Leadership as (Un)usual: How to Display Competence in Times of Crisis
“Leadership as (Un)usual: How to Display Competence in Times of Crisis,” by Erika Hayes James and Lynn Perry Wooten, addresses the competencies required to lead a business through turbulent events. The authors emphasize that the handling of a crisis can be just as consequential as the crisis itself; it can make or break a firm’s reputation.
First, the authors define business crises, which are situations that invite negative stakeholder reaction and threaten the well being of the firm. Using language from the Institute for Crisis Management, crises can be sudden or unexpected events where the firm may have little control and may not be held as accountable. Crises can also be smoldering, or internal problems that start out small and grow as a result of inattention from management; firms are generally seen as more responsible for these issues. Because the handling of a crisis is so important, however, it is possible that a well-managed smoldering crisis can do less harm than a poorly managed sudden crisis, or vice versa.
The study lays out five phases of a typical business crisis, established by previous research. These phases reveal a framework for effective leadership that the authors then build on with a skill set for leading organizations during crises. The five phases are:
- Phase 1, Signal Detection: During this phase, there are warning signals that may go unchecked by management.
- Phase 2, Preparation/Prevention: Managers can plan ahead to avoid many crisis situations.
- Phase 3, Containment/Damage Control: The goal of this phase is to limit financial and other threats to firm survival.
- Phase 4, Business Recovery: Executives try to reassure stakeholders that, despite a disruption, business will return to normal.
- Phase 5, Learning: This occurs when a firm searches for the underlying factors that may have contributed to the crisis and, based on them, makes changes in policies and procedures.
Understanding these phases is necessary before a company can develop leadership competencies to successfully navigate through a business crisis. The authors suggest that specific leadership skills can be developed that take into consideration the organization, the crisis, and the environment. These six skills are useful in leading through the five phases of a crisis situation:
- Building a foundation of trust across the entire supply chain as well as internally is important.
- Creating a new corporate mindset that includes responding to multiple stakeholders, not only the most vocal, can be key during a crisis.
- Identifying the firm’s vulnerabilities can make it easier for management to anticipate possible crisis scenarios.
- Making wise and rapid decisions, rather than relying entirely on the narrow focus of an expert opinion, can show that the leaders are thoughtful in the handling of a crisis.
- Taking courageous action, despite the urge to act conservatively, can lead to the possibility of a better organization in the long run.
- Learning from the crisis means seeing it as an opportunity to effect change and improve the company.
Crisis leadership is a process and involves using this core set of behaviors in a dynamic environment. Take, for example, the racial discrimination lawsuits at Denny’s restaurants. Management betrayed the trust of its customers by employing practices that encouraged race-based discrimination. The cause of the crisis was a failure to build and maintain trust. Leadership did, however, consider the needs of customers and stakeholders in dealing with the lawsuit, rather than focusing solely on profitability. Denny’s implemented systems and incentives that encouraged and rewarded diversity initiatives. If management had seen the ways in which its organization was vulnerable as a result of its own decision-making, the discrimination may never have occurred in the first place. But Denny’s quickly acknowledged their failures, such as creating a structure that prevented the organization from recruiting and developing minority talent in the firm. The company then took bold action to settle the discrimination lawsuits, and listened not only to its legal team but to civil rights groups, minority businesses, and diversity management trainers on how best to move forward.
Was Denny’s successful in handling the crisis? It demonstrated most of the six competencies and showed that it is willing to work on its failures; thus, Denny’s reputation was ultimately saved. The authors suggest that crisis management activities are an important component of overall crisis leadership. And although the skills described here are emerging, the research indicates that the consequences of not building and using crisis leadership competencies can be significant for the leader and for the organization.
To request a copy of the complete journal article as published in Organizational Dynamics, contact Erika at www.erikahayesjames.com/contact.