A new study involving Australian CEOs suggests that properly identifying potential crises is a lot harder than it looks.
As part of an extensive research project, I interviewed Australian CEOs of 12 multinational corporations in the chemical and petrochemical industry about different aspects of crisis management and crisis preparedness.
When asked about potential crises, the CEOs* were clear that managers don’t think broadly enough about scenarios. As one commented: “I don’t think there is a lot of analysis of the risk of it happening versus the impact, and looking at different things other than what might traditionally jump into your mind. For a chemical company, for example, you might think about things blowing up, that’s going to be our crisis. But it’s far from that.”
Another told me: “We quite often look too much internally at our own organization and we don’t think about the things which are probably going to cause a crisis . . . the things which will touch people physically, or will touch public sentiment in a significant way. Something which is totally unacceptable to society.”
This approach is certainly consistent with data collected by the Institute for Crisis Management in Kentucky which shows that most crises are not sudden unexpected events but smouldering problems. Moreover, that the commonest categories of crises are not high profile casualty accidents and environmental and other incidents, but white collar crime, mismanagement, class action legal suits and labour disputes.
As part of a quantitative survey before each interview, I asked the CEOs to rank nine events as potential crisis risks to their company. And despite their broad understanding of crisis risk, the results reflected much more the conventional response. Nine risks were ranked from first to last as follows (based on median score)
1. Transportation incidents
2. Onsite spills, leaks, fires
3. Environmental damage
4. High profile litigation/law suits
5. Product failure/recall
6. New Government regulation
7. Employee misbehaviour
8. Financial mismanagement
9. Natural disasters
Of course, it’s clear that assessment of potential risks must consider both impact and probability. In fact one of the executives surveyed insisted on providing two separate rankings for each of these separate criteria.
But across the board it is equally clear that, while top managers recognise a much broader range of potential crises, their natural response is to identify and prioritise short term tactical problems. The key to effective crisis prevention is to openly identify the full range of problems and issues which could become a crisis, and then to put formal plans in place to mitigate the risk.
* For brevity the top executives interviewed are referred to as CEOs. All were either Managing Director or General Manager, or in one case Divisional Director
Full results of this ground-breaking crisis research will be published later this year. Watch this blog for details. For information feel free to contact me