In October 1982, Johnson & Johnson fell off the ladder to find itself in trouble when seven people in Chicago were reported dead after taking extra-strength Tylenol capsules. It was reported that the medicine was tempered by some unknown suspect who allegedly put 65 mg of deadly cyanide in the Tylenol capsule. The market share of the product fell from 37% to 7% after this incident.
Once it was established that the deaths were caused by consuming the medicine, J&J had to do the damage control. It had to work on finding the best way of dealing with the problem while at the same time, prevent the reputation of the company and its most profitable product. Putting ahead public safety, J&J immediately recalled all the capsules from the market across the country. The massive product recall amounted to 31 million bottles and a loss of more than $100 million. The company also stopped all forms of advertising for the product.
Although J&J knew they were not responsible for the tempering, they assumed responsibility for the whole incident. Despite much speculation in the market regarding the company’s inability to revive from the sabotage, J&J re-launched the product after two months with temper proof seals supported by extensive media and marketing campaign. The company regained its product market share back to 31% within one year.
J&J’s handling of the whole incident marks the genesis of crisis management in corporate history. The company’s prompt action and effective response minimized the damage to the shareholders and the brand image of the company was held up and high.
In today’s digital age, everyone is vulnerable to crisis. It could occur due to factors that may or may not be under your control. Natural calamity, labour disputes, computer data losses; all these could cause a crisis situation for a company. Some might be temporary and curbed while some might even cause the demise of the company. Dealing with a crisis situation might call for absorbing short term losses in order to maintain the long term business health of the company. That was the reason of J&J’s comeback in Tylenol case.
Companies today have started to put crisis management quite ahead in their list of focus areas. There are teams in place that not just deal with a situation in reaction to after it has already happened. Their key role is also to forecast, project and plan for any potential uncalled for situation. It is also called proactive crisis management. Few important attributes that one needs to learn for effective crisis management are:
- Importance of quick decision making – In a crisis situation, there is stress and time pressure which impairs your ability to take wise judgment calls, and your decisions are generally reactive. The bigger an incident is in magnitude; larger is the requirement for conscious analysis. Assess the potential of damage, check the availability of resources needed to do the damage control, prepare a time line and execution of action plan. Clarity of thought, ability to think under pressure and imagination to make the very best of what is available at hand in finding the way forward are the key expectations from a leader heading the crisis management team.
- Communication management – The need of handling and maintaining the PR accentuates in the time of crisis. Staying aware of what is being said about you in social media and outside, by your employees, customer and sometimes competitors can help in picking up negative trend, which if unattended can turn into crisis. A bad word of mouth from any resource at any platform can be the genesis of a potential damage to the firm’s image.
- Planning and monitoring – Some people might also call it risk management. The recognition of potential threats should be an ongoing aspect of every organization. Developing infrastructure and resources to gather, monitor and analyze information that will give warning of future problems is a vital aspect of pre-crisis phase.
- Avoid self-inflicting a crisis – in times of changing consumer expectation and availability of multiple options, reputation today is a very fragile issue. Lack of customer care and value for loyalty can hamper your growth. In the field of marketing, word of mouth travels fast, and if it is bad, then it travels faster.
A crisis can also occur due to internal factors, as is evident from Maruti’s labour unrest, which caused India’s one of the most violent industrial incidents in July 2012. The company’s product image might not have been affected due to this incident, but it brought in light many internal unresolved conflicts faced by India’s largest passenger car maker. The incident led to the death of a manager, arrest of 147 workers and dismissal of 2000 workers from the Manesar plant.
The whole Maruti crisis asks us to ponder over the effectiveness of labour and industrial relations. The incident did eventually lead to revision of wages of the workers, but the basic problem of contract workers (that still constitute around 75% of Maruti’s workforce) still remains unresolved.
Though still holding a back-foot in Indian corporates, many companies abroad are implementing crisis management programs, conducting training and conferences to guide managers through this high profile process.
Crisis Management during MBA:
The field of crisis management in India is more prevalent as disaster management and is offered as an advance course. It deals with the specific case of impact through natural calamities or sometimes political emergencies and defense related issues. The context of crisis management education in India is everything but contemporary business.
For those pursuing MBA, crisis management is not a very sought after field either. In Indian B-school curriculum, the focus on this important field of management is rather average. But the future possibility of being associated with a company in crisis cannot be ruled out. Even if you are not exactly at a position that might call for taking responsibility and decision making, you will still have to face the impact, directly or indirectly, of a crisis ridden company. Hence it is important to understand this relatively new yet challenging field of management.
B-School curriculum should increase its focus on this field of contemporary management besides teaching other functional aspects of running a business. Crisis may not always necessarily appear at a larger or organizational level, it could be observed at a smaller or divisional level as well. Whistleblowers, manager disputes and harassment cases, all these could lead to intra-organizational crisis situations that could harm the employer’s reputation.
Currently, most MBA students know about crisis management only though case studies and some generic references by their professors. It is important to increase visibility to this field through simulation to inculcate better decision making, response and strategic thinking amongst students, preparing them for more real life situations, instilling long term planning and course of action.
Contributed by Isha Jajodia (class of 2010, IBS Gurgaon)