IB Business Management 5.7 – Crisis Management and Contingency Planning (HL Only)

Learning Outcomes The difference between crisis management and contingency planning (AO2) The following factors that affect effective crisis management: (AO2) Transparency Communication Speed Control The following advantages and disadvantages of contingency planning for a given organization or situation: Cost Time Risks Safety

Key Question….. What is the difference between crisis management and contingency planning? How are these linked?

How do businesses deal with crises? Contingency Planning – Planning for the event of a crisis occurring. This is a pro-active approach. Crisis management – The way a business responds once a crisis has occurred. Contingency planning can help to make crisis management more effective

Crisis Timeline Contingency Planning Crisis Management Pre-crisis Prior to the event • What is going to happen? • What are we going to do about it? • What can we do ahead of time to get prepared? Warning Indications that there is or may be or could be an event liable to cause a significant impact on the organisation Crisis Management Crisis point When the event begins to cause significant impact on the organisation Recovery The acute stage of crisis has passed and the organisation is able to focus on a return to normal operations Post crisis Evaluation of the effects Repair to the organisation

What is a Crisis? Noun: A time of intense difficulty, trouble, or danger. A time when a difficult or important decision must be made What type of crisis situations might occur? cri·sis/ˈkrīsis/

What kinds of crises can occur? A hostile takeover bid Fire Environmental disasters Terrorist Attacks Power Failure Pressure group or unwelcome media attention Faulty or dangerous products Sudden strikes by the workforce A major customer withdraws it’s custom or becomes bankrupt Natural disaster Machine failure A competitor launches a new product Fraud Health Scares Severe recession or slump in demand Change in exchange rate

Business Crisis Some real examples…..

1982 – Tylenol cyanide scandal 7 people died after taking Tylenol extra strength tablets. The product’s market share dropped from 37% to 7% After investigation it was reported that the packages had been tampered with To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

1995 – Nick Leeson and Barings Bank Barings was the oldest merchant bank in London. One of it’s Singapore office employees, Nick Leeson lost $1.3 billion due to speculative investing

2004 – Coca Cola and Dasani Public outcry after the press revealed that the Dasani water that Coca Cola was charging 95p a bottle for was sourced from tap water It was then discovered that the water contained traces of cancer causing bromates To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

2010 – Ash Cloud At Easter 2010, a volcanic ash cloud grounded planes over Europe and cost European airlines $1.7 billion To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

2010 – Snow Chaos In December 2010, bad snow cost the UK economy up to £1.2 bn per day To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

2011 – Blackberry Internet failure A hardware breakdown caused 2 days of internet failure for users of Blackberry service. This was devastating to the company as it has many business customers that rely on their service To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

2015 – Volkswagon emmissions The company admitted in September to using illegal so-called defeat devices in up to 11 million diesel vehicles worldwide. The software was installed cheat emissions tests The company has set aside 6.7 billion euros ($7.4 bn) to pay for the costs of the scandal. But, according to some estimates, the cost of legal claims, fixes and regulatory fines could exceed 30 billion euros. To what extent could the business have prepared for this? How? What do you think the firm should have done to manage this crisis?

Using contingency planning and crisis management effectively to minimise the impact of a crisis Dealing with a Crisis

The following advantages and disadvantages of contingency planning for a given organization or situation: Cost Time Risks Safety Contingency Planning

Contingency Planning Preparing for predictable and quantifiable crises Preparing for unexpected and unwelcome events The aim is to: Reduce the risk of the crisis occuring minimise the impact of a crisis plan for how the organisation will resume normal operations after the crisis

Steps in drawing up a contingency plan Recognise the need for contingency planning Identify possible contingencies - all the possible adverse and crisis scenarios Specify the likely consequences Assess of the degree of risk to each eventuality Identify which crises situations it is worth planning for Determine a strategy to prevent each crisis & to deal with a crisis should one occur. This may involve spending on necessary resources Draft plans and identify responsibilities Communicate plans Simulate crises and the operate of each plan

Task Watch the 2 video clips from Japan. These show 2 simulations of crisis situations. http://www.youtube.com/watch?v=6dDL7suUM_g&feature=player_embedded http://www.youtube.com/watch?v=PgHQfxT7ImI&feature=fvwberel

What might be included in the contingency plan for the following situations Strike at an airline Fire at a factory

Task What are the advantages and disadvantages of contingency planning in terms of: - Cost Time Risks Safety

Contingency Planning Advantages Disadvantages Can be time consuming Certain crises can be avoided/risk reduced Faster reactions in crisis event minimise the damage Improves safety Staff are reassured (Maslow’s safety needs) Planning process improves communication and encourages forward thinking Can be time consuming Resources can be wasted planning for events that never happen (opportunity cost) Plans may become outdated Not all crises are foreseeable

The following factors that affect effective crisis management: (AO2) Transparency Communication Speed Control Crisis management

What do businesses need for effective crisis management? Transparency – Being open and honest Communication – Effective communication with stakeholders Speed – Responding quickly Control – Leadership take control and implement a coordinated approach

Task Look at the video ‘Crisis management in action – The BP coffee spill’ What point is this video trying to make Now watch this video: http://www.youtube.com/watch?v=qM7liob6DPs&feature=related

Task Look at the video ‘A heartfelt apology’ from the boss Look at the other crisis situations….. How could businesses involved deal with these situations

Task Read the article ‘Eurostar – Contingency planning failure’ Evaluate Eurostar’s approach to managing the crisis. Is there evidence of: Transparency Communication Speed Control

Research Task Investigate a recent corporate crisis in a country of your choice. How effective was the crisis management team in handling the crisis? You should include detail about: The crisis and what it involved What contingency planning had taken place (if possible) How the company dealt with the crisis What effects the crisis had on the company (financial, reputation etc) An evaluation of whether the business handled the crisis well. What evidence was there to suggest that they were transparent, communicative, Suggestions for how the crisis could have been handled better

Suggested Crisis….. Gulf of Mexico oil spill Toyotas faulty breaks Union Carbide Bhopal tragedy Huntingdon Life Science Pepsi syringe scandal