CRISIS MANAGEMENT

Key issues
 Case Study
• Odwalla juice e-coli outbreak in 1996
• Health officials in Washington state informed the
company that they had discovered a link between several
cases of E. coli 0157:H7 and Odwalla fresh apple juice.
 Case Study

• One child died and more than 60 people in the

Western United States and Canada became sick after
drinking the juice.

• Sales plummeted by 90%, Odwalla's stock price fell

34%.

• Customers filed more than 20 personal-injury lawsuits

and the company looked as though it could well be
destroyed.
 What did the
company do?
• Odwalla acted immediately.
• Although at the point where they were first
notified the link was uncertain, Odwalla's CEO
Stephen Williamson ordered a complete recall of
all products containing apple or carrot juice.
• This recall covered around 4,600 retail outlets in 7 states.

• Internal task teams were formed and mobilized,

and the recall - costing around $6.5m was
completed within 48 hours.
Taking Responsibility
• On all media interviews, the CEO expressed sympathy
and regret for all those affected and immediately
promised that the company would pay all medical
costs.
• This, allied to the prompt and comprehensive recall,
went a long way towards satisfying customers that the
company was doing all it could.
 Internal
communications
• The CEO conducted regular company-wide conference
calls on a daily basis, giving employees the chance to
ask questions and get the latest information.

• This approach proved so popular that the practice of

quarterly calls survived the crisis.
 External
communications
• Within 24 hours, the company had an explanatory
Web site (its first) that received 20,000 hits in 48 hours.
• The company spoke to the press, appeared on TV and
carried out direct advertising with the Web site address.
• All possible attempts were made to provide up to the
minute, accurate information.
 Fixing the Problem

• The next step was to tackle the problem of

contamination.

• The company switched from unpasteurised juice to a

process called "flash pasteurization" which would
guarantee that E-coli had been destroyed without
compromising flavor.
 Fixing the Problem
• Within months of the outbreak, the company had in
place what some experts described as "the most
comprehensive quality control and safety system in the
fresh juice industry."
• On December 5, the company brought back its apple
juice.
• The new process was communicated in all advertising
and public outreach campaigns
 Cost and benefit

• Odwalla made a rapid recovery.

• Much of the good will and trust it had built up over the
years remained.

• Sales picked up again quite quickly.

 Cost and benefit

• The company did pay a large cost. Odwalla pleaded

guilty to criminal charges of selling tainted apple juice
and was fined $1.5m - the largest ever assessed in a
food industry case by the US Food and Drug
Administration.
 Case Study
• In 1989, the Exxon Valdez oil
tanker, entered the Prince
William Sound, on its way
towards California.
• The ship ran aground and
began spilling oil. Within a
very short period of time,
significant quantities of its
1,260,000 barrels had entered
the environment.
 Case Study

• At the moment of the collision the third mate, who

was not certified to take the tanker into those waters,
was at the helm.

• The probable cause was established that the Captain

and many of the crew had been drinking alcohol in
considerable quantities.
 What did the
company do?
• The action to contain the spill was slow to get going.

• The company refused to communicate openly and

effectively to the public about the incident.
• The Exxon Chairman, Lawrence Rawl, was immensely
suspicious of the media, and reacted accordingly.
 Poor Crisis
Management
• Media coverage escalated
while Exxon dodged the
media
• The Chairman refused to be
interviewed on TV and said
that he had no time for “that
kind of thing.”

• A company spokesman
misrepresented the extent of
the spill and clean-up efforts
• This was in contrast to the
footage of the ecological
disaster shown on TV
 Failure to Fix the
Problem
• While Exxon stalled and attempted to cover up the
problem, the clean-up operation was slow to begin
• Around 240,000 barrels had been spilled, with
another million still on the ship.
• During the first two days, when calm weather
would have allowed it, little was done to contain
the spillage.
• This spillage spread out into a 12 square mile slick.
 The Problem
Compounds
• Then the bad weather struck, making further containment
almost impossible.

• After more than a week, the company was still giving no

ground on the request for better communication.

• The media clamor became so hostile that eventually Frank

Larossi, the Director of Exxon Shipping, flew to Valdez to
hold a press conference.

• It was not a success. Small pieces of good news claimed by the

company were immediately contradicted by the eyewitness
accounts of the present journalists and fishermen.
 Outrage Builds

• John Devens, the Mayor of Valdez, commented that

the community felt betrayed by Exxon's inadequate
response to the crisis, in contrast to the promises they
had been quick to give of how they would react in
exactly this eventuality.
 Poor
Communication
• Eventually, Chairman Rawl was interviewed live
• He was asked about the latest plans for the clean-up.
• It turned out he had neglected to read these, and cited
the fact that it was not the job of the chairman to read
such reports.
• He placed the blame for the crisis at the feet of the
world's media.
 The Aftermath

• The spill cost around $7 billion, including the clean up

costs.

• $5 billion of this was made up of the largest punitive

fines ever handed out to a company for corporate
irresponsibility.
 The Aftermath

• Exxon lost market share and slipped from being the

largest oil company in the world to the third largest.

• The "Exxon Valdez" entered the language as a shortcut

for corporate arrogance and damage.
 What went wrong?
• The company failed to show that they had effective
systems in place to deal with the crisis - and in
particular their ability to move quickly once the
problem had occurred was not in evidence
• They showed little leadership after the event in
showing their commitment to ensuring such
problems would never happen again
• They quite simply gave no evidence that they cared
about what had happened. They appeared
indifferent to the environmental destruction.
 Crisis Management

Crisis management is the process by

which an organization deals with a
major unpredictable event that
threatens to harm the organization,
its stakeholders, or the general
public
 Elements of a Crisis

Three elements are common to most definitions of crisis:

(a)a threat to the organization,

(b) the element of surprise,

(c)a short decision time

(d)a need for change

 Crisis management - 1

Crisis management consists of:

• Methods used to respond to both the reality and

perception of crises

• Establishing metrics to define what scenarios

constitute a crisis and should consequently trigger the
necessary response mechanisms.

• Communication that occurs within the response phase

of emergency management scenarios
Crisis Management - 2

The credibility and reputation of organizations is heavily

influenced by the perception of their responses during
crisis situations
Crisis Management - 3

* respond to a crisis in a timely fashion makes for a

challenge in businesses.

* must be open and consistent communication

throughout the hierarchy to contribute to a successful
crisis communication process.
 Types of Crises
• Natural disasters
• Malevolence
• Technical breakdowns
• Human breakdowns
• Challenges
• Mega-damage
• Organizational misdeeds
• Workplace violence
• Rumors
 Financial Crisis
 These are the crisis that occur in an organization due to its
prevailing financial conditions.

 Losses, increase in costs, non-availability of funds, bankruptcy,

unable to pay back loans, etc.
 Crisis Management

Technological crises

- caused by human application of science and

technology

- when technology becomes complex and coupled and

something goes wrong in the system as a whole
(Technological breakdowns)
 Examples of Technological Crisis

 Exxon Valdez, oil spill in  Union Carbide India Ltd,

Alaska, on March 24,1989. gas leak in Bhopal, on
December 2, 1984.
 Crisis of Malevolence
 When opponents or miscreant individuals use extreme tactics
for the purpose of expressing anger or seeking gain from, a
company or economic system, perhaps with the aim of
destroying it.

 Product tampering, kidnapping, malicious rumors, terrorism

etc.
 Example of Malevolence Crisis

 The Tylenol (Extra-Strength capsules) murder case in Chicago,

on 29 September, 1982.
 Natural Crisis
 Natural crisis, are natural disasters considered as 'acts of God,'
are such environmental phenomena.

 Earthquakes, volcanic eruptions, tornadoes and hurricanes,

floods, landslides, tsunamis, storms, and droughts etc.
 Examples of Natural Crisis

 The Power Project of Jaiprakash  The Indian Ocean

Associates, at Nathpa, in earthquake (Tsunami) , in
Himachal Pradesh was devastated
2004.
by floods.
 Workplace Violence and Rumors
 Crisis occur when an employee(s) or former employee(s)
commits an act of violence against other employees on
organizational grounds.

 Rumors are, when false information about an organization or

its products creates crises hurting it’s reputation.
 Example of Workplace Violence and Rumors

 A workplace violence had  Procter & Gamble’s

occurred between the laborers
Logo controversy in 1985.
and higher authority, in
Vardhman Group of
Companies.
 Crisis Management

Crises of organizational misdeeds

- when management takes actions it knows will harm or

place stakeholders at risk for harm without adequate
precautions
 Crisis Management

Types of crises of organizational misdeeds:

- crises of skewed management values

- crises of deception

- crises of management misconduct.

 Crisis of Deception
 Crisis of deception occur when management conceals or
misrepresents information about itself and its products in its
dealing with consumers and others.
 Example of Crisis of Deception
 Dow Corning’s silicone-gel  The Satyam scam,
controversy in Michigan, which came into
USA. light, in 2009
 Crisis Management

 Crisis management is the process by which an organization

deals with a major event that threatens to harm the
organization, its stakeholders, or the general public.
 Crisis Management Plan

 Gather facts.
 Be prepared.
 Communicate quickly and accurately conduct
brainstorming.
 Develop policies to minimize crisis.
 Assemble and organize resources.
 Create a Crisis Management Team.
Example of Unsuccessful Crisis Management

 Union Carbide India Ltd, gas leak tragedy in

Bhopal, on December 2, 1984.
Example of Successful Crisis Management

 The Pepsi Corporation faced a crisis in 1993, which

was successfully managed by the company.
 In 1993, claims of syringes being found in cans of diet Pepsi
were made.

 Company urged stores not to remove the product from shelves

while it had the cans and the situation investigated.

 Pepsi released videos and made public, showing the production

process to demonstrate that such tampering was impossible
within their factories.

 Crisis was managed through effective communication.

 Crisis Management

Crisis management model - Gonzalez-Herrero and Pratt 95

• Successfully diffusing a crisis requires an

understanding of how to handle a crisis – before it
occurs

- issues management

- planning-prevention

- the crisis

- post-crisis
 Contingency
Planning
• Plan in advance
• Rehearse via simulation
• Stipulate who the spokesperson is
• Speed and efficiency in response to crisis
• Offer accurate information or it will backfire
• Plan offers info and guidance to help decision makers deal
with long-term effects of decisions
 Role of apologies in crisis
management

• Controversial - for fear of legal outcomes

• Evidence says that a compensation and sympathy are

effective

• True contrition includes sympathy for victims and offers of

compensation to offset losses or suffering
 TOYOTA –
CRISIS MANAGEMENT FAILURE

Toyota’s communication strategy:

“Too little, too late”

Beyond the quality problem

Toyota mismanaged the crisis
 TOYOTA
Basic Rules Violated

• For senior mgmt: crises must become their #1 priority

immediately.

• Integrity of firm threatened - immediate hands-on

control of CEO/team

• Sticking accelerators in 2008 - not treated as a serious

matter
 TOYOTA
Basic Rules violated

Find facts & solutions fast:

- Toyota managers at first in denial

- accepted a ‘patch’ (remove floor mats), not solution

- when crisis exploded -- engineering solution/stopped

production

- Even today no one outside of Toyota knows what the

real problems are – open to speculation and rumors
 TOYOTA
Basic rules violated

Communicate fully and accurately:

- to all constituents to sustain trust

- err on side of protecting consumers & maintain trust

with a recall

What Toyota did:

hushed problem and hoped it go away