IMD International

From VW to volcanoes, how to be ready for a big crisis

IMD Professor Reacts: Stefan Michel on how business leaders should prepare for crisis situations

October 22, 2015

Every day, leaders of organizations, companies, and countries face unexpected crisis situations, which if handled poorly can have disastrous consequences.

Crises come in a number of forms; from self-inflicted such as the recent Volkswagen scandal, to natural disasters like when the Eyjafjallajökull Volcano paralyzed European air traffic in 2010.

Volatile new world

Companies are also stepping up their activities in markets currently seen as “VUCA”, volatile, uncertain, complex and ambiguous. So, traditional management tactics such as strategic planning and five-year budgets are no longer very useful in this current unpredictable environment. Leaders need to react fast as soon as unusual problems arise since each piece of the VUCA puzzle can greatly amplify a crisis situation.

Cybercrime, dangerous food products, fraud, theft, illegal agreements, corruption, epidemics or terrorist attacks are just some of the many events that can contribute to starting a crisis at an organization. And it isn’t unusual that a director’s career or a company’s fate is decided in a matter of days.

Business leaders have less and less time to reflect and for educational programs so they aren’t well prepared enough when it all hits the fan. They have emergency plans but they aren’t sufficiently trained. Being ready for anything is an essential part of being a great leader today.

The importance of being prepared

That’s why crisis management is an integral part of our Executive MBA program at IMD. During simulation exercises, participants are exposed to critical situations. They learn how to use proven crisis management tactics in urgent situations or in cases of conflict of interest. After each exercise, a debriefing allows them to analyze their behavior and improve it.

Business leaders must be able to quickly assess the scale of a crisis. When they underestimate the potential of escalation, it becomes impossible for them to diffuse a situation in a reasonable time frame before things can get worse.

Leaders have to be ready, but they have to know how to be able assess the seriousness of different types of threats. False alarms can be extremely costly in resources. They strip the credibility away from management and increase reaction time for when the next real crisis comes along.

Avoiding blind spots

Being well-prepared also allows leaders to set up an efficient crisis team. A good crisis team’s responsibilities have to be clearly defined in order to avoid overlapping responsibilities and blind spots. Internal and external communications have to made quickly without any hiccups.

During crisis management, the first hours are crucial because any mistakes made in this period are even harder to correct later and it is difficult to make up for lost time. You have to be able to rapidly identify the relevant stakeholder groups and address them in an appropriate manner. On the same token, the media should not be treated like the enemy, but rather just another way to get the message out to these groups.

But our program goes even further. To gain valuable experience, leaders have to have practice managing the stress that they will experience during a crisis. That’s why a related exercise has to be carried out in a hostile environment: lack of sleep, unreliable infrastructure and equipment, unclear procedures and resources as well as other surprises which test participants’ limits. They learn how to work under difficult conditions, and get better at handling crisis situations.

Do you want to be ready for when the next big crisis hits your organization?

You can’t just pretend to be ready, you have to actively prepare for the most intense conditions, or you risk letting a bad situation get even worse.

Stefan Michel is professor of marketing and service management at IMD and director of IMD's EMBA program.

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