Most people would agree that it’s better to prevent a crisis than to have to deal with one. But the reality is, by their nature, crises are unexpected. You can mitigate some of the negative impacts by having a reaction plan in place, so you’re prepared to act and adapt quickly when the unexpected occurs.
However, too many organizations are busy managing day-to-day operations and putting out the fires that are right in front of them. They neglect to look ahead and plan for the unexpected.
If your company is among the unprepared, how can you convince management to plan before the company comes into crisis mode?
The short answer is that you convince them to change the same way you convince management to do anything: You show them the cost and impact. In this case, what is the cost of not being prepared and not acting quickly?
One would think that this would be a little easier since COVID gave a great example of a crisis that impacted the business.
Treat planning for a compliance disruption or other crisis as you would any other risk, where you determine the probability and weigh it against the impact. But while the probability might be low, the impacts can be substantial. And often they are hidden.
If you want to convince management of the potential impacts—both short-term and long-term—consider these areas:
Operations
To react to a crisis, management must pull resources from their usual work. What happens to their functional work and assigned projects? These are delayed or reassigned. And the people the company is most likely to call on to manage the crisis are top performers. They are probably involved in the most important efforts for the company—the ones what will cause the most damage if they stall or fail.
READ MORE: If you’re dealing with a crisis now, download the Crisis Management Checklist
Finances
Many crises, for example product recalls and consent decrees, will lead directly to lost product sales. But there is an opportunity cost to consider as well. As the company focuses on the crisis at hand and people working on strategic or improvement projects have to drop what they’re doing to deal with it, the organization loses or delays the financial benefits of those projects.
Like any “rush job,” solving a problem during a crisis is more expensive, because you have to act quickly. You may not have time to conduct thorough research to determine the best solution or negotiate with vendors for the lowest price. And, again, if you divert money to solve the problem, you must cut the budget elsewhere.
And in public companies, a compliance crisis can negatively impact stock prices. Similarly, if a company is preparing for an imminent or future acquisition, a crisis could lower its valuation.
Culture
If an organization is in crisis mode, it’s likely disorganized. Communications break down, and employees get worried. As a result, stress can increase and morale decrease, increasing staff turnover. The impact of a one-time crisis is bad enough, but if a company always seems to be in crisis mode, it will continually lose employees.
How many people in your own organization or personal network have changed jobs because they wanted to get away from a company that was always in crisis? When we ask this question at client organizations, you’d be surprised how many people raise their hands and say, “Yeah, I left the company because I never got to do the fun innovation job I was supposed to be doing. I kept getting pulled into these crisis teams.” In today’s challenging hiring environment, a poor reputation as an employer will leave companies even further constrained.
Reputation
The way that an organization manages crises can affect relationships with external stakeholders as well. These include customers and potential customers, supply chain partners, investors, research and product development affiliates, and regulatory bodies. In addition, if regulatory agencies lose trust in the organization, the agency may scrutinize future products more carefully.
Nobody can predict and prepare for any possible scenario. But we can plan for how we will react. It’s true that planning requires time and resources that executive leaders may not be willing to devote. But outlining these considerations and filling in with any details about your specific organization can help you make the case.
READ MORE: Learn how to avoid and manage crises; download “Don’t Let a Crisis Become a Disaster”
June 13, 2022
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