There are times when any business can get into crisis. And there are many reasons for such a crisis, some outside your control and some unavoidable. However, when a crisis hits it's important that a leader knows what to do.
This article explores, in a simple and direct way, how a leader needs to think about a crisis, and the immediate steps that should be taken to deal with any crisis effectively.
From the original article (PDF text)
May 2004
Avoiding the Red Tide Escaping Financial Crisis in a Business
C H R I S L O N S D A L E & A S S O C I AT E S
Avoiding the Red Tide Escaping Financial Crisis in a Business magine for a moment that you are In a business, the sudden discovery that you
i involved in a motor accident. Luckily, you survive. You are not even injured. Beside you, another passenger lies don’t have enough cash to cover payroll is a crisis, and it is one that could be either internally or externally created. For example, it could on the road in agony, a gleaming white shaft be that, because of something like SARS, your of shattered bone shimmering with the reflected sales have suddenly stopped but your costs light of blood. Blood that trickles in an endless have continued. Or, it could be that you stream, quietly draining the life out of the haven’t been tracking your cash flow situation, person in front of your eyes. and didn’t take appropriate action early You know that the broken leg is going to need enough. splinting, and crutches will have to be bought The question about the cause of a crisis is to help the man walk while his leg heals. And actually academic – at least until you are over that is NOT where you place your attention. the crisis itself. If you spin your car on a wet The immediate issue is to stop the bleeding, road, it doesn’t matter if it was caused by oil because if you don’t then any discussion of on the road surface or you speeding, the splints, or casts, or crutches will be merely immediate priority is to regain control of your academic. car before you become meat paste. And that is the nature of crisis. The normal In New York after 9-11, the priority was to rules get suspended, and all energy and save as many people as possible, and get the attention must become focused on the city back on its feet as soon as possible. The immediate situation. Because, only when the identity of the terrorists, and preventative immediate situation is addressed do you have measures for dealing with future attacks, were the luxury or opportunity to deal with some not of immediate concern. Of even less of the other, perhaps more fundamental, issues. concern was the design of the buildings that would replace the World Trade Center Towers.
Who Cares About the Cause? Understanding the cause of a crisis is, of course, important. This can help in preventing A crisis can be caused by either external future crises of the same nature. Creating factors, or internal ones. For instance, if you new, long term solutions, is also important. are driving on a wet road and suddenly go The trick is to put discussion about such things into a spin then the cause is internal – you hit on hold long enough to respond to the the corner just a little too fast. In the case of immediate situation. something like the terrorist attacks on September 11, 2001, the immediate cause of In Chinese there is a word for crisis – **- it the crisis was external. Somebody flew means “danger” and “opportunity”. The airplanes into a building. “opportunity” part refers to all that you can
C H R I S L O N S D A L E & A S S O C I AT E S
Avoiding the Red Tide Escaping Financial Crisis in a Business
learn, and the fundamental changes that you what to do next. can make, to get even better. The “danger” As you think about crisis situations that you part refers to the fact that something is going have been in and have survived, you will on, right now, that needs your immediate become aware of the steps that you went attention. through to survive. I summarize the main ones here, as a point of reference and comparison. Focus Your Attention! The Steps to deal with a Crisis Personal experience can be a great place to Size up the situation explore the best way to deal with more The first thing that you must do in any crisis complex situations. So, in thinking about how is to size up the situation. What is going on, to deal with crisis, I encourage you to think how serious is it, and how much time do you about some personal crisis situation that you have? The answers to these questions focus have been in. Since I have been in a few your mind on what to do next. close calls in cars traveling at a speed high In the examples above it is relatively easy to enough to kill me, I like to think of those know that you are in BIG trouble. In a business situations. situation it can be more difficult to realize that In one situation, a friend learning to drive froze a crisis has arrived. If someone has suddenly while coming down a hill towards a left-hand stolen your best customers, or where your bend. All she needed to do was turn the market has suddenly disappeared, it is fairly wheel but, for some reason, she couldn’t. obvious. But a subtle shift in the cash flow And so we headed towards a 1000-foot drop. balance that has not yet showed up in the We were in crisis. Immediate danger. It was books can be more difficult to spot. Finding clear that I had to take action, so I grabbed that the bank won’t support you any more, the steering wheel and made the left turn. of course, is a big signal. Unfortunately, I had hesitated and she hit the break at the same time. We slid towards the Some crises may give you a little more time drop. And, luck was on our side. We had than others to understand, but by their very a few inches to spare, and lived to tell the nature crises don’t give you the luxury of time. tale. You have very little time left, and you must use that to understand the underlying “trends”, A great example given to me by a friend is of project forward to the likely end point, and a group of soldiers suddenly caught in an decide just how bad the outcome will be if ambush where they are surrounded by the you continue along that path. enemy on all sides. The only hope for survival is to break out. Even one second of hesitation The biggest mistake that can be made at this will mean death. To do this, they must all stage is to underestimate the consequences focus on ONE point, and then break through of the crisis. Underestimation can lead to at that one point. Only when this has been action that is too little, too late. And nobody achieved do they have the “luxury” to decide likes post mortems. So, rapid sizing up of
C H R I S L O N S D A L E & A S S O C I AT E S
Avoiding the Red Tide Escaping Financial Crisis in a Business
the seriousness of the situation is a critical Getting groups of people to act effectively step to take. is difficult at any time. A crisis can make cooperation even more difficult. With any crisis that involves a group of people, Decide What Action to Take be it a team, a family, a company or a whole Immediately upon knowing that you have a country, the most important rule is: crisis, you must decide what outcome you C O M M U N I C AT E . C O M M U N I C AT E . want. If you’re ambushed, the decision is a COMMUNICATE. There is a critical need for simple one – dig in and fight, or break through. information throughout the organization to Driving down a hill towards a cliff also provides address any crisis effectively. And, to be a simple choice – turn or break. In a case most effective, that information needs to be of serious injury where someone is bleeding, channeled in the right way. there is no choice. STOP THE BLEEDING. The only question you need to answer is, how are you going to do that. What to Communicate? While you should communicate more rather than less, you also need to understand what ACT should be communicated. To be most Once you have decided on the action to take, effective, the following four ideas can be used you do it. No hesitation. No questions. Act. to guide your actions – What; So What; What Next; and Who Does What?
Feedback, Review, Change Once you have acted you need to check What whether the action achieved your desired It may seem strange, but it’s important to outcome or not. If it didn’t, you’re still in crisis articulate what is happening to an and need to reevaluate before taking further organization. There are two very important, action. but opposite, reasons for this. The first reason That’s it. Quite simple when you think about is that people in an organization are frequently it. So what makes it so difficult? The group very aware of the crisis that the organization effect tends to complicate things. I address faces. They see the crisis reflected in the this in the next section. problems they face on a daily basis, and in the decisions that they see being taken (or not taken) by senior management. Crisis in a Group Situation In their mind, the biggest problem is that In the above examples I have looked at crises senior management doesn’t understand that that can, in many cases, be responded to by there is a crisis. This leads to cynicism, and a single individual. However, many of the a sense of helplessness that gets translated crises that we face involve groups of people. into a lack of action and a lack of initiative.
C H R I S L O N S D A L E & A S S O C I AT E S
Avoiding the Red Tide Escaping Financial Crisis in a Business
At other times, people in the organization Communicating the consequences also have no idea at all that there is a problem, addresses the two groups of people so don’t feel motivated to do anything. They mentioned in the previous section. Those somehow believe that the organization will who know there is a problem generally know look after them for life and that there could the consequences, and like to see that senior never be a problem large enough to kill the management does too. Those who had no company. idea need to be connected to the reality of By openly acknowledging the situation, you the situation. address both groups of people. Those who already know there is a problem feel that their What Next? leaders are in control. Those who had no idea get given a very strong wake up call for Once the attention of the organization is action. focused on the crisis, it is up to senior leadership to answer the question “what next?” People need to know what they have So What? to do, and they are looking to senior leadership To be effective in a crisis, however, a leader to provide overall guidance. This means that often needs to go beyond simply stating the senior leadership has to state, very clearly, situation. For instance, saying that “we have the ONE major crisis goal that has to be a cash flow crisis” is probably not going to achieved. “Stop the bleeding”, “block the motivate many people working in the lower competition in Market A”, or whatever the levels of a company. imperative is.
On many occasions, while providing customer service training to companies, I have asked Who Does What? “who pays your salary?” Invariably the answer Taking the big message, department heads is “the company”, or “the boss”, or “the are then responsible for translating that big accounts department”. Only on very rare message into the messages specific to their occasions do workers understand that they departments, ensuring that regular progress get paid because of ongoing business, happy reports go to the senior leader(s) to ensure customers, and a healthy cash flow. coordination across the organization. So, using the cash flow crisis as an example, This is the chain of command that is used it would be wise for senior management to on a submarine when dealing with a crisis at point out to everyone the very real personal sea. Every seaman on board the ship has consequences that everyone will face if the an assigned task, and team leaders assign problem isn’t solved. The company might tasks based on the overall goal set by the be bought, and managed in a way that no- commander of the bridge. one likes. Worse still, it could be forced to close down which would mean that nobody has a job.
C H R I S L O N S D A L E & A S S O C I AT E S
Avoiding the Red Tide Escaping Financial Crisis in a Business
Beyond the Crisis Once a crisis is resolved in the short term it can be a fatal mistake to assume that the problem is solved. Often, the process of solving the crisis creates the conditions for even greater problems in future. It is up to senior leadership to use as crisis as a starting point for a deep analysis of the fundamentals of the business, and to explore changes that might be necessary to prevent a similar situation happening in the future.
In Conclusion When faced with decisiveness, action, and effective communication most crises can be overcome. This requires courage and commitment from the leadership, but the payback is very often worth the effort. Beyond the immediate crisis, however, it is very much up to senior management to explore the more fundamental reasons for the crisis having occurred in the first place, and to begin the process of changing the organization to avoid any such future situations.
C H R I S L O N S D A L E & A S S O C I AT E S
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Originally published 2004-04-01 · Legacy CMS article #6533