Dealing with Crisis

Crisis in development of any organization is an absolutely natural and predicted event. All transitions from one stage of development to another are followed by the system crises. New tasks at a new stage demand new knowledge and skills; therefore, there is nothing surprising that the personnel players of the company are changed in the course of such system crises. The given essay will consider the theoretical and practical implications of a crisis, its influence on the organizations and the ways they manage crises.

Crisis is a revolution, a time of transition and change. It is the state at which the existing means of achievement of the objectives become inadequate; therefore, the unpredictable situations occur. “The Chinese ideograph for crisis combines the image of danger with the image of opportunity. This makes good sense. Crises are surely periods of peril, but they also facilitate change” (Bermeo, Pontusson, 2012, p.1).

There are several types of crisis. Thus, the economic crisis happens in organizations more often. The economic crisis is revealed through the violation of supply and demand balance on goods and services. There is a mass selection of effective owners in the created competition by means of crisis. Crisis can reform ideological and political conditions, elite, etc. Crisis includes the situation when there is a damage as a result of functioning; continuation of functioning within the former model is impossible; urgent decision-making is required; there is a chance of renovations.

Business crisis is a period of instability, a situation when serious changes approach. Thus, the result of changes can be extremely adverse and positive. However, it is obvious that any crisis represents a threat for the survival of the organization. In the case of insolvency of the organization and experience of crisis main attention is usually paid to the financial and legal mechanisms used within crisis management. The only one event – downsizing – is applied for the reduction of costs of the personnel. However, the value and importance of human resources and its contribution to the success of the organizational activity is widely recognized.

Negative and unpredictable events occur in the activity of any organization: planes can be late, computers broken, documents lost. It leads to the fallen reputation of the organization and, as a result, decrease of the clients’ trust. In order to avoid or prevent crisis it is necessary for any organization to know the crisis management. The tactics of the organization chosen for the coping with crisis defines its reputation for several years. The crisis situation for any organization can result in one of the problems including the threat of bankruptcy, termination or the threat of production termination, strikes, serious accident, leak of confidential data, loss of customers and narrowing of market, threat of terroristic act, change of the governmental policy, rendering serious negative consequences for the company, illegal activity of top management of the organization, falsification of production, etc. (OECD, 2009, p. 4).

Tony Gibeily (2010) states that the crisis in any organization is characterized by the following features:

• Surprise. Usually the crisis is solved suddenly. Quite often a PR specialist learns about incident when the mass media comes to PR, demanding the explanations of immediately undertaken measures;
• Lack of information. Events occur quicker than information about them extends. Besides, the front of events is wider than the system of information collection.
• Escalation of events. Crisis extends. Mass media want to know what happens. The company tries to react properly, but events are developed too quickly, and the company does not manage to react to all new manifestations of a crisis.
• Loss of control. There is the escalation of events. The information becomes uncontrollable.
• Consciousness paralysis. The organization feels surrounded and besieged. Top management and personnel are in panic. There are two extremities in behavior of top management in a crisis situation. Some of them pretend that nothing happened and continue fulfilling routine work. Actually, crisis is a work of everyone, and any responsible manager should support and encourage personnel and the interested audience. The other managers refuse to comment on the crisis situation and even accept an aggressive pose. (Gibeily, 2010).

The optimum sequence of actions of any company during a crisis includes business compression in order to provide its survival and to release additional money (reduction of expenses, disposal of the inefficient or non-core directions and assets). Then an intensive development of a new business model or new attractive directions. Most often the companies used one of four strategies of recovery from the crisis: change of positioning; revision of a business portfolio, concentration on the primary activity; investment into innovations; mergers and absorptions. Realizing each of the above-mentioned strategies, the companies use a wide range of tools. Thus, the processes of mergers and absorption were often preceded by restructuring of the existing businesses and a transfer of non-core assets out of business. (Dealing with Crises).

During the crisis in 1997 San Miguel – the Philippine company – optimized the operations and management of the capital that allowed it to increase its cost by 40% in 1998-99. San Miguel was created in 1890 as a small brewery. At present, San Miguel contribution to GDP of the Philippines makes 4% and brings 6% of all tax payments. The company works in several directions: production of drinks, food, packing materials and other goods.

During the crisis the company implemented the following initiatives:

1. Optimized the operations on the increase of the share of the used capacities
2. Concentrated on the main business, which was under the control of top management;
3. Merged with Ayala’s Purefoods, when the price of this company became attractive;
4. Absorbed the sugar refineries urgently needing financial resources;
5. Rationalized marketing and distribution in the Philippine market, and also decreased the number of workers at the Philippine enterprises;
6. Transferred a part of beer production to China that made the first profit in 1999;
7. Revised the list of the made production, having put emphasis not on faceless goods, but on branded products with a high value added. (Mendía, et al., 2011).

Thus, the given essay discussed the essence of crisis and how the organizations can cope with it. Moreover, it represented the example of the successful crisis management of the Philippine company San Miguel.