Crisis Management In International Firms: A Study

The Role and Importance of Crisis Management in International Firms

The report helps in the overall identification of the role along with the importance of the crisis management in the different kinds of international firms. The crisis management is the entire process through which the organization tries to deal with the unexpected along with disruptive kinds of events which can be faced by the organization. These kinds of unexpected events threaten to harm the company in a negative manner or the stakeholders of the company as well. There are three major elements which are required to be taken into consideration relating to the crisis which are discussed as follows:

• Threat to the company
• Short time frame for making decisions
• Element of surprise

Alexander (2014), has argued that crisis is defined as the process of the entire transformation wherein the old system or the process which cannot be maintained in the present situation or scenario. Gruber et al. (2015), has opined that the crisis management is the situation based system of management which is inclusive of the different clear roles along with responsibilities which are related to organizational requirements. The aspects which are required to be followed which are inclusive of:

• Techniques which are being utilized to respond to perception and reality of crisis
• Communication which occurs within the response phase of emergency management circumstances

As commented by Samsung Crisis (2018), there are various kinds of uncertainties in the business in the present scenario which can affect the overall reputation of the firm in a negative manner. Crisis is defined as plethora of situations which can affect the business operations along with information infrastructure of the company as well. The different kinds of crisis are in the internal business firms which can be faced by them are as follows:

• Power Outages
• Networks of Computer going down
• Workplace violence
• Natural Disasters
• Batteries exploded and overheated

With the help of the crisis management plan, the international business firms can try to reduce the different issues in an appropriate manner. With the crisis management plan, this will be providing the organizations to deal with such kind of problems and this will help in minimizing the risks in an appropriate manner as well.

• With the implementation of the crisis management plan, this will help in increasing the overall safety along with the well being of the different employees along with the general public  (Yun et al., 2016).
• With the implementation of the same, this is good for the public relations and this can help in preventing the tarnishing of the different decisions
• The crisis management plan will minimize the downtime and this will help in increasing the overall productivity of the organization in a positive manner (Alexander, 2014)
• Crisis management plan provides the employer with peace of mind as this is the backup plan available in time of any kind of crisis which is required to be resolved efficiently (Zhang & Chao, 2016)

These are the various steps and importance of the crisis which can be resolved in the organization in an easy manner. Furthermore, with the crisis management plan, this will maximize the safety of the workplace. Lastly, the different health and safety laws help the employees in having time off without losing their jobs in such circumstances.

Having understood the concept of Crisis Management, with the help of this model, the different frameworks, models and cycles of Crisis Management will be discussed which shall then go a long way in helping any organization to understand the manner in which the crisis as faced by the organization can be handled at large and also how to mitigate those crisis so that they have the minimum impact. The two main models and cycles which will be discussed are as follows:

Two Main Crisis Management Models: Crisis Management Model and Crisis Management Cycle

The Crisis Management model has been developed by Gonzalez Herrero and Pratt whereby they proposed a Crisis Management Model which primarily identified three different stages of the process of Crisis management (Gruber et al., 2015). According to the author, these states are as follows:

• Diagnosis of the Crisis: In this stage, the main objective of the management is to detect the early indicators of the particular crisis and ensure that the warning signals are worked upon. The performance of the different subordinates must be reviewed to understand and ensure that no danger signs exist. This can be stated to be a signal for the managers to take an initiative of their own.
• Planning: The next stage of the crisis management is the planning stage whereby in case a crisis has taken place, the team is required to jump into action whereby the employees must remain calm and the team is required to prepare certain strategies which will then assist them to avoid any emergency situation. The different members need to ensure that the damage control is made as fast as possible (Bundy et al., 2017). Alertness plays a key role in the given scenario and helps in ensuring long term success of the organization.
• Adjustment: The last stage of this model is to adjust to the changes which have been made after the crisis, particularly to the new situation for the effective performance of the firm in the long run. It needs to be ensured that the previous mistakes made by the organizational members are not repeated and previous causes are mitigated.

The given model can be functioned along with various other theories like the Structural functions systems theory where it has been stated that the correct flow of information across all relevant cycles is important and moreover, according to the diffusion of innovation theory talks about sharing of details and its process during emergency. Lastly, there is an unequal human capital theory as well which talks about the inequality of the employees which is often a cause of the crisis.

The next cycle which will be discussed is the crisis management cycle. In the crisis management cycle, the organization`s crisis management project can be understood as a multi-phase process and these phases are often deemed to be parallel in nature rather than sequential. There are various models and frameworks of crisis management, the 4 phases cycle has become rather popular.

Figure 1: The Crisis Management Cycle

(Source: Drennan, McConnell & Stark, 2014).

The first phase of the chosen cycle is preparedness which states that in order for a particular crisis, the organization needs to be prepared, and that there needs to include a designated line of command as well as controls as well as divisions between the different agencies. This helps in ensuring that all the different situations can be avoided easily.

The next phase is the Response phase which needs to take place in cases where the crisis actually takes place and hence, all the plans which had been formulated are designed and executed as per the needs of the organization (Instinctif.com. ,2018). Moreover, the next phase is the Recovery phase whereby due to the preparedness stage and the response stage, the crisis which is faced by the organization is organized and recovered.  The last phase of the particular crisis model is the Mitigation phase whereby it is ensured that the same occurrence never takes place and additional plans are made. This then like a cycle, adds feedbacks for the preparedness stage which helps in ensuring success in the future.

Hence, in order to compare them it can be rightfully stated that, the Crisis management model and the cycle are quite different from one another ( Businessinsider.com, 2018). The first one has three different phases which can be stated to be sequential in nature whereas the latter has been divided into four phases which can be stated to be parallel rather than sequential and are rather definite in nature.

A Case Study of Samsung: Facing a Major Crisis

Part A

Pre-Crisis Background Context 

Functions of Samsung galaxy Note 7

• 70-inch.
• 6GHz octa-core.
• Front Camera5-megapixel.
• Resolution1440x2560 pixels.
•  
• OSAndroid 6.0.
•  
• Rear Camera12-megapixel.

Features and Benefits

• Weight: 152g.
• Dimensions: 142.4 x 69.6 x 7.9 mm.
• OS: Launched with Android6, upgradeable Android 7 and soon, 8.
• Screen size: 5.1-inch.
• Resolution: 1440×2560.
• CPU: Snapdragon 820/Exynos 8890.
• Storage: 32GB (with microSD)

Market of Samsung

Samsung tries to use the two marketing strategies related to pricing which is inclusive of the skimming of the price which helped them in being ahead of the different competitors in the market (Boin, Stern & Sundelius, 2016). The main rival firm of Samsung is Apple and the main advantage of usage of skimming of price is to be ahead of Apple and lead the overall competitive market (Drennan, McConnell & Stark, 2014). The market share of the Samsung Company has drastically increased from the year 2009 to 2018 which is the sign of gaining competitive advantage in the overall competitive market (Lachlan et al., 2016).

Products and Strategic Goals of Customers

The products which are sold by Samsung is affordable by all the customers in the market as their range starts from less amount which is one of the main advantage for Samsung to increase their market share in the competitive market. Furthermore, in the present scenario, this can be seen that the Smartphone industry has changes in a drastic manner in which the preferences of the different individuals have changed and they want outstanding customer service. The customer service approach is outstanding at Samsung and this is their biggest advantage in comparison to Apple.

Pre-Existing Market Structure

The market strategy and structure of Samsung is one of the most effective strategies as this helped Samsung which is the cost driven company to change the structure and gain authority manufacturer as well. In the ever changing world of technology, Samsung had to change in order to gain the upper hand in the entire market and this was effective in nature for them to become more successful in the present market era.

Competitive situation

There are various competitors of Samsung such as Apple, Huawei, Oppo and Xiomi which are affecting the brand value of Samsung. Furthermore, due to some crisis which was faced by Samsung, this affected the overall sales of the company few years ago and this affected the overall sales and profitability of the company in negative aspect. However, Samsung tried to gain back their market share and competitive advantage by introducing the crisis management plan which has been effective in nature in becoming more stable in the market (Booth, 2015).

Part B

The Crisis Point 

Major Triggers

Samsung launched Galaxy Note 7 in order to record preorders along with sales in August however everything went into vain. This was noticed that there was a huge crisis which was faced by Samsung wherein due to the faulty batteries, it was overheated and exploded. Due to the respective crisis, Samsung had to recall over two million devices and discontinued the product in the market. Furthermore, the major trigger was that Samsung had a loss of more than $5.3 billion in the respective period (Sasmung Crisis, 2018).

How Crisis Management Plan Can Help Reduce Risks and Save Reputation in the Market

Media Reactions

The reaction of the media was such that they claimed that the company used the problem was beyond the batteries. The media tried to influence the customers that this is the entire fault of Samsung as the batteries were too large in nature to fit into the available space of the phone Samsung Note 7. The other risks which were highlighted by the media was relating to the design of the phone and charging of the phone which can be dangerous as well and this affected the sales and revenue of the company in a negative manner.

Figure 2: Crisis Management Framework

(Source: Eriksson, 2017)

From the diagram, this can be analyzed that crisis management plan is essential in the organizations as this will help in reducing the intensity of the risks which has taken place. The case study of Samsung Company can be taken into account in which this has been noticed that crisis management plan is the appropriate step which can be taken by the company in order to reduce the different issues and save their brand image and reputation in the entire market.

Regulatory Intervention

The different bodies tried to look in to the matter in an extensive manner wherein this was found that the Korean consumer protection body tried in leaking documentation which reported that SDI’s batteries were bigger than the battery compartments of the phone and this was the main reason for explosion (Yun et al., 2018). The regulatory intervention was inclusive of the fact that Samsung could not compete with Apple as Apple tries to prepare and build the different products in a sophisticated manner and this is not possible for Samsung as well (Jin, Liu & Austin, 2014).

Market Reactions

The customers were unhappy regarding the news which was coming up in the newspaper and television. However, Samsung CEO built new test lab wherein they staffed with more than 700 researchers along with 200,000 devices and 30,000 batteries which helped in replicating the cause of the fire in the Samsung Galaxy S7 phones. Samsung Company tried to check the entire device. Samsung Company was not able to make the individuals or customers understand the reason for the mishap which took place and this affected the reputation of Samsung in the market for that specific period (Maheshwari, 2016).

However, this was seen that crisis management plan was taken into consideration by Samsung in which the company tried to implement different techniques such as they prepared themselves and they tried to resolve the issues within a short span of time and their revenues increased in the market as well.

Part C

Strategy Analysis

This stage can be stated to be the third phase of the cycle whereby the company ensures recovery pf the crisis. As it is known, the crisis with the particular model began to take place in August 2016 whereby there were reports that the phone was exploding and damaging the people. Hence, with respect to this the different strategies as adopted by the organization are as follows:

• It ensured the different consumers that it will be investigating into the issue and that a good communicating plan is implemented in order to ensure success in the long run. This can be described to be a good strategy whereby the case was customer centric and focused.
• However, another poor strategy during the latter stage of the crisis was that there existed a discrimination in the manner the company dealt with its Chinese consumers and the American consumers whereby for the former, the customer service was not in place for the firm.
• The third strategy which was adopted by the firm was that they had put a halt to the production of the gadget and that the different users were informed on the different measures to be taken and the manner in which the product could be returned to the vendor (Maheshwari, 2016).However, with respect to this, the company did not make adequate use of social media and that no spokesperson was appointed for the same to communicate effectively with the different consumers.
• One of the most praised strategies which was adopted by Samsung was that it took the crisis seriously and demonstrated concern as well as care for the safety of the different products (Booth, 2015). It was quick in its response and provided factual information to the different users. A mistake in this area was made with respect to the lack of control on the particular message.

The strategies which have been stated above were adopted by the organization to control the crisis and although they had various negatives as well as positives, the impact on the company`s dimensions were quite large and the following impacts have been made:

Technically

With respect to the technical aspects, the firm was then forced to stop its production of the designated product and it faced various difficulties with respect to the United States government as well for not following the safety measures (Kalpan & Mikes, 2012). Moreover, the firm was required to spend a huge amount in order to ensure that its next models were safe.

Strategically

Strategically, Samsung was now required to change its entire marketing strategy for the future products and rather than portraying that the different products of the firm were trendy or having the best technology, the firm had to portray and rather concentrate on the safety aspect.

Financially

Financially, the firm suffered a huge blow whereby the profits of the company dropped by 30% in the third quarter of the year 2016 (Lopez, 2017). Moreover, its stock price was also affected extensively and this entire crisis brought extensive loss to the firm financially.

Reputational

The explosion incident brought about a huge reputational damage to the Samsung organization and the customers shifted their focus. The different consumers now did not want to trust the company again and instead shifted their focus to its competitor brands.

Competitively

Competitively, after the particular crisis, the company lost its market share by 20% and the customers were now lured towards competitor brands like Apple, One Plus and other local brands due to their high performance and safety aspects.

Part D

Potential future impacts and complications with lessons

The crisis has bought about the following impacts on the organization:

1. Risk of purchase: The primary future impact of the crisis on the organization is that the customers have been tainted with respect to the explosion of the expensive model and now will always be skeptical about the purchase which they engage in with respect to Samsung (Hutson & Johnson, 2016).  
2. Failure of launches: Moreover, there exists a high change of the failure of the future launches by Samsung after this crisis as the consumers often remember a poor incident for a longer range of time and hence, may not accept this.

Lessons learnt

The lessons learnt from the incident are as follows:

• The short and medium term crisis was managed fine by Samsung which means that although the initial damage which was caused to the firm was quite high in nature, its management techniques has assisted Samsung to regain its position (Fifield & Barbash, 2016).  
• Samsung changed the approach of the new releases. Samsung has learnt from its mistakes and changed the manner in which the new releases are held.
• Learnt business resilience: Samsung easily learnt the meaning of Business resilience and hence, they were easily able to ensure success for themselves in the future.

Conclusion 

Therefore, from the given analysis on Crisis Management as done on the chosen company Samsung and its product Samsung Galaxy S7 Note it can be stated that due to the increased globalization the importance of crisis management has increased considerably and this has bought about the need of the implementation of the same by the different organizations. The report followed a structured format whereby the concept and importance of Crisis management was explained which was then followed by the explanation of the different cycles and frameworks. The latter half of the report which is the third section undertook the crisis management case study of Samsung and described their scenario, strategies adopted, their impact and the potential future impacts.

References 

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