Leadership Lessons by Débora Zilz (research essay from a Pera Business student)

Effective crisis response is a competitive advantage; ineffective crisis response could cause a competitive disadvantage, and could even put a companies’ existence in prejudice. That was what happened with BP when the oil spill occurred. Compared with the profit of this year, they had only a quarter of it when this situation occurred.

But that was not the only thing that the company lost. They also found a public’s lack of support for them when the disaster struck, and one of the reasons for that was the failing of response from the leadership of BP. suffered significant loss of reputation and eventually a great deal of financial loss – because the public perceived that its primary concern was not the harm that the spill caused.

BP could have avoided the public’s lack of support for them when it happen by (a) speed – it matters, and time is a leader’s enemy in a crisis. When a crisis shows, the usual business processes and decision velocities need to be suspended and decisions need to be made to show the public that they know what they are doing. (b) Understand that there is a problem;  Take it seriously (c); and take steps to solve the problem (d).

A good example of fast problem solving during a crisis is McDonald’s when they had in 2004 an old man dying inside of it’s facilities of heart attack. In the following day the stock market for McDonald’s traded down heavily. Some newspapers were comparing the man’s death to the unhealthy fat menu the big company had. So, just after a few hours after the episode happen and a few minutes after the stock market opened the company announce the change of the menu and the change of the CEO’s and directors focusing on the future of the company instead and in the next morning the stock was already recovered and the new your times made a post of congratulations to the fast solving problem.

Another company that learned the value of acting fast is the Boeing Co. From 2002 to 2004 Boeing was involved in a series of scandals involving the recruitment of Pentagon officials for senior positions in the company while these officials were still overseeing Boeing and other defense contractors for the government. The company CEOs had a fast response for it and the imminent crisis was recovered.

Companies with effective crisis response saw their stock price recover quickly, and remain above their pre-crisis price thereafter, closing an average of 7 percent above their pre-crisis price one year after the crisis.

Effective crisis response isn’t just a matter of protecting reputation. It also allows a company to get on with business faster and more effectively than if it delays its response. More important, effective crisis response has direct impact on a company’s productivity, demand for its product, stock price, and other quantitative measures of success.

Effective leaders demonstrate situational awareness in a crisis, grasping the significance of the underlying event and its likely impact on the company and its stakeholders. They also demonstrate self-awareness, and the ability to redirect their attention and energy to mobilize a quick response and thereby protect the company’s enterprise value. They demonstrate this forthright, calm, and fierce boldness early. They see crisis response not as an interruption in their administration of a company, but as the test of that administration.

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