Session No. 18

# Course Title: Business and Industry Crisis Management, Disaster Recovery, and Organizational Continuity

**Session 18: Precrisis Event Review and the Crisis Management Team**

## Time: 1 hr

**Objectives:**

1.  Describe the six stages of crisis management (and business
    continuity) included in Norman Augustine's 1995 *Harvard Business
    Review* article "Managing the Crisis you Tried to Prevent."

2.  Explain operational and functional team responsibilities,
    employment, and hierarchical relationships.

3.  Discuss the purpose, composition, and membership characteristics of
    a generic crisis management team (CMT).

# Scope:

This session provides a review of the precrisis functions of risk
assessment, BAIA, risk management, safety and security management,
business contingency planning, and training and exercises and provides a
segue into the functions necessary during and after an actual crisis.
The 1995 *Harvard Business Review* article "Managing the Crisis you
Tried to Prevent," by Norman R. Augustine, presents six stages of crisis
management (and business continuity) and is used as a guide for the
instructor's presentation and class discussion. A second article,
"Management of a Crisis," by M.E. Gilbert in the U.S. Coast Guard's
*Commandant's Bulletin*, provides another pragmatic description of
crisis management and is included in electronic form for distribution to
the students for reading and discussion during the next session.
Operational and functional teams are discussed next, with particular
attention to the crisis management team, (CMT) which has extensive
responsibilities before, during, and after a crisis. Particular
attention is focused on the CMT's composition, with research findings
(Greening and Johnson 1997) concerning the heterogeneity of CMTs with
respect to functional background, educational background, age, and
tenure.

**Readings:**

*Student Reading:*

Barton, Laurence. 1993. *Crisis in Organizations: Managing and
Communicating in the Heat of Chaos.* Cincinnati, OH: South-Western
Publishing Co. Pages 171--175.

Lerbinger, Otto. 1997. *The Crisis Manager -- Facing Risk and
Responsibility*. Mahwah, NJ: Lawrence Erlbaum Associates. Pages 37, 38.

*Instructor Reading:*

Augustine, Norman R. 1995. "Managing the Crisis You Tried to Prevent."
*Harvard Business Review.* Vol. 73, No. 6. Pages 147--158.

Barton, Laurence. 1993. *Crisis in Organizations: Managing and
Communicating in the Heat of Chaos.* Cincinnati, OH: South-Western
Publishing Co. Pages 171--175.

Fink, Steven. 1986. *Crisis Management: Planning for the Inevitable*.
New York: Amacom. Introduction and chapter 1, pages 1--14.

Greening, Daniel W., and Johnson, Richard A. 1997. "Managing Industrial
and Environmental Crises." *Business and Society*. Vol. 36, No. 4. Pages
334--361.

Lerbinger, Otto. 1997. *The Crisis Manager -- Facing Risk and
Responsibility*. Mahwah, NJ: Lawrence Erlbaum Associates. Pages 37, 38.

**General Requirements:**

Complete the modified experiential learning cycle for objectives
18.1--18.3 at the end of the session.

**Objective 18.1 Describe the six stages of crisis management (and
business continuity) included in Norman Augustine's 1995 *Harvard
Business Review* article "Managing the Crisis you Tried to Prevent."**

**Requirements:**

Present the material with lecture and discussion as necessary.

The crisis management and business continuity model overhead is included
for your use if desired.

To facilitate discussion ask the students the following questions in the
context of "preparing to manage the crisis":

Do you agree with the inevitability of a crisis? and if so, why bother
with crisis prevention?

Can you think of any other second-order effects?

The article "Management of a Crisis," by M.E. Gilbert, from the
November/December 1982 U.S. Coast Guard's *Commandant's Bulletin,* is
included in electronic form for distribution to the class as a reading
assignment for the next session.

**Remarks:**

I.  Crisis event **introduction.**

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A.  To this point the emphasis has been placed on the **precrisis
    functions** of risk assessment; BAIA; risk management; safety and
    security management; business contingency planning; and training and
    exercises.

B.  These functions are linked in a generally **sequential fashion** (at
    any point it may be necessary to revisit earlier functions as new
    information/experience is assimilated -- e.g., lessons learned from
    crisis exercises may necessitate changes to the risk management
    strategy and contingency plans) and are also linked to the crisis
    and postcrisis functions that will be covered in the next few
    sessions (overhead 18-1).

C.  The key to the linkage is the **"Crisis Management Team Coordination
    and Action"** function(s) that transcend the pre-event, event, and
    post-event time periods.

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1.  Essential to each function are **top-level management
    understanding,** **support, and decisions.** The crisis management
    team (CMT) is a conduit for providing this necessary top-level
    management support and involvement.

2.  **Composition, characteristics, and decision making** within and by
    the CMT will be covered later in this session and the next session.

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II. **Six stages of crisis management** (and business continuity) from
    Norman Augustine's *Harvard Business Review* article "Managing the
    Crisis you Tried to Prevent" are presented as a review of what we
    have covered and a preview of what lies ahead.

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A.  As a matter of **background,** Norman Augustine was a past president
    and chief executive officer (CEO) of Lockheed Martin Corporation and
    lists amongst his crisis management experiences:

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1.  Joined LTV Corporation during the week that **the CEO was ousted and
    bankruptcy loomed** on the horizon.

2.  Joined the federal government as a presidential appointee just in
    time to witness the **president's resignation.**

3.  Joined the board of a major petroleum company just before one of its
    **processing facilities exploded.**

4.  Assumed chairmanship of the American Red Cross just as a series of
    once in a century **natural disasters struck.**

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B.  Augustine obviously has significant experience in dealing with
    crises within the **public, private, and not-for-profit sectors.**
    As a result of this experience he makes the observation that there
    is no magical 9-1-1 number to call for rescue in a time of crisis.
    It is up to those involved to work their way through and out of the
    predicament. His six stages of crisis management provide the
    blueprint for doing just that.

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1.  Stage 1: **Avoiding the crisis.**

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a.  Prevention focus and efforts occur within all **precrisis**
    functions.

b.  Within the risk assessment, BAIA, risk management, and safety and
    security management sequence, risks are examined and categorized,
    risk controls are identified and implemented, and the internal and
    external environments are monitored in an effort to **prevent crises
    before they occur.**

c.  As Augustine says, "In the preventive phase, the executive must try
    to minimize risks and to be certain that those that must be taken
    are commensurate with the returns expected. The risks that cannot be
    avoided must be properly hedged. The real problem, however, is that
    **perfect prevention is perfectly unattainable."** (Emphasis added;
    p.2.)

d.  Despite the most Herculean prevention efforts, there are some crises
    that are just not foreseen, are beyond the control of the business,
    or for which prevention is determined to be economically unfeasible.
    Thus the **necessity of planning, training, and exercising.**

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2.  Stage 2: **Preparing to manage the crisis.**

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a.  Steven Fink, in his book *Crisis Management*, emphasizes the
    necessity for crisis planning by stating, "You should view and plan
    for the inevitability of a crisis in much the same way you view and
    plan for the inevitability of death and taxes: not out of weakness
    and fear, but out of the strength that comes from knowing you are
    **prepared** to face life and play the hand that fate deals you"
    (emphasis added; p. 6).

b.  **Ask the students,** Do you agree with the inevitability of a
    crisis? and if so, why bother with crisis prevention?

c.  Developing business contingency plans, training personnel, and
    exercising plans are **essential** to adequate crisis management and
    business continuity preparation.

d.  Augustine mentions the necessity of searching for subtleties --
    **second-order effects** -- in the preparation stage. Realistic
    drills and exercises and open communications help in discovering
    such effects.

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(1) As an **example of a second-order effect,** in the aftermath of
    Hurricane Andrew (1992), the telephone companies discovered that
    their primary shortages were not telephone line repair supplies but
    day care centers. With many centers and schools destroyed or closed
    due to lack of utilities, many telephone field workers were needed
    at home to care for their children or dependant adults. The
    telephone company eventually established its own centers and
    augmented the local workforce with out-of-the-area workers, but
    delays in resuming and restoring service were encountered -- delays
    that could have been prevented.

(2) **Ask the students,** Can you think of any other second-order
    effects? We discussed several in the coverage of personnel concerns
    for establishing alternate sites in session 15. Additionally, in
    session 12 we discussed the problems associated with a narrow
    inward-looking focus on business operations when external factors
    such as utility disruption can totally block business resumption and
    recovery.

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e.  In summarizing this stage, Augustine includes the following as
    **necessary preparations:** establishing a crisis center, making
    contingency plans, selecting in advance the members of the crisis
    team, and providing and testing redundant communications (p. 6) --
    topics we have covered or will cover in more detail.

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3.  Stage 3: **Recognizing the crisis.**

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a.  Many **crises are dramatic and obvious,** such as a crisis arising
    from the damage caused by a natural disaster, the crash of an
    airliner, a major oil spill, a highly defective consumer product,
    etc.

b.  Other crises **build up slowly over time and/or are not perceived**
    as doing so, thus resulting in missed opportunities to prevent their
    occurrence and/or lessen their impact.

c.  As discussed in session 10 (objective 10.7), a **proactive
    approach** to crisis management requires internal and external
    organizational monitoring and signal detection for preparing,
    preventing, and acting in the face of a crisis.

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(1) An **awareness of perceptions,** both internal and external to the
    organization, is important in defining the actual crisis (or crises)
    and responding appropriately.

(2) Augustine provides the case of **Intel's misguided reaction** to the
    1994 Pentium chip problem as an example of a crisis resulting from a
    lack of understanding of the public's perception.

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(a) When a professor (from outside Intel) found calculation (floating
    point) errors caused by the chip, Intel, convinced that the chip was
    infallible, **politely brushed off the professor.**

(b) The professor, attempting to confirm the problem, **went public with
    his discovery via the Internet** and triggered a nationwide response
    that was almost entirely negative towards Intel.

(c) Intel's reaction was to downplay the problem and release test
    calculations showing that the average chip user would encounter the
    error once every 27,000 years.[^1] Essentially, what it was saying
    was that Intel, **the producer, knew what was OK for the customer
    better than the customer did.**

(d) **IBM, a Pentium user and a producer** of the competing PowerChip,
    countered Intel's claim by stating the errors could occur every 24
    days in large spreadsheets, and suspended sales of their Pentium
    equipped computers. IBM also offered to replace flawed Pentium chips
    in IBM machines.[^2]

(e) Intel **changed its position** on the chip several times in the
    following two months, first offering to replace the chip for certain
    users only, then offering a "no questions asked" replacement policy,
    and then reverting to conditional replacement.[^3]

(f) After two months of public criticism, Intel instituted **two policy
    changes reflecting the lessons learned** from its mishandling of
    this crisis. It had treated it as a technological problem rather
    than the public relations problem it really was.

(g) Intel publicly stated that, in the case of product defects, it would
    refrain from making technical judgements about whether someone
    should know or not. From that point on, if Intel discovered a flaw,
    it would make a **public disclosure** in all instances.[^4]

(h) Intel also instituted a **"no questions asked"** replacement policy
    to cover the Pentium and future product flaws.

(i) In 1997, Pentium experienced a floating point error in its Pentium
    II chip and held true to the two policy changes implemented from the
    **lessons learned** from the 1994--1995 crisis.

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(3) Augustine also mentions the ***Brent Spar*** controversy (session 9)
    as an example of a crisis arising and escalating as a result of
    misreading the public's perception. Shell considered a scientific
    approach and technically focused, one-way communications (messages)
    to be adequate and neglected the emotion-packed environmental issue.

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d.  Augustine cautions against **tunnel vision and self-deceit** in the
    detection and recognition of potential or actual crises. He
    recommends the input of multiple perspectives, including provisions
    for input from representatives external to the organization in
    crisis detection and recognition -- a point that will be expanded
    upon in the discussion of CMT membership.

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4.  Stage 4: **Containing the crisis.**

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a.  During and immediately following a crisis event, rapid and tough
    (involving complex issues) **decisions** are often required to
    protect personnel and property and to set the stage for rapid
    business resumption and recovery.

b.  In the absence of dumb luck, informed decisions require **access to
    and proper consideration of clear, concise, and relevant
    information.**

c.  Often, information and advice received from advisors can be
    **contradictory and confusing** -- thus inhibiting rather than
    supporting sound decision-making. (More on crisis decision making in
    the next session.)

d.  An essential element of crisis containment is **effective
    communication** (two-way exchange of information and ideas) within
    the organization at all levels, with external stakeholders, and the
    public in general (usually through the media).

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(1) **Crisis communication** is a central theme of both Barton's and
    Lerbinger's texts and will receive extensive coverage in later
    sessions.

(2) At this point, the sage advice of Augustine deserves mention and
    consideration. He stresses that **"Credibility** is far more
    important than legal positioning" and he prefers to **"err on the
    side of over disclosure"** (emphasis added; p. 8).

(3) Augustine concludes this stage with **four lessons** for crisis
    containment.

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(a) First -- There should be a **crisis management team** (CMT), led by
    the CEO working full time to contain the crisis.

(b) Second -- There should be a **single spokesperson** for dealing with
    the public. This spokesperson, possibly the CEO, should be fully
    trained and possess the interpersonal skills and manner necessary to
    maximize the probability of successful communications.

(c) Third -- External stakeholders and people internal to the
    organization deserve more than receiving their information by the
    means used to pass information to the general public. Special
    attention should be focused on **keeping them informed and
    involved.**

(d) Fourth -- the CMT should include a **"devil's advocate"** who is not
    afraid to challenge the deliberations and decisions made within the
    CMT.

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5.  Stage 5: **Resolving the crisis.**

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a.  During a crisis, and in its immediate aftermath, **speed** is
    essential.

b.  **Primary emphasis** is on life, safety, and property protection
    when dictated by the event, followed by business resumption and
    recovery and holding and regaining trust.

c.  The **Food Lion crisis** provides an excellent example of acting
    quickly and decisively to resolve a crisis of consumer confidence.

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(1) Following a **November 1992 expose by ABC's Prime Time Live**
    alleging the sale of spoiled meat in a North Carolina store, Food
    Lion's stock declined to half its precrisis value.

(2) Food Lion acted quickly through a series of actions designed to
    **win back the public's trust,** including: public tours of stores,
    refitting meat-preparation areas with large windows open to
    shoppers' view, better lighting, improved training, television and
    radio ads emphasizing store sanitation, and monetary incentives to
    shoppers.

(3) **Astute competitors** recognized the potential crisis that
    customers' negative perceptions presented for all grocery stores.
    They also recognized the potential for improving their position and
    seized the opportunity made possible by Food Lion's crisis.

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(a) Starting the day after the ABC broadcast, Harris Teeter, a North
    Carolina-based food chain, posted signs in stores and ran ads
    informing customers of its commitment to quality. Harris Teeter
    observed **double-digit sales gains** during the week of the ABC
    broadcast.[^5]

(b) Farm Fresh, based in Norfolk, Virginia, put on a **local television
    specia**l in which food-industry experts addressed food safety
    questions and assembled all store managers to review safety
    standards.[^6]

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(4) As a **side note,** in December 1996, a North Carolina jury ruled
    that ABC's PrimeTime Live had committed fraud, trespass, and breach
    of fiduciary duty in connection with the undercover report. Food
    Lion never challenged the veracity of the report, but rather the
    method by which ABS obtained its information.

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d.  Another example of acting quickly can be found in the **Tylenol
    crisis** (session 5). Johnson and Johnson immediately offered a
    \$100,000 reward for capturing the murderer(s), launched a
    nationwide campaign to warn consumers, and recalled over \$100
    million in stock. Johnson and Johnson's handling of the Tylenol
    crisis is continuously cited as exemplary crisis response and
    resolution in texts and articles.

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6.  Stage 6: **Profiting from the crisis.**

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a.  As stated by Augustine, "the final stage of crisis management is
    **making lemonade from the abundance of available lemons"**
    (emphasis added; p. 10).

b.  Crises can threaten the safety of employees and customers, consume
    resources, and place the very survival of an organization in danger,
    and are in general very unpleasant experiences for all involved. At
    the minimum, **lessons learned** should be recognized, documented
    and carried forward by the organization.

c.  Additionally, the **positives of an organization's actions,** such
    as the responsible and laudatory actions of Johnson and Johnson in
    the Tylenol crisis can improve the organization's public and
    internal image. By its actions, Johnson and Johnson earned the
    public's trust, a commodity difficult to earn but rapidly lost
    through poor crisis management.

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III. Additional **student reading and discussion.**

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A.  The included article, "Management of a Crisis," by Captain M.E.
    Gilbert, USCG, from the November/December 1982 on-line *Commandant's
    Bulletin,* is the **reading assignment** for the next session.

B.  The students should be ready to **discuss** Captain Gilbert's
    thoughts and recommendations for coping with a crisis and contrast
    these thoughts and recommendations to those expressed by Augustine.

**Supplemental Considerations:**

Augustine's article provides pragmatic advice for crisis management and
includes excellent examples and humorous quotes that the instructor may
consider using in the presentation of the material. (The article is
copyright protected and the instructor must pay the *Harvard Business
Review* should he wish to make copies for the students.) The articles
concerning the Food Lion, Intel, and Texaco crises are referenced for
the factual information they provide. Reading these articles is not
required for the instructor to present and discuss the examples at the
level of detail provided in the session plan.

**Objective 18.2 Explain operational and functional team
responsibilities, employment, and hierarchical relationships.**

**Requirements:**

Present the material by means of lecture and discussion as necessary.

**Remarks:**

I.  Team **responsibilities** in general.

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A.  In session 14, **various operational and functional teams** (e.g.,
    emergency management team, damage assessment team, communications
    team, marketing team, etc.) were discussed.

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1.  Each has **specific responsibilities and procedures** to follow
    depending upon the nature and circumstances of the incident,
    accident, emergency, disaster, and/or crisis necessitating its
    involvement.

2.  Depending on the specific circumstances of the incident, accident,
    emergency, disaster, and/or crisis, **any or all of these teams may
    be activated.**

3.  At this point, the **definitions** of incident, accident, emergency,
    disaster, and crisis should be **reviewed** (from session 2) and
    some examples presented showing how the various teams might be
    employed.

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B.  Review of definitions:

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1.  **Emergency** -- An unexpected event which places life and/or
    property in danger and requires an *immediate response* through the
    use of *routine community resources and procedures.*[^7]

2.  **Incident** -- A *disruption* of a component, a unit, or a
    *subsystem* of a larger system.[^8]

3.  **Accident** -- A *disruption* that physically affects a *system as
    a whole*.[^9]

4.  **Crisis** -- Derived from the Greek "krisis," meaning a *crucial
    turning point* in the course of anything, an unstable condition in
    which an abrupt or decisive change is impending.

> A crisis, like an accident, is a *disruption* that physically affects
> a *system as a whole* and also *threatens* the *priority goals* of an
> organization, and *challenges* the *traditional behaviors* and
> *values* shared in an organization.[^10]
>
> 5\. **Disaster** -- Derived from the Latin (and Italian) "disastro,"
> meaning ill-starred, and means an occurrence inflicting widespread
> destruction and distress.
>
> An event in which a community undergoes severe danger and incurs, or
> is threatened to incur, such losses to persons and/or property that
> the resources available within the community are exceeded.[^11]
>
> The World Health Organization defines a disaster as "any occurrence
> which causes damage, ecological disruption, loss of human lives,
> deterioration of health and health services on a scale sufficient to
> warrant an extraordinary response from outside the affected
> community."

C.  **Discussion of the definitions.**

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1.  From the above, an **incident or an accident** may certainly be
    classified as an emergency requiring immediate action and handled
    with routine resources and procedures. Functional and operational
    teams would be activated as necessary with the CMT on standby should
    a crisis arise.

2.  Incidents, accidents, and emergencies may **escalate into
    disasters** if the impact is such that high-order destruction and
    distress result that are beyond the affected organization's
    capabilities to handle alone. In general, disasters generate some
    form of crisis and require activation of operational and functional
    teams as necessary, as well as the CMT.

3.  A crisis requiring operational and functional response can occur in
    the absence of an accident, emergency, or disaster. Thus, the **CMT
    may be activated by itself** to deal with a crisis while the
    remainder of the organization conducts business as usual.

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D.  **Examples.**

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1.  In the homework for session 3 we discussed the **World Airlines
    Flight 30** case in which an incident (an airline crash) became an
    accident (disrupted World Air and the airline industry), was handled
    as an emergency by the crash responders, and generated two crises
    for World Airlines: first, the immediate loss of public trust
    following any airline crash, and, second, the loss of public trust
    due to the mishandling of the situation. This crash, though
    certainly a disaster for the family of the two passengers who died,
    is not considered a disaster according to the strict definition
    above.

2.  The **1989 *Exxon Valdez* oil spill** started as an incident and
    immediately became an accident due to its impact on Exxon and the
    entire oil industry. Emergency response resources were not capable
    of containing the oil spill, which rapidly became a disaster due to
    the environmental impact. The oil spill became a crisis for Exxon
    and the entire oil industry due to the magnitude of the
    environmental damage (disaster) and generated a second public
    relations crisis for Exxon due to its perceived (and actual) lack of
    responsiveness and arrogance.

3.  The transcript of a 1994 meeting between senior officials of
    **Texaco** revealed the executives using racial epithets and
    discussing the shredding of documents related to a discrimination
    lawsuit. This transcript became public knowledge in late 1996 and
    resulted in the firing of one executive, suspension of another, loss
    of benefits for two executives, and a \$176.1 million dollar
    settlement of a race discrimination lawsuit.[^12] In this instance
    there was no identifiable accident, emergency, or disaster. There
    was, however, a major crisis for Texaco that greatly impacted its
    internal relations and public reputation. The **discussions of Intel
    and Food Lion** from earlier in the session provide additional
    examples of a crisis in the absence of an accident, emergency, or
    disaster.

4.  In the aftermath of **a natural disaster** such as the 1994
    Northridge earthquake, the community as a whole experiences
    incidents, accidents, emergencies, disasters, and crises due to the
    widespread and severe damage and destruction. In Northridge,
    individual businesses experienced varying degrees of impact ranging
    from no or minor damage to complete destruction of facilities and
    injury or even death of personnel. Depending on the impact, each
    business would classify its situation according to the above
    definitions and respond accordingly.

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E.  **Employment of teams.**

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1.  The **nature** of the accident, emergency, disaster, and/or crisis
    determines which teams will be involved.

2.  The general **hierarchy of team organization** finds the various
    operational and functional teams reporting to and coordinating their
    tactical efforts through the emergency management team (EMT) (or
    emergency operations group (EOG) using the *Emergency Management
    Guide for Business and Industry* terminology[^13]) headed by the
    incident commander.

3.  The EMT then reports to a representative(s) of the **crisis
    management team (CMT) or to the entire team** (or emergency
    management group[^14] (EMG)) using the *Emergency Management Guide
    for Business and Industry* terminology) for strategic consideration
    and guidance.

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a.  As discussed above, the **CMT** may function in the absence of any
    identifiable accident, emergency, or disaster or the activation of
    the EMT or subordinate teams.

b.  The CMT must maintain a **strategic focus** and is ultimately
    responsible for the survival and economic success of the business.

c.  The **responsibilities,** **composition, and characteristics** of
    the CMT are expanded upon in the next objective.

**Supplemental Considerations:**

None.

**Objective 18.3 Discuss the purpose, composition, and membership
characteristics of a generic crisis management team (CMT).**

**Requirements:**

Present the material by means of lecture and discussion as necessary.

Complete the modified experiential learning cycle for objectives
18.1--18.3 at the end of this objective.

**Remarks:**

I. The purpose of the CMT. The **primary purpose** of the CMT is to
provide precrisis support for business contingency planning, decide when
to declare a disaster (crisis) requiring partial or total plan
activation, make strategic decisions during and in the aftermath of a
crisis, and promote organizational learning and continuous improvement.
CMT membership and characteristics reflect these responsibilities,
particularly the need to make decisions in a crisis environment.

II. The **composition** of the CMT.

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A.  Different sources (*Emergency Management Guide for Business and
    Industry* p. 27, Barton pp. 172--175, Lerbinger pp. 24--26)
    **recommend slightly different compositions for CMTs.** Lerbinger's
    is chosen for this course, since it is based upon the research of
    Pauchant and Mitroff (*Transforming the Crisis-Prone
    Organization* p. 110) and is generally applicable to most
    businesses.

B.  Lerbinger recommends the following **core members:**

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1.  **Chief executive officer** (CEO) or other senior operating officer.

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a.  Augustine specifically recommends the CEO as a core member.

b.  It can be argued that the CEO should delegate the CMT leadership to
    another senior executive and remain informed yet available for other
    responsibilities such as serving as the primary spokesperson for the
    organization.

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2.  Senior **public relations or communications** officer.

3.  **General counsel.**

4.  In the case of large, multidivision companies, the **head of the
    affected operating company.**

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C.  Depending on the **nature of the industry and the crisis** the
    following may be included:

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1.  Chief **financial** officer.

2.  Director of **security.**

3.  Director of **environmental** affairs.

4.  Director of **engineering**.

5.  Director of **human resources.**

6.  Director of **marketing.**

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D.  To this CMT membership can be added Augustine's recommended role of
    **"devil's advocate"** and possibly an **external stakeholder** who
    has an "outsider's" perspective.

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III. The **characteristics** of the CMT.

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A.  **Size:** The CMT should be limited in size to **10 or fewer
    members** to facilitate team work and open discussions, and to allow
    each member to express his/her ideas and concerns while still
    focusing on the precrisis concerns, crisis response, and postcrisis
    situation (Barton p. 172).

B.  **Homogeneity/Heterogeneity:** Greening and Johnson's 1997 *Business
    and Society* article "Managing Industrial and Environmental Crises"
    summarizes research on the role that heterogeneous CMTs and their
    associated information processing, communication, social cohesion,
    and cognitive structures play in an organization's ability to
    respond to industrial and environmental crises.

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1.  The major goal of Greening and Johnson's project was to conduct an
    **empirical study** to examine if a certain configuration of CMT
    characteristics (CMT is called "top management team" (TMT) in this
    study) leads to better crisis management and a lower severity of
    crises.

2.  As the article reports, **"Previous research** has generally assumed
    that heterogeneous characteristics are beneficial in most
    decision-making instances, especially in changing, uncertain,
    turbulent environments (Eisenhardt, 1989; Murray, 1989). This would
    seem to suggest that increasing heterogeneity in the TMT would be
    associated with a firm's ability to successfully address or minimize
    crisis severity. However, crisis situations are unlike most
    strategic decisions in that both a quality decision and a very quick
    decision must be made to minimize a rapidly escalating, potentially
    catastrophic event (Barton, 1993; Fink, 1986)." [^15] (Emphasis
    added; p. 337.)

3.  Greening and Johnson investigated the idea that certain kinds and
    levels of **heterogeneity and homogeneity may be related to
    effective and ineffective crisis management behavior.**
    Specifically, they researched the effects of functional background,
    education specialty, age, and tenure heterogeneity on the CMT's
    performance in crisis situations.

4.  Research methodology started with a **survey of vice presidents** of
    firms in the petroleum and gas, utility, food, and chemical
    industries, all of which are characterized as having a high risk of
    crisis in Barton's text (p. 65). Due to limited survey response,
    **archival data** from the Lexis database was used for the research.

5.  Greening and Johnson's research supports the **following findings**
    with respect to CMT composition:

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a.  General -- "Firms appear to be better able to prevent, or minimize,
    the damage from crisis events if they have TMT configurations with
    **diverse functional backgrounds and moderate levels on tenure and
    age heterogeneity" (**emphasis added; p. 346).

b.  Firms with TMTs that have **increased functional heterogeneity**
    have individuals who will differ in their knowledge, attitudes, and
    perspectives, and, as a result, the problems these individuals
    identify, the definitions they give to problems, and the range of
    strategic alternatives they present to problems will differ. Teams
    with heterogeneous functional backgrounds are more likely to
    represent multiple stakeholder interests, potentially minimizing the
    harmful effects on constituents other than stakeholders. (P. 346.)

c.  **Educational background** **heterogeneity** does not significantly
    contribute to, or inhibit, effective and efficient decision making
    in terms of generating solutions to crisis situations. (p. 348.)

d.  **Age heterogeneity** at low levels promotes cohesiveness and
    conformity due to similarity in values, perspectives, and attitudes,
    but may prevent the development of high-quality decisions to address
    complex crises. Conversely, at extreme levels of age heterogeneity,
    the differences in values, perspectives, and attitudes may promote
    excessive conflict that stands in the way of rapid decision making
    and action implementation. (P. 348.)

e.  **Tenure** (time spent with the organization), like age
    heterogeneity, results in similarity in values, perspectives, and
    attitudes, thus promoting cohesiveness and conformity. Extreme
    levels of tenure heterogeneity appear to lead to chaos and conflict
    due to diverse amounts of socialization and may delay crisis
    response and decisions and interfere with effective communication.
    Any negative effects associated with tenure heterogeneity appear to
    be less pronounced than those associated with age heterogeneity.

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C.  **Additional** homogeneity/heterogeneity considerations.

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1.  Although not investigated in Greening and Johnson's research,
    **gender and ethnic diversity** should be considered in the
    composition of the CMT. Although changing, the typical composition
    of top-level management in corporate America is predominantly
    Caucasian males. Their perspectives may be limited with respect to
    crisis issues, particularly those reflecting the requirements of
    diverse stakeholders, customers, and the community. Research in this
    area is needed.

2.  Also, the advice of Augustine discussed in an earlier session should
    be remembered. The CMT should include the perspective of an
    **outsider,** and at least one CMT member should assume the role of
    **"devil's advocate."** The inclusion of the outside perspective and
    a "devil's advocate" can help guard against "group think," a topic
    covered in the next session.

**Supplemental Considerations:**

The instructor may consider reviewing the methodology and statistics
contained in the Johnson and Greening article with the students as an
example of scholarly research.

The completion of the modified experiential learning cycle should
emphasize the "so what" and "now what" of CMT responsibilities,
composition, and characteristics. The CMT provides the overall linkage
of the individual functions associated with crisis management and
business continuity. Without an involved and effective CMT, crisis
management and business continuity is probably doomed to failure. The
composition and characteristics of the CMT in general, along with the
personal characteristics of the team's leader (usually the CEO), greatly
influence crisis decision making, a topic covered in the next session.

[^1]: Hancock, Wayland. 1995. "Surviving the Pentium Controversy."
    *American Agent and Broker.* Vol. 67, No. 2. Start page 67. Page 2
    of 3.

[^2]: Hancock p. 1 of 3

[^3]: Hancock p. 1 of 3

[^4]: Crothers, Brooke. 1995. "Intel Learns from Pentium Problem,
    Changes Policy on Chip Flaws." *InfoWorld*. Vol. 17, No. 2. Start
    page 37. Page 2 of 3.

[^5]: Garry, Michael. 1992. "Food Safety: Food Lion Fallout."
    *Progressive Grocer.* Vol. 71, No. 12. Start page 9. Page 2 of 3.

[^6]: Garry p. 2.

[^7]: Drabek, Thomas. 1996. *The Social Dimensions of Disaster.* Written
    for the Federal Emergency Management Agency Higher Education
    Project. Washington, DC: Federal Emergency Management Agency.

[^8]: Pauchant, Thierry C., and Mitroff, Ian I. 1992. *Transforming the
    Crisis-Prone Organization.* San Francisco: Jossey-Bass Publishers.

[^9]: Pauchant and Mitroff p. 12.

[^10]: Pauchant and Mitroff p. 12.

[^11]: Drabek, p. 2--4.

[^12]: Texaco Punishes White Executives Involved in Company's Racial
    Bias Scandal." *Jet.* Vol. 91, No. 10. Page 40.

[^13]: Federal Emergency Management Agency. 1996. *Emergency Management
    Guide for Business and Industry.* Washington, DC: Federal Emergency
    Management Agency. Page 27.

[^14]: FEMA p. 27.

[^15]: Eisenhardt, Kathleen M. 1989. "Making Fast Strategic Decisions in
    High-Velocity Environments." *Academy of Management Journal.* No.
    32. Pages 543--576.

    Murray, Andrew. 1989. "Top Management Group Homogeneity and Firm
    Performance." *Strategic Management Journal.* No. 10. Pages
    125--141.

    > For references to Barton 1993 and Fink 1986, see page 18-2.