Crisis Management in Todays Business Environment:

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2005 SHRMResearch Quarterly

Crisis Management

in Today's Business
HR's Strategic Role
   By Nancy R. Lockwood, SPHR, GPHR
                        HR Content Expert

                      SHRM Research
{                               2005 SHRM Research Quarterly

    Today's business environment requires a robust, enterprise-wide plan to deal with unexpected crises.
    Company reputation and brand, as well as the trust and loyalty of stakeholders, are all critical factors in the
    background of crisis management. At the helm, HR leaders play a strategic role in organizational sustainabili-
    ty to contribute tangible deliverables through advance preparation, including safety and security initiatives,
    leadership development, talent management and solid communication plans to support crisis management.

    Introduction                                                               incorporates organizational programs such as emer-
    "A commitment to planning today will help support                          gency response, disaster recovery, risk manage-
    employees, customers, the community, the local                             ment, communications and business continuity,
    economy and even the country. It also protects your                        among others.3 In addition, crisis management is
    business investment and gives your company a bet-                          about developing an organization's capability to
    ter chance for survival."1                                                 react flexibly and thus be able to make the prompt
                                                                               and necessary decisions when a crisis happens. If
    Never before has crisis management been more                               an organization prepares for the "worst-case sce-
    important. As recent events have shown, the busi-                          nario," then it can handle other situations as well.
    ness community, as well as communities at large, is                        Teamwork and rehearsal are also critical success
    vulnerable to disruptions that can be extremely cost-                      factors.4
    ly. Examples of recent crises that resulted in lost
    lives, displaced families and communities, shutdown                        Through crisis management planning, organizations
    businesses and damaged economy are hurricanes                              can be better prepared to handle unforeseen events
    Rita and Katrina, the London bombings, the South                           that may cause serious or irreparable damage.
    Asia tsunami, the Northeast blackout and the                               Traditionally, HR has not been funded or designed to
    September 11 terrorist attacks. Other serious events,                      organize or oversee safety and security initiatives.
    such as financial failure from poor business manage-                       However, regardless of the organization size, HR
    ment, workplace violence, fires, cybercrime, computer                      leaders today have a strategic role and responsibili-
    viruses, product tampering or union strikes, can also                      ty to ensure their organizations are aware of the
    lead to substantial damage and loss.                                       human side of a crisis and plan ahead to help mini-
                                                                               mize its effects.5 To be most effective, HR leaders
    The SHRM 2005 Disaster Preparedness Survey                                 work collaboratively with top-down commitment to
    Report indicates that as a result of the September                         develop enterprise-wide solutions. As emphasized
    11 terrorist attacks 56% of organizations created or                       by HR management gurus Ulrich and Brockbank,
    revised their disaster preparedness plans but 45%                          "as change agents, HR strategic partners diagnose
    of organizations did not.2 In view of today's risk envi-                   organization set an agenda for the
    ronment, these findings are cause for concern.                             future and create plans for making things happen."6
    Companies continue to think "it will not happen
    here" (see Figure 1).                                                      Leading the discussion about the future of the orga-
                                                                               nization's workforce is an obvious way for HR to con-
    Defining Crisis Management and HR's Role                                   tribute to both crisis management and long-range
    Crisis management is broadly defined as an organi-                         strategic planning. Scenario planning, for example,
    zation's preestablished activities and guidelines for                      is a strategy that companies are utilizing to help
    preparing and responding to significant catastrophic                       plan for unexpected events. While HR professionals
    events or incidents (i.e., fires, earthquakes, severe                      cannot predict the future, they can help their organi-
    storms, workplace violence, kidnappings, bomb                              zations prepare for it through identifying the most
    threats, acts of terrorism, etc.) in a safe and effec-                     critical issues that could influence the workforce in
    tive manner. A successful crisis management plan                           the years to come.7

     Figure 1         Five Reasons Managers and Organizations Fail to Properly Protect Core Assets

     1) Denying that it can happen: "It cannot happen here" attitude.
     2) Being reluctant to make crisis preparedness a priority: Competing priorities are allowed to subvert efforts at vital
     3) Remaining unaware of risks inherent to the business: Without a comprehensive foreseeable risk analysis conducted
        throughout the company's operations, the full range of risks is not highlighted.
     4) Ignoring warning signs: Organizations often fail to critically analyze their own histories or the disaster experiences of
        others in their industry or locale.
     5) Relying on weak, untested plans: Unless your crisis plan has been thoroughly constructed and tested, it will not
        effectively protect your organization in a real crisis.

       Source: Blythe, B. T. (2004, July). The human side of crisis management. Occupational Hazards,

2   Crisis Management in Today's Business Environment: HR's Strategic Role
                                                 2005 SHRM Research Quarterly

To be included as a strategic partner in crisis man-     with a place of employment free from recognized
agement, it is also important that HR profession-        hazards likely to cause death or serious physical
als understand the "lingo" of crisis management.         harm.11 Further, it makes good business sense to
For example, the term "business continuity" refers       include crisis management as an integral part of
to both the short- and long-term sustainability of       corporate governance. The board, for example, has
an organization. Through crisis management, HR           an obligation to ensure the organization is adher-
has the opportunity to demonstrate intangible val-       ing to solid management principles.12
ues in the organization with real "deliverables"
(e.g., crisis management/communication plans,            Reputation: Key to Sustainability
crisis resources, safety and security training, tal-     Corporate reputation is a valuable asset. However,
ent management and succession planning). In              public perception of risk presents a constant
partnership with other organizational leaders, HR        threat to an organization's reputation. In the case
can develop an infrastructure for crisis manage-         of a poorly handled crisis, it may take years to re-
ment of the company's human capital--based on            establish a company's reputation. To maintain
the organizational culture, capabilities and need--      stakeholder loyalty, reputation is a key component
and thus provide supportive leadership before, dur-      of a crisis management plan.13 Further, intellectual
ing and after a crisis.8                                 capital, such as reputation and brand, has value
                                                         on the organizational balance sheet. For example,
The Business Case: Cost or Survival                      research shows that intangible assets account for
As noted in the SHRM 2004-2005 Workplace                 about 53% of the value of Fortune 500 corpora-
Forecast, there is an increased focus on domestic        tions.14
safety and security and concern for global security.9
With the aftermath of Hurricane Katrina, the busi-       Economy
ness case for crisis management has become all           Business is a stronghold in the U.S. economy.
too clear: sustainability of every aspect of the work-   More than 99% of organizations with employees,
place--including people, company reputation and          for example, are small businesses, employing 50%
the economy.                                             of all private sector workers and providing almost
                                                         45% of the nation's payroll. Thus, the commitment
Challenges                                               to crisis planning today is key to supporting
The business case comes with challenges.                 employees, customers and the community in the
Organizations may be reluctant to provide the            local, regional and national economy.15
essentials--that is, total commitment by the CEO
and the board (in the short and long term), allocat-     Crisis Leadership: Who Is in Charge?
ed resources and, ultimately, ownership by every         There is a growing interest in the connection
employee. Also, changes in management practices          between the importance of leadership and crisis
have resulted in organizations having little             management. According to Harvard Business
resilience to cope with emergencies or emerging          School professor Daniel Goleman, leaders with
threats due to flatter organizations, reduced head-      emotional intelligence competencies (such as
counts, smaller financial savings and less ability to    empathy, self-awareness, persuasion, teamwork
absorb the impact of disruptions.10                      skills and the ability to manage relationships) are
                                                         effective leaders. Such skills would be important
The Human Side of Crisis                                 in crisis management.16
One of the errors in crisis management planning is
the tendency to focus on systems, operations,            During a crisis, one of the roles of a leader is to
infrastructure and public relations, with people last    create and sustain the organization's credibility
on the list. Organizations need to pay greater           and trust among crisis stakeholders (e.g., man-
attention to the impact of critical events on            agement, employees, customers, suppliers, part-
employees, their families and the community.             ners, communities, investors, media, government,
Business recovery cannot occur without employ-           special interest groups). Depending on the crisis
ees. HR plays a strategic role in promoting trustful     situation, a leader's goal is to assist the organiza-
and prepared leadership throughout the organiza-         tion in returning to productivity. Overall, it is impor-
tion to help reassure employees of their safety.         tant to protect and sustain the organization's
                                                         reputation, brand and value in the marketplace.17
The Ethical and Legal Balance                            Thus, one of HR's strategic roles is to focus on
Organizations have a moral and legal duty to safe-       leadership qualities, such as strategic thinking,
guard their employees and the integrity of their         communication, empowerment, trust and integrity,
business. The Occupational Safety and Health Act         when considering succession planning for crisis
(OSHA) requires that employers furnish employees         management.

                                       Crisis Management in Today's Business Environment: HR's Strategic Role       3
{                                2005 SHRM Research Quarterly

    Crisis management, when handled well, safeguards                             Strategic Crisis Management Planning
    the reputation of the organization, which can have a                         A crisis--planned or unplanned--can be strategical-
    long-term impact on sales and profits. Further, one                          ly managed more effectively if an organization does
    of the most important aspects of crisis manage-                              its "homework" for crisis management (see Figure
    ment is a good communication strategy (how quickly                           2). One of the key factors of a proactive organiza-
    the organization will respond and what the message                           tion is its ability and obligation to assume responsi-
    will be). For example, it may be the CEO who sends                           bility for its acts.20 Yet while many companies plan
    the message of personal involvement, honesty and                             for their financial growth and success, many do not
    compassion.18 One of the most positive and suc-                              take productive steps in advance to deal with a cri-
    cessful examples cited as the corporate standard                             sis. Considering possible scenarios and how best to
    for excellence regarding crisis management is that                           prevent, prepare and provide interventions allows an
    of Johnson & Johnson during the Tylenol crisis in                            organization to become better prepared to handle a
    the early 1980s. Strong leadership and corporate                             crisis.21 Scenario planning, as a strategy for crisis
    values made the difference with clear communica-                             management, provides a mechanism to think
    tion to the company workforce and the public, and                            through the different ways these scenarios could
    this helped the company through a difficult time.                            develop and the best business response.22
    Today, Tylenol is one of the top-selling over-the-
    counter drugs in the United States.19                                        According to the SHRM 2005 Disaster Prepared-
                                                                                 ness Survey Report, 65% of HR professionals
                       Four Steps in the                                         believe that their organizations are well or very
    Figure 2                                                                     well prepared for a crisis or disaster, in contrast to
                       Planning Process
                                                                                 the perceptions of employees, only 50% of whom
      Step 1:   Establish a Planning Team                                        think their organizations are well or very well pre-
                 Provide broad perspective on the issues.                       pared. Eighty-five percent of HR professionals indi-
                 Establish a schedule and a budget.
      Step 2:   Analyze Capabilities and Hazards
                                                                                 cate their organizations have some form of a
                 Meet with outside groups (governmental                         formal disaster preparedness plan, and 15% do
                  agencies, community organizations and utili-                   not. The findings show that large (500 or more
                  ties).                                                         employees) and medium (100-499 employees)
                 Identify applicable federal, state and local                   organizations are more likely than small organiza-
                  regulations (e.g., OSHA, fire codes).
                 Identify internal and external resources and                   tions (1-99 employees) to offer formal disaster
                  capabilities.                                                  preparedness plans.23
                 Estimate probability and potential impact.
      Step 3:   Develop the Plan                                                 The first step of strategic crisis management is
                 Develop emergency response procedures.
                 Identify challenges and prioritize activities.
                                                                                 the establishment of a crisis management team.
                 Establish a training schedule.                                 Figure 3 lists the recommended players of such a
      Step 4:   Implement the Plan                                               team. HR has an integral role on the crisis man-
                 Integrate the plan into company operations.                    agement team, such as addressing issues that
      Source: Adapted from the Emergency Management Guide for                    may affect employees and their families as well as
      Business and Industry: A Step-by-Step Approach of Emergency                having the required talent and succession plans in
      Planning, Response and Recovery for Companies of All Sizes, FEMA
      141 (1993, October),                                         place to ensure that the necessary work of the
                                                                                 organization can continue.

    Figure 3           The Crisis Management Team

     1) Team Leader--a senior executive who can make decisions on behalf of the organization.
     2) Security Director--responsible for facilitating plan development, training employees, establishing a crisis center;
        serves as the primary information officer.
     3) Finance Director--assesses the financial implications of each type of disaster covered by the plan, arranges for
        required funds to be available in an emergency, oversees disbursement of funds and maintains records of cost of
        crisis for the company.
     4) Legal Counsel--advises the team on possible legal implications of recommended actions.
     5) Media Spokesperson--conveys important details without disclosing proprietary information, compromising employ-
        ee privacy or confounding investigative efforts.
     6) HR Director--has access to personnel records, helps the information officers reach affected individuals and their
        families and works to resolve the human issues created by the crisis.
     7) Security Specialist--an expert on various contingency planning issues, usually from outside of the organization,
        who helps educate the team about options for handling various types of crises, advises the team during the crisis
        event and helps conduct the debriefing afterward.

     Source: Robinson, C. (2005). Preparing for the unexpected: Teamwork for troubled times. The Journal for Quality and Participation.

4   Crisis Management in Today's Business Environment: HR's Strategic Role
                                                 2005 SHRM Research Quarterly

Information gathering is a key part of strategic crisis   crisis management team, can be strengthened at a
management planning. By utilizing a risk reporting        very low cost. For example, organizations should
process such as SWOT (an analysis that identifies         establish relationships with infrastructure providers
strengths, weaknesses, opportunities and threats),        (e.g., telecom, local fire and police, utility compa-
organizations can begin to make better informed           nies), community organizations and governmental
decisions, improve communication of risk and build        agencies. Often, crisis management information is
greater management consensus.24 The following             available for free from such agencies.29
questions are helpful as part of the risk assess-
ment: 1) what is the impact on people; 2) how real-       HR's Strategic Leadership Role
istic is the identified potential crisis situation; 3)    As a result of a crisis, corporations may lose work-
could corporate action halt or moderate the crisis;       ers, along with key talent and organizational knowl-
4) does the policy stand up to public scrutiny; 5)        edge, from low morale, fear, physical relocation or
are the resources to act available; 6) is the will to     death. As seen in the aftermath of Hurricane
act present; and 7) what would be the effect of           Katrina, workforce issues tend to rapidly escalate
inaction?25                                               from a crisis. One of the critical roles of HR is to
                                                          help the organization develop recovery plans.
The crisis management team also develops the con-         These strategies should address the safety, health
tingency recovery plan.26 This is a living document       and welfare of employees before, during and after
that must be kept current. Within the plan, it is         an emergency. Crisis preparedness, response and
essential there be a clear chain of command estab-        recovery are essential to help people begin to
lished in advance of a crisis. The plan should be         recover. Helping employees achieve a sense of
written to address the "worst-case scenario," such        normalcy is also an important factor in addressing
as total inaccessibility to the normal workplace and      the "human side of a crisis."30
the inability to rely upon and use the organization's
resources and infrastructure for an extended period       Research shows that increasingly HR has a strate-
of time. It is recommended the cross-functional cri-      gic role in crisis management. According to the
sis management team meet every six months to              SHRM 2005 Disaster Preparedness Survey Report,
discuss potential crises and how to respond to            HR professionals frequently have a part in develop-
them.27                                                   ing their organizations' disaster preparedness
                                                          plans. Nearly one-third (31%) state that HR forms
Some small- to medium-sized firms, however, may           disaster preparedness plans and procedures with
not have the staffing and resources needed for cri-       equal input from other departments, 29% advise
sis management planning. Thus, they may need to           other departments that are primarily responsible for
consider various options, such as accessing their         these plans and procedures, and 18% are primarily
chambers of commerce and/or professional associ-          responsible for developing all disaster preparedness
ations for assistance. They may also look to their        plans and procedures. However, 22% of respon-
commercial insurance carriers' safety and loss con-       dents indicate they do not have a role in developing
trol professionals for additional support.                their organizations' preparedness plans.31

Outsourcing is another option. For example, one           For organizations without a plan, the analysis phase
alternative is to partner with a crisis management        can reveal risks that are not managed effectively.
consultant that can lead the process. In essence,         Such conclusions may then prompt the organization
working with a vendor is a form of outsourcing. In        to develop effective prevention activities, while in
theory, the advantages of outsourcing are saving          turn contributing to an overall safer work environ-
money on ongoing expenditures and avoiding capital        ment and/or processes. To forward crisis manage-
outlay.28 However, the very nature of crisis manage-      ment planning, HR can make the business case by
ment requires an organization to tailor the plan to fit   establishing a link between crisis management/
its unique culture and needs. Thus, 100% outsourc-        business continuity planning and the organization's
ing may not be the most practicable avenue, as the        mission, vision and values, and connecting crisis
vendor would need to obtain a significant amount of       management to the bottom line--such as achieve-
information from the organization to develop an           ment of the organization's balanced scorecard, key
effective crisis management plan. Ultimately, the         performance indicators and critical success factors.
organization's management is responsible for crisis       Some of the benefits of crisis management and
management.                                               business continuity planning are better avoidance of
                                                          liability actions, protection of assets through risk
Finally, research indicates that crisis management        reduction, protection of markets by helping to
budgets are severely underfunded. However, the            ensure supply and reputation protection, and com-
emergency operations plan (EOP), developed by the         pliance with health and safety legislation.32 Risk

                                       Crisis Management in Today's Business Environment: HR's Strategic Role     5
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