A crisis is defined as
- An unexpected event that threatens the wellbeing of a company, or
- A significant disruption to the company and its normal operations which impacts on its customers, employees, investors and other publics
Crises can be categorised as
- Fairly predictable and quantifiable crises, or
- Totally unexpected crises
Types of crises
Natural disaster (so called acts of God)
- Physical destruction due to natural disaster e.g. flood
- Environmental disaster
Industrial accident
- Construction collapse
- Fire
- Toxic release
Product or service failure
- Product recall
- Communications failure
- Systems failure
- Machine failure causes massive reduction in capacity
- Faulty or dangerous goods
- Health scare related to the product of industry
Public relations
- Pressure group or unwelcome media attention.
- Adverse publicity in the media.
- Removal/loss of CEO or other key management
Business and management
- Hostile takeover
- Sudden strike by workforce or that of a key supplier
- Major customer withdraws its support
- Competitor launches new product
- Sudden shortfall in demand
Legal
- Product liability
- Health scare
- Employee or other fraud
Examples of crises
- Asian tsunami - crisis for the countries concerned and for the tourist industry
- Three Mile Island - US nuclear industry crisis in the 1980s
- Sudan 1 dyestuff in processed food
- Coca Cola’s Dansani purified water –contained a carcenogen and as a result the European launch was abandoned
- Hurricane Katrina
Case study - Exxon Valdez
- This oil tanker which got into trouble in Prince William Sound off Alaska caused an oil spillage amounting to 30m US gallons
- In addition to the loss of product and a major asset:
- The clean up took three years and cost Exxon $2.2 billion
- Legal settlement with the state and federal government amounted to $1billion
Case study - Buntsfield (2005)
In 2005 the oil storage depot at Buntsfield, Hemel Hempstead suffered major explosion and fire
The result was:
- Loss of product
- Significant loss of capacity
- Disruption to supplies
- Loss of business
- Physical damage to neighbouring houses and commercial premises
- Possible environmental damage
- Damage to reputation
- Claims for compensation
- Legal action
Case study - a different type of disaster
- In 1991 Gerald Ratner, head of the chain of high street jewellers that bore his name, explained why his products were so inexpensive
- He said that a decanter sold in his shop was cheap because it was “total crap”
- He “sold a pair of earrings for under £1,which was cheaper than a prawn sandwich from M&S, but probably wouldn’t last as last as long”
- The result: share values fell substantially, Mr Ratner left the company and it was sold
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