Corporate Crisis Managementadmin / January 24, 2019
Every company is faced with some sort of crises from time to time. How a company decides to respond to these crises determines whether it will collapse or it will succeed. This is called crises management. There are some emergency situations that occur in a company that needs urgent measures to ensure that they do not affect the company negatively.
In today’s business environment, crisis is almost inevitable and will occur from time to time. However, this does not mean that business have to collapse when faced by a crisis because with an effective communication plan, a company can be able to overcome any crisis. The management of a major corporate crisis requires a well structured process.
This involves prevention, planning, evaluation, and mitigating the crisis as well as minimizing its consequences. The method that a company adopts in managing a crisis determines the outcome of the affected individuals. A crisis can occur naturally or can be caused by negligence of the personnel or any other stakeholder. Effects of a crisis include but not limited to injuries, disabilities, death, destruction to property, and threats to a company reputation or its future performance.
This paper looks at the meaning of corporate crisis management, and effective communication as a critical strategy in managing crisis. It also gives in-depth analysis of the strategies adopted by Johnson and Johnson to deal with a crisis that occurred to itsTylenol product in 1982.
Corporate Crisis Management
Corporate crisis management can be defined as the process through which a company deals with emergencies by using effective communication strategies or channels. This involves the incorporation of both the internal and external parties involved and the steps taken to address the issue. Crisis management is part of every day life. It is normal that a company will have to respond to an emergency at some time (Nelson 1).
An emergency can range from a mistake done by one of its stake holders, a personnel related problem, or a volition of one of the rules. If these problems are not addressed properly, they can negatively affect the reputation of a company which results in lack of consumer loyalty. Consumer confidence is related to a company’s social responsibility. If a company does not address the issues affecting customers, then its reputation is at stake.
For instance, if two or more consumers complain about the quality of a company’s products, and the company does nothing to address the issue, then its reputation is threatened. Every organization has a social responsibility not only to its personnel but the entire public.
Effective communication is composed of two major aspects: transparency and timeliness (Nelson 5). In the event of a crisis, a company has to issue a prompt response before it catches the attention of the general public. This is for the reason that once the public learn about the problem, it may be disastrous to a company which may put its reputation at stake.
It is vital that every company is able to acknowledge a problem when it emerges so that it is able to take the necessary precautions to prevent it from advancing, and at the same time, take appropriate actions to deal with the problem. This is what is referred to as timeliness. On the other hand, the messages issued by the company or an organization have to be clear. This means that the company has to go after all the promises made to the public or employees and the goals set to ensure that they are met.
A company is able to gain credibility from the public only if it remains true to its words. For instance, if a company promises to take remedial measures to ensure that a certain situation does not present itself again in the future but does not do any structural changes to prevent the occurrence of such a situation, then its reputation will be severely affected and it may diminish.
Many companies have the habit of making false promises in order to retain their consumers forgetting that the long term effects may be worse than their present benefits. Transparent information also means that a company is able to respond to its crisis within the stipulated time. Not all consumers are patient and if a company prolongs its response time, it may loss a significant number of potential consumers.
The Tylenol Crisis
Every medical practice at one time or another is confronted with a breaking news story that can have a major impact on its patients. Not uncommonly patients learn form the media about a medical development that was described in a journal or at a national meeting before their doctors have had the chance to see the relevant paper. Often medical news stories will scare or even produce panic in patients. They will call for comments, suggestions, and answers, or simply for reassurance.
There are ways to manage these all too-common situations, reduce anxiety for the existing patients, and encourage potential patients to seek treatment. One example of truly skilled crisis management was the Tylenol tragedy. Johnson and Johnson, the manufacturer of Tylenol, did a wonderful job of taking a potential disaster and turning it into a marketing advantage. It was a good example of how to cope with a media crisis.
Towards the end of 1982 (October to be precise), Johnson & Johnson, a renowned manufacturer of painkillers (Tylenol) in the U.S. was faced by a major crisis. Johnson and Johnson’s subsidiary, McNeil Consumer Products has an analgesic called Tylenol which became a market leader in the 1.36 million dollars US analgesics market with 37% share. Tylenol also accounted for 18% of Johnson and Johnson net earnings and 7.4% of the company’s worldwide revenues for the period 1981-82 (Effective Crisis Management 4).
Seven people from Chicago died after taking Tylenol capsules. It was later found that an anonymous person had put more than 50 milligrams of cyanide in the capsules. Cyanide is a deadly substance and the amount put into the capsules was more than 10, 000 times deadly to a human being. McNeil Consumer Products officials asserted that the cyanide-laced capsules had not emanated from either of its plants. The public was assured of control measures through the company spokesman.
Since the Cyanide-laced Tylenol had been discovered in shipments from the company’s plants and had been found only in the Chicago Vicinity, it was reported that the tempering with the drugs was done when the products were placed on the shelves. These drugs were taken from the shelves, infected with the deadly substances and then taken back to the shelves to be sold to consumers. It was found that the poisoned capsules were from four manufacturing lots and they were taken from different pharmacies over a period of weeks or even months.
Before the crisis, Tylenol had managed to control 37% of the market and had reported revenue of approximately 1.2 million dollars. However, after the crisis, Tylenol market share dropped to 7% with a substantial decrease in its revenue (Effective Crisis Management 4)
The publicity about the cyanide-laced capsules created a nationwide panic immediately and with the expansion of 24 hours electronic media, people were bombarded with more and more news on the subject. Aroused by such sensational news through the media, people started calling hospitals to enquire about Tylenol. A Chicago hospital was reported to have received over 600 telephone calls just on a single day.
It was reported that within the first 10 days of the crisis, Johnson and Johnson received more that 1400 telephone calls on its most controversial product of the time (Effective Crisis Management 5). Clients were adequately warned against the product’s consumption.
The company was in a dilemma of which strategy to adopt to ensure that the crisis was properly dealt with without affecting the reputation and the sale of its product, which was earning the company a significant amount of profit. Its first guideline was first to protect the public before considering its property.
To deal with this crisis, the company recalled its product from the entire country and it was able to collect up to 31 million bottles and recorded a financial loss of over one hundred million dollars (Effective Crisis Management 5). A day later, the Food and Drug Administration also advised consumers to avoid taking Tylenol capsules.
Moreover, all advertisements for the product were brought to an end. Although Johnson and Johnson were aware that they were not directly responsible for the interference made on the product, they took full responsibility because they valued public safety more than profitability. They went to the extent of recalling all the capsules that were in the market and warned customers against the purchase of the product.
Not many companies would take such a brave move because most of them are concerned about the profitability of their products at the expense of public safety. It was such a costly strategy but the company was concerned about the safety of its consumers and its future reputation.
Communication about the crisis
A crisis team was formed and immediately offered a reward of one hundred thousand dollars for information about the persons responsible for the tampering. Based on its credo, J&J set out to protect the health and welfare of the families and doctors it served.
It started a massive media campaign, including a toll-free hotline. There were separate PR programmes for consumers, employees, stockholders, politicians, and the media; a special communication program for the medical community involved putting over two thousand sales representatives on the road.
There were two questions that had to be addressed urgently without any loss of time, the first was concerned about the safety of the public, and the second, was how the product would be saved. Even against the advice of some worried insiders, the company initiated its first action by cautioning the users of the medicine. The Chairman appeared in television advertisements and on talk shows explaining his company’s actions.
It was estimated that there were about 80, 000 news stories printed about the crisis, and a J&J survey later concluded that nine out of ten Americans knew of the deaths within a week (Kaplan 16). Other surveys revealed that, J&J’s long-standing reputation for truth-telling aggressive customer-oriented actions, and easy press access helped it weather the storm. The company fully understood the importance of protecting the company’s image and customer satisfaction.
The strategy adopted by Johnson and Johnson to win back the trust of the public both for reinstating its product and restoring its own reputation in the aftermath of Tylenol crisis was implemented in two phases.
The first stage involved the real crisis handling. The subsequent (second) stage concentrated on a comeback plan. To restore the confidence and trust of the public in Tylenol, and to make the product tamper-free, Johnson and Johnson followed a series of concerted measures. The first strategy was to introduce a resistant triple-seal that could not be tampered with.
It was actually the first company to act in accordance with the directive given by the Food and Drug Administration regarding tamper-resistant seals. The company made the announcement of the new triple safety seal packing at a press conference at the manufacturer’s headquarters.
To promote the use of Tylenol among customers who might have strayed away from the brand as a result of the tampering, the deaths and the adverse media publicity, McNeil Consumer product which is a subsidiary of Johnson and Johnson, went further to introduce promotion strategies for motivating consumers; the purchase of the product attracted 2.5 dollars off coupon. These promotions were announced in newspapers to reach a big population.
Johnson and Johnson had already lost a significant stock due to the crisis. To recover the lost stock, they changed the pricing plan and the new one gave consumers 25% off on every purchase made (Kaplan 15). More than two thousands sales representatives were employed to market the product directly to the consumers as a way of gaining their confidence.
The firm’s mission statement stated that the company’s first responsibility was to ensure that both consumers and medical professionals were satisfied with its product. The second responsibility was to its employees and where they lived, and all its other stakeholders (Kaplan 3). It was therefore necessary to ensure public safety in order to protect the reputation of the company. The company’s responsibility to the public was a well-organized tool to use in terms of public relations.
It ensured that the brand survived in spite of what had transpired. Tylenol is an example of the many companies that have gone through major crisis that can destroy the reputation of a company if mishandled. The way it handled this crisis was an indication of its loyalty to consumers and also to its employees.
On top of issuing public warnings against the consumption of its products, it went further to recall all its products. If the company had not recalled all the products that had already been distributed in the market, more people might have died from consumption of the dangerous products.
Crises are evitable in every organization. There are times when an organization has to deal with major problems which may be caused by either natural causes, accidents or can be intentional. An intentional problem may be caused by negligence of the management, the employees or other stakeholders. Not all companies are able to adopt proper strategies for dealing with their crisis. Some may opt to ignore them or discontinue the production of a certain product.
For example in the case of Tylenol, the company would have opted to discontinue the production of the product and concentrate on other products. This would have reduced the marketing costs for re-introducing the product but would not have guaranteed the company’s success. The reputation of the company would also be affected which would have been more costly than the costs incurred.
To ensure that a company’ financial stability is maintained, both in the short term and in the long term, it is advisable to deal with a crisis as it occurs and to ensure that the crisis management team is well trained and equipped with the necessary resources. Every organization should always be ready to address issues affecting its operations by putting aside some resources as risk funds. This ensures that the organization is not drained off its available resources and that it is able to deal with the problem at hand.
Anon. “Corporate Crisis Management.” Center for Chemical Process Safety of the American Institute of Chemical Engineers, 2005. Web. 3 Dec. 2010.
Effective Crisis Management. “The Tylenol Crisis, 1982.” University of Florida, not dated. Web. 3 Dec. 2010. http://iml.jou.ufl.edu/projects/Fall02/Susi/tylenol.htm
Kaplan, Tamara. “The Tylenol Crisis: How Effective Public Relations Saved John And Johnson.” The Pennsylvania state university, 2010. Web. 3 Dec. 2010.
Nelson, Lauren. “Corporate Crisis Management.” suite101, Apr 27, 2010. Web. 3 Dec. 2010. http://www.suite101.com/content/corporate-crisis-management-a236516