Managing in a crisis - Cranfield Management Newsletter

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Crisis! Lessons from the Toyota Recall
By Stephen Carver

Crisis: an unexpected event that can harm you… or benefit you

Some weeks ago the CEO of Toyota, Mr Toyoda, could scarcely have believed that in a few short days his stunningly successful world class, global business would be rocked to its foundations. The recent highly public Toyota recall has shown once again the consequences of organisations failing to manage a crisis effectively. The costs so far to Toyota include:

  • Share price erosion
  • Public apologies from CEO
  • Collapse in customer confidence
  • Brand diminished

In cash terms these costs can be immediately counted in billions and the consequences will ripple on for many, many years. A high price to pay for failing to manage what appears to be a relatively simple crisis situation. The tragedy is that it was all so avoidable.

I am constantly taken aback by how much time and money senior executives spend developing and discussing strategy but how little they spend developing skills that they will need should it all go horribly wrong. Since 1991 we at Cranfield have ensured that every MBA attends lectures on crisis management and has the opportunity to experience a press conference in our TV studio to see how they manage under the “live fire” of real journalists. Most learn quickly (and sometimes brutally) that ten seconds of misjudged response can obliterate ten years of carefully planned strategy.

The rules of crisis management

The rules of crisis management are really quite simple:

  1. Be prepared for the unexpected. It may be an unpleasant thought, but if you run an airline the chances are that you will probably have a crash one day, if you make food you will have a health scare and if you run a car company you will have recalls. It is vital to work out how your organisation would react and plan and train accordingly. Whilst risk registers and contingency plans are a good start they can fool you into thinking that you have all bases covered. Planning and training should encourage creative flexible open behaviours – remember it is usually the crisis that you never thought of that kills you.
  2. Pre select and pre empower crisis teams. When crisis strikes, things develop at a devastating pace and it is no respecter of time zones, corporate procedures or internal politics. Individual leaders/teams should be pre selected, trained and empowered to react instantly and calmly to the situation. The consensus culture at Toyota may have led them to losing the initiative and then being butchered by the media who were always setting the agenda. Unless you are ahead or on the curve you will always be playing catch up and the crisis will spread systemically.
  3. Put yourself in the customer’s shoes. Toyota customers were happy to pay premium prices for two key things - reliability and safety. When Toyota finally reacted to the developing crisis, spokesmen at first tried to explain everything in engineering terms. What they should have done is think of a parent driving their children to school: is the car safe? – what should I do right now? You have to build trust and unless you do the goodwill of your customers will quickly turn to anger, resentment and even hatred. Which leads us on to the 3 R’s…
  4. Regret-Reason-Remedy. First, you have to show that you are human: show empathy for those people affected, show that you regret what has happened. Many people fear legal consequences – “never say you are sorry”, but showing that you understand the feelings of your customers is NOT the same admitting liability. Secondly, try and explain in straightforward terms what has happened – the reason. If you don’t yet know then say so, do not hide information that customers need to know. Lastly, get control of the situation by stating what you are now going to do to remedy the situation – get some forward traction.
  5. Communicate, communicate, communicate. At times of crisis, organisations often feel that they are being attacked by a hostile press; the temptation is to close the doors, call a meeting and ignore the ringing phones. Whilst it is important to establish your message, it is vital that you are seen to be communicating openly as soon as is possible – speculation fills a vacuum! Communicate to your customers via the media but don’t forget the other key stakeholders including your own employees, suppliers, joint venture partners for example.
  6. Know your message and stick to it. Most TV sound bites are about 30 seconds – aim to sum up your message in this time – that’s only about 90 words! Likewise don’t forget to take advantage of all the other media routes open to you including internet, radio, YouTube and Twitter.
  7. Take control. A crisis can hurt but it can also be an opportunity to show what a fine organisation you are. Case studies such as Johnson & Johnson over Tylenol and BMI over Kegworth show that if you are prepared and react well to crises there can even be long term benefits in terms of customer loyalty and media perception, so seize the opportunity!

In conclusion

When one looks at the “classic” crisis cases such as Exxon Valdez, Perrier Water, Shell Brent Spar etc, it never ceases to amaze that such globally powerful organisations can get things so terribly wrong. Managing a crisis is never easy but if companies follow the simple steps above they could well increase market share instead of enduring ridicule. As one major insurance company was delighted to say after they had successfully managed a major disaster “we won’t make a drama out of a crisis”.

Stephen Carver is a lecturer in Project Management and the Course Director for the Developing Personal Performance for Programme Managers programme.

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