Crisis theory in management refers to the various plans (course of action) that firms could take when they are faced with a crisis.
Crisis refer to the occurrence of sudden, unplanned events that cause major disruptions to the working of a company and have the potential to generate fear among employees and negatively affect their activities.
Depending on the scale of the crisis, it could further trigger multiple issues (not necessarily only one issue) within the firm.
Crises can be harmful to a firm in several ways including impact to sales, jobs, collaborations, and image of the company.
Trends and Theories in Crisis Management.
- Trends leading to a proliferation of crises
- Theories help explain why crises happen
Trends leading to a proliferation of crises
Here are the various trends that has led to a proliferation of crises.
Terrorism has changed since the early 1990’s:
- The number of victims per attack has increased
- Religious extremists are behind the majority of the assaults
- The targets of terrorist attacks are extending around the globe, not just in traditionally troubled areas
Social Media & Internet:
These can intensify the effects of a crisis, facilitate or trigger, permitting individuals to spread negative information. There is lack of oversight, filters, gatekeepers. Hacking – can trigger a crisis. More companies now have specialists to monitor blogs, social networks.
Human Induced Misstepsare the core of the majority of crises:
Corporate scandals. Mismanagement. White collar crime. Poor examples set by managers. Ethics lacking at the top. Bad behaviour. Disgruntled employees. Majority need not have occurred in first place.
Environmental Damage & Sustainability
Poster child Exxon Valdez oil tanker spillage (1989). Tanker hit a reef in Prince William Sound in Alaska. Spilled approximately 10.5 million gallons of oil . No loss of life, Animal and bird life. Negative press.
This refers to the development of economic interdependence among nations.
- Outsourcing: Loss of control. Quality that is expected versus quality that is provided. Bhopal case
- Fragile supply chains: Lean and single sourcing. Less able to deal with shocks and disruptions that can have a significant if not catastrophic impact on the firm.
- Reputational crises: Negative publicity. Boycotts. Pressure to lower costs is over whelming. Corporate greed. Reshoring movement. Convergence of labour rates. Outsourcing – strategic decision making can lead to an organisational crisis.
Theories that explain why crises happen
Normal Accident Theory (NAT) – Charles Perrow (1984)
- Risk can never be entirely eliminated
- System designers can never predict every possible failure scenario
- No way to have perfect contingency plans
- Errors inevitable
- Complexity and tightly coupled systems
- Lead to normal accidents
- Tight coupling – the interdependence that exists between departments/units/teams and other groups
- Higher coupling – more departments depend on one another
- Partnerships, strategic alliances, suppliers
- JIT as an example
- Technologies – believed that user errors were inevitable in certain facilities e.g. chemical, nuclear
Interesting contemporary examples of Perrow’s work can be found in Meltdown (Clearfield and Tilcsik, 2018).
The Swiss Cheese Model
James Reason (1990) Human Error.
Swiss Cheese model broke failures down into:
- Active error is associated with front-line operators like pilots, nuclear control room crew and medical teams
- Latent error is associated with system designers, high-level decision makers and managers.
Individuals/front-line operators often just ‘one link in the chain’.
- Inheriting defective systems
- Full of latent errors i.e. Accidents waiting to happen
Watkins and Bazerman, 2003.
Predictable surprises are those situations or circumstances in which avoidable crises are marginalized to satisfy economic and social policies.
- Maintained that human-induced crises are caused by sloppy management
- Caused by poor management and the system in which they function
- One characteristic – failure to heed warnings from previous problems
- Presented with warning signs but they fail to act upon them
- Linked with Groupthink
What is Groupthink?
- Drive for consensus at the cost of realistic consideration of alternative ideas
- Introduced by sociologist Irving Janis in 1970s
- Individuals suppress ideas
- Put group harmony/social acceptance above good decision-making
- Fosters ‘us and them’ climate of invulnerability
- Dissenters attacked/forced out
- Nobody wants to be viewed as the alarmist
Failure to Heed Warnings
Warnings are not heeded due to Blind spots, Risk denial and Structural impediments. Chun Wei Choo, 2008.
- Information does not fit on existing frame of reference
- Information is selectively interpreted to fit what we generally accept is true
- Enron 2001 – Board evaded the warnings that were surfacing about the means by which the company was accounting for its assets and holdings on its financial statements
- The Board’s perception was that this type of disclosure was just a normal part of conducting business
- Mind-set that acknowledges the reality of the warning but the norms and culture of the organisation dictate that no response is necessary
- So many crises could have been avoided if the appropriate decision makers had acted on clear warnings
- ‘It can’t happen to us’ mentality
- Prevents management from acting on warnings because there are structural imperfections within the organisation
- Hinder warnings from being addressed at all
Crisis Management: Resilience & Change Sarah Kovoor-Misra, 2020
Choo C.W. (2008) ‘Organizational Disasters: why they happen and how they may be prevented’ Management Decision, 46/1, 32-45.
Perrow C. (1994) ‘The Limits of Safety: The Enhancement of a Theory of Accidents’, Journal of Contingencies and Crisis Management, 2, 4, 212-220.
Perrow C. (2011) ‘Fukushima and the inevitability of accidents’ Bulletin of the Atomic Scientists, 67:6, 44-52.
Reason J. (2000) ‘Human Error: models and management’ BMJ, 320, 768-770.
Sheaffer Z., Richardson B. and Rosenblatt Z. (1998) ‘Early-Warning-Signals Management: A Lesson from the Barings Crisis’ Journal of Contingencies and Crisis Management, 6/1, 1-22.
Turner B.A. (1976) ‘The Organizational and Interorganizational Development of Disasters’ Administrative Science Quarterly, 21, 378-397.
Turner B.A.(1994)’Causes of Disaster: Sloppy Management’, British Journal of Management, 5, 215-219.
Watkins M.D. and Bazerman M.H. (2003) ‘Predictable Surprises: The Disasters you should have seen coming’ Harvard Business Review, March, 72-80.
Hopkins A. (2001) ‘Was Three Mile Island a ‘Normal Accident’?’ Journal of Contingencies and Crisis Management, 9, 2, 65-72.
Roux-Dufort C. (2009) ‘The Devil Lies in Details! How Crises Build up Within Organizations’ Journal of Contingencies and Crisis Management, 17, 1, 4-11.
Stephens K.K., Jahn J.L.S, Fox S., Charoensap-Kelly P., Mitra R., Sutton J., Waters E.D., Xie B., and Meisenbach R.J. (2020) ‘Collective Sensemaking
Around COVID-19: Experiences, Concerns, and Agendas for our Rapidly Changing Organizational Lives’, Management Communication Quarterly, 34/3, 426-457.
Institute of Crisis Management Annual Crisis Report for 2020, Issued August 2021
Peltomaa K. (2012) ‘James Reason: Patient Safety, Human Error, and Swiss Cheese’ Q Manage Health Care, 21/1, 59-63.
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