Crisis management becomes increasingly important in the current disruptive playing field

Jonathan Faurie
Founder: Turnaround Talk

Reports from Sri Lanka in the week before the Easter weekend pointed to the fact that the Government of the island nation made an impassioned call to Sri Lankan nationals living abroad to send cash home to the nation as it battles a severe economic and debt crisis. Reports point out that the country is basically bankrupt.

The scary thing is that, according to statistics released by the International Monetary Fund, Sri Lanka does not even rank in the top 20 of the worlds most indebted nations (measured as: debt to GDP). 

The top 10 most indebted nations are:

  • Japan (257%);
  • Sudan (210%);
  • Greece (207%);
  • Eritrea (175%);
  • Cape Verde (161%);
  • Italy (159%);
  • Suriname (141%);
  • Barbados (138%);
  • Singapore (138%); and
  • Maldives (137%)

It is clear that countries, and the companies that operate within them, are facing the worst economic crisis since the 2008 global financial crisis.

While South Africa doesn’t even rank in the top 30 of the worlds most indebted countries, we are all acutely aware of the country’s economic and infrastructural challenges that we have to deal with on a daily basis. This editorial is being written at a time when the residents of KwaZulu Natal are dealing with the worst natural disaster in the province’s history with more rains on the horizon.

Companies should now be well versed in crisis management. From dealing with lockdowns in the early stages of the Covid Pandemic to managing creditors during this time, addressing the adaptability of operational models, addressing a supply chain crisis that introduced multi-level risks to companies, to dealing with creditors who are also running low on cash and are seeking payment once companies started to return back to normal trading.

Crisis management is not easy but is necessary to ensure longevity. This was pointed out in an article I recently came across.

Why Create a Crisis Management Plan
The article points out that if your business faces a crisis of any kind and isn’t equipped with a crisis management plan detailing how you’ll handle the situation, it’s likely you’ll experience serious and long-lasting consequences. These consequences might be related to various legal, operational, and public relations issues. Depending on the extent of the damage, a crisis situation could even put you out of business.

Preventing a fallout is the sole purpose of crisis management
Photo By: Canva

However, 29% of companies that faced a major crisis from 2014-2019 say they have no staff dedicated to crisis preparedness or response. In fact, 28.9% of companies don’t know if their crisis management plan is up to date.

The article adds that, simply put, all businesses should have a crisis management plan in place to be prepared for any unplanned event and prevent long-term damage from happening as a result. There are four other main reasons why you should ensure your business has a crisis management plan.

Crisis management plans:

  • Help you maintain your great reputation with customers, competitors, and industry leaders during and after a crisis.
  • Improve the safety, health, and well-being of everyone who works for and does business with your company.
  • Give you peace of mind as an employer and company — you’ll be ready for any situation that comes your way.
  • Increase productivity during and after a crisis. Everyone will know their role and function throughout a crisis so there’s less downtime, more action, and quicker resolution.

How to Create a Crisis Management Plan

  • Identify all possible types of crises.
  • Determine the impact of each type of crisis on your business.
  • Consider the actions you’d need to take to resolve each type of crisis.
  • Decide who will be involved in the actions you need to take in each scenario.
  • Develop resolution plans for each type of crisis.
  • Train everyone who needs to be familiar with your plans.
  • Revisit and update your plans regularly and when necessary.

Identify all possible types of crises
The article points out that the first thing you’ll want to do when creating a crisis management plan for your business is to identify all possible types of crises that could happen to your specific business. To help you do this, consider the different categories of crises that businesses are most susceptible to experiencing.

Financial crisis – When a business experiences a drop in demand for whatever it is they sell — whether it’s a product or service. They lose value in those assets and can’t afford to pay off their debt.

Personnel crisis – When an employee or someone else associated with a business is involved in activity or conduct that’s considered unethical and/ or illegal. This misconduct may occur in or out of the workplace and can be related to the work-life or personal life of the individual involved.

Organizational crisis – When a business has wronged its customers by taking actions that negatively impact its customers. Examples may include keeping important information from customers who deserve to know the details about a specific topic or exploiting customers.

Technological crisis – When servers go down, software crashes or another technological system stops functioning properly. It might cause a business to lose large amounts of revenue, make customers question their reliability, or tarnish their reputation.

Natural crisis – Hurricanes, tornados, floods, and winter storms are all examples of natural crises that have the power to damage or completely ruin a business’s office space (or any area owned or used by a business). Depending on a company’s location, they might be more prone to various natural disasters occurring throughout the year.

Determine the impact of each type of crisis on your business
The article adds that, once you’ve considered the crises that could impact your business, you’ll want to determine the impact each of these events could have on your company, employees, and customers. Examples include:

  • Loss in sales;
  • Customer dissatisfaction;
  • Tarnished reputation;
  • Increase in expenses (to fix the issue at hand); and
  • Decrease in customer loyalty to your brand.

By quantifying the impact each crisis could have on your business, you’ll be able to understand each possible angle of a threat or catastrophe and, therefore, prepare for it appropriately. This type of review will lead you to determine the appropriate actions you and your fellow employees need to take to resolve each event.

Consider the actions you’d need to take to resolve each type of crisis
The article points out that, to determine the necessary actions you and your business would need to follow to work through a crisis situation, review the different crisis management methods you could implement. A few of the most common crisis management methods include the following:

Responsive crisis management: This is when a business has a previously prepared response to a specific type of crisis situation that they can roll out at any point in time. You can use Situational Crisis Communication Theory (SCCT) to help you develop this response strategy so your business is ready to handle any unforeseen event. For example, a business might have specific steps in place for how they would manage an organizational or financial crisis in a timely manner. These plans might also detail the process in which they would inform employees about the event and deal with key stakeholders.

Proactive crisis management: This is when a business anticipates a specific type of crisis occurring and proactively prepares for it. An example of this would be related to the potential of a natural crisis — a business located in Key West, FL might ensure the office space is built to handle hurricanes and severe storms.

Recovery crisis management: This is when a business manages a crisis that blindsided them because it happened out of the blue. An example of this is a technological crisis. If a business’s software is working perfectly one moment and unexpectedly crashes another, it impacts employees in addition to customers who use the software.

The article adds that, as you identify all crises your business is susceptible to, you may also decide to develop a business continuity plan at this point in time. This will help you identify all potential aspects of these crises on a very detailed level as you work through the rest of your crisis management plan steps.

Crisis management can be stressful
Photo By: Canva

Decide who will be involved in the actions you need to take in each scenario
The article points out that, once you’ve considered the impact of each type of crisis and the actions you’ll take to resolve them, it’s time to think about who will carry out the necessary resolution plans and actions.

This might include specific employees with expertise in different areas of your business, HR, public relations, and anyone else you see fit based on your specific situation. Depending on the type of crisis, you might also determine you need the assistance of lawyers, consultants, or first responders.

Develop resolution plans for each type of crisis
The article adds that, by working through the four steps mentioned above, you’ll be able to develop appropriate resolution plans for each type of crisis. Each resolution plan will differ based on the specific situation — however, here are some common questions to consider while developing any type of crisis resolution plan:

  • How long will it likely take to resolve the crisis?
  • What tools and resources will you need?
  • How many people, and which people, did you determine will be involved?
  • Will you need to address your customers directly?
  • What is the cause of the crisis and how can you prevent it from happening again (or from worsening?)

The role of BRPs
If this process is managed early enough, it should form part of a company’s informal restructuring efforts where SWOT analysis and scenario planning becomes important. BRPs who have had major corporate jobs in the past – and have dealt with these crises first hand – will be in the best position to offer advise on how to address these challenges.

It is important that companies engage in this type of planning on an ongoing basis when they are not actively dealing with these crises. Early intervention is key and will allow companies to put in place coping mechanisms that will allow them to develop an appropriate response. This should be part of a BRPs expanded restructuring toolkit and can be offered as an additional service at a premium. In a profession where fees may become increasingly regulated in the future, consulting is not only a way to offer value to your clients, but is a way in increase your cash flow.