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Lessons Learned

Conquering The 3 Most Common Types Of Company Crisis

As one entrepreneur explains, "crisis management" isn't a monolithic process or a skill that suits every situation.

Conquering The 3 Most Common Types Of Company Crisis

[Photo: skeee via Pixabay]

Sooner or later, no matter their size, location, or industry, all companies face some sort of crisis. The trouble, though, is that we often talk about "crisis management" like it's a single skill or process: You have it or you don't; you do it right or you totally mess it up.

But that isn't the case at all, and the effects of this misunderstanding aren't hard to see. Researchers at the University of Michigan and Emory University reviewed the data and found (unsurprisingly) that mismanaged crises often resulted from unprepared leadership teams and led to a wide range of long-term consequences, whereas companies that handled crisis effectively managed to recover fully and quickly.

Here's a basic yet underappreciated taxonomy of business crises and a look at what it takes to weather them.

Three Types Of Crisis

1. Personnel crisis. This is when there's serious individual misconduct and unethical or illegal activities by key players. The sexual harassment scandal that's rocking Fox News right now, centered around founder and CEO Roger Ailes, is a flagrant example of this type of crisis. It not only reflects Ailes's alleged personal conduct but the culture of the organization he led.

Former Volkswagen CEO Martin Winterkorn is under investigation for alleged market manipulation related to his involvement in the company's emissions scandal, which began to unfold in 2014, alongside other VW board members. The company has already admitted to secretly installing software in some 11 million vehicles in order to pass emissions tests, a violation that investigators now appear to suspect may have been mismanaged (or even started) among top leaders.

2. Systemic crises. Chipotle is still fighting its way back from a string of customer food poisoning incidents in late 2015. The company is finally back to in the black but still struggling to right itself. Chipotle's failures were a matter of systemic operational crises up and down the organization—from its supply chain and quality control to customer interactions.

3. Contextual crises. Brexit, mass shootings, terrorism: From local incidents all the way on up through geopolitical upheavals, businesses can wake up one morning and suddenly have to navigate a variety of crises they couldn't have seen coming. This type of crisis originates externally but dramatically changes the context in which a company operates. It creates psychological turmoil and unsteadies employees and customers alike.

Professor Peter Senge of MIT's Sloan School of Management once wrote:

Leadership exists when people are no longer victims of circumstances but participate in creating new circumstances . . . Leadership is about creating a domain in which human beings continually deepen their understanding of reality and become more capable of participating in the unfolding of the world. Ultimately, leadership is about creating new realities.

That's a high bar to clear—especially during a crisis. But if leaders grasp that their job is already about creating new circumstances, then sudden changes of fortune (even for the worse) may not actually seem so anomalous or frightening after all. You can't set an action plan for every possible contingency, but you don't have to. Here are two steps for navigating a crisis whose specifics you can never anticipate.

1. Start With Yourself, Then Work Outward

Managing crisis means accepting incredible levels of uncertainty with a calm, cool, and positive attitude. That's never easy. But the sense of urgency to tackle tough situations always requires an even temper.

In order to communicate a decisive yet flexible plan as soon as crisis hits, you'll need to assess the situation effectively:

  1. Ask yourself: What does this situation demand? Is it a personnel crisis, a systemic crisis, or a contextual one?
  2. Then craft an immediate-term response strategy based on how you want to emerge from this crisis at the end—even if you don't know exactly how you'll get there—and communicate it to your team, partners, and customers.
  3. Finally, as you begin rolling out that strategy, keep an eye on ability (your own and your organization's) to execute it based on how the crisis evolves (and it will!)—without losing sight of your company's assets, structure, and capabilities.

Sound like a lot to handle? To be fair, it is. In 2014, Mary Barra became General Motors's (GM) first female CEO. After only two months in the role, GM had to recall 1.7 million cars with an ignition switch defect that was responsible for more than a dozen deaths—a clear-cut systemic crisis, with possible reverberations at the personnel level.

Barra snapped into action. She personally went on a media tour and apologized for GM’s grave mistake. As the New York Times reported, "It was a moment unlike any other at General Motors: The top executive stepping—personally and publicly—into the middle of one of the gravest safety problems in the company’s history. Her performance was a marked departure from the norm in the auto industry, where corporate chiefs routinely avoid talking about recalls unless subpoenaed by Congress."

After assessing the situation, Barra took personal responsibility for dealing with GM’s crisis head on, preventing a systemic crisis from spiraling into an irrecoverable PR disaster and a failure of leadership to boot.

2. Influence Others, Then Let Them Influence You

Successful leaders inspire and influence everyone in good times and bad—their executive team, employees, customers, clients, partners, investors, and many others. That's also part of the job description. Even if some decisions involve the most basic of gut instincts, leaders navigating crises need to tell their teams precisely what they want, when, and why—then help them make it happen. Waiting too long to weigh countervailing opinions can spell doom.

Here's what David Roberts, chairman of Nationwide Building Society, said immediately after the Brexit vote:

Britain has always been at its best at times of high uncertainty and volatility. There are important decisions coming, but for the next few days, weeks, and months, we all have a responsibility to work through the issues in a calm, thoughtful, and positive manner. Despite the naysayers, the economy will continue to function effectively; customers will still need to save, borrow, and invest, and we will all continue to be there for them as we were yesterday and in the weeks past.

Roberts didn't resort to abstraction even while working to calm fears; he concisely describes what the U.K. economy's goals must be and which consumers' needs remain unchanged. It's inspiring talk amid a contextual crisis, but it's also marching orders of a sort—here's what we all need to do next—reflecting Senge's goal of helping people "become more capable of participating in the unfolding of the world."

Communicating effectively in times of uncertainty means not just articulating your point of view, but listening actively—without bias or judgment and with a real willingness to consider different perspectives. Roberts acknowledges this, too, when he notes a shared responsibility for navigating the issues collaboratively.

That means paying heed not just to the content of others' ideas, but to their emotional tone, too. Both are crucial for mutual understanding—and, ultimately, everyone getting back on their feet.


Serial entrepreneur Faisal Hoque is the founder of Shadoka, which enables entrepreneurship, growth, and social impact. He is the author of Everything Connects: How to Transform and Lead in the Age of Creativity, Innovation, and Sustainability (McGraw-Hill) and other books. Use the Everything Connects leadership app for free.

Copyright (c) 2016 by Faisal Hoque. All rights reserved.

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