Business Crisis and Continuity Management (BCCM)

Class Session 17

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Crisis

A major event that has potentially negative results. The event and its aftermath may significantly damage a business and its employees, products, services, financial condition, and reputation. Handled properly, a crisis may provide opportunities for organizational learning, competitive advantage and strategic improvement.

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Crisis Management

The coordination of efforts to control a crisis event consistent with strategic goals of an organization.Although generally associated with response, Recovery and resumption operations during and following a crisis event, crisis management responsibilities extend to pre-event mitigation, prevention and preparedness and post event restoration and transition.

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Crisis Communication

All means of communication, both internal and external to an organization, designed and delivered to support the Crisis Management function

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Crisis Management Questions1. When did you have an inkling that there was a critical defect or

something wrong in your system organization, product or service?

2. If you did not know that something was wrong, why not?

3. What, if anything, did you do about it?

4. If you did not do anything about it, why not?

5. If you had know beforehand that such a crisis was possible, what could you have done?

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Ford Pinto--Smart Management isn’t

• Pinto introduced in 1970 as 2,000 pound car costing $2,000 - Due north was 2000/2000• Weight restriction caused design constraints• Time to market 25 months compared to industry standard 43 months• Design defects included a gas tank of very thin metal that in a rear end collision could rupture, causing fire. Ford was aware of design problems, but was in compliance with existing standards (but not with proposed standards).

Calculation not to comply was an economic decision.

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$11 Cost vs. A Burn DeathBenefits and costs relating to fuel leakage associated with the

static rollover test portion of FMVSS 208Benefits

Savings: 180 burn deaths, 180 serious burn injuries, 2,100 burned vehicles.Unit Cost: $200,000 per death, $67,000 per injury, $700 per vehicle.Total Benefit: 180 X ($200,000) + 180 X ($67,000) + 2,100 X ($700) = $49.5 Million

CostsSales: 11 Million cars and 1.5 Million light trucksUnit Cost : $11 per car and $11 per light truckTotal Cost : 12.5 Million X ($11) = $137 MillionFord Motor Company Internal Memorandum - “Fatalities Associated with Crash-Induced Fuel Leakage and Fires”

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What’s Your Life Worth?Societal Cost Components for Fatalities

Costs in 1971 Dollars from a 1972 NHTSA StudyFuture Productivity Direct $132,000 Indirect 41,300Medical Costs 1,125Property Damage 1,500Insurance Administration 4,700Legal and Court 3,000Employer Loss 1,000Victim’s Pain and Suffering 10,000Funeral 900Assets (Lost Consumption) 5,000Miscellaneous Accident Cost 200

Total $200,725

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Johnson & Johnson TylenolCorporate Culture is Crisis Prepared

• Sept 1982--unknown murderer in Chicago poisons extra strength Tylenol capsules with cyanide, resulting in 7 deaths and 250 illnesses• Johnson & Johnson determined blameless, but did not focus response on denying blame• J&J publicly committed to solving crime, posted $100,000 reward• J&J alerted public not to consume Tylenol capsules, recalled 31 million bottles worth $100 million• J&J Chairman appeared repeatedly on national TV• J&J had no formal crisis management plan, but corporate credo was “Our first responsibility is to the customer” This was north for Johnson and Johnson.

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What Happened to Johnson and Johnson?

• More than 80,000 news stories appeared, most were positive about J&J reaction• Within 2 months J&J had reintroduced Tylenol in a tamper resistant package• Within 3 months sales were at 80% of pre crisis level• Within 2 years, Tylenol had surpassed pre crisis market share• Cost to J&J was between $500 million and $1 billion• Actions of J&J still held up as standard for crisis management

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