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Crisis Management - Introduction

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Defining and categorising crises

A crisis is defined as

  • An unexpected event that threatens the wellbeing of a company, or
  • A significant disruption to the company and its normal operations which impacts on its customers, employees, investors and other publics

Crises can be categorised as

  • Fairly predictable and quantifiable crises, or
  • Totally unexpected crises

Types of crises

Natural disaster (so called acts of God)

  • Physical destruction due to natural disaster e.g. flood
  • Environmental disaster

Industrial accident

  • Construction collapse
  • Fire
  • Toxic release

Product or service failure

  • Product recall
  • Communications failure
  • Systems failure
  • Machine failure causes massive reduction in capacity
  • Faulty or dangerous goods
  • Health scare related to the product of industry

Public relations

  • Pressure group or unwelcome media attention.
  • Adverse publicity in the media.
  • Removal/loss of CEO or other key management

Business and management

  • Hostile takeover
  • Sudden strike by workforce or that of a key supplier
  • Major customer withdraws its support
  • Competitor launches new product
  • Sudden shortfall in demand

Legal

  • Product liability
  • Health scare
  • Employee or other fraud

Examples of crises

  • Asian tsunami - crisis for the countries concerned and for the tourist industry
  • Three Mile Island - US nuclear industry crisis in the 1980s
  • Sudan 1 dyestuff in processed food
  • Coca Cola’s Dansani purified water –contained a carcenogen and as a result the European launch was abandoned
  • Hurricane Katrina

Case study - Exxon Valdez

  • This oil tanker which got into trouble in Prince William Sound off Alaska caused an oil spillage amounting to 30m US gallons
  • In addition to the loss of product and a major asset:
  • The clean up took three years and cost Exxon $2.2 billion
  • Legal settlement with the state and federal government amounted to $1billion

Case study - Buntsfield (2005)

In 2005 the oil storage depot at Buntsfield, Hemel Hempstead suffered major explosion and fire
The result was:

  • Loss of product
  • Significant loss of capacity
  • Disruption to supplies
  • Loss of business
  • Physical damage to neighbouring houses and commercial premises
  • Possible environmental damage
  • Damage to reputation
  • Claims for compensation
  • Legal action 

Case study - a different type of disaster

  • In 1991 Gerald Ratner, head of the chain of high street jewellers that bore his name, explained why his products were so inexpensive
  • He said that a decanter sold in his shop was cheap because it was “total crap”
  • He “sold a pair of earrings for under £1,which was cheaper than a prawn sandwich from M&S, but probably wouldn’t last as last as long”
  • The result: share values fell substantially, Mr Ratner left the company and it was sold




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