Crisis Management and Planning in given Company
MICHAELA KARHANKOVA, MILAN ADAMEK, ALES MIZERA
Faculty of Applied Informatics
Tomas Bata University in Zlin
Nad Stranemi 4511, 760 05, Zlin
CZECH REPUBLIC
Key-Words: - Crisis, Crisis Management, Crisis Scenario, Crisis Plan, Management, Company Management.
Received: October 21, 2021. Revised: August 1, 2022. Accepted: August 23, 2022. Published: September 8, 2022.
1 Introduction
Crisis management is an essential function in many
organizations. Each of them will overcome the crisis
at some point in its existence. Today, it is very
important for society to achieve its goals, which
include economic efficiency, financial stability,
sustainable development, and its overall value.
However, each company has a different level of risk
perception, techniques, and approaches to managing
a given situation. It is important to be prepared for a
crisis and be able to respond in time. A well-timed
and thorough solution can have a positive benefit for
the company.
Business results, stakeholders, the public image
of the company, and failure to manage crisis can
have catastrophic consequences and damage if an
organization does not respond fundamentally to a
given problem. The tool for solving crises is called
crisis management, from the phase of crisis
recognition to its solution.
Crisis management is an asset for society in
times before and after a crisis. It is a set of
principles and resources that the company's
management uses to prevent crises. It can be also
used for the preparation for a crisis to manage the
company in times of crisis and eliminate the
consequences.
1.1 Crisis in the Companies
A crisis in a company is a situation of various
lengths of time when a company decides to either
return to the time before the crisis or if its existence
is threatened. A crisis can affect an individual,
organization, political party, society, or even an
entire country. The effects of the crisis can be
expressed in different units like the number of
killed, injured, damage, percentage of the
population affected, etc. The crisis can be perceived
differently, based on the situation. If a crisis occurs,
a company reaches a turning point where it either
comes up with a new production program and
launches a new product, or the turning point will be
a disaster for the organization. The crisis can be
caused artificially, which means that it can be part
of strategy tactics, serve as a tool for solving
internal companies or it can be in a competitive
environment. [1] The common features of the crisis
in the company are the following:
it is destructive and it prevents the normal
operation of the organization,
it is negative and can slow down activities
leading to the fulfillment of the organization's
goals,
it divides the organization and it can create
misconceptions due to the spread of
misinformation,
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.139
Michaela Karhankova, Milan Adamek, Ales Mizera
E-ISSN: 2224-2899
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Volume 19, 2022
Abstract: - The article deals with the issue of crisis management in a given organization and it is focused on the
creation of crisis scenarios and plans. Crisis scenarios and plans are the way how to prevent, prepare and resolve
a potential crisis before it occurs. The first part of the article deals with theoretical background and literature
research focused on crisis and crisis management. The second part of this article focuses on a specific company,
its description, problems, threats, and weaknesses. The rest of the article comes with a reaction and solution for
all mentioned threats that were determined and consulted by the company management. Created process of
crisis management can be used also by other companies that have the same work plan. This article aims to
emphasize the importance of crisis management to propose solutions to crises in the selected organization.
the crisis is surprising even though the
organization's management takes into account
the risks, which can be surprising. [2]
The company's management must respond to the
crisis in time to prevent catastrophic consequences.
The organization often notices the problem until it
deteriorates in the income statement. Attention must
be paid to crisis management, which is often part of
the company's management and control
mechanisms. [3]
1.2 Causes of the Crisis in the Companies
External causes are associated with the business
environment, which is chaotic, unpredictable, and
turbulent. Changes are rapid, and signals of these
changes can be weak, and unpredictable, and
organizations often fail to respond. These changes,
together with an inadequate response from corporate
management, can escalate into a corporate crisis.
Moreover, the loss of market position can take the
crisis into the acute phase of the crisis. [4]
Internal causes can form from a new solution or
internal problems of the individual subsystem of the
company. The problems are transferred to the
relationships of the company and its surroundings.
Moreover, reducing competitiveness and the
consequences are similar to those of external causes
like product quality, organizational problems, or
high costs. [5] The most common causes of the
crisis, combined with other aspects, include:
failure of the human factor,
failure of an organizational, technical, or
technological factor,
ignorance and non-use of strategic management
and methods,
insufficient own financial resources, loans, and
associated high-interest rates,
the inability of management combined with
optimism and exaggerated self-confidence,
completely avoiding risk or accepting high risk
because management is unable to identify high
risk,
Inappropriate payment morale and the
associated board. [6]
2 Crisis Management
The tool used for resolving crises is called crisis
management. The process involves the phase of
crisis recognition, crisis management, and the
elimination of the consequences which has been
caused. Crisis management is a set of principles and
it means that owners and business managers use it to
manage the crisis in the company and bring it back
to normal development. There are three different
approaches to crisis management. These approaches
are recognized in the areas of socio-political,
economic crisis, and crisis due to accidents and
natural disasters. Crisis management is applied in
two cases. The first one is a normal state and the
second can be used in crises. Normally, it is part of
the company's management in the area of prevention
and detection of crises, and it serves as a given
management procedure to manage a crisis. [7]
The crisis management process is listed in Figure
1, and it is based on interconnected activities, which
are the basic functions of crisis management.
Moreover, it is a function of prevention, correction,
anti-crisis intervention, reduction, and recovery. [8]
Fig. 1: Crisis management process
The prevention phase is based on the
organization and preparation of the organization for
activities that serve to prevent the escalation of
threats to crises. [6] The correction phase is based
on the adaption of standards like legal, economic,
etc., which aim to create conditions for minimizing
the sources of crises and ensure readiness to deal
with crises. [4] The prevention and correction phase
is carried out in the entire continuum of the crisis
environment. Part of the anti-crisis intervention is
proactive measures that lead to the prevention of a
crisis. Subsequently, it also can lead to the
stabilization of the situation and a gradual return to
normalcy.
The reduction phase includes the active
implementation of contingency plan measures to
reduce damage and losses caused by a crisis. It is
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Michaela Karhankova, Milan Adamek, Ales Mizera
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Volume 19, 2022
applied in times of crisis and the post-crisis period.
[9] The recovery phase involves eliminating the
consequences of the destructive factors of the crisis.
This phase is implemented in the period after the
crisis and the goal of recovery is to return the
system to a new normal state in which the
organization can be functional.
2.1 Approaches to Crisis Management
Crisis management, in the widest meaning, is
important as a preventive measure, which means
that an ongoing process leads to reducing the crisis.
A system for early identification of crisis
developments and a system for reducing the impact
of the crisis can be established. The goal is to
quickly and successfully manage a crisis. In
common meaning, the task of crisis management is:
Recognize in time non-standard negative
situations in the company and reveal their
causes.
Properly set up preventive processes that lead
to crisis prevention.
Successfully resolve the crisis that has arisen.
Eliminate the consequences of a crisis. [10]
Fig. 2: Crisis management process
Previous Figure 2 shows the concept of crisis
management. In a narrow meaning, crisis
management is a system of principles and tools that
are aimed at resolving an existing crisis in the
company and mitigating the damage that may arise
as a result of the crisis. The approach to crisis
management is based on the situation when the
company is affected by the crisis. It can be
described as an acute phase and the symptoms of the
crisis are manifested in the financial area. [7] The
tiniest meaning, crisis management is focused on the
phase of liquidation of the company, because it is in
a state where its recovery and re-launch cannot be
carried out. The signals of the coming crisis can be
overlooked, which can lead to liquidation and
demise.
2.2 Crisis Scenarios and Plans for Possible
Crisis Situations
It is neither practical nor possible for crisis scenarios
and plans to be developed for all risks. The most
serious risks are based on risk analysis, which is
fundamental for creating a crisis scenario and plan.
The identification and assessment of risks can be
part of the company's management process. The
disadvantage of crisis scenarios describes the
possible direction of a future crisis. This means that
the situation may develop differently than described.
[11] Crisis scenarios should answer the following
questions:
What crises does the company have to prepare
for?
What is the probability of their occurrence?
What could be the consequences?
What could be the course in terms of time?
What are the options for implementing anti-
crisis measures?
What approach to crisis management will we
take?
It is necessary to analyze the risks of the selected
business entity to create a crisis plan. Risk analysis
is part of the risk management process in the
selected company with the identification and
assessment of risks. The parts of the risk
management process are creating crisis scenarios
and plans. The process for creating crisis scenarios
and a plan is following:
1. Risk identification.
2. Risk analysis.
3. Identification of crises.
4. Creating a crisis scenario.
5. Creating a crisis plan. [4]
3 Crisis Management in a
Distribution Company
The company has been operating on the market for
30 years as a distributor in the field of information
and communication technologies. The following
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DOI: 10.37394/23207.2022.19.139
Michaela Karhankova, Milan Adamek, Ales Mizera
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Volume 19, 2022
Table 1 shows the most serious and current risks for
the company.
Table 1. Most Serious and Current Risks for the
Company
Risk categorization
Risk
Risk Level
Market risk
Competition
Medium
Damage to the
company's reputation
Medium
Supplier risk
Loss of the
distribution contract
High
Loss of supply of
goods
High
Financial risk
Inflation
Medium
Exchange rate risk
Medium
Personnel risk
High
Technical risk
Risk of power failure
Medium
Data loss
Low
Data leak
Medium
There are some shortcomings in the area of crisis
management in the selected company. It does not
have a certified management system following ISO
31000. It also does not follow crisis scenarios and it
does not have contingency plans. The company's
management emphasizes is on the creation of a
crisis team, which consists of members of the
company's top management. To prevent crises,
meetings were introduced to monitor the area of
turnover and profit against the plan, specifically the
market situation, the area of customers, their
turnover, and payment morale. In the event of a risk,
the company's management meets operatively.
4 Results and Discussion
The loss of a distribution contract, failure to supply
goods, and personnel crisis represents the greatest
current risks for the company to achieve its goals,
economic efficiency, sustainable growth, financial
stability, and overall value of the company. To
maintain the distribution contract, it is necessary to
meet the set of conditions of the distribution
contract. It is important for the maintenance of the
contract that the company moves in the evaluation
of the fulfillment of the supplier's conditions among
other distributors at the highest possible level if the
supplier decides to reduce the number of
distributors. The company must evaluate business
results, market shares, and marketing - planning
new ones and evaluating past events at each regular
meeting. It is a crisis if the company loses a supplier
with an annual turnover of more than 0.5 million
USD. Two options have been proposed if this crisis
occurs.
1. Acquisition by a strong company that has a
distribution contract.
2. Termination of distribution and offer of
products of similar type from another supplier.
The 80 % of turnover is generated by selling
products of the ten most important suppliers. Five of
them supply similar types of goods based on the
same basic components. A delivery failure of the
goods on time can cause problems for the company's
partners with the fulfillment of obligations to its
customers. In some cases, the delivery of complete
solutions may be conditioned by various sanctions.
The other possible risk for the company is the
shortage of supplies from the supplier. The causes
can be on the part of one supplier and also on the
part of several suppliers, which is a latent, difficult-
to-predict risk. There is a risk of customers leaving
the competing distributor in the event of a delay in
the goods delivery due to a shortage on the required
date. The departure of customers can cause financial
losses in turnover, and profit of the company, and
will also affect other factors determining the value
of the company such as damage to the reputation.
Regular communication with the supplier and
information on stocks is important to prevent this
crisis. It is important to act quickly on the part of the
company and to make quick decisions on the part of
the company's business partners and customers
because there are rapid changes in the availability of
the goods offered. When this crisis occurred, the
following solutions were proposed:
1. Purchase of goods from the 3rd party, which
has the goods in stock.
2. Substitute offer.
3. In case of a worldwide outage of goods -
inform customers.
The primary factor influencing employee
satisfaction is a properly set wage policy for the
company to prevent high employee turnover. A
secondary factor is the benefits system, which
contributes to employee satisfaction and motivation.
A crisis occurs if employee turnover significantly
exceeds disproportionate limits, which would
threaten the operation of a section of the company.
More specifically, this limit for the current company
was evaluated to 10 % of all employees which is
more than 30 people in total. The biggest problem
can occur when the sales department of the
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DOI: 10.37394/23207.2022.19.139
Michaela Karhankova, Milan Adamek, Ales Mizera
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Volume 19, 2022
company has a lack of working force. The
mentioned sector is responsible for the main tasks
like ordering goods, sales, and communication with
the customers. Regular verification of employee
satisfaction must be done to prevent the emergence
of a personnel crisis, which can be caused by high
morbidity or employee departure.
Previous Table 1 represents the common and
current risks that can be applied to similar
companies dealing with distribution in general. The
designed process of risk management should be
done periodically several times a year, because the
environment outside and inside of the company is
changing very rapidly, and the risk manager must be
prepared and react to new threats quickly.
5 Conclusion
The article aimed to point out the issue of crisis
management in a given company. Moreover, the
presented process of crisis prevention can be also
used for other companies dealing with the same
intention. The first part described the issue of the
crisis in the company, including the causes and
sources of its origin. Subsequently, crisis
management was described as a tool for solving
crises, from the recognition of an impending crisis
to the final elimination of consequences. The second
part was focused on crisis scenarios and crisis plans,
which are one way to prepare for a potential crisis.
The current state of crisis management of the
company was evaluated, and the results showed that
the selected company has shortcomings in the area
of crisis management.
This research can be used as a guideline for
mentioned threats in a given company that is
focused on distribution. Evaluated threats with the
highest risk level are listed in Table 1. The most
significant and destructive threat for a given
company is the loss of the distribution contract with
other companies which can lead to a fatal situation.
The other less significant threats were loss of supply
of goods and personnel risk in general. All listed
threats listed in Table 1. come with several solutions
which are described in detail. This research
represents a current threat to society that can have
an impact on the achievement of their goals,
economic efficiency, financial stability, sustainable
growth, and overall value.
Acknowledgment:
This work was supported by the Internal Grant
Agency of Tomas Bata University under project No.
IGA/FAI/2022/005.
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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.139
Michaela Karhankova, Milan Adamek, Ales Mizera
E-ISSN: 2224-2899
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Volume 19, 2022