Enterprise Risk Management Initiative, Poole College of Management, North Carolina State University

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Trends in Crisis Management & Strategies to Survive a Crisis

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Around the world, organizations are becoming increasingly focused on crisis management. This emphasis on crisis management is driven by the globally-held perception that both the frequency of crises and the impact of these crises are growing. Supporting this perception is the fact that 80% of organizations worldwide have needed to mobilize their crisis management teams at least once in the past two years. This article, issued by Deloitte Insights, will expand on trends in crisis management found in its 2018 global survey and how organizations can take a proactive approach to crisis management.

Trends in Crisis Management

As mentioned, a majority of organizations have had to utilize their crisis teams in response to crises over the last two years. The top types of crises identified, in order of frequency, were:

  1. Cyber Incidents
  2. Safety Incidents
  3. Security Incidents
  4. Performance Issues
  5. Government and Environmental Issues

Additionally, crises are now arising from simple incidents that are being exacerbated by social media coverage of the organization’s failure. An organization’s reputation can be shattered incredibly quickly as information continues to spread around the world at incredible speed. With the frequency and impact of crises increasing, organizations need to be able to mitigate the risks of crises as well as maneuver through a crisis should one occur. The article provides five key insights crisis management teams should consider.

  • Experiencing a crisis teaches organizations how to avoid them.
  • Organizational leaders need to develop their knowledge of crisis management.
  • An organization’s confidence in its crisis management capabilities is not indicative of its actual level of preparedness.
  • Being proactive in your crisis management can reduce the impact of a crisis.
  • Third parties are part of the problem and the solution.

Lessons Are Learned Through Crises

Going through a crisis can spur an organization to look more closely at its crisis prevention and detection methods. Organizations who have faced a crisis have identified several areas to improve their crisis management, the top 5 include:

  • Optimizing detection and early warning systems,
  • Investing more effort in prevention,
  • Doing more to better identify potential crisis scenarios,
  • Better defining the chain of command for specific scenarios, and
  • Communicating more effectively with employees.

The overall lesson learned is to start managing crises before they occur. Crisis management should be a cycle of:

  • Identifying and assessing all risks to your organization,
  • Preventing crises when possible, managing emerging issues, and preparing for the worst,
  • Responding to, and recovering from, crises while maintaining your business’s operations, and
  • Learning from crises, rebuilding your organization after the crisis, and emerging from a crisis stronger.

Crisis Management Starts at the Top

When crises arise, it is paramount to have leaders who remain calm under pressure, seek input from others, and have great situational awareness. The problem with identifying good leaders for crisis management is that you do not know how a leader will react until a crisis occurs. The top challenge to effective crisis management was identified by organizations to be the effectiveness of leadership and decision-making. To help leaders become crisis-ready organizations should:

  • Design and communicate a leadership structure for crisis management,
  • Provide tools and techniques to assist leaders during a crisis, and
  • Understand, improve, and counterbalance for leadership tendencies and styles.

Confidence as a Replacement for Preparedness

A majority of organizations view their organizations as mature in crisis preparedness, yet only a small percentage of these organizations have tested their crisis preparedness through simulations. For example, 88% of organizations responded that they were confident they could effectively respond to a corporate scandal, yet only 17% of these organizations have conducted a simulation exercise to test the organization’s preparedness. This trend ran throughout all types of crisis scenarios identified by organizations. To bridge this perception versus reality gap, it is recommended to simply run simulations for all possible crises. Organizations should include simulations as a part of its crisis management and these simulations should be comprehensive in its design. Every person in the organization who would be involved in a real life crisis needs to be involved in the simulation testing of that particular crisis. Therefore, the design and evaluation of the simulation should be completed by a separate group not involved in the crisis simulation.

Proactive Crisis Management Reduces Crisis Impact

Maintaining a crisis management plan significantly reduces financial fallout due to a crisis. A crisis management plan is even more beneficial when board members help develop crisis plans and participate in crisis exercises. Board member involvement in crisis planning also leads to better engagement across all business functions to help manage an emerging crisis. To get these members involved in crisis management, it may be helpful to include the board’s top concerning risks in the crisis management plan. Additionally, several crises may arise that require the board’s intervention and having a board that is prepared for crises may make a significant difference in terms of the business’s continuity and survival.

Threats and Opportunities of Third Parties

Many crises arise from the actions of third parties such as suppliers and business partners. Third parties also play an important role in managing these crises. A majority of organizations report that they work with third parties through crisis exercises, though an organization is more likely to do so if they operate on a global scale. The percentage in third party crisis management participation drops when an organization is smaller in size and has fewer locations. Recommendations for dealing with third parties in regard to crisis management include:

  • Deciding which outside organizations are necessary for successfully managing a crisis,
  • Involving all third parties that could trigger or be affect by a crisis,
  • Collaborating with third parties and their communication operations to respond to risks in a unified manner, and
  • Participation by third parties in crisis simulations and communication crisis plan updates.

Summary

As the frequency and impact of crises continue to increase, it is imperative that organizations design and implement crisis management. There are several insights that an organization should consider regarding its crisis management process. An organization should first look to past crises for missed signs and ways to improve its crisis management. Organizational leaders should be knowledgeable of crisis management policies and procedures and related soft skills. Comprehensively designed and implemented crisis simulations are a key way to bridge the gap between actual crisis preparedness and confidence of crisis preparedness. Lastly, organizations should understand how third parties can cause or be affected by crises and should collaborate with third parties to effectively manage these risks.

Link: Deloitte 2018 Global Crisis Management Survey, Fall 2018

Categorized Under: ERM Surveys and Benchmarking Data / Executive Leadership for ERM / Miscellaneous ERM Topics / Risk Management Benchmarking / Risk Management Surveys / Risk Management Trends / Risk Management Pain Points / 
ERM Enterprise Risk Management Initiative 2019-01-29

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