Charting a Course through Crisis

Calamity can strike any organization at any time. How can business schools prepare students to anticipate, prevent, and handle disasters?
Charting a Course through Crisis

Every type of organization must be prepared to manage a crisis. For a corporation, the crisis might revolve around the global recall of defective products, as was the recent case for Toyota, or an environmental nightmare, such as BP’s oil spill in the Gulf of Mexico. For a government, the disaster might spring from a terrorist attack or the effects of a hurricane or earthquake. For a nonprofit organization, the trouble might relate to financial improprieties committed by senior executives, as the United Way discovered a few years ago. The question companies should ask themselves is not whether a crisis will occur, but when—and how they plan to deal with it.

When an organization’s survival is at stake, the executive team’s crisis management skills can determine whether or not it pulls through. Unfortunately, business schools have been slow to offer courses that will teach upcoming managers how to respond in times of trouble.

I’ve taught crisis management courses at the executive and MBA levels, and I believe there’s great potential in offering them at the undergraduate level as well. After all, it’s certain that our students will someday find themselves in the midst of a crisis, whether at a company they work for or one that they own. How well they emerge from it may depend on how much they learned about crisis management during their business school educations.

The First Phase of a Crisis

I structure my courses around the three phases of a calamitous event: pre-crisis, crisis, and post-crisis. While there are a number of books available on the topic, I prefer Timothy Coombs’ Code Red in the Boardroom: Crisis Management as Organizational DNA because it, too, follows the different crisis phases and explores the managerial implications of each. I also draw on cases, articles, in-class exercises, and a simulation to convey important concepts.

When we address the pre-crisis phase, students learn how they might prevent disasters from occurring by practicing risk assessment, issues management, crisis prevention, crisis preparation, and management of stakeholder relationships. They also learn how to assemble a crisis management team and create an effective crisis management plan.

To teach concepts related to risk assessment and management, I use a case study about a cleaning service company in Hong Kong. Students break into groups to discuss the company’s main areas of risk and the strategies that could be used to mitigate them. A number of students identify employee injury as an area of risk; they suggest that the company should improve its training program so employees know how to use the cleaning equipment and chemicals properly. For this exercise, students also must prepare a plan for dealing with SARS, which was a key concern among Hong Kong companies when the case was written in 2004.

During the pre-crisis part of the course, I also cover issues management, which involves identifying emerging issues that potentially could damage the company—and reducing the likelihood that they will turn into crises. One resource I use is a case study about Kraft Foods and the issue of obesity, which is obviously a concern to food conglomerates. However, I emphasize that the lessons of this case study can be applied in other industries as well, and during executive seminars I have the participants reflect on how those lessons might affect their own companies.

After we discuss the Kraft case, I pose two questions to the class: “How could your organization be adversely affected by legislation being discussed by your federal, state, or local governments?” and “How do you think your organizations can manage these emerging risks?”

The answers are always interesting. In one class, several students who worked in online environments said they were concerned that impending legislation on the safeguarding of customer data could have an adverse effect on their companies. To prepare for the situation, they believed they should proactively implement new security measures to protect customer data and then undertake lobbying efforts to prove that the new measures were effective. They thought this tactic could help their companies influence the legislation before it was passed. Other students pointed out that multiple companies from the same industry might wield more clout if they joined forces through a trade group to lobby the government whenever it was considering legislation that might affect them.

I find that students are more engaged if the crises under discussion are current, so in addition to using cases in the classroom, I always incorporate news items about recent events. For instance, avian flu was a major concern in 2006 when I was teaching an MBA seminar, so I supplemented my reading packet with articles on this topic. During classroom discussions, students debated how they would design a crisis management plan to prepare for a possible outbreak of the disease.

The Crisis Itself

During the second part of the course, we study the crisis phase. Students learn how to identify and respond to different situations depending on the characteristics of the crisis; this analysis shows them how to deal effectively with disasters once they arise. I rely on cases, current events, and a management simulation to teach this portion of the course.

One case I’ve used concerns a computer attack by hackers. The case study encourages participants to consider how company officials should respond to their customers, their employees, and the media once their electronic data has been compromised. Before taking the course, many students believe that, in a crisis, the only stakeholder they will need to placate is the media. I emphasize that executives must consider the concerns of a wide variety of stakeholders, all of whom have different informational needs and who may require very different messages. For example, while customers will be concerned about whether their personal information is safe after a hacker attack, employees will want to know how the break-in impacts their job security.

The hacker attack case shows a situation where the organization is the victim, but I cover other types of crises as well. To teach about situations associated with organizational misdeeds, I use a multimedia simulation in which a large global semiconductor company is accused of racial discrimination.

The simulation, which takes approximately an hour to complete, scores students on the decisions they make as they work under intense time pressure to contain the crisis, as they would in the real world. Shortly after the accusation is made, they must craft a statement to release to the media. They also must try to anticipate the reactions of three different stakeholders—employees, customers, and Wall Street analysts—and decide how to deal with their very different concerns. Scoring is based on how well they anticipate the reactions of real stakeholders in actual racial discrimination suits that have been brought in the past.

A discussion held after the simulation allows participants to see how they performed compared to others in the class, which is a great way to extend and enhance the experience. The simulation also offers students an excellent chance to practice applying concepts they have previously learned, such as taking a stakeholder perspective.

For this part of the course, not only do I run the simulation, but I bring in articles about companies that are currently in the news because of disasters they are facing. I also search for information about crises that have been associated with participants’ organizations in the past. Of course, I ask for their permission to discuss these situations with the class. In most instances, the participants enjoy talking about their experiences, but sometimes they would prefer not to bring these topics up for classroom discussion.

Environmental mishaps, terrorist attacks, and cyber security breaches can throw any industry into a state of emergency at any time.

After the Crisis

In the final portion of the course, I ask participants to reflect on the crises we discussed in class and suggest ways the companies could improve their responses in the future.

For instance, in some of my classes, we study a case about the FAA levying a multimillion-dollar fine on Southwest Airlines because of poor maintenance. During the post-crisis portion of the course, one student suggested that Southwest needed to improve its issues management. This participant pointed to media reports stating that Congress was concerned that the FAA’s relationship with the airlines was too close, so Congress was increasing its oversight of the agency. The student believed Southwest should have foreseen that the FAA would react by enforcing maintenance checks more strictly.

Prior to taking this course, most students would not have understood the concept of issues management. This type of comment demonstrates how much students have learned during the class. I also expect them to have mastered how to evaluate an organization’s performance during a crisis and make recommendations for changes that will improve preparedness in the future.

Adding the Course to the Curriculum

If a school decides to offer a crisis management course, it can involve faculty from many departments, because the field is a multidisciplinary one that relates to marketing, public relations, communications, and management. My own background is in marketing, while my research focuses on crisis management and the psychology of blame; Timothy Coombs, who also teaches crisis management, has a background in PR.

Given that companies will always make headlines for their missteps and poor crisis management, business schools also can boost their presence in the media by cultivating faculty experts on the topic. For instance, because my teaching and research have helped me become an authority in the field, I’ve been quoted by The Wall Street Journal, CNN, and the Associated Press on crises that range from the Toyota recall to Hurricane Katrina to consumer reactions to mad cow disease. This exposure benefits both the school and my classes, because it attracts participants who perceive me as an expert. And the fact that the media does ask for my comments on these situations shows students that the concepts we discuss in class are directly applicable in the real world.

As organizations around the globe continue to cope with a variety of disasters, executives will continue to have a need for crisis management skills, and schools could find a ready audience for graduate and executive programs on this topic. I believe crisis management could be a valuable elective for undergraduates as well, since many of them will go from school straight into the working world. Some of the concepts might be too difficult for younger students, and their limited work backgrounds might make it more challenging for them to reflect on experiences they’ve had in their own jobs. However, they can learn a great deal from case studies and news articles about real companies, and they also can consider situations that arose during internships and part-time jobs.

It’s unlikely the world will begin seeing fewer crises in the years to come. Environmental mishaps, terrorist attacks, and cyber security breaches can throw any industry into a state of emergency at any time—or, as BP executives are learning, a few critical errors can have monumental consequences. What’s more, the Internet and the 24-hour news cycle mean news about any disaster can fly around the world within the hour. Students who understand how to weather a range of crises will prove to be valuable resources to the companies that hire them after they graduate.

Daniel Laufer is an associate professor of marketing at Yeshiva University’s Sy Syms School of Business in New York City. He also has taught crisis management courses at the University of British Columbia in Vancouver and the State University of New York at Buffalo.