Crisis in Organizations: Stages and Types

Companies face problems all the time, and solve them one way or another. Sometimes one of these problems is difficult-at least at the time it occurs-and it becomes public interest with the help of the press. This problem is then known as a Crisis, where the company is faced with legal, political, financial and governmental impact on its business. The most serious property of crises is the element of surprise. The worst part in their handling is being unprepared.

Crisis in Organizations: Stages and Types

Crisis can come from nowhere at any time; natural disasters, human error, and industrial accidents can all cause crisis. Sometimes the cause of a crisis is management itself; managers may insist that they face no crisis, and they fall into the brink of lying and rejection of its existence. Then, when the time of the deadline comes their answer to why the job is not finished will be: “We faced trouble and stopped the operation.” Some managers fall into the crises fallacies, and they overdo their denial of its existence. With time, the problems accumulate, causing absolute failure.

It is the management responsibility to try to solve the crisis using everything it can, beginning with self confidence, going through using all the skills, and ending by having the ability to absorb the public’s anger or fear without harming the firm’s income or reputation. If a crisis is solved by a manager without the public hearing about it then the manager has proven his brilliant capability.

Stages of Crisis in Organizations

Crises, like any business activity, have stages. The length of each stage depends on the efficiency of the management in dealing with the crisis. The five stages of crisis are:

  1. Pre-Crisis Stage: Here the conditions for a crisis to occur are waiting for a small error, so that the crisis can step in. This seed that starts growing in this stage can be ignorance or neglect from a manager concerning some aspect of the company, such as: risky operations, or lack of crisis planning.
  2. Warning: This is considered one of the most important stages in a crisis-if not the most important. In it, a problem is first recognized and it can be either solved and ended forever, or it can expand and lead the way to complete destruction. Crisis can occur after this stage easily because of fear of facing the “storm” or the problem by ignoring it. The general response in this stage is either shock, or denial and complacency.
  3. Acute Crisis: Beginning from here the crisis begins to occur, and the press (with the people) starts to know about the problem. Managers may try to avoid or ignore the problem, but the crisis has already reached a stage where it must be dealt with, because actual losses have already started. This is the time where the documents and modules for facing crises are taken out and put in effect, and it is shown whether the crises’ management staff are well prepared or not. If not, then it is too late for the management to hide the problem anymore.
  4. Clean-Up: When the problem passes the warning stage without being solved, then it has struck the company and damage has happened. It is then time to recover the losses or at least save what is left of the firm’s stock price, reputation, and production line. In recovering, a company must deal with legal cases, press and people’s pressure, and litigation. From all this a company can see and determine the reasons for such crisis to occur, to make sure that it never happens again.
  5. Post-Crisis: This is the stage mentioned before which a company should reach when the warning of a crisis occurs. It is where a company finds remedy for the damage caused by the crisis (if not stopped from the beginning). If the company wins back the peoples’ trust, and work is back to normal, then the crisis has officially ended.

Types of Crisis in Organizations

Crises are divided into nine categories, based on their causes, which are : natural disasters, industrial accidents, product failure, public perception of a crisis situation, industrial relations, business management, criminal events, management turnover and hostile takeover.

  1. Natural Disaster Crisis: The most relevant type of crises is the one that happens because of a natural disaster. This natural disaster happens in the environment and the human beings have nothing to do with it, such as: earthquakes, volcanoes, floods, and fire.
  2. Industrial Accidents Crisis: The industrial accidents may vary from fires to machine dysfunction to electrical short-circuit. These crises lead to full-scale emergency. Other crises lead to a limited local response. The danger in the industrial accidents is because they are termed as: “Media Magnet”; because these accidents cause serious casualties.
  3. Product Failure Crisis: This type of crises is a potential crisis for the company, because the product may fail even if appropriate research and development techniques are followed. The magnitude of this crisis depends on the speed of decision making in the company, and their resistance to any kind of escalation for the problem.
  4. Public Perception Crisis: During a crisis, a company may fall into another crisis because of failure in dealing with the crisis in a public way. This may lead to confusion, along with financial and personal losses due to poor public image. This crisis is a kind of consequence or a satellite crisis for an emergency crisis. Dealing with this crisis reflects the quality of the organization response to a crisis, and the efficiency of their decision making process.
  5. Industrial relations Crisis: Poor industrial relations between the workers and the administration may lead to a major crisis. This crisis may lead to serious disorder in the operations. Sometimes business is forced to react aggressively. Sometimes the labor force may force the industry to stop. Therefore, the relationship between the labor and the management should never reach the level of animosity.
  6. Business Management Crisis: The real danger in this crisis is that it is subtle and non-predictable. The real cause is hidden within a plan followed by the organization, that is proved to be erroneous later on. This happens due to a sudden market shift that the management did not plan for. However, management is responsible for this crisis because they did not foresee the potential market threat. There are other causes, such as: the consequences of other crises, failure to adjustment to the market regulations, or international events that have indirect impact on the business.
  7. Criminal Events Crisis: These events are currently becoming more frequent. They consider a major threat for some industries, such as: tourism, banking, and airlines’ industry. Common examples are hostage taking, terrorism, hijacking, and theft. This crisis requires a very precise response because this type of crises is “Media Magnet.”
  8. Management Turnover Crisis: Sometimes change in the organization management is considered as a type of crisis. Some companies think about their CEOs as indispensable, or as a figurehead. Thus his leaving is a real crisis. Some companies follow succession plans to ensure that such a crisis will never happen.
  9. Hostile Takeover Crisis: This type is becoming more frequent nowadays, because of tough competition between companies. Some companies that monopolize the market may lead other companies into hostile takeover crises, that direct them to losses, and cost the management its name and reputation.

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