Referring to a business-related concern as a “crisis” often feels a bit hyperbolic; “crisis,” after all, is a loaded and dramatic term, implying a devastating scenario with few available solutions. However, if a situation threatens the survival of the business, the crisis designation can certainly seem appropriate.
In the interest of demystifying business crises for those attempting to handle these difficult circumstances, HubSpot journalist Clint Fontanella recently compiled a full crisis management kit available for web download. In this publication, Fontanella identifies five types of crises commonly found in workplaces, three styles of crisis management and clear steps for handling these challenges.
Here, we’re breaking down Fontanella’s research and providing you with straightforward crisis definitions and best practices for identifying and solving these problems.
What is a business crisis?
“Business crisis” specifically refers to an unplanned event or occurrence with potentially-disastrous repercussions for the company. “Unplanned” proves crucial here; a difficult situation that’s years in the making doesn’t qualify as a crisis, especially if opportunities to change course have emerged on numerous occasions. Rather, a crisis must come about without warning, and crisis repair must happen under a tight time constraint, before the negative outcomes become thoroughly ingrained.
To shed further light on these situations, Fontanella outlined five types of crises that frequently befall businesses:
1. Financial crisis.
As its name suggests, a financial crisis involves the company’s economic status and its business practices from a money-related perspective. Fontanella provides examples like “not having funds to pay its dues such as paying dividends, interests, making repayments of loans etc. Such crisis arises when the business incurs losses over considerable periods of time or when due to lack of accountability loses consumers’ trust among other situations.” In customer-facing businesses, the lack of trust truly places this debacle in “crisis” territory; consumers won’t usually continue to interact with companies when they find themselves questioning the business’s financial practices, resulting in a loss of revenue and potentially plunging the company into deeper levels of debt.
2. Personnel crisis.
If an individual or group employed by the company becomes embroiled in illegal or unethical behavior (anything qualifying as misconduct), that constitutes a personnel crisis. Even if the actions aren’t done on the company’s behalf or on company time, the individual’s public connection to the company can reflect negatively on the business as a whole. Personnel crises can take a wide range of shapes, and they must therefore be handled on a case-by-case basis.
3. Organizational crisis.
When a company commits a serious wrong against its customers, that debacle exemplifies an organizational crisis. Fontanella includes “misconduct like withholding information, exploiting customers, and misusing managerial powers” as particular instances of organizational crises. As with financial crises, organizational crises compromise customer trust, making them difficult to solve.
Technological crises become more and more prevalent as the working world grows increasingly dependent on computers and other tech forces. Industries like e-commerce are entirely reliant on technology, so an equipment crash or a major functional error qualify as crises.
5. Natural crisis.
A natural disaster like a hurricane or a tornado can prove catastrophic to local businesses, and these crises must be handled quickly and carefully. One positive aspect of natural crises lies in the ability for prevention; companies can seek to locate their offices away from at-risk areas and can put protocols in place to keep employees safe and business practices continuing as seamlessly as possible.
In his writings, Fontanella specifies three forms of crisis management, which can help companies disentangle themselves from damaging circumstances and set them on a straightforward path toward improvement.
The 3 management types are:
1. Responsive crisis management.
Perhaps the most common form of crisis management, a responsive approach requires managers to evaluate the situation and take action to rectify it. Responsive management often necessitates advance planning; if your business has a strategy in place to fix a crisis before it happens, then you’ll be well-poised to repair the damage in an efficient and effective manner.
2. Proactive crisis management.
Proactive crisis management anticipates a potential disaster and makes moves to prevent it before it ever occurs. Fontanella presents “building an earthquake-resistant office and sharing an evacuation plan with employees” as an example of proactive crisis management for a natural crisis.
3. Recovery crisis management.
According to Fontanella, recovery crisis management generally involves “issuing a public apology and conducting research into what caused the unexpected crisis." It’s a manner of salvaging public goodwill and making amends for damages caused by the crisis.
Putting crisis management tactics into practice can prove challenging for businesses struggling to put their disasters behind them. Luckily, for each style of crisis, there’s a means of solving the problem and ultimately restoring the company’s reputation. These five courses of action can help companies overcome difficulties and project a confident image to customers and critics alike.
1. Handle financial crises by fully examining the situations and devising a deliberate strategy.
Finances involve direct, unambiguous numerical figures; there’s no room for procrastination or double talk when dealing with a financial crisis. Fontanella presents the following recommendation for fixing these issues: “The company must move funds around to cover immediate short-term costs. Then, they'll need to reanalyze their revenue sources to look for new ways to generate long-term income as well as increase their margins.”
2. For personnel crises, give yourself time to evaluate the circumstances and ensure that your desired course of action is appropriate.
Personnel crises often require a bit of investigation; if an employee did something or said something that can damage the company’s reputation, you’ll want to ensure that you have all of the facts before taking decisive action in either direction. According to Fontanella, “you'll need to identify the scope of the situation, determine appropriate disciplinary action, and if necessary, provide a written or verbal statement. It's important to first fully evaluate the situation and determine how severely the individual violated your company's values. This will help you determine the right responsive action to take against the convicted individual.”
3. Organizational crises often call for an overhaul of company culture.
A company-wide misstep often reflects a workplace culture with skewed priorities and unsavory dynamics. Therefore, a solution to an organization crisis entails an examination of your company culture. Does your business emphasize the importance of customer satisfaction? Or do managers and employees regularly allow other concerns to take priority over the success and fulfilled needs of your clientele? If the latter proves true, then it’s time to redefine the atmosphere of the workplace and to ensure that all employees and managers are on the same page.
4. If you’re dealing with a technological crisis, don’t hesitate to get experts involved.
In some ways, technological crises are among the easiest to solve. This mainly rests on the fact that tech problems have clear causes and, in most cases, clear solutions. Therefore, there’s no reason to hesitate before calling in equipment and systems experts to offer their advice and to make sure that all operations are in good working order. To minimize damage to your company and to your customers’ experiences, timeliness must rise to the top of your priority list.
5. When a natural crisis hits, proactivity is your best course of action.
As unpredictable and devastating as natural disasters are, taking a proactive stance to protect your company from these crises can significantly reduce the negative impact on your business. Fontanella says that “the best way to handle natural crises is to be proactive. Build your office in a structure that's resilient to weather in your area and prepare an evacuation plan in the event of an emergency. It will also help to prepare a contingency plan for business operations in case your offices become unavailable.”