Do You Make These 6 Common Crisis Management Mistakes? (Part 1)

Although the world is safer, healthier and more prosperous than ever before, due to inter-connectivity, it is also more sensitive to events globally.  What would have been nothing more than a small newspaper story on page 5 in the last century can now send stock markets tumbling internationally. Geopolitical risks, supply chain shocks, regulatory bombshells, and other uncertainties have made our world much more prone to crises.

What causes a crisis?

Rather than being a once in a decade or even once in a lifetime occurrence, crises can now occur multiple times within a single year. Supply chains and financial markets are much more interconnected so an oil disruption in the Middle East, for example, can affect shipping from Chinese suppliers to European plants. Tacking these crises requires leadership, experience, planning, and resilience. However, before getting into the nitty-gritty of how corporate leadership can tackle these crises, we need to spend some time identifying them.

With more moving parts than ever before, there are a lot of catalysts that can lead to a crisis:

Disruption in supply chains

Companies are prone to disruption in their supply chains both on the vendor side and the distribution/ sales channel side. Relying on these channel partners allows a company to focus on its core competencies but also means that their problems can become your problems too. Adequate vendor risk management is the need of the hour.

Collateral assets

Financial markets can be very volatile leading to rapid asset devaluation which can cause all sorts of problems. Companies offering their assets as collateral could get caught up in a vicious cycle in such cases.

Regulations and compliance

With new regulations/sanctions and compliance requirements increasing every year, companies are finding it increasingly hard to juggle all the moving parts. One mistake can undo years of effort and lead to considerable damage. Add to this the legal risk and it becomes one of the worst crises imaginable.

Reputational damage

Reputational issues can cause more damage today than at any point in history. Even if the company can fix the issue, the initial wave of unwelcome news can be so quick to spread that corrective efforts might never be able to fix them. Just look at the emissions scandal in the auto industry.

Cyber security breach 

Digital risks are an entirely new category and potential crisis trigger point. A cyber security breach can harm a company’s competitiveness, cause reputational damage and even shut down operations.

Human capital

Then you have risks revolving around how the human capital is managed – strikes, attrition, lack of skilled professionals in the market etc. All of these can all put a damper on an otherwise good year. What is worse is that all these crises are not just isolated incidents. One of them can trigger the other and create an avalanche which can be overwhelming for the leadership to manage. These should not be treated as isolated problems as all of them, if left unmanaged, will eventually lead to a financial crisis. Every problem can, however, be solved with the right tools. In Part 2 of our series on crisis management we shall look at how leadership, communication, information gathering, and pre-planning can help a company survive a crisis and emerge stronger than ever before.

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Times Of Uncertainty – Crisis Management For Leadership (Part 2), The Best Risk Management Steps to Improve Process and Structure, How is Corporate Governance Preparing for the Future.