Smart Companies Build Early Warning Systems

By Peter Kapcio
As appeared in the Crisis Management Guidebook 2006 Edition

By far, the best way to manage a crisis is to prevent it from happening in the first place.

That’s why smart companies have early warning systems in place, so that any events affecting the company or its industry get communicated to management immediately. And — here’s the hard part — management must have the necessary discipline to heed early warnings, overcoming the widespread human tendency for denial.

The definition of a business crisis shapes real-world preparedness for one. A crisis is any situation, circumstance or event that disrupts the normal operations of an organization. The disruption — not the event — is what turns an event into a public relations crisis. How you respond, and more importantly how quickly and effectively you respond, ultimately determines how you’ll be perceived in the court of public opinion — and whether your all-important reputation will be protected or destroyed.

Almost every business eventually faces a crisis of some kind. Business crises take many forms, ranging from the death of a key employee to an explosion or fire to the discovery that an unsafe condition was overlooked and endangered lives.

Many companies are surprised to learn not all crises are caused by events commonly perceived as negative or “bad.” Some of the worst business disruptions occur during seemingly “good” crises, such as a sudden rush of new business that overwhelms your ability to deliver, a competitor’s unexpected bankruptcy, or a merger or acquisition opportunity that arises suddenly.

While some arrive completely unexpected like the World Trade Center attack or a California earthquake, most business crises can be anticipated. That’s when your early warning system proves invaluable. By enabling you to foresee an issue that could make your company the focus of unwanted media or community attention, you can take steps to avoid or counteract the oncoming crisis.

Building an early warning system is quite straightforward, requiring primarily commitment and discipline. Management simply identifies potential crisis triggers and risk areas, and assigns someone (or some mechanism) to continuously monitor them.

Monitors behave like intelligence agents in the field, regularly reporting their observations back to a multi-disciplinary team capable of analyzing, evaluating and identifying business and operating threats before they become actualities.

Areas of likely risk will differ from company to company. But the guiding principle remains the same: there’s no substitute for good intelligence, eyes and ears directly at the spot wherever trouble is most likely to occur. Most organizations are capable of accurately identifying their potential crisis triggers. Six categories of risk types provide the framework with which to anticipate events. Smart companies use this list for conducting “what-if?” scenarios.

The six risk areas for corporate crises.

  1. Operating or Business Failure. Examples: Management decisions (bad) and indecisions (failure to act); poor financial performance or questionable management; strikes; dramatic stock price drop; product failures; supply disruptions; failure to deliver; customer, vendor or other contract disputes; gross waste; failed union negotiations; computer or telecommunications breakdown; major employee defections; merger, acquisition or takeover; downsizing; competitive attack; interrupted operations from natural disaster; succession issues.
  2. Legal or ethical. Corporate misbehavior; misuse of funds; illegal organizational activity; questionable or illegal political involvement; improper foreign conduct; lack of regulatory compliance; unethical marketplace behavior; overreaching regulators; offering or acceptance of bribes; threat of government sanctions; fines; penalties; institutional corruption or accessory to corruption; botched reaction to accident; protests; boycotts.
  3. Individual misconduct. Any illegal behavior; sexual harassment; bribery; embezzlement; fraud; racist behavior; workplace violence; scandal.
  4. Political. Civil and military unrest; pending legislation that can change business fundamentals; special interest and advocacy group threats; misinformation campaign that makes you “the enemy;” illegal or questionable political campaign contributions; participation [unwitting or not] in human rights violations; boycott.
  5. Environmental. Activist attacks; compliance failures; aggressive regulatory initiatives; environmental damage from accident; boycott.
  6. Safety and security. Workplace violence; war; natural disaster or catastrophe; kidnapping; terrorist threat; travel disaster; sudden loss of key management; failure to take proper precautions; erroneous response to disaster; industrial accident with loss of life; hazardous or inhumane labor conditions; sabotage; product tampering.

The importance of confidence in crisis preparedness cannot be overstated. Knowing that you and your organization are prepared to face the unknown generates confidence. Feeling, being and acting confident are crucial preparations for facing unforeseen and emotionally difficult crisis events at a time when you must reassure others that the situation is under control and being handled properly.

The ability to anticipate trouble before it happens is the best source of confidence in the world, another reason why smart companies construct early warning systems.

Operating without an early warning system is comparable to flying blind. In your daily routine, you would never consider making important operating or financial decisions without a full backgrounding. So why would you try to navigate your way out of a serious crisis lacking the same kind of foresight?