Future crisis fitness

We were always told to be strong to weather all storms and to survive. But the past decade has shown us that even well-established and well-known organizations succumb to crises. We’ve all heard news on money laundering, corruption, bankruptcy, and scandal-plagued organizations. It is not easy to deal with the investigations and the aftermath in these situations.

Based on the recently issued Global Crisis Survey conducted by PwC among more than 2,000 companies, about seven out of 10 respondents have experienced crisis in the past five years. Crisis is defined as a situation triggered by significant internal and/or external factors or escalation of smaller incidents, creating disruption to normal business operations that has an enterprise-wide and multifunctional impact with the potential for reputational harm or damage.

Crisis can hit anyone, anywhere and it keeps companies on their toes to forestall, minimize, or totally avoid it. However, crisis is here to stay – no one is immune. Almost 95 percent of the respondents have either experienced crisis or are expecting to experience it in the future. For those who have already undergone crisis situations, half have cited crises that are operational in nature (53 percent), followed by technological (33 percent), humanitarian (29 percent), financial (28 percent), legal (24 percent), human capital (21 percent), and reputational (20 percent): These crisis types are triggered by:

• Operational – failure in operations, competitive/marketplace disruptions, supply chains, product failure, and product integrity
• Technological – technological failures, cybercrime
• Humanitarian – natural disasters, geopolitical disruption, terrorism
• Financial – liquidity issues, shareholder activism
• Legal – legal cases and disputes, regulatory scrutiny, ethical misconduct
• Human capital – leadership transition, workplace violence
• Reputational – leadership misconduct, viral social media news

The most disruptive crises aren’t necessarily the most newsworthy. The top three most disruptive crises are issues on financial liquidity, technological failure, and operation failure – and these are not commonly news headlines. However, future crisis concerns are those that are heavily in the news such as cybercrime, competition/marketplace disruption, and ethical misconduct.

Crisis hits every layer of the organization and affects both internal and external stakeholders. It has significant impact on business relationships, reputation, workforce morale, and economic results. Oftentimes, crisis spins off to one or more ancillary crises – each having its own triggers and consequences.

Taking steps to anticipate or abate these by-products is an essential part of crisis preparedness. Regardless of the nature of the initial crisis, nearly half of the respondents have experienced ancillary crises that are commonly operational in nature. Among the largest turmoils are competitive or marketplace disruption, reputational issues, and legal complications. Marketplace disruption is the most mentioned ancillary crisis across all types of initial crisis. But for those who have suffered severe financial crisis, liquidity problems can seriously hamper a company’s competitive position over the years.

Who are responsible for crisis management?

The C-suites (CEO, COO, CFO, CIO, or senior executives) mostly claim responsibility in crisis preparedness, crisis response, and stakeholder communication. Nearly 75 percent have sought third-party help either during or after a serious crisis, and 29 percent said that they have no dedicated staff to address crisis preparedness and response.

The report also highlighted some overlapping of roles and responsibilities. Finding the balance between the eagerness to help and the confusion from too many levels of involvement is critical in crisis planning and response. The committed level of internal and external resources demonstrates how crisis management has already transitioned as a strategic program for the companies.

The board of directors can help companies navigate distress. While management handles day-to-day operation, the board should be looking ahead for potential trouble. Directors also face more scrutiny in times of crisis, and their obligations may expand even to other parties.

Can crisis be good for you?

About 40 percent of organizations that have faced major crises say they have emerged stronger and are in a better position post-crisis, with some even reporting revenue growth as a direct result of managing their crisis. What is their secret?

There are three fundamental elements to successful crisis management: crisis preparedness, fact-based approach, and effectiveness of stakeholder communications. Getting the facts right and quick are key to successful response.

In the wake of a crisis, successful companies create competitive advantage by applying these steps:

1. Allocate budget to crisis management – before it hits.
2. Have a plan, and test it. Revise it and test it again. Keep the crisis plan up-to-date and implement lessons learned from previous experience.
3. Adopt a fact-based approach – don’t neglect key stakeholders. Consider diversity of needs and interests as well as appropriate mechanism of two-way communication for each stakeholder.
4. Perform root-cause analysis, and follow up. Identify key remediation initiatives and forward-looking risk and opportunity assessment.
5. Act as a team, and hold on to your values. Use these crisis experiences – real or simulated – as an opportunity to galvanize the team and strengthen your internal culture.

Our experiences can help us shape our future. As crisis evolves, so do the demands from our stakeholders for us to manage these risks. The study reveals that stakeholders demand more transparency and swifter reaction to crisis triggers, and will not hesitate to punish companies and brands who are sluggish and ineffective.

As your journey towards ‘future-crisis-fitness’ is underway, be mindful that crisis does evolve. It will even be more complex and harder to contain; whistleblowing is now an ethical obligation and assumes everyone is watching. You will be expected to handle any crisis instantly, effectively, and properly. So there is a need to appoint a qualified crisis leader, and to develop a crisis management program that governs every aspect of preparedness, response, and communication. Norms and cultural expectations are converging – we are more connected than ever before. It helps to share experiences and ways in responding to crisis, and to be more aware.

There is always an opportunity to convert crisis to a competitive advantage.