WHAT REALLY CONSTITUTES A BUSINESS CRISIS

Posted in Business Crises of our own making, Business Crises We Create, Crisis Communication Failures, Crisis Communication Response, Crisis Communication Strategy, new customers at the expense of old customers, What is a Business Crisis on October 5th, 2010 by mnayor

 A business crisis can be anything that can negatively effect a company’s reputation or bottom line. Many events at first blush may not appear to be serious. HP’s firing of Mark Hurd and the subsequent entanglement with Oracle was not a big deal in the scheme of things, even though internally it must have been a shocker. However, the death or resignation of a key person in any organization could very well be serious for any company depending on just how key that person really was. Natural catastrophes, product recalls, labor disputes, computer data losses. The list is endless. Some are temporary. Some can cause the demise of a company. Most can be handled with honesty and the realization that it may be necessary to absorb losses over the short haul in order to achieve a long and healthy business life.

Two distinct categories of crisis need to be recognized. In one we lump all those events over which we have no control, such as product tampering by outside forces or natural disasters. Even in these situations there are always some actions we can take: tamper-proof packaging, liability insurance, proper protocols. But generally these events can blind-side us.

The second category contains all those events that might have been avoided had we chosen to take the actions necessary to protect ourselves and the public. Some are obvious. We look at the BP oil spill and see things that surely could have been done.  Other events are not so obvious and these are the ones that can be insidious. When a management believes it is doing the right thing but in fact is fueling a potential crisis we have the makings of a catastrophe. A couple of examples will make this abundantly clear.

Market share is usually very important to a company, oddly sometimes more important than the bottom line. There is always great competition for new customers. Many times the efforts and resources devoted to advertising, marketing and selling to new customers are at the expense of a company’s loyal  customer base. This can even be seen at the local level. Where I live heating oil companies consistently offer new customers a deal for the first year in order to lure them in. This, of course, is done at the expense of old, loyal customers who have to make up the slack. The result is that many savvy oil customers these days do a lot of shopping each year to find the best deal. Loyalty is a thing of the past. On a national level the problem has gotten even more serious. A recent financial story in The New Yorker last month observed that there is almost universal recognition that customer service in this country has deteriorated. Such service is considered a “cost”. Companies are looking for the customers they don’t have so they are willing to spend on marketing and advertising but are not as interested in adding to their costs of service. The article made it sound a little like cynical dating. Companies are interested in luring you in but then once they have you, they don’t quite value you as much as the next potential customer they want to corral.

Lack of service is not just a pain for helpless consumers. In this internet age they can do something about it. This is how a company can sow the seeds of its own destruction, and inexorably create its own crisis. Companies and their products and services are being rated on the internet and consumers don’t hold back. They tell it like it is. Granted, competitors may be planting some of these negative comments but for the most part product and service evaluations are being taken at face value. The moral of the story: be faithful to those who brought you to the dance, or the consequences could be severe.

Another form of self-inflicted crisis involves weathering the storm. Whether in politics, professional sports, or in business, “players” still believe that because of their importance they can ride out any issue or problem. They can’t. We can all easily tick off a dozen or so examples, but the latest is surprising. Johnson & Johnson has recently gone through a spate of recalls of tainted children’s Tylenol and Motrin. The Company has generally kept a low profile and even contracted with a third party to buy up Motrin off retail shelves rather than announce an actual recall. And for the last decade it has been settling with claimants for a variety of injuries and death allegedly due from Ortho Evra, a contraceptive patch made by its subsidiary, Ortho McNeil. It appears clear that the current management of J&J has not followed in the footsteps of the management that handled the Tylenol crisis of 1982 which is often cited as the quintessential example of crisis management in modern corporate history. Back then cyanide had been found in bottles of Tylenol in the Chicago area. J&J immediately issued public warnings, issued a product recall, created tamper-proof packaging, and before long was back in business. The Company was up-front and willing to bite the bullet in the best interests of the public. Unfortunately that does not appear to be the philosophy today. There is clearly a danger in believing one’s invincibility. The trust and respect of the public is at stake, and once lost, is very difficult to retrieve.

A crisis is not just the obvious explosion at a plant or a mine. Companies can and do create their own crises. Companies must evaluate their philosophy, their strategy and their honesty. They must take action to minimize their vulnerabilities but at the same time be prepared to take action in the best interests of the public if they value company longevity.

Originally published in the Management Help Library of  http://managementhelp.org/blogs/crisis-management/2010/10/13/what-really-constitutes-a-business-crisis/

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CRISIS MANAGEMENT AND THE BLAME GAME

Posted in Business Crisis Management, Crisis Communication Implementation, Crisis Communication Response, Crisis Communication Strategy, The Blame Game on October 5th, 2010 by mnayor

Over time, crisis management pundits have considered many types of responses to a crisis and have sometimes recommended actions and reactions that today seem out of step with effective solutions for most crisis situations. These out-of-step solutions fall into two categories: 1) stonewall the media and the issue will eventually die without you fueling the topic; and 2) a strong defense is a good offense, namely attack the accuser, deny the issue or point the finger elsewhere.

In today’s media jungle, stories don’t die. If something doesn’t pass the smell test, someone in the media is going to pursue it. Ignoring a crisis by ignoring the media doesn’t cut it. And if the media doesn’t pick up on an issue, the public certainly will, via Facebook, U-Tube, Twitter or some other yet to be invented faster-than-light communications vehicle.

In times of crisis most corporate managements would prefer to avoid the limelight, deal with its issues, solve its problems and escape negative publicity. Understandable, but dealing with a major crisis like an ostrich is terribly risky and makes a company look like it’s not owning up when the crisis is exposed.  

So let’s assume you are willing and able to deal head-on with the public. Most senior executives are used to being in control. They pull the levers, call the shots and aren’t used to being told what to do. There is a tendency to be defensive. “I nurtured this baby, I grew it and I know how to defend it”.  The reaction often lacks finesse. Instead of appearing open, the reaction is authoritarian. Instead of appearing honest, the reaction is defensive and oftentimes gravitates towards the blame game or, just as bad, the rationalization or justification game. 

All of these “public” reactions can hurt your organization, because you will have missed the point. There is a problem. Acknowledge it. The problem has ramifications. Acknowledge them. No one is interested in finger-pointing or excuses, even if you are correct. There is time for that.  Don’t act like the whiney school kid or the weasel that can’t or won’t take responsibility. The public expects companies and organizations to man-up. Period. Man-up and get moving so the problem can be fixed. The public respects organizations (and their spokespersons) that emanate competence and authority.

When BP went to Capital Hill to testify back in May, 2010 they were joined by Halliburton and Transocean, Ltd., two of BP’s subcontractors. All three looked foolish because of the finger pointing and denial that ensued. What to do?  Act like a responsible citizen whether you are at fault or not.  A responsible citizen acknowledges the problem and positions itself to take whatever action it can to help fix it. It investigates and determines the best course of action based on its expertise. The public needs to know you are responsible citizen. You convey that when you take immediate, competent action.

But what if you are not to blame? If you aren’t, good for you. It will come out in the end but as an immediate step the public needs to know that you recognize yourself as a player with a role, and that you willingly undertake that role for the public good. Expensive? Perhaps. Worth it. Most often a resounding yes, in terms of public perception and goodwill. If you are to blame the same holds true. Your legal team and your insurance advisors may have made it clear that you cannot say anything that admits culpability. Even so you can act as the same responsible corporate citizen as you would if you were not to blame. You can act sensitively, you can investigate and you can devote whatever resources you have to help fix the problem and keep the public informed regularly along the way.

Preserving your reputation and directing your efforts to problem-solving are the first order of business. Assessing blame comes later and is best left to third parties. No one ever looks good saying it is someone else’s fault. An insurance investigation, a public hearing, a regulatory investigation, a private investigation that is made public are just some of the opportunities you have to provide input to show the root causes of a crisis. Let a neutral source absolve you of blame. In the end it carries far more weight, and is more persuasive and acceptable.

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JOHNSON & JOHNSON: CRISIS MANAGEMENT IN FREE-FALL

Posted in Business Crisis Management, Crisis Communication Failures, Crisis Communication Response, Liability Communications on October 5th, 2010 by mnayor

 The Today show on September 21st dusted off a fairly old story. Ortho Evra, a birth control patch introduced in 2002 and produced by J&J subsidiary Ortho McNeil was in the news again. Since the time of its introduction the patch has been the subject of thousands of court complaints. The product allegedly has the effect of causing deep vein thrombosis, pulmonary embolisms, heart attacks, strokes and death, all stemming from the fact that it can deliver twice as much estrogen to the body as regular birth control pills. J&J has received years of bad press about this subject. No claim has ever gone to trial and J&J continues settlements that total many tens of millions of dollars.

 The Today show reported that it had recently uncovered a 2005 resignation letter from a former J&J vice president saying that he could not remain in his position knowing the high levels of estrogen delivered by the product. The show also reported that another former vice president was suing the Company for wrongful termination based on his whistle-blowing efforts even before the product was introduced to the public.

 Now switch gears to J&J’s non-prescription products. Over the last year, the Company has gone through a slew of product recalls, including infants’ and children’s Tylenol, for reasons including contamination and the presence of foreign matter. The Company also conducted what is termed a “phantom” recall of Motrin by hiring a third party to buy up the product on store shelves in order to avoid adverse publicity. J&J maintains that it did so under an agreement with the Food and Drug Administration. The House of Representatives investigated the recalls, and questioned the alleged agreement with FDA when it heard CEO William Weldon at the end of September. Weldon acknowledged at the hearing that J&J had let the public down by not maintaining its high standards. An F.D.A. official testified that the Company had an inadequate quality system at a number of its facilities. One lawmaker declared that J&J’s failures would mar its reputation for years.

 J&J’s 1982 handling of the Tylenol scare is often cited as the quintessential example of crisis management in modern corporate history. Back then cyanide had been found in bottles of Tylenol in the Chicago area. J&J immediately issued public warnings, called a product recall, created tamper-proof packaging, and before long was fully back in business. The Company was up-front and willing to bite the bullet in the best interests of the public. Unfortunately that does not appear to be the philosophy today.

J&J’s website states that “The values that guide our decision making are spelled out in Our Credo. Put simply, Our Credo challenges us to put the needs and well-being of the people we serve first.” Maybe so, but it appears as if a new breed of management has taken the reins at J&J – new cutting -edge types whose sole concentration is on the bottom line. Yet it might be this competence and cool business efficiency that will have the effect of undermining the extraordinary 120 year old reputation of this venerable institution. The abilities of current management must be tempered with sensitivity and responsibility to the public in order to salvage and maintain the invaluable good will of one of America’s great corporations. Hopefully the lessons learned will again set management on the right course.

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