Introduction to business crisis
In the corporate
world, crisis is the emergence of unpredictable and unforeseen condition which
disturbs the routine operations of the business and builds negative image of
the company in the market. It requires managers to divert their efforts from
the planning and apply necessary contingent measures to mitigate this
unexpected situation. Therefore, it makes the task of realizing organizational
goals difficult. It endangers the goodwill and market value of the company
(Coombs, 2014).
Effective management of crisis
The task of managing
crisis is very complex and challenging for the organization. The unsuccessful
efforts of managing crisis adverse impact on the organization’s image and
stakeholders such as shareholders and creditors of the company, employees
working in the company, customers, suppliers, and others. In this world of
technology, the news of business crisis spread like a virus in a very short
span. The role of broadcast media such news channels on television, radio and
social networking sites is very crucial in disseminating news of business
crisis.
Business has to
invest lots of time and hard work to taste the fruit of social asset like
reputation. Crisis destroys this hard earned reputation of the company by
scattering the expectations of company’s stakeholders. In such situations, the
stakeholders exhibit unfavorable behavior and interaction. It has significant
impact on the financial position of business due to decline sales, low
productivity, etc. Every small and large business organization is likely to
come across this kind of unexpected situation. Organizations need to show their
readiness to fight with such unforeseen conditions and manage the situation of
crisis effectively. Organization needs to form special crisis team or committee
to analyzing and addressing several issues related to the crisis (Coombs, 2014).
Organization make
efforts to reduce the threats to public safety, loss and damage to reputation
and financial position by effectively implementing the process of crisis
management. Every phase of the process i.e. phase before actual crisis, crisis
event phase and phase after crisis (Ray, 1999). It is necessary to take measures to prevent crisis and the decision
related to this falls in the stage of precrisis. In crisis event phase,
organization takes necessary organizational and legal actions to overcome the
situation of crisis and influence of endangering threats. The situation of
crisis teach various lessons and precautions that should be taken to avoid such
a critical situation in future. The postcrisis phase is concerned with
empowering organization to deal with upcoming crisis. It would be
irresponsible, unjust and unfair for organization just to assure victims for
compensation. All the committed measures should be initiated in this phase.
Prevention of crisis by contingency planning
The organization’s
proactive approach during the pre-crisis stage help him to detect the
possibilities of crisis and encourage it to introduce remedial actions to
control or prevent the negative impacts of crisis on business. Timely actions
ensures the avoidance of adverse critical situations. Contingency planning is
an effective tool which deal effectively with uncertainty and emergency
(Coombs, 2014). It lists down all the possible adverse circumstances that are
likely to have negative impact on the image and financial position of the
business. Moreover, it provides the list of actions and strategies to be
initiated to mitigate each type of crisis. Crisis leads to the creation of
stressful business environment which disturbs the rationality and speed of
decision making. This concept of pre-planning allow managers to take rationale
decision considering each and every aspect of the event.
Importance of crisis communication
Crisis communication
plays a very significant role in crisis management. It is an organizational
process of timely communicating all relevant information related to crisis to
internal and external stakeholders of the organization. Its aim is to protect the
interest of stakeholders. An effective crisis communication ensures the
resolution of differences between the organization and its stakeholders. It is
necessary for the organization to create a message communicating the defined
strategical steps of organization to handle the challenging situation of
crisis. It supports in continuing and maintaining long-term relationship of
organization with its valuable stakeholders (Coombs, 2014).
Crisis communication minimizes adversity of negative image
Volkswagen, Germany
based automobile industry, had tried to breach the laws of environmental
protection agency by installing the device that does not reveal true results of
emissions test in around 11 million cars and commercial vehicles across the
world. This act of company has adversely
affected the image as well as profitability of the company. It is disappointed
the expectations of its stakeholders. However, the decision of the company to
apologize for its mistake in the media and compensate victims by fixing the
problem, by replacing defeat device with quality device, has helped to minimize
negative impacts of scandal to certain extent (Akbar, 2016).
Role of crisis communication in reinforcing Positive
image
Crises are unexpected
and in many situations unavoidable. Organization cannot escape from the
negative impacts of crisis easily. However, the use of effective crisis
communication highlighting positive approach of organization helps it to
maintain and strengthen its positive image (Ray, 1999). For example, the unexpected dreadful attack on the
people sitting in the particular restaurant has adverse effect on the business
of that restaurant. The number of customers will decrease due to the fear.
Nevertheless, the restaurant’s strategy to communicate openly its decision to
pay hospital charges for victims will support it to strengthen the positive
image of the restaurant and would reduce effect of crisis to the great extent.
Benefits of timely and accurately dissemination of
information
It is primary responsibility
of the organization to provide all necessary details of catastrophic event to
all its stakeholders. Hence, crisis communication is regarded as one of the
vital component essential for the continuity of the business. The communication
of all vital facts of the crisis on time will control the spread of myths,
rumors, speculations, negative perceptions, etc. This negative ideas will
affect the business further. Hence, it is advisable to communicate all
necessary information honestly and promptly (Ray, 1999). The channel of communication should selected wisely
as per the requirement of the type of information to be communicated.
Disclosure minimizes litigation
Many times, the
organization is blamed to be involved in accounting scandals. This kind rumor
affect the expectations of shareholders and creditors. In this type of crisis,
it becomes necessary for the company to disclose its financial statements. The
organization should select appropriate media to communicate stakeholders
regarding the principles and policies followed by the organization for the
purpose of accounting. If it fails to do so, the stakeholders will begin to
consider rumors as a fact and may initiate legal actions. This will affect
their relationship. Hence, the presentation of accounting reports openly and
honestly are likely reduce the effects of legal issues involved in business
crisis.
Precautionary measures of public relation agency
The management of
crisis requires an organization to assign duties of addressing the issues
related to media and press to the public relations agency. It is the
responsibility of PR agency to ensure that any individual belonging internal to
the organization should not give any statement in the media unless and until
they have clear understanding of the facts pertaining to crisis.
Misunderstanding may lead to mistakes which in turn makes the situation worst
for the company. The effectiveness of communication helps in resolving crisis
but the opposite has adverse impacts (Bernstein, 2013).
Requirement of coordination between legal advisers and
public relation counsel
The suggestion
provided by both important members of crisis team should conflict with each
other. Many times, legal advisors suggest not to comment on the situation due
to legal constraints. The public relation counsel knows very well that this
situation would raise many more questions on the image of the business. Hence,
it is necessary that both members should work out a consensus plan by
considering benefits and limitations of each field. The partnership between
legal advisor and Public relation counsel will help get effective solution to
overcome crisis (Mahli,
2008).
References
Akbar, J. (2016). 'We are not a criminal brand': Volkswagen CEO defends under fire company
in Detroit over emissions scandal. Retrieved February 6, 2016, from
http://www.dailymail.co.uk/news/article-3393673/We-not-criminal-brand-Volkswagen-CEO-defends-fire-company-emissions-scandal.html
