcy and permanently closed around 30 gyms. The company only recovered from this crisis after being acquired by RSG Group in July 2020.
2) Personnel crisis
Personnel crises occur when an employee or someone associated with the company engages in unethical or illegal behavior. Such a crisis, whether in the workplace or the employee’s personal life, can result in a severe backlash against the company. Since the organization employed or supported this individual, the organization’s lack of judgment reflects on the company’s reputation.
Companies must identify the scope of the situation, determine appropriate disciplinary action, and, if necessary, provide a written or verbal statement in such cases. It is critical to thoroughly assess the situation and determine how severely the individual violated the company’s values.
If the situation has garnered media attention, being transparent about the act should provide a way forward for customers to avoid market loss.
Examples of personnel crises
Tyson Foods:
Workers at a Tyson Foods pork plant in Iowa were forced to work longer hours in cramped quarters during a virus outbreak to meet a sudden rise in demand. As a result, many contracted the virus, and a number were reported to have died. To make matters worse, supervisors at the Waterloo, Iowa, plant allegedly participated in a pool betting on how many workers would become ill from the virus. This not only came across as cruel, but the company is now facing legal ramifications as families of the deceased have filed lawsuits.
WeWork:
The 2019 WeWork scandal is one of the most compelling examples of a personnel crisis. WeWork’s former CEO, Adam Neumann, resigned after overvaluing the company (lying about how much the company was worth) when the company attempted to go public.
CrossFit:
CrossFit’s former CEO, Greg Glassman, stated in a meeting during the height of the 2020 Black Lives Matter movement that “he didn’t mourn George Floyd’s death.” He also claimed that racism and police brutality were not widespread issues. He resigned after issuing an apology.
3) Organizational crisis
Organizational crises occur when a company has significantly harmed its customers or employees. Rather than developing mutually beneficial relationships, these companies exploit their customers or abuse their employees to “save face.”
There are three types of organizational crises:
- A deception crisis happens when a company intentionally lies about publicly accessible product information or tampers with publicly accessible data.
- Management Crisis: This happens when a management willingly and knowingly participates in illegal activities.
- A crisis of skewed management values occurs when senior management prioritizes short-term financial gains over long-term social responsibility and disregards customer and employee interests.
Misconduct examples include withholding information, exploiting customers, and abusing managerial authority.
Organizational crises are typically caused by employees who ignore customer needs. As such, changing company culture is the best way to address them. Embracing a corporate culture dedicated to customer success can reduce the likelihood of an internal crisis. Additionally, businesses should hire employees who share the same values as their organization.
Examples of organizational crises
Google was accused of spying on employees and discouraging unionized organizations in late 2020. When employees voiced workplace complaints, the company “illegally surveilled” their conversations.
“We’re proud of [our] culture and are committed to defending it against attempts by individuals to undermine it deliberately,” Google said in a public statement to The Verge. […] We will defend our position because such actions violate our policies and are unacceptable breaches of a trusted responsibility.”
Wells Fargo:
Wells Fargo employees illegally opened millions of fake customer accounts without the customer’s consent to meet sales quotas. Employees forged signatures and created fictitious records. The company lost billions of dollars in revenue. Wells Fargo paid a $3 billion settlement to cover corporate penalties.
4) Technological crisis
Businesses rely heavily on technology to perform day-to-day functions in today’s tech-driven age. When that technology fails, they have far more to be concerned about than a few missing emails. If eCommerce sites or software companies’ servers fail unexpectedly, they could lose millions of potential customers. This leads to a significant loss of potential revenue and damages the product or service’s reputation.
The first step in managing technology crises is for businesses to collaborate with their IT or technology providers to resolve the issue. Once the software is operational, the next step is to collaborate with internal resources to determine what went wrong with their system and implement safeguards to prevent it from happening again. They should also ramp up their customer service and support teams to ensure they are prepared to handle a surge in calls from angry or confused customers.
Google:
A major product outage in December 2020 affected Google’s offerings and services, including Gmail, YouTube, and other Google Workspace products. Google provides an up-to-date public dashboard with system status information, and it uses this tool to keep users informed during the outage.
A Google spokeswoman wrote an email to customers, “Today, at 3:47 AM PT, Google experienced an authentication system outage for approximately 45 minutes due to an internal storage quota issue. All services are now operational. We apologize to everyone affected and will conduct a thorough follow-up review to ensure this problem does not occur again.”
Instagram:
Instagram, WhatsApp, and Facebook Messenger all went down for at least an hour for thousands of users in March 2021. While this affected ordinary consumers, international businesses that use WhatsApp and Messenger to communicate with clients were impacted even more.
According to Facebook’s response to The Verge, “Earlier today, a technical issue caused people to have difficulty accessing some Facebook services. We resolved the issue for everyone and apologized for any inconvenience.” On the same day, the services were restored.”
5) Natural crisis
Natural disasters such as hurricanes, earthquakes, and tornadoes, while rare, have a significant impact on business. If your company is in an area prone to extreme weather, you must plan an emergency response in case of a natural disaster.
Being proactive is the best way to deal with natural disasters. Ensure your business is housed in a weather-damage-resistant building and prepare an evacuation plan in an emergency. It will also aid in preparing a business continuity plan if their offices become unavailable.
The stages of a crisis
While there are numerous crisis management models available, the four stages of a crisis listed below are among the most widely used:
1) Pre-crisis stage
This first stage occurs before the onset of the crisis. In many cases, this pre-crisis stage will be unremarkable. Some situations, such as active shooter incidents, cyberattacks, or natural disasters, can occur anytime and without warning. Your crisis management team may be able to detect warning signs for other events. Extreme weather events and transportation disruptions may bring some forewarning, such as weather warnings or press and social media coverage.
Companies should view this as a preparatory stage in which they look for potential crises that may affect their business. If warning signs are detected, action should be taken to mitigate or prevent the impact of the crisis.
2) Crisis stage
This is when a company notices the first signs of a crisis developing. Also known as the acute phase, this is the point at which businesses can no longer prevent the crisis from occurring. Their attention must now shift to risk assessment to respond quickly and mitigate the damage. While the acute stage is frequently the most intense, it is also the shortest of crisis stages.
3) Response stage
When a company’s response plan is activated, the crisis enters the response stage, during which resources are deployed to address the emergency. Their crisis team members are now in action.
The length of this stage will depend on the type of crisis. Some events, such as a snowstorm, could take several days. A company’s response time may be much longer in other cases, such as a public health emergency.
4) Post-crisis stage
After the crisis has been resolved, the company transitions from crisis management to business as usual. Employees are returning to work, and normal business operations can resume. This final crisis resolution stage can take days, weeks, or even months, depending on the type of crisis.
Tips for creating a crisis management plan in 2024
1) Form a crisis management team
The first step in developing a crisis management plan is to form a crisis management team. Put together an effective team of people who can think on their feet and don’t crumble under pressure. The responsibilities of a crisis management team include:
- Tracking and analyzing signs of crisis
- Developing plans of action for various situations
- Leading internal and external communications
- Leading management in supporting employees
- Guiding a company through an uncertain time
2) Conduct risk assessment
Businesses can locate potential incidents or scenarios where situations could occur by conducting a risk analysis. They can then devise a crisis management strategy in case it happens.
3) Understand how crises can affect business
After identifying potential risk areas, businesses should consider how these risks may impact their operations. For example, if the risk is a poorly judged social media post, it could harm sales, damage reputation, and alienate customers. If the risk is an economic downturn, this could result in falling stocks, layoffs, and office closures.
4) Implement monitoring systems
Monitoring systems enable businesses to detect potential crises before they turn into crises. Such systems can include social media alerts to detect trends or online discourse, feedback from customers or stakeholders, and reports on broader industry trends. Monitoring will allow a company to stay on top of potential threats and, if necessary, adjust its crisis management plan strategy.
5) Define crisis criteria
While businesses can do their best to prepare for potential situations, a crisis can occur unexpectedly, such as through social media. As a result, companies should develop distinct criteria for defining a crisis to prepare accordingly and implement the crisis plan effectively.
6) Establish a chain of command
A chain of command is essential in a crisis management plan to ensure a cohesive and organized response. Ideally, companies want to inform all employees about the crisis and the planned response before they address the general public. It stands to reason that top-level executives will be informed first, followed by management, employees, and then external affected parties such as shareholders. This chain of command is necessary to ensure consistency in communication.
7) Establish an internal & external communications plan
Internal and external reactions to a company’s crisis will differ. The public will expect a quick response after a crisis has occurred. The company should prioritize the public, but not so quickly that it fails to acknowledge critical information or further antagonizes affected parties. Furthermore, as a crisis worsens, it is easy to lose sight of employees who are probably concerned. A crisis management plan should also prioritize coordinated internal communications to employees so that every management level receives the most up-to-date information.
8) Develop a social media strategy
As a crisis unfolds, social media platforms provide an instant way to broadcast an apology, update, or acknowledgment. This part of the crisis management plan shapes the company’s response to a crisis. At the very least, people anticipate a response on social media. Information spreads quickly on social media, and an emergency can unfold much faster. Since online conversation can shift rapidly, companies must not overlook social media while implementing a crisis management plan.
9) Training
The best way to ensure everyone is prepared is to familiarize the company with various crisis management plans and implement practical training. Training will be invaluable if and when the crisis is resolved.
10) Regularly review plans
Plans for crisis management can quickly become out of date. It is critical that crisis management teams review and adapt the techniques as needed to remain business.
It can take years to build a solid reputation, but it only takes one crisis to destroy years of work. The key to minimizing damage during a company crisis is practical planning.
Conclusion
Every brand, personal or corporate, may face a crisis. There is a widespread belief that businesses cannot see a crisis coming until it is well underway. With the right crisis management team and plan, a company can anticipate and plan its response to different crises.
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