Stages of Crisis & Crisis Management

1. Stages of Crisis & Crisis Management • Objectives • Describe stages of crisis process • Identify key principles of crisis intervention • Discussion of classic Tylenol poisonings case • Apply stage management approach to team case

2. The “stage” approach: Segmenting complex processes • Stages refer to relatively distinctive segments of a more complex or lengthy process • Stages are differentiated by identifying the beginning or end of some important event, reaction, or process • Stages enable the user to communicate clearly about change over time, adapt interventions to what is needed at each stage, & monitor progress across stages. • Stages also imply development from one stage to another; this enables changing outcomes at a later stage by intervening at an earlier one

3. Stages of Crisis Management Like most human events, crises can be described in terms of stages, or relatively identifiable sequences of events and reactions. Stages enable planners to monitor risks, progress, target stakeholders, and take strategic action appropriate to the stage. Fink’s Crisis Lifecycle Prodromal Risk cues that potential crisis can emerge Crisis breakout Triggering event with resulting damage Resolution Crisis no longer a concern to stakeholders Chronic Lingering effects of crisis Mitroff’s Five Stages of Crisis Management Signal detection Warning signs & efforts to prevent Probing & prevention Search risk factors & reduce potential for damage Damage containment Keep from spreading to uncontaminated areas Recovery Return to normal operations asap Learning Review & critique CM efforts for improvements Jack Welch’s CEO of GE Denial Avoiding or minimizing Containment Keep quiet or buck-passing Shame Mon-geringSelf defense, blame & credit Blood on the Floor Somebody pays Crisis Fixed Life goes on, prevent future crises

4. The long view…

5. Ecomap of Stakeholders: Who is affected? An “ecomap” or ecological map of stakeholders can help to identify all involved parties in the crisis. Concentric circles are used to set parameters on primary or direct stakeholder involved, secondary or “spillover” effected, and tertiary or very indirect affected. These help prioritize response to them and ensure that no one is left out of consdieration. Primary Effect Secondary (Vicarious) Effect Tertiary Effect

6. Crisis Stage Worksheet

7. Regardless of the crisis model used, crisis management involves four strategic considerations, or the “Four C’s.” All plans should include at least these aspects.

8. Classic Crisis Case: J&J’s 1982 Tylenol Tampering In this presentation you will cover: • stages of the crisis • key considerations for intervention • constructing an ecomap • description of the case • impact of the case on the industry • what was learned Case Overview

9. When the Johnson & Johnson Company faced the Tylenol poisonings in 1982 they applied the Four C’s quite effectively. They relied on the value and strength of their culture credo which also identified the stakeholders • Four responsibilities: • To the customers • To the employees • To the communities they serve • To the stockholders

10. Tylenol Case Analysis Background • In the mid 1950’s Tylenol became a needed and popular substitute for aspirin for such conditions as flu and chicken pox, since aspirin was related to Reyes Syndrome (liver degeneration, brain edema, 20-30% fatality) • Large market: 100 million users, 19% of corp profits, 13% of year to sales growth, 37% market share of painkillers, outselling other top analgesics combined • J&J was one of the “Best 100” companies to work for • Tylenol became a product trusted by physicians and families alike • Numerous other Tylenol products were developed for an active market • J&J strong “family” corporate culture

11. Tylenol Case The Crisis Begins… • September 1982 Extra Strength Tylenol bottles of at least 6 pharmacies and food stores were opened, & capsules were filled with cyanide (10,000 x fatal dose) • Media reporter asked PR Asst. Dir Andrews about poisoned Tylenol– then it hit the news! • 7 people died in the Chicago area • CEO James Burke refers to the Credo, alerts to the danger, & assigns team to discover the source • Formed 7-member strategy team • Stop the killings • Reasons for the killings • Provide protection & assistance to people

12. Poison Madness in the Midwest --Time Magazine …and snowballs! • Police drove through streets with loudspeaker warnings • Chicago hospital received >700 calls in one day • Immediate stories in major magazines and newspapers • Over 100,000 separate news stories ran in US papers • Hundreds of hours of national and local TV coverage • >90% of Americans had heard of the Chicago deaths • Widest coverage since Kennedy assassination & Viet Nam • Copycat tampering– 270 reported incidents (36 true) Tylenol, killer or cure? -- Washington Post The Tylenol Scare --Newsweek • J&J stock fell 7 points • Market share dropped from 37% of pain-reliever market to 7%; from $400 million in annual revenue to $70

13. Initial Response– Phase 1 Crisis response • Immediate alert to consumers not to use any type Tylenol product or resume use until extent determined • Live TV satellite feed of press conferences; media exposure via 60 Minutes, Donahue, etc. • 800# Hotline for customers (30,000 calls in Oct-Nov) • Toll-free phone for news organizations; pre-taped messages and updated statements for distribution • Strict production, different lot $, & crisis only in Chicago indicated post-production tampering • Withdrew bottles from Chicago area; ordered recall of >31 million bottles nationally at a cost of >$100 million (against FDA & FBI) • It temporarily ceased all production of capsules • High public profile and repeated reassurance by Burke • Working relationship with law enforcement agencies • Notification of health professionals nationwide & FDA

14. Initial Response—Phase 2, PR Rebound • Five-Point Plan • Replaced them with tamper-resistant caplets (triple safety seal within 6 months) • Incentives: free replacement of caplets for capsules, special coupons ($2.50 off) easily obtained • New pricing program: discounts up to 25% • New advertising program: national 1 minute commercial, News & talk shows, • New presentations by2250 sales personnel made to medical stakeholders • positive press articles regarding J&J, products, & safety • indications of regaining market share • held up as positive example of ethics & responsibility • 450,000 e-mail messages

15. Strategies Most public recovery strategies incorporate the following five components: • Forgiveness: win forgiveness from stakeholders and create acceptance for the crisis • Sympathy: portray organization as unfair victim of attack by outside persons; willing to accept losses • Remediation: offer compensation for victims and families (counseling & financial assistance) • Rectification: take action to reduce recurrence (triple sealed & increased random inspection) • Effective leadership: clear, visible, consistent role-modeled message from beginning by CEO

16. Employee Response • Strong family-oriented culture, “we care about our employees” • Open and current communication with employees; 4 video programs on the unfolding process • Emphasizing plant workers were innocent • CEO speech in a week to employees, “We’re coming back” (wearing buttons) • Idle employees given tasks to keep involved & reduce rumoring and boredom • Indications of market recovery bolster spirits • Congruence and consistency in demonstrating the Credo

17. Consequences– Lessons learned • J&J showed that they were not willing to risk public safety even at excessive cost • J&J could be trusted all the way to the top– they lived their Credo & having a functional credo worked • J&J set a new standard for protection thereby requiring competitors to expensively follow suit • J&J was viewed as a co-victim of the crime • Stakeholder involvement and relationships is essential • One must anticipate and prepared for crises; expect the unexpected • Cynicism: Be aware that 75% of people don’t believe companies take responsibility for crises or tell the truth • “No matter what you do in the beginning, in the end you will have to tell the truth” • React fast, openly and decisively • 1983 Tylenol Bill by Congress made malicious tampering of consumer products a federal offense • 1989 federal legislation to make consumer products tamper resistant

18. (learning cont’d) • Report your own bad news– don’t wait for reporters to root it out • Speak with one voice • Gather facts and disseminate from one info center • Be accessible to the media so they won’t go to other sources • Target communications to those most affected by the crisis, and can affect the media • If you can’t discuss something, explain why • Provide evidence for your statements • Record events via video and documents so you can later present your side of the story

19. “Déjà vu all over again” In 1982 FDA estimated 270 product tampering cases. Following the Tylenol crisis, several other tamperings plagued other companies. Impact could have been reduced by learning from J&J’s experience. • Copycat tamperings: • Lipton Cup-A-Soup (1986) • Exedrin (1986) • Tylenol again (1986) • Sudafed (1991) • Goody's Headache Powder (1992) The Tylenol comeback (and how they did it)

20. The Toyota Recall

21. When it’s material for the cartoon strips, you KNOW it’s serious…

25. “Too slow of a response…” • Although speculation of cover up of electronic defects has waned, there is much criticism about Toyotas crisis response • Overreaction by the U.S. media, a shift in the business environment, the American political mood at the time, and Japan’s response to global economic problems likely contributed to the furor • Series of recalls created initial doubt: January 2009 recall of seatbelts & exhaust system problems; August 2009 recalls due to faulty window switches • The reputation for high quality was further damaged by a lack of early statements on recalls, delays in notifying customers whether they owned at-risk cars, and failure to scrutinize driver complaints and seriousness of risks • Toyota should have reacted much sooner: in 2007 when there were Tundra pickup complaints, or as early as 2004 when the Natl. Highway Safety Administration investigated acceleration of the Lexis ES and Camry • Although findings showed there was no electronic defect, sticking accelerator, floor mat accelerator interference and sticking pedals were founded http://insurancenewsnet.com/article.aspx?id=223320&type=newswires

26. What did Toyota do: Halt production. Halt sales. Find the problem. Fix it. Recall vehicles. Fix them. “The gas pedal issue in question affects eight of Toyota's top selling models: RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra, and Sequoia. It doesn't affect the Prius, other hybrid models, Yaris, or Sienna. It also does not affect Lexus or Scion models. They sell roughly 2 million vehicles per year in the United States. A halt of production of only one month could mean the loss of roughly 100,000 sales—or, assuming an average profit of $3,000 per vehicle, roughly $300 million. Each month. “ http://tcbmag.blogs.com/stateofthebrand/2010/02/toyota-in-crisis-tylenol-extra-strength-or-ford-explorer.html

27. Stages of Toyota’s Response

28. Some conclusions • Stages are a useful way to describe, monitor and facilitate movement toward resolution & learning • Early warning systems can significantly help reduce risk and enable more effective response • Information about stages continues to be available as the crisis unfolds– use multiple sources of information • Organizational culture operates on how the organization responds– evaluate it as part of risk assessment • When a crisis occurs, be active, honest, take the initiative • Whenever possible, develop good relationships with stakeholders before a crisis occurs

29. Team Task In your team, identify a crisis in an organization you are sufficiently familiar with (perhaps one you experienced) For each of the stages, use your team to describe the events of each stage (use chalkboard) For each stage identify what people needed (identify a specific group of stakeholders to keep the format manageable) For each stage, discuss what was done and how (in)effective it was. If you were a consulting team for this organization, what recommendations would you make for each stage for a better outcome?