Professional Documents
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Effective Crisis Management by Shrivastava, P.
Effective Crisis Management by Shrivastava, P.
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? The Academy of Management EXECUTIVE, 1987, Vol. 1, No. 3,
pp. 283-292
M anagers,consultants,and researchershavetradi- and fauna in the area. Union Carbide was sued by vic-
tionally focused on problems of financial per- tims for billions of dollars; compensation settlement is
formance and growth, but have paid little heed to the likely to be between $500 million and $1 billion. In ad-
effective management of corporate crises. The negative dition, the company was forced to sell 20% of its most
effects of organizationaland industrial activities have profitable assets to prevent a takeover attack mounted
been treated as minor "externalities"of production. It by GAF Corporation,which had acquired Carbide'sun-
can be argued that until recently, it was unnecessaryto dervalued stock after the accident.2
focus on such crises. Today, however, such crises as * In May and June 1985 deadly bacteria in Jalisco
pollution, industrial accidents, and product defects cheese caused the deaths of 84 people. The company
have assumed greater magnitude. The consequences for that produced the product was forced into bankruptcy.
many corporations-like Johns-Manville and A. H. The list of recent corporate disasters is virtually
Robins-have been near or actual bankruptcy. unending. It includes executive kidnappings; hijack-
Corporatecrises are disasters precipitated by peo- ings, both in the air and at sea; hostile takeovers;and
ple, organizationalstructures, economics, and/or tech- such acts of terrorism as the bombing of factories and
nology that cause extensive damage to human life and warehouses. Most recently, slivers of glass have been
natural and social environments.They inevitably debil- found in Gerber's baby food. Contac-an over-the-
itate both the financial structure and the reputation of counter cold remedy-has also been the object of prod-
a large organization.Consider the following examples: uct tampering.
* In 1979, the Three Mile Island Nuclear Power Such incidents now happen on an ever-increasing
Plant had an accident leading to the near meltdown of basis. Further, the interval between major accidents is
the plant's reactor core. The accident not only cost shrinking alarmingly.3The number of product-injury
Metropolitan Edison-the company that owned the lawsuits terminating in million-dollar awards has in-
plant- billions of dollars; it altered the fate of the nu- creased dramaticallyin the past decade: In 1974 fewer
clear power industry in the United States.' The plant than 2,000 product injury lawsuits were filed in U.S.
owners and operators paid $26 million in evacuation courts; by 1984, the number had jumped to 10,000. In
costs, financial losses, and medical surveillance;the es- 1975, juries had awarded fewer than 50 compensation
timated cost of repairsand the productionof electricity awards of greater than $1 million each; in 1985, there
via other means was $4 billion. were more than 400 such awards.The costs of product-
* In 1982 an unknown person or persons contami- and production-relatedinjury is one factor in the cur-
nated dozens of Tylenol capsules with cyanide, causing rent liability insurance crisis. Many forms of liability
the deaths of eight people and a loss of $100 million in insurancehave simply vanished, and all forms of liabil-
recalled packages for Johnson & Johnson. In 1986 a ity insurance have become so expensive, they are avail-
second poisoning incident forced J&J to withdraw all able only for small coverages.
Tylenol capsules from the market at a loss of $150 mil- The purpose of this article is to argue that while
lion. The company abandoned the capsule form of the situation is grave, it is far from hopeless for manag-
medication and consequently had to redesign its pro- ers, researchers,and consultants who are prepared to
duction facility. The full cost of switching from the confront the problem directly. While no one can pre-
productionof capsules to the production of other forms vent all disasters-let alone predict how, when, and
of medication was in the range of $500 million. where they will occur-organizations can adopt a sys-
* In December 1984 the worst industrial accident tematic and comprehensive perspective for managing
in history occurred: Poisonous methyl isocyanate gas them more effectively. Anything less than such a per-
leaked from a storage tank at a Union Carbide plant in spective virtually guarantees that an organization will
Bhopal, India, killing 3,000 people and injuringanother be less than prepared to cope and recover effectively
300,000. The accident caused unknown damage to flora from a crisis.
283
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Academy of Management EXECUTIVE, November 1987
Exhibit 1
A Model of Crisis Management
PROACTIVE REACTIVE
CRISES
Simulate, Isolate,
disrupt, contain
prepare for 0 the crisis
as much as4
possible
I \ Prefixing
DETECTION REP}
Broaden Return to
detection, normalcy
redesign
the organization,
system
| IV
284
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"Effective Crisis Management"
285
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Academy of Management EXECUTIVE, November 1987
dispel any doubts about the validity of this paradox. only 50%(,of Fortune 1000 organizations surveyed have
The Presidential Commission's report painstakingly any kind of contingency plan in place to cope with any
examimed the contending, probable causes of the dis- kind of crisis.6 Further, those organizations that are
aster and, one by one, ruled them out. Slowly but prepared have a narrow focus. They are preparing to
surely the true cause was revealed: the explosion was "fight the last war" because they know how to read the
caused by the failure of two large, critical 0-rings that signals and prepare for, cope with, and recover from
were supposed to keep highly inflammable rocket fuel those crises.
from spilling over its incasement and igniting with the Yet this narrow focus stands in sharp contrast to
shuttle's main engines. what we have begun to learn about modern crises and
The real causes, however, had little to do with disasters. Unlike previous crises and disasters, modern
technology per se. Having located the technical cause ones link up with one another and defy accepted
of the disaster, the report then identifies the accompa- truths. For instance, consider the recent finding of
nying human and organizational causes. This part of glass in Gerber's baby food. The food industry has long
the report graphically exposes how one of the nation's experienced such events, so they are historically well
premier examples of a highly successful and respected known to the industry. But what happened during the
organization-NASA-became accident prone through week that slivers of glass were found in Gerber's baby
multiple organizational failures. food was not part of the typical historic pattern. That
One of the most powerful aspects of the report is week the Challenger exploded and Tylenol was
its well-stocked supply of pictures. The report not only poisoned for the second time. These events shattered
recounts, frame by frame, the hundredths and the twin myths that "The worst can and won't happen
thousandths of seconds leading up to the accident; it twice to any organization" and "Lightening won't and
also contains detailed photographs of recovered parts can't strike twice in the same place."
from the ocean floor. Although there can be no doubt As a consequence of these events, the media fo-
that the failure of 0-rings led to the disaster, the most cused on Gerber's CEO as perhaps never before. Al-
striking evidence pertains to faulty organization-the though he may have been right in not withdrawing his
underlying cause of the accident. This evidence con- products-because withdrawing them may have en-
sists of a seemingly endless series of reproduced memos couraged "copycat killers"-he was wrong in another,
revealing the anguished cries from deep within NASA's more important sense. By being unwilling to withdraw
flawed bureaucracy and the bureaucracy of one of its the products, Gerber's CEO appeared callous toward
prime subcontractors, Morton Thiokol. If NASA had the most fragile and most precious of all consum-
listened and attended to these early warning signals, in ers-babies! Contrast this with the behavior of John-
all likelihood it could have prevented the disaster. One son & Johnson's CEO, who unequivocally withdrew
of the most striking memos starts with the cry, "Help!" Tylenol from the shelves to demonstrate the company's
The memo goes on to say that if the shuttle continues long-standing commitment to the safety and well-being
to fly with the 0-rings as they are designed, then of its consumers.
NASA is almost guaranteed a disaster. The evidence
shows an organization impervious to bad news. Instead
of deliberately designing monitoring systems to pick up
danger signals NASA designed, in effect, a manage- An Expanded Typology of Crises
ment system that would intentionally tune out danger
signals or downgrade their seriousness. Clearly, every organization must attend not only
The early warning signals associated with crises to crises that are well known to it and its industry, but
are not only different for different types of organiza- to the many disasters that can now happen to any or-
tions, but are seldom perfectly clear. Rarely, if ever, ganization and all industries. Such an expanded list of
will a signal say, "The presence of such and such a de- crises is presented in Exhibit 2.
fect automatically guarantees or invariably leads to dis- Exhibit 2 differentiates between crises that arise
aster Y." Rather, signals will read, "It appears that within the organization and those that arise outside it.
there is a good chance that X will cause Y or is associ- This distinction is critical because the warning signals
ated with its occurrence," or, "The numbers of Xs have will be different for each type of crisis. Exhibit 2 also
been growing noticeably in recent months." differentiates between crises caused by technical/eco-
In addition, a big difference exists between warn- nomic breakdowns and those caused by people/organi-
ing signals external to an organization and its industry zational/social breakdowns. This is because nearly
and those internal to them. Those internal to the or- every technical/economic breakdown is associated with
ganization and its industry are more likely to be taken a people/organizational/social breakdown, and vice
seriously because they "fit in" with the business. versa. Thus, if we look at only one part of the chain, we
For these reasons, it should not be surprising to miss valuable potential lessons for preparing and cor-
find that, based on what preliminary data we have, recting the whole system.
286
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"Effective Crisis Management"
Exhibit 2
Types of Corporate Crises
Technical/Economic
CELL 1 CELL 2
* Product/service defects * Widespreadenvironmental destruction/
industrial accidents
* Plant defects/industrial accidents
* Computer breakdown * Large-scalesystems failure
* Defective, undisclosed information * Natural disasters
* Hostile takeovers
* Bankruptcy
* Governmentalcrises
. International crises
Internal
CELL 3 CELL 4
* Failure to adapt/change | Symbolic projection
* Organizationalbreakdown | Sabotage
* Miscommunication * Terrorism
* Sabotage * Executive kidnapping
* On-site product tampering * Off-site product tampering
* Counterfeiting | Counterfeiting
* Rumors, sick jokes, malicious slander * False rumors, sick jokes, malicious slander
* Illegal activities * Labor strikes
* Sexual harassment * Boycotts
* Occupationalhealth diseases
People/social}Organizational
287
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Academy of Management EXECUTIVE, November 1987
--
Exhibit 3 shows various causes of each type of cri- ment is to learn to prepare for as many crises as possi-
sis listed in Exhibit 2. Finally, Exhibit 4 shows the ble, then a reasonable way of approaching this goal is
wide variety of actions organizations can take to pre- to form a crisis portfolio based on Exhibits 2, 3, and 4.
pare for, cope with, reduce the effects of, and recover One way to do this is to select a minimum of one crisis
from the various kinds of crises we've identified. from each of the cells in Exhibits 2 and 3. This way,
Exhibit 4 shows that when it comes to taking ac- organizationscan avoid the tendency to prepare mainly
tion, we are faced with the problem of choosing be- for the crises listed in Cell 1 of these exhibits and can
tween too many options, none of which can guarantee thus begin to broaden their perspective about potential
us prevention or complete containment. But then crises. In the same way, organizationscan form a port-
again, perfection is not an appropriate criterion for folio of coping and recoverymechanisms based on a se-
judging the success of crisis management. lection of at least one element from each of the cells in
Indeed, if an appropriate goal for crisis manage- Exhibit 4.
Exhibit 3
Causes and Sources of Corporate Crises
jTechnical/Economic
CELL 1 CELL 2
* Undetected, unanalyzed, unsuspected * Unanticipated, unanalyzed
product defects environmentalconditions
* Undetected plant/manufacturing * Faulty technical monitoring
defects systems
* Faulty detection systems * Faulty strategic planning
* Faulty backup design/controls * Poor societal planning
* Poor global monitoring
Internal External
CELL 3 CELL 4
* Faulty organizationalcontrols: * Failure to design and implement
* Poor company culture, information/ new societal institutions
communication,structure, rewards * Faulty social monitoring of
* Poor operator training criminal stakeholders:
? Poor contingency planning -Disgruntled ex-employees
* Human operator failures/errors -Assassins
* Internal saboteurs -Kidnappers
* Faulty employee screening -Terrorists
-External saboteurs
-Copycat killers
-Psychopaths
People/Social/Organizational
288
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"Effective Crisis Management"
Exhibit 4
Preventive Actions for Organizations
|Technical /Economicl
TIME and
SPACE
People/Social77rganizational
289
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Academy of Management EXECUTIVE, November 1987
Exhibit 5
Steps for Crisis Management
POACTIVE _ I REACTIVE
Increased \
crisis
xeelingsof potential Ways to
Invlnerability \/heighten
~~~~~~~~~~~crises
290
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"Effective Crisis Management"
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Academy of Management EXECUTIVE, November 1987
Ian I. Mitroff is the Harold Quinton Distin- He now serves as executive director of the Industrial
guished Professor of Business Policy and co-director Crisis Institute, Inc., a nonprofit research organiza-
of the Center for Crisis Management at the Graduate tion devoted to resolving industrial crisis problems.
School of Business, University of Southern Califor- Dr. Shrivastava is the editor of Industrial Crisis
nia. He received a B.S. in engineering physics, an Quarterly, a coeditor (with Robert Lamb) of Advances
M.S. in structural mechanics, and a Ph.D. in engi- in Strategic Management, and a contributing editor
neering science and the philosophy of social science, to the Journal of Business Strategy. He has received
all from the University of California, Berkeley. numerous awards and grants for his research from
Professor Mitroff is a member of the American agencies such as the National Science Foundation,
Association for the Advancement of Science, Acad- and is currently writing a book entitled Bhopal:
emy of Management, American Psychological Associ- Anatomy of a Crisis, to be published by Ballinger
ation, American Sociological Association, Philosophy Publishing Company in late 1987.
of Science Association, and the Institute for Manage-
ment Science. He has published over 200 papers and
eight books in the areas of business policy, corporate Firdaus E. Udwadia received his M.S. and
culture, managerial psychology and psychiatry, stra- Ph.D. from the California Institute of Technology
tegic planning, and the philosophy and sociology of and his M.B.A. from the University of Southern Cali-
science, and has appeared on numerous radio and fornia, where he is presently professor of business
television programs. His most recent book is Business administration, civil engineering, and mechanical en-
Not As Usual: Rethinking Our Individual,Corporate, gineering. He is director of the Structural Identifica-
and Industrial Strategies for Global Competition, tion Facility and co-director of the Center for Crisis
published by Jossey-Bass in 1987. Management at USC.
Professor Udwadia has received numerous
awards, including the NASA Award for Outstanding
Paul Shrivastava is associate professor in the Contributions to Technological Innovations, and has
Graduate School of Business Administration, New been a consultant to government and private indus-
York University. He has a bachelor's degree in try in the areas of economic and engineering systems
mechanical engineering and masters' and Ph.D. de- modeling, technology transfer, and project manage-
grees in management. His management research in- ment and command, control and communications.
terests include the strategic management of organi- His current research interest is in the area of crisis
zations, crisis management, policy-making processes, management.
design of information and learning systems for stra-
tegic decision making, and management and admin- ENDNOTES
istrative problems of developing countries. He has 1. C. Perrow, Normal Accidents. New York: Basic
spoken on these topics at national and international Books, 1984.
meetings and has published over three dozen articles 2. P. Shrivastava,Bhopal: Anatomy of a Disaster. New
on these topics in professional and scholarly York:Harper & Row, 1987.
journals. 3. B. A. Turner, Man-made Disasters. London:
Dr. Shrivastava has special expertise in man- WykehamPublications, 1978; Shrivastava,op. cit.
aging decision-making processes in crises, and has 4. Shrivastava,op. cit.
chaired and conducted decision meetings and confer- 5. S. Fink, Crisis Management. New York:AMACOM,
ence meetings in both corporate and professional en- 1986; and I. Mitroff and P. Shrivastava,"Strategic Manage-
vironments. He was engaged in several major conflict ment of CorporateCrises,"ColumbiaJournal of WorldBusi-
resolution efforts that involved mediating conflicts ness, Vol. 22, No. 1, Spring 1987, pp. 5-12.
between corporate, public, and government agencies. 6. Fink, op. cit.
7. As reported to the first author in direct interviews
with NASA officials.
292
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