Crisis And Risk Management In Organizations Management Essay

Chapter 3 is a literature reappraisal to assist develop an apprehension on the importance of concern continuity as a procedure of antagonizing organisational crises, which is at the head of this survey. The Chapter is structured as follows: Section 3.2 discusses crisis direction and hazard direction in organisations, to show a clearer image of the nomenclatures. Next, the chapter provides the reader with background cognition on concern continuity direction, its importance, and high spots some organisational attacks used in pull offing hazard and crisis, including scenario planning. Finally, the chapter discusses be aftering as an effectual BCM procedure, and strategic planning in a disruptive environment with the purpose of clearly placing the significance of concern continuity in organisations.

In an effort to specify crisis direction, it is imperative that the term ‘crisis ‘ is foremost explained. Coombs ( 1999: 2 ) define crisis as ‘an event that is unpredictable and a major menace that can hold an inauspicious consequence on an organisation, industry, or its stakeholders if improperly handled ‘ . Similarly, other writers such as Martinelli and Briggs ( 1998 ) gestate crisis as a turning point, and argue that it is an chance for organisations to demo their committedness to responsible behavior ( p. 44 ) .

Regester ( 1987: 38 ) besides acknowledges that crisis frequently represents ‘turning points in organisational life as they present chances to set up a repute for competency, to determine the organisation and to undertake of import issues ‘ . It is an ‘unpredictable major event that is a menace to an organisation or its stakeholders ‘ ( Goel, 2009: 25 ) . Other bookmans such as Curtin et al. , ( 2005: 3 ) place crisis to be of three sorts ; those which befalls a company e.g. chemical spillage or plane clang, those that are manufactured, and those that escalate from an accident.

3.2.2 Specifying Crisis Management

Crisiss Management is all about taking charge of a crisis state of affairs before it engulfs the company. As suited planning is cardinal to corporate endurance in the event of a crisis, crisis direction involves proper managing of a crisis after it occurs. The theory of crisis direction has witnessed a steady development in the last 20 old ages. Early stages of this development includes a six measure crises theoretical account by Littlejohn ( 1983: 13 ) ( construction design, choice of crisis squad, developing squad members, crisis state of affairs auditing, eventuality planning, pull offing the crisis ) ; Fink ‘s ( 1986 ) seminal four phase theoretical account ( the prodromal phase, the crisis jailbreak or acute phase, the chronic phase and declaration phase ) ; Gonzalez-Herrero and Pratt ( 1995 ) four stage theoretical account for crisis direction ( planning-prevention, issues direction, the existent crisis and the wake of the crisis ) ; Augustine ( 1995 ) six phase of crisis direction ( placing the crisis, avoiding the crises, incorporating the crisis, fixing to pull off the crises, deciding the crisis and benefitting from the crisis ) . Augustine points out that for every crisis, there are seeds of success and roots of failure embedded within it and the ability to happen, cultivate and pull off the possible success is the footing of crisis direction.

In theory, the argument between bookmans of crisis direction is chiefly about how crisis is defined. Comfort ( 1988 ) divides the procedure of crisis direction into readiness, extenuation, response, and recovery stages. Another interesting crisis direction theoretical account was formulated by Boin et al. , ( 2005 ) . The writers based their theoretical account on four of import challenges directors face during the procedure of crisis direction – sense-making, determination devising, ending and larning. In malice of these, many bookmans of crisis and catastrophe direction still seem to concentrate more on the triggers, causes or effects instead than how these incidents are really managed by stakeholders, determination shapers and the organisations ( Mitroff and Pauchant, 1990 ) .

3.3 Crisis and Risk Management in Organizations

Organizational crisis have been defined by assorted bookmans even though there is non one universally accepted definition ( Simola, 2005 ) . Pearson and Clair ( 1998 ) define organisational crisis as a high impact low chance incident that threatens organisational viability. Crisiss can potentially do harm to an organisation, and if non decently managed, can go catastrophes. Mistakes can really rapidly lift from merely a small operational issue to a phase that threatens endurance ( Mittelstaedt, 2004 ) . Therefore, organisations that decently fix and be after for the hereafter are more likely to win ( Regester and Larkin, 2005 ) .

Fink et al. , ( 2005 ) points out that to last in a quickly changing universe, many organisations must acknowledge and calculate their environing environment to enable them develop consciousness to the hazards that may impact their concerns and strategic waies. There ‘s small opportunity for organisations to react and retrieve when unanticipated events go on. Therefore, in the likely event of a crisis or catastrophe, an organisation ‘s degree of readiness and capableness of restarting its regular concern operations are thought to be amongst the major ends of senior direction ( Hanson, 2006 ) .

In crisis direction, organisations play a important function ( Clarke, 1999 ) . Carley and Harrald ( 1997:310 ) note that organisations should respond to catastrophes by cut downing the impact of the catastrophe but in pattern, organisations are frequently the 1s that cause crises ( Roux-Dufort, 2007 ) . Organizational designs fail to equilibrate the possible detrimental effects of organisational production ( Perrow, 2007 ) as bookmans of organisational direction are ‘more frequently into organisational construction, design and civilization, instead than pull offing and larning from unusual events ‘ ( Pauchant and Mitroff, 1992 ) .

Egbuji ( 1999 ) introduce hazard direction as a corporate attack to cover with the security menaces confronting an organisation in an effort to protect its resources and its assets. There are some advantages of hazard direction. Harmonizing to Peart ( 2006 ) , risk direction facilitates future expectancy and improves uncertainness control as it entails carefully analysing possible future organisational hazards, and developing actions to antagonize the hazards. The Association of Insurance and Risk Managers ( 2002 ) lay accent on a deliberate attack to put on the line direction and province that hazard direction should be thought of as a value-adding procedure linked to scheme since it has the possibility to better determination devising and protect assets.

3.3.1 Scenario Planning

In an epoch of rapid alteration, scenario planning is the pattern of be aftering for different hereafter options, with the purpose of extenuating or cut downing the hazard of acquiring bombarded by unanticipated incidents or being unprepared for it ( Bishop et al. , 2007 ) . Kachaner and Deimler ( 2008 ) argue that organisations that implement scenario planning will most likely trade with future uncertainness and hazard more expeditiously than those that do non do usage of it. As Pollard and Hotho ( 2006 ) describe, the thought of scenario planning is to do long scope flexible programs by calculating out the impact and nature of the most questionable drive forces that affect the universe and forms concern environments i.e. economic, political, environmental and technological tendencies.

Harmonizing to Barber ( 2006 ) scenario planning is used by some taking organisations such as Shell and General Electric to analyze the assorted tendencies and forces that may impact the organisation. Scenario planning helps make a linkage between the yesteryear and the hereafter by turn toing scenarios through strategic planning. Barber ( 2006 ) note that Shell ‘s scenario planning squads use scenario planning to place ‘weak signals ‘ or ‘signs ‘ that will probably hold an impact on their concern. Methods of scenario be aftering include imaginativeness, multiple positions and strategic thought and in today ‘s environment, its usage in the planning procedure is an of import scheme to cover with legion uncertainnesss ( Neilson and Stouffer, 2005: 26 ) .

Scenario planning can be developed for any future period. In the 1970s, Shell Group initiated the scenario planning and the corporation builds scenarios every three old ages for up to a 20 twelvemonth period ; others may project 15, ten or a five twelvemonth period ( Scott-Martinet, 2006 ) . In conjectural state of affairss, scenario planning is utile for contrivers to see how an event may impact the organisation. Planing out a scenario can besides demo the multiple ways in which assorted constituents fit together. Planing for the hereafter in any organisation is of import, as without planning, resources may non be available when needed ( Scott-Martinet, 2006 ) .

Hodgson & A ; Tait ( 1996: 3 ) argue that planning has traditionally followed a relatively additive attack ( i.e. projecting future demands based on current activities ) . For organisations that have a committedness to this ‘default scenario, ‘ the hereafter is drastically altered when they experience crises, as it becomes hard to accommodate or alter. With scenario planning hence, organisations can acknowledge future menaces and trade with them before crises happen. Scenario planning can besides be utilized in other catastrophe state of affairss and can most likely aid with extenuation, readiness and bar attempts if appropriate schemes are embraced. After scenario analysis and development, the organisation can so implement schemes to maneuver towards a survivable hereafter ( Hodgson & A ; Tait, 1996 )

Scenario planning can besides be used in exigency direction to help corporations in sing and understanding itself in a new dimension, and to efficaciously be after more for the hereafter ( Alexander, 2002: 2 ) . Previous crises and best guesss about the hereafter have by and large provided grounds for eventuality contrivers to take determinations about the hereafter ( Wilkinson, 1994: 5 ) . However, by implementing the method of scenario ‘futuring ‘ , contrivers can discourse or document assorted likely organisational hereafters, and by researching these possible hereafters, scenario contrivers may get cognition about cardinal issues, forces and tendencies ( Wilkinson, 1994 ) .

3.4 Business Continuity Management ( BCM )

Due to its widespread nature, the mode in which concern continuity direction is implemented will necessarily depend on the nature, complexness and graduated table of an organisation ‘s hazard profile and the environment in which it operates. It is besides safe to assume that as organisations are ne’er in full control of their concern milieus, all organisations will see a concern crisis and continuity event at some point ( Shaw, 2004 ) . It is hence of import to research the assorted maps and functional countries that support the direction of crisis events and continuity of concern operations, their inter-dependencies, and the factors that will assist organize these maps and functional countries into a comprehensive and incorporate programme.

Business Continuity Management ( BCM ) has been described in many ways. However, there is non a by and large accepted definition ( Smit, 2005 ) . BCM is defined by the Business Continuity Institute as the act of foretelling events that will impact the organisation ‘s mission-critical procedures and maps, and guarantee that it reacts to any event in a rehearsed and planned manner ( Gallagher, 2003 ) . The ends of BCM besides include doing certain there is continuity of critical maps and concern operations in all fortunes, anticipating organisational hazards, crises and catastrophes before they occur, and guaranting fast and efficient response to crises

Figure 3: Model for Business Continuity Management

Beginning: The British Standard for Business Continuity Management, 2006

Harmonizing to Herbane et al. , ( 2004 ) and Gibb and Buchanan ( 2006 ) , BCM involves placing with an organisation ‘s demands, acknowledging and pull offing hazards that may disrupt the critical maps of a concern, and guaranting effectual recovery and concern continuity in the event of unforeseen happenings. BCM assists an organisation in mapping out future worst instance scenarios and how quickly the organisation can reconstruct its normal operations in the wake of a crisis. ( Hayes, 2004 ) is of the sentiment that BCM should be a major duty of top direction as BCM aims to guarantee enduring endurance of the full organisation.

Several writers including Gallagher ( 2003 ) , Herbane et al. , ( 2004 ) , Pitt and Goyal ( 2004 ) , and Elliott et al. , ( 2010 ) , have debated on the development of BCM. In the 1970s, the primary focal point of concern continuity was on information engineering ( IT ) and retrieving calculating systems, besides breaks caused by catastrophes such as fires, temblors and deluging. In the 1980s, concern continuity still included IT but shifted to include other systems and installations at both concern and corporate unit degrees. During the 1970s and 1980s, IT focus still played a immense portion in concern continuity and explains why a large fraction of bing literature on BCM relates to IT continuity ( Elliott et al. , 2010 ) . However, concern continuity was introduced as ‘Business Continuity Management ‘ in the late ninetiess and early 2000s, and became a procedure of corporate competitory advantage to lend to the sustainability and development of diverse concern countries ( Gill, 2006 ) .

Figure 4: Typology of Continuity Approaches

Beginning: Herbane et al. , ( 2004 )

Figure 4 above shows that BCM is embedded within crisis direction ( Herbane et al. , 2004 ) . It besides shows that catastrophe recovery planning and concern continuity planning are two constituents of BCM ; these two constituents are to help an organisation in efficaciously covering with crises and catastrophes before, during and after they occur ( Herbane et al. , 2004 ) . Herbane et al. , ( 2004 ) besides indicate out that BCM must act upon the whole organisation and so, in order to win, there is demand for engagement and cross-functional engagement from assorted sections in the organisation.

3.4.1 Importance of Business Continuity Management

As antecedently mentioned, the twenty-first century has witnessed dramatic transmutations in the planetary concern environment. Kubitscheck ( 2001 ) , Dawes ( 2004 ) and Richardson ( 2009 ) note that as new hazards have emerged, organisational hazard theory have besides advanced at the start of the new millenary, but these freshly emerging hazards surpass the gait at which solutions are being devised to antagonize them ( Kubitscheck, 2001 ) . Therefore, with new terrorist onslaughts, high-tech and altering conditions forms, and corporate fiscal dirts, organisations need a well-resourced, consistent response, integrated and predetermined, but besides manageable and flexible ( Herbane et al. , 2004 ) .

Organizations are faced with troubles in hazardous and unsure times and this can merely be magnificently managed by readying and proactive planning ( Gage and Reinoso, 2002 ) . An advanced attack is necessary to assist organisations in extenuating or cut downing the impacts of crises and catastrophes, by suitably fixing for, reacting to and retrieving from unexpected events to guarantee concern continuity and besides to pull off security plans proactively ( Hinde, 2002 ) .

The involvement in BCM increased significantly in the early 2000s ( Borodzicz, 2005 ; Smit, 2005 ) Wong ( 2009 ) argues that the turning involvement is as a consequence of natural and semisynthetic catastrophes such as the September 11 terrorist onslaughts in the US, which emphasized the importance of BCM in prolonging critical maps of concerns. BCM encompasses disciplinary and preventative systems to put on the line direction through recovery planning and continuity, and through the changeless testing, preparation, care and updating of continuity programs. In a planetary concern environment full of insecurities, the long-run endurance of concerns really much depends on guaranteed continuity of concern operations. BCM is important to be able to accomplish this ( Morwood, 1998 ) . Pitt ( 2010 ) besides argues that when organisations have BCM, they are most likely to endure less from the immediate impact of crises, and can draw through more rapidly.

Harmonizing to Brazeau ( 2008 ) , the BCM profile has perceptibly increased in both private and public concern organisations as a survey conducted by FM Global showed that out of 600 fiscal executives, approximately 95 % identified BCM to be of moderate to high precedence in relation to other managerial maps within their organisations. BCM is deriving increasing credence amongst many concerns as organisations now understand BCM ‘s present operational value and are get downing to concentrate more on its enterprise-wide advantage and strategic significance ( Marsh, 2008 ) .

3.4.2 Planning as an Effective BCM Procedure

Since the start of research on strategic planning, there has been a general consensus that strategic planning is a ‘process ‘ that decides when, how, who will be after and how consequences will be enforced ( Gibb and Buchanan ( 2006 ) . Elliott et al. , ( 2010 ) nevertheless references that there is a dissension between writers sing the exact construction and constituents of the procedure.

Figure 4: Structure and Process of Strategic Planning

Beginning: Elliott et al. , ( 2010 )

Elliott et al. , ( 2010 ) construction and procedure of strategic planning ( Figure 4 ) illustrates be aftering as a systematic procedure. Most significantly, it identifies the three chief countries of the procedure: hypothesis, preparation of programs, execution of programs, and rating. The construction of strategic planning introduces a conceptual theoretical account for little, medium and big organisation for outstanding strategic planning. The writers province that the three major types of programs ; short-range budgets, medium-range programmes and maestro schemes are all linked and so, organisations must cognize precisely what their strategic program should imply ( Elliott et al. , ( 2010 ) . Although planning is non an mundane phenomenon, it must be a uninterrupted procedure and programs need to be amended and/or reviewed on a regular basis so organisations can react to alterations in the environment ( Elliott et al. , ( 2010 ) . The procedure of strategic planning should therefore start with set uping organisational aims, mapping out schemes for execution and so polishing the schemes with thorough action programs.

3.5 Strategic Planning in a Turbulent Environment

In most of the early Hagiographas on the planning procedure, a common feature is the function the external environment dramas on the organisation. Economic prognosiss were ab initio used for future planning but with ferocious competition amongst houses, and the turning complexnesss of globalisation, the function of the environment becomes an indispensable characteristic in strategic planning ( Brews and Hunt, 1999 ) .

In 1988, Arie De Geus, caput of Shell Oil Company ‘s Strategic Planning Group published a survey of the planning processes of Shell. At the clip, Shell was known to be one of the most successful oil corporations ( and arguably still is today ) . De Geus reference that the key to the corporations ‘ success was its ability to exchange from a much slower gait in dead times, to a survival-mode in disruptive times. He concludes that ‘planning merely means altering heads ‘ ( De Gues, 1988 ) .

Grant ( 2003 ) point out that strategic planning in the oil sector is characterized by an unstable concern environment. The writer ‘s survey explores how and if strategic be aftering methods can be put to effectual usage in an unsure environment. Grant ‘s analysis of six major oil companies ( BP, Chevron, Exxon, Mobil, Shell and Texaco ) affirms that over the last decennary and a half, these major oil companies recognized cardinal amendments in their strategic planning patterns. ( Grant, 2003: 502 ) asserts that while the basic model ( rhythm and cardinal stages ) of strategic be aftering changed really small, be aftering functions, the content of strategic programs, and the procedure of strategic planning within the companies ‘ direction systems changed significantly. In malice of small fluctuations in reading, Grant ( 2003 ) note that similarities in each of the oil companies ‘ planning procedures were sufficient to make a generic strategic be aftering rhythm as seen in Figure 5.

Figure 5: The Generic Planning Cycle among the Oil Major leagues

Beginning: Grant ( 2003 )

Planing provides a ‘mechanism for the preparation of decentralized scheme ‘ and has now become a procedure of ‘planned outgrowth ‘ ( Grant, 2003: 491 ) . In recent old ages, the procedures of strategic planning have become more informal and decentralized, while be aftering schemes have changed well in line with the fast changing environments organisations operate in. Today ‘s concern environment is going more volatile due to political instability, natural catastrophes and economic-slowdown and requires leaders and organisations to be more proactively prepared and resilient to confront the unexpected ( Grant, 2003 ) .

Ramirez et al. , ( 2008 ) discuss that with the diversified nature of many large houses and the turning rate of environmental alterations, predictability and stableness can no longer vouch the success of concerns, but the ability to implement determinations under unsure fortunes and the flexibleness of seting to changing competitory conditions becomes critical factors of success ( p. 264 ) . The writers propose that in a crisis turbulent environment, direction executives can increase strategic and organisational capablenesss by set uping strategic visions, making strategic integrity and consecutive version, promoting transformational leading, modifying organisational patterns, and increasing organisational capacity for alteration.

3.6 Chapter Summary

Chapter 3 is a reappraisal of relevant literature to supply the reader with an overview of crisis direction and concern continuity direction in organisations. In the literature, assorted attacks to organizational crisis direction exist that have been discussed i.e. hazard direction, scenario planning, and concern continuity direction. The literature presents a background to the basicss of strategic planning and scenario ‘futuring ‘ , and discusses concern continuity, a direction procedure that is going more and more recognized by many organisations, as a new attack to crisis direction.

Business continuity direction provides disciplinary and preventative steps to organisations to better their response and recovery capablenesss against catastrophes and unexpected crises. Using bing literature and a figure of empirical surveies, the writer provides grounds to back up the treatment on BCM as an organisational scheme that challenges senior directors and top degree direction to further the art of strategic planning, in expectancy of some of the unexpected contingencies of an progressively helter-skelter and disruptive concern environment.