CRISIS MANAGEMENT IN BUSINESS - THE CONCEPT AND THE MAIN TYPES OF CRISES
WHAT IS CRISIS MANAGEMENT
Managing crises in business is a critically important strategic approach to handling situations that threaten the normal functioning of the organization. It involves identifying crisis precursors, developing action plans for effective resistance, and reacting to crisis events in real-time.
Crisis management is oriented towards preserving the company's reputation, minimizing losses, and restoring normal business processes as quickly as possible. It includes communication with stakeholders, making strategic decisions, coordinating personnel actions, and engaging external support if needed.
MAIN TYPES OF CRISES
An enterprise may encounter a crisis situation in various aspects of its operations, but generally, the following types of crises are distinguished. Some are related to internal mistakes and shortcomings, while others arise as a result of actions by third parties, such as individuals, businesses, or even the government.
- Reputational Crises. Threaten the company's reputation and income due to unethical behavior by employees, owners, or related parties, leading to negative publicity and loss of consumer trust.
- Management Crises. Arise from ineffective management or internal conflicts among owners or employees when these conflicts become public.
- Legal Crises. Linked to law violations or non-compliance with legal requirements.
- Financial Crises. Arise from financial problems such as debts, insolvency, or reduced profitability.
- Operational Crises. Related to disruptions in operational processes, such as production, supply chains, or logistics.
- Technical Crises. Result from technology leaks, cyber-attacks, or technical equipment failures.
- Market Environment Crises. Arise from market changes, new competitors, or changes in consumer preferences.
- Social-Political Crises. Result from changes in the social or political environment that can impact the company's activities.
- Health and Safety Crises. Linked to negative effects on the health of employees or customers and may include pandemics and other global health threats.
CRISIS MANAGEMENT AND RISK MANAGEMENT
There is often a question about the relationship between crisis management and risk management. Crisis management and risk management are two different but interconnected concepts in management. Here are the key differences:
- Time Aspect. Crisis management typically deals with the immediate response to unforeseen events or emergencies when harm has already occurred. In contrast, risk management focuses on predicting potential events and developing strategies to prevent or mitigate them, often during the planning stage.
- Nature of Events. Crisis management addresses adverse events that have already occurred and may lead to serious consequences. Risk management, on the other hand, deals with the identification, assessment, and management of potential risks and unwanted events before they occur.
- Approaches. Crisis management places more emphasis on stress testing and responding to emergency situations. Risk management uses predictive and proactive management methods to minimize the likelihood of negative events.
- Cooperation. Crisis management typically requires close cooperation and quick decision-making during crisis situations. In contrast, risk management is based on planning and collaboration at early stages to prevent crisis situations.
While these concepts differ, they are closely related. Effective risk management can significantly reduce the likelihood of crisis situations and facilitate their management if they occur. The connection between the two concepts is also evident in the set of anti-crisis and anti-risk measures and counteraction methods, which are very similar. The main difference lies in the fact that most risk management measures take place before the problem arises at a calm and measured pace, while in crisis management the same occurs in emergency mode.
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