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Wednesday, April 23, 2014

Business in crisis? UVa professor has answers

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Posted: Saturday, August 14, 2010 12:10 am | Updated: 4:52 pm, Wed Jan 23, 2013.

As reports rolled in about the sticky accelerator pedals and brake problems in Toyota vehicles, the company initially claimed the problems were isolated events or the result of driver error.

But as the reports continued to pile up, the company began to acknowledge the problems and communicate what would be done to solve them, said Erika Hayes James, an associate professor of business administration at the University of Virginia. James said although the crisis was initially handled poorly, Toyota later took ownership of the situation and handled it well.

Crisis management in the business context isn’t something that is taught in college or graduate programs, James said, but it’s something that businesses need to be prepared for — just ask Toyota or BP. To provide that education, James has co-authored a book with University of Michigan professor Lynn Perry Wooten called “Leading Under Pressure: From Surviving to Thriving Before, During and After a Crisis.”

“Business education is primarily about leadership and teaching the functional areas of business — finance, marketing and accounting and other topics,” James said. “More and more, as we see globalization and high-risk competitiveness, companies are operating under pressure. That kind of pressure can form crisis situations.”


Q. How can you tell if a crisis is being handled well or not?

A. There are two indications — one is how well the representative of the firm in crisis is communicating about it and the other is how well they’re able to maneuver to actually address the problem, whether it’s an oil spill or a product recall.

We saw from the CEO of BP, Tony Hayward, that the company was not communicating well despite the fact that they may have been doing all of the right things from the technological standpoint to address the spill and cleanup. How he communicated to the public about what was happening and his lack of sensitivity and empathy created a worse impression in the minds of the public than for someone who might have communicated differently.

Crises tend to be rare for any one individual or company, so [leaders] don’t have experience handling crisis situations. What we’re finding is people who have been through crises before are more likely to handle subsequent ones better than people who are experiencing it for the first time.

The ability to make rapid decisions with limited information … is important. Some people can be very paralyzed by that. Some people need to have as much information [as possible] before they feel confident in making a decision, but in times of crisis you often don’t have that luxury of time. They may not always make the right decision and that’s OK. Not making any decisions or being paralyzed will be far worse than starting to do something.

Q. What should a leader be doing at all stages of a crisis?

A. Before a crisis happens, you should become aware of what are the possible things that could go wrong in your organization. It’s easy to think if I own a manufacturing company that the equipment will break down and we’ll be offline for [a certain] number of days. … A person who is really competent at thinking through and managing crisis situations, they will consider ways in which they wouldn’t anticipate something going wrong, but still could likely go wrong.

During a crisis, it’s really about how competent and savvy you are to communicate and engage in a type of rhetoric about meeting needs and satisfy a variety of stakeholders. It’s also about the ability to marshal your resources — people and finances and expertise — that you need to handle the crisis.

There are two stopping points for a crisis. Once the crisis has been contained, it is in recovery mode. That is where most people have stopped their crisis management. What we’ve argued in the book is that effective crisis leadership actually goes one step beyond that and begins to think about what are the lessons we’ve learned from the situation, how can we use those lessons to prevent future crisis events from happening and what can we learn such that we become a better, stronger, more creative and innovative company than we were before the crisis.

Q. What happens if a leader doesn’t handle a crisis well?

A. Oftentimes, they are fired. Even once the crisis is over, if that leader who mismanaged it is still there, they are still the face of the company and people will associate that crisis event with the organization. But if you remove that person from the organization and bring in someone new or fresh, then it becomes a new day for the organization. People are able to identify with the organization and its future rather than remembering the negativity of the past.

Q. Can these leadership principles be applied to the crisis in the American economy? What about individuals?

A. Yes and no. The same principles apply, but it becomes the leadership of all of the companies. They have to begin to enact some of the leadership principles we’ve been talking about … but they need to communicate in a way that people can understand. They have to begin to regain the trust of the American consumer, and that’s true for every manufacturer, the banking administration and the federal administration. Everyone who is tied into the economy has to find opportunities to do the things that will help the American consumer feel more confident and help spark buying and consuming again.

I’m not communicating anything that individuals in the world shouldn’t be contemplating themselves. Individuals need to be self-aware about what their strengths and weaknesses are. When we do have personal tragedies, we need to garner the support of people and resources that can get us through it. Afterwards, it is a matter of, what I can learn from the situations about what I can learn as an individual to make myself stronger?