1. IB Business and Management
2.8 – Crisis Management and Contingency Planning

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

3. What type of crisis situations could occur?

4. 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

5. Crisis
Some real examples…..

6. 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

7. 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

8. 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

9. 2010 – Ash Cloud
At Easter 2010, a volcanic ash cloud grounded planes over Europe and cost European airlines $1.7 billion

10. 2010 – Snow Chaos
In December 2010, bad snow cost the UK economy up to £1.2 bn per day

11. 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

12. 2009 – Toyota’s faulty brakes
Toyota had to re-call 7.5 million cars with faulty brakes, costing the company $54 million per day in lost revenue

13. 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. This is a reactive approach

14. Crisis Timeline Contingency Planning Pre-crisis Prior to the event
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

15. Contingency Planning

16. Contingency Planning Contingency planning involves:
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 foreseeable event and to plan for how the organisation will resume normal operations after the crisis

17. 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
Determine a strategy to prevent each crisis & to deal with a crisis should one occur
Draft plans and identify responsibilities
Simulate crises and the operate of each plan

18. Task Watch the 2 video clips from Japan.
These show 2 simulations of crisis situations.

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

20. What are the advantages/limitations of contingency planning

21. Contingency Planning Advantages Disadvantages
Certain crises can be avoided/risk reduced
Faster reactions in crisis event minimise the damage
Staff are reasurred (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 measurable

22. Crisis management

23. What do businesses need for effective crisis management?
Speed
Strong Leadership
Finances available
A focus on Public Relations
Honesty
Good communication both internally and externally
Input from different functional areas

24. The role of the crisis manager
Crisis assessment
Event tracking
Managing human considerations
Damage assessment
Assessment or resources and options
Development of contingencies
Managing communications
Co-ordination with external bodies
Controlling information
Controlling expectations
Managing legal requirements

25. Dealing with the financial aspects of a crisis
Accelerate accounts receivable (payment by debtor)- by offering a discount if necessary.
Slow up payment to creditors where possible.
Reduce expenses - especially “non mission critical” expenses
Outsource non mission critical operations.
Re-schedule loans

26. Dealing with the “people” aspects of a crisis
Form a crisis team
Designate one person only to speak about the crisis to the outside world
Act to prevent or counter the spread of negative information
Make use of the media to provide a counter argument
Do not tell untruths - trying to manipulate or distort the information will backfire

27. 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:

28. 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

29. Task
Read the article ‘Eurostar – Contingency planning failure’

30. Research Task
Research and prepare a presentation about a business and a crisis it suffered.
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
Suggestions for how the crisis could have been handled better

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

32. Task - Essay
With reference to examples, to what extent are crises avoidable with effective contingency planning.