Are you confident about your response in a crisis?

19 August 2014

A poor response to a crisis can wipe huge sums off stock valuations, but a focused response that impresses stakeholders can have the opposite effect.

High-impact risk is now firmly on the boardroom agenda, driven there by the realisation of the damage certain events can do to corporate and management reputations. High-profile environmental disasters, weather-related public transport interruptions, natural disasters, machinery failures and sensitive data leaks – to name a few examples – grab media headlines.

The way that an organisation responds to such events is critical – more so now than ever. The public has expectations of how an organisation should respond, based on media coverage of past events.

Business customers too have preconceived ideas about how their supplier or business partners should react in a crisis situation. A poor performance, which includes inadequate communication with key stakeholders, can wipe huge sums off corporate stock valuations. On the other hand, a focused, swift response that impresses stakeholders with management’s capability can actually increase corporate value – beyond the level it would have reached had no crisis occurred. Employee loyalty can also be strengthened and retention rates dramatically improved by demonstrating a high degree of employer care in a crisis situation.

Board members appreciate the need for their organisations to develop resilience – the capability to respond in appropriate ways in the event that disaster strikes. However, they are also increasingly seeking to gain confidence in that capability, rather than simply assuming it exists and will prove adequate. This trend complements the growing stakeholder interest – among governments, regulators, standard setters, business partners and the public – in the sustainability of business. There is mounting appreciation of the need to sustain profitability for the long term, in ways that support the communities in which businesses operate, and with minimal environmental impact. Effective crisis management is one small, but critical, requirement for such sustainable business activity.

Building capability

Effective crisis management depends on the board and the crisis management team (CMT) having the capability they need to respond effectively. Leading organisations are increasingly looking for ways to develop that capability, and turning to real-time exercises as the most effective mechanism. Such exercises represent a step up from the more traditional half-day or one-day simulation exercises involving specific functions, operations or geographies.

Simulations are invaluable in developing team capability; however, they don’t provide the truly challenging, comprehensive and insightful learning experience of a real-time exercise.

Real-time exercises are effective learning experiences because they run concurrently with participants’ normal working life. Whereas an isolated, half-day simulation is conducted in an environment where participants are freed from normal distractions, the real-time exercise creates additional demands alongside ongoing daily responsibilities, just as a real crisis would.

Crisis management

The real-time exercise can also involve large numbers of people from different departments, such as HR, IT, the supply chain and finance, and potentially several subsidiaries and locations.

This enables a far more complex crisis scenario to be developed, one that combines multiple strands requiring responses from numerous parts of the business. This creates a more realistic situation for decision makers – a series of challenging events that occur over several days or weeks and that gradually build to a conclusion. Board members and management have the opportunity to behave as they would in a real crisis – being able to request information, delegate tasks and take strategic decisions over a period of time in response to an escalating crisis scenario.

Another important characteristic of real time exercises is that information on the crisis can be fed into the organisation in realistic ways – using the channels of communication that would occur in a real-life crisis. Emails received by participants appear to have come from appropriate people using the right tone and terminology; dummy news websites reflect unfurling events in a highly realistic manner. Staged media enquiries, interviews or conferences, and phone calls with government officials can be arranged, providing added and realistic pressure on participants. Responses can also be monitored to inform the later review process and learning experience.

The real-time exercise culminates in a final simulation event, which provides the necessary set up for final decision-making. This is followed by a closing review to wrap up the experience, enabling the organisation to analyse its crisis response and see how its capability has been developed or validated. Areas for future development and action can be identified, perhaps addressing issues around resilience of the supply chain or other key third parties.

Building confidence

The completion of real-time exercises builds capability in the organisation. And as capability develops, so boards become more confident that key personnel understand the actions required of them if a real crisis occurs. But this confidence must also be underpinned by sound preparation and planning.

Effective crisis management is an ongoing process – a cycle of activity that revolves through planning, response and subsequent review. One essential element of the planning process concerns the identification of triggers – the events that could and should trigger the initiation of formal crisis management procedures.

Some triggers will be obvious, such as fire, floods or terrorist events. More challenging are the triggers that arise incrementally. For example, the supply chain may have normal fluctuations such as occasional late deliveries or quality concerns. But at what point does an increase in quality failures or supply stoppages move outside normal tolerance levels and into a crisis situation? Similar scenarios can arise in all areas of business operations: in finance (foreign exchange losses or cash flow shortages), personnel (staff sickness or resignations), manufacturing (machinery breakdowns)or IT (server failures or lost email access).

The challenge for any organisation is to understand the business implications of all such events – in particular, the points at which they should remain issues for functional and operational teams to handle, when they should be brought to the attention of senior management, and when a formal crisis management response should be initiated. Once a formal response is launched, senior management can consider the strategic impact of the crisis situation, taking strategic decisions to safeguard the business going forward, while operations teams handle the immediate problems being presented.

Crisis management planning also covers the identification of response teams. The CMT itself will generally consist of senior board members: the chief operations officer or the CEO and directors of key business functions (for example finance, HR, IT, communications) as well as business unit leaders. This group will typically need the support of another team drawn from across the business and consisting of senior individuals, such as the director of security, deputies of HR and finance.

This group will respond to the CMT’s information requests and implement its strategic decisions. Additional subordinate teams may also be required, depending on the nature of the crisis

Communication channels – when to escalate information, how and to whom – also need to be established. These should encompass how to pass information both up and down the management chain. The overarching aim behind all such crisis management planning is to save time when a crisis occurs. By identifying key personnel and establishing communications and response frameworks beforehand, the crisis response can get underway more quickly and effectively.

Organisational maturity

The ultimate goal is to mature an organisation through the various stages of crisis management capability. This begins with the achievement of core compliance – creating a robust crisis management framework and plan – through to the development of  comprehensive capability, and ultimately the building of confidence – so that boards have sound reasons to believe that their organisation has the right teams, systems and processes in place to deal with any crisis effectively. Achieving this greater maturity depends on the development of a programme of work, which enhances crisis management capability over a sustained period of time. As increasing numbers of leading organisations now realise, it also depends on the completion of comprehensive real-time exercises. These build capability in the most effective way, which in turn generate board-level confidence.

The ultimate proof of the benefits of such sustained activity and rehearsal comes, of course, when a real-life crisis does actually occur and the company must respond. Only then can the true value of planning, real-time exercises and review be fully appreciated.

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