Tuesday, April 6, 2010

Avoiding the Crisis

Crises that are handled poorly often get the greatest media attention. But we don't often hear much about crises that were prevented. Remember the Y2K bug? On New Year's Day, 2000, virtually every computer in the world made the calendar switch to the new millennium without a hitch. All those listening for trouble heard was the quiet sound of a crisis that had been prevented. For years, businesses had worked to solve the Y2K problem before it happened. And their efforts paid off.

Of course, managers at every level of an organization intercede and prevent minor crises every day.

  • A sales representative notices that a client's name is misspelled on every page of a major sales proposal. The manager has all the copies destroyed, makes the adjustments, and has new proposals printed at an all-night copy center saving the company from losing a major account.
  • A manager foresees a cash flow shortage, takes steps to hurry receivables, and makes sure a credit line is available at the company's bank should the expected cash still not come in.
  • A manager who, when informed that a key employee is leaving, takes steps to find a replacement instead of leaving it to the last minute.
All these managers are actively involved in avoiding crises. It's their job.

Perform a crisis audit

Most managers are already attuned to possible and probable crises and take some steps to avoid them. But you can become even more effective by preparing for crises when things are going well. The first step is to perform a crisis audit. Look for things that are going wrong now or that have the potential to go wrong in the future.

A crisis audit may look like one more "To do" on your long list, but examining what has the potential to go wrong should not be just one more item to be squeezed into your already busy day but, rather, an important part of your company's or department's long-term plan.

A crisis audit involves the following steps:

Make crisis planning a part of your strategic planning. Incorporate the crisis audit into your part of the overall strategic planning process. Whether you run your own business or department, you still have to plan strategically for the future, and that planning needs to include crisis planning.

Get together and share ideas. People's perspectives about potential crises often differ greatly. No one person has all the information a company needs. By talking to people from other areas of your department, division, or company, you may get some surprising information. Work with colleagues in your department and in other departments to analyze your situation.

Perform the SWOT analysis from a crisis perspective. One useful strategic planning tool is the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). Conduct the analysis specifically from a crisis perspective—after all, crises often evolve from internal weaknesses or external threats.

What are your organization's internal weaknesses? Where might a crisis occur in your normal business procedures? For example, are you so understaffed that if one member of the team were to leave, you couldn't function? Or is your infrastructure old and patched together? Are you having quality control problems that could lead to consumer dissatisfaction or harm?

What are your most likely external threats? Which of those threats would be the most damaging to your company? Is your competition likely to introduce a radically new product, making yours obsolete?

Note: Often people refuse to recognize the one major threat that looms over the company. By ignoring the reality, any constructive action that might avert or lessen the impact of the problem is left undone. For example, if your company has been successfully producing one major product line, but the managers refuse to acknowledge a new, innovative product that will eventually make your entire product line obsolete, your company very likely will not survive.

Focus on the four major crisis areas. To break down your audit into manageable segments, focus on the four major areas where crises tend to occur.

  • Health and environmental disasters: The health and safety of employees, consumers, the general public, and the environment are high priorities. Some of the most embarrassing and damaging crises have occurred when profitability or reputation is placed above health and safety. This type of crisis can escalate from a small problem to a major crisis quickly, particularly when people within the institution try to cover it up, place blame, or minimize its importance.

  • Technological breakdowns: You probably already have a good idea of some of the biggest weaknesses in your company's or department's technology. Maybe it's the phone system, the server, or the Internet hook-up. Weaknesses in technology can precipitate paralyzing crises if left untreated.

  • Economic and market forces: Economic forces and market swings can be crises with the greatest opportunities hidden inside—but only if you are prepared. Otherwise, an unexpected market swing can be damaging or even devastating.

    For example, consider a small, health-related dot-com at the height of the dot-com investment bubble. The development team invested an enormous amount of money in creating content that was provided for free on the company's Web site. Little money or resources were left to develop the subscription site—the part of the site that was actually set up to make a profit. The company was following the model of other Web-development companies at the time—giving away most of their content for free. And many of these companies went out of business, the ultimate business crisis! Why did this happen? The tiny dot-com might have failed anyway, but by following what everyone else was doing without questioning the business fundamentals, they guaranteed it. They ignored how they were going to make a profit once the venture capital money ran out.

  • Relationships: People are unpredictable. Consider the fast-food company that sponsored a quiz game with a million-dollar prize. Unknown to anyone in the food company, the subcontractor in charge of printing and distributing the game pieces rigged the outcome of the game—over a period of several years—funneling the prize money to its employees and their friends.

    Clients can surprise you; for example, the advertising agency whose Fortune 500 client simply closed its doors. Millions of dollars worth of business were lost.

    As a manager, you have to deal with numerous and diverse relationships. Look for vulnerable relationships. Be particularly aware of the one vendor, client, or computer whiz whose sudden departure could ruin your company.

Develop your crisis-risk list. In performing the crisis audit, ask yourselves two basic questions:

  1. What are the worst things that could go wrong?
  2. What are the most likely or probable crises that could occur?
You can't possibly address every potential problem or crisis, and some crises simply won't touch your organization. For example, if your company is not located in an earthquake zone, don't put earthquakes on your crisis risk list. Or, if you are part of a consulting firm, you won't be worrying about a possible labor strike.

Narrow the crisis-risk list by focusing on the crises that would have the worst result, would be most likely to occur, and would affect your group.

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