Business leaders crave stability and predictability… but sometimes they are confronted by a crisis for which they are not prepared. Although rare, a crisis of some kind will probably emerge in all businesses at some time. This article provides guidelines for leaders who may be presented with a business crisis.
As Accountants, we hope our clients never face a business crisis… but we also know that business is unpredictable and factors beyond our control can leave a business in dire straits.
Even the largest, well-funded, most successful organizations can face a crisis… and most will rise to the occasion and emerge stronger.
Let’s look at what leaders can do to reduce risk and properly deal with a business crisis.
What is a business crisis?
A simple definition is “a situation or disruption which leaves a business at severe risk in terms of reputation, commercial or financial strength”. Some common examples include serious disruptions to operations, social media attacks, product recalls, data leaks, Labor issues, lawsuits or allegations of wrongdoing against employees or leaders.
How can business leaders avoid a crisis situation?
They can’t completely avoid all potential crises because many factors are outside their control.
But they can prepare, at least for known risks. The fact is, however, that some of these risks are very remote and many leaders are unlikely to invest heavily to take precautions.
Token actions also don’t help. That means taking action for the sake of taking action… to feel like you’re in control.
In many cases, it’s better to invest in being ready to handle a crisis rather than trying to prevent them.
So how should business leaders ‘handle a crisis?‘
The response to a crisis should be thought of as a process. Each situation is different, but a crisis response process will usually involve:
- Getting together the facts (perhaps by interviewing people involved or listening to news)
- Communicating to stakeholders who ‘need to know’ these facts (perhaps the leaders of the business who need to take action)
- Assessing the risk which may not be immediately apparent. In that case, consider a range from ‘worst case’ to ‘best case’ and how much damage will occur in each scenario
- Defining the risk. For example, is this reputational, financial, operational or commercial risk?
- Quantifying the risk. How much is at stake in each scenario?
- Escalating appropriately. This means getting people involved who can make necessary decisions given the nature and quantum of risk. That could be a senior manager or the entire board of directors.
Very few crises require a business to deviate from a process like the one detailed above. An unprecedented natural disaster might be a situation requiring actions outside of existing processes. But that’s the exception.
What are some challenges with a crisis management process?
A significant challenge when responding to a crisis is people not wanting to disclose all of the facts, because they may be viewed as culpable. Ideally, the business culture should not punish people for bringing a problem to light or making a mistake, not immediately, and not the first time, anyway. A mistake can be seen as an opportunity to improve something in the business.
How can business leaders build a culture to improve the response to a crisis?
Again, each business is different but consider:
- Getting the team (or a small group) together to define the potential risks to your business. You will probably find people in different roles have different perspectives on this
- Build and document procedures to react to these crises. Use the above points as a guide and get buy-in from the team
- Empower people to act quickly when a crisis is in their area of responsibility
- Favor processes that protect the customer, because the risks are likely to be greater where customers are adversely affected
- Err on the side of overcommunication. More information is better.
Most crises will be averted…or at least dealt with. What happens when the crisis is over?
Post crisis, get together to analyse the cause and strengthen processes to avoid recurrences. Encourage team members to spot systemic weaknesses and continuously improve processes so that emergencies become rare.
Remember that if you do the ‘small things’ well, you probably have good processes and discipline which will equip you to deal with bigger challenges. So, build a culture of doing everything well, even the ‘small stuff’, and strive for continuous improvement.
How ready is your organization to deal with a business crisis?
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