Crisis Preparedness Within Manufacturing Organizations: A study on corporate behavior in the face of crises

SAMINT-MILI-21036

Master’s Thesis 30 credits June, 2021

Crisis Preparedness within Manufacturing Organizations

A study on corporate behavior in the face of crises

Elias Mahmoud

Abstract

Crisis Preparedness within Manufacturing Organization’s

Elias Mahmoud

Problem: Crisis and crisis preparedness are being increasingly discussed within the business world. Especially now, when the current pandemic triggered maybe the most significant wave of economic downturns the globe is facing ever. Nevertheless, the Manufacturing Industry (MI) was severely impacted due to its dependence on the e.g., supply chain aspect. Therefore, it was interesting to explore how MO’s challenge crisis by investigating how they prepare for a crisis, i.e., crisis preparedness. A review of the topic within the scientific papers shows a lack of knowledge regarding crisis preparedness within MO’s.

Purpose: This thesis aimed to increase how MO’s prepare for a crisis and explore what measures (actions) they use to prepare for a crisis.

Method: This thesis followed a qualitative research approach (inductive) with a multiple case study design approach. The data were collected by three semi-structured interviews with three major organizations, where all the participants had a long experience with crisis management.

Later on, the collected data were analyzed thematically (thematic analysis approach).

Empirical findings: The empirical findings showed that organizations need to consider four main aspects when building a solid crisis preparation structure. These aspects consist of: (1) careful understanding of the environment the crisis occurred in, (2) possess extensive experience dealing with a crisis, (3) scenarios practices, (4) strong communication and transparency system, and finally (5) fostering crisis preparedness culture within the organization. All these aspects/skills must be acquired within the crisis management team (CMT). However, the communication aspect stood out more than the other aspects, which indicate the importance of communication within the organization.

Contribution: This thesis contributes theoretically by emphasizing the essentiality of the communication aspect and its positive impact on a crisis preparedness process within organizations. Likewise, from a managerial perspective, this thesis suggests that organizations should implement a crisis communication hub, where all departments within an organization possess all necessary tools to help them survive any crisis through an effective communication system.

Keywords: Crisis, Crisis Management, Crisis Preparedness, Organizational Crisis, Manufacturing industry

Supervisor: Ylva Bergström Subject reader: Enrico Baraldi Examiner: David Sköld SAMINT-MILI-21036

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Popular Science Summary

Crisis preparedness is an essential component of organizational management. Organizations should be prepared to deal with a crisis that is increasingly common in the modern business environment. The word crisis is originally derived from the Greek word "krisis," which means judgment, choice, or decision, i.e., a crisis is defined as an event that negatively impacts an organization, company, or industry. The consequences of crises to organizations typically vary with the type of the crisis and include financial and reputational damage such as the financial crisis in 2008, the Tylenol accident in 1982, or the current pandemic crisis COVID-19. In the end, a crisis can subject an organization to an unimaginable loss that can interrupt business operations.

The common interpretation of crisis preparedness is that different activities are done by organizations to prevent, control, or protect from a crisis. In other words, organizations act proactively toward a crisis by implementing activities and phases to avoid crisis and their results. If it is not possible, at least mitigate the adverse effects. When a crisis hits an organization, quick response and recovery depend on many facts. Therefore, knowing the organization's level of crisis preparedness is in many ways a crucial step for organizations to survive.

However, crisis preparedness, especially within the manufacturing industries, can make a considerable difference between costly and prolonged downtime and a fast resumption of operations. The worst scenario that could happen is absolute failure that could impact the company's financial well-being and employees' livelihood. In recent years, crisis preparedness has been the most significant issue within the advanced MI. The crisis could be from a cyberattack to natural disasters such as the earthquake that resulted in a catastrophic Fukushima Daiichi plant in 2011.

Hence, quick scanning of several scientific articles related to crisis preparedness was made within the MI, which resulted in a lack of knowledge within this area. Therefore, the aim of this thesis was made, which consisted of two related research questions: RQ1: How do MO’s prepare for a crisis, and RQ2: What type of measures do they have to be able to build a robust crisis preparation system to follow.

This study collected the information for answering the research questions by setting up three semi-structured interviews with senior people who work within significant MO’s, who have great experience in crisis preparedness. The semi-structured interview question consists of a less formalized list of questions, which allows the interviewee to discuss the answers, rather than a straightforward question-answer format.

The finding generated from the conducted interviews showed that many aspects need to be

considered for showing resilience to adapt quickly when a crisis occurs. These aspects vary

between understanding the crisis environment, having continuous practices, fostering crisis

preparedness culture, the experience of crisis, and communication. However, despite all these

aspects that build extensive documentation within every organization, the most important thing

organizations need to have is the right mindset. In the end, the crisis appears differently, and

organizations need to adapt fast to any unexpected event.

Acknowledgement

I, the author, would like to thank all the people who helped and supported me throughout this thesis process.

First, I would like to express my gratitude to my subject reader Professor Enrico Baraldi for showing enthusiasm, offering advice and suggestions.

Secondly, I would like to take this opportunity to show my gratefulness to my external partner in this project, Ernst & Young AB (Enterprise Risk Consulting), in particular Ylva Bergström, who did not spare any knowledge and poured over all her experience for the benefit of this thesis.

Thirdly, I would like to thank all the opposition groups that were present in the seminars. Their suggestions and advice were fruitful and elevated the quality of this thesis.

Fourthly, I would like to thank all the interviewed organizations who made this thesis a reality.

Concerning the confidential agreement, I will not disclose any names, but you know who you are.

Finally, I would like to honor the unknown soldiers by showing my appreciation and continually indebtedness to them, my family.

Thank you!

Stockholm, 2021-05-26

Elias Mahmoud

“The secret of crisis management is not good vs. bad; it’s preventing the bad from getting worse.”

(Andy Gilman)

Table of Contents

ABSTRACT ... 2

POPULAR SCIENCE SUMMARY ... 3

CHAPTER 1 ... 8

1 INTRODUCTION ... 9

B

T

T

... 9

P

... 10

R

A

R

Q

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S

R

D

... 12

O

... 12

CHAPTER 2 ... 15

2 THEORETICAL CONSIDERATIONS ... 15

D

T

... 15

R

M

V

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M

... 16

O

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... 17

C

M

... 19

C

P

... 21

S

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C

... 23

CHAPTER 3 ... 26

3 METHODOLOGY ... 26

R

P

... 26

3.1.1 Ontology ... 26

3.1.2 Epistemology ... 27

R

D

... 27

R

M

... 27

C

T

... 30

L

R

... 31

D

C

... 31

3.6.1 Sampling Technique ... 31

3.6.2 Interview ... 32

3.6.3 Secondary data related to the interviewed organization ... 32

D

A

... 33

Q

C

... 33

E

C

... 34

CHAPTER 4 ... 36

4 EMPIRICAL FINDINGS ... 36

C

1 – O

A ... 36

C

2 – O

B ... 41

C

3 – O

C ... 45

CHAPTER 5 ... 49

5 ANALYSIS & DISCUSSION ... 49

D

... 49

B

E

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O

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CHAPTER 6 ... 55

6 CONCLUSIONS, IMPLICATIONS AND CONTRIBUTIONS ... 55

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M

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L

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7 BIBLIOGRAPHY ... 60

8 APPENDICES ... 65

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B – I

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A

C – I

G

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Table of Figures

FIGURE 1: A THESIS STRUCTURE 14

FIGURE 2: INTERSECTION MODEL BETWEEN RISK MANAGEMENT AND CRISIS MANAGEMENT 17

FIGURE 3: MITROFFS AND PEARSONS CRISIS MANAGEMENT MODEL 19

FIGURE 4: RELATIONSHIP BETWEEN VARIOUS MEASURES THAT WERE OBSERVED IN THIS THESIS 25

FIGURE 5: VARIOUS PURPOSES OF QUALITATIVE METHOD 28

FIGURE 6: INDUCTIVE AND DEDUCTIVE RESEARCH APPROACH 29

FIGURE 7: PROCESS OF THE LITERATURE REVIEW 31

FIGURE 8: ORGANIZATION CHART FOR THE MANUFACTURING PLANT IN SWEDEN 36

FIGURE 9: RISK MANAGEMENT REPORTING SYSTEM 37

FIGURE 10: RISK MANAGEMENT PROCESS 45

FIGURE 11: EMERGENCY PLAN 47

FIGURE 12: SUGGESTION OF CRISIS COMMUNICATION HUB 57

List of Tables

TABLE 1: SHRIVASTAVA AND MITROFF TYPOLOGY 18

TABLE 2: GUNDEL’S TYPOLOGY 19

TABLE 3: SUMMARY OF THE VARIOUS CONCEPTS 24

List of Abbreviation

NAT Normal Accident Theory

CMT Crisis Management Team

MI Manufacturing Industry

MO Manufacturing Organization

MIT Massachusetts Institute of Technology

ERM Enterprise Risk Management

Blank page…

Chapter 1

1 Introduction

--- At the beginning of the introduction chapter, a brief background of the thesis topic is illustrated, the nature of crisis preparedness and crisis management, why the manufacturing industry (MI) is specifically of interest to explore, and the uniqueness and needs for further studies of the MI (problematization). Furthermore, the research question and the aim are formulated, explaining how the task is undertaken (research methodology). Finally, a roadmap on how this thesis was executed is provided (outline of the study).

---

Background of The Thesis

Today's world is witnessing large numbers and many forms of crises, the extent of which varies between those crises that occur at the individual level and those that affect groups of different organizations, whether at the local, national, or even global levels. Given that the environment and circumstances surrounding us are unstable, and changes are rapid and successive, and because the relationships between the various organizations are guided by the logic of challenge and competition in order to achieve their goals, which led to the complexity of crises and the multiplicity of their dimensions, and the extension of their effects to parties that have no business or cause in their occurrence.

Boin (2009) confirms that the nature and the consequences of the crises are changing all the time, i.e., it is not fixed on a specific shape or pattern. He claims that this changing/shifting of crises is because of globalization

. It is developing more open and integrated systems driven to a more complex

and interconnected society (Boin and Lagadec, 2000, p.185).

In 2007, the former Vice president Al Gore's national security adviser and a previous research professor of international affairs, Mr. Leon Fuerth, said the following about complexity in organizations and crisis engagement:

“In the 21st century, we face an emergent new class of problems that are not hierarchical, but rather conform in their structure and dynamics to systems described by complexity theory…This new class of problems tends to be fast moving and unstable, in the sense that trends and events interact spontaneously, with the result that surprise can outpace societal response.

In complex systems, inputs and outputs are not only unpredictable but on occasion, highly non-linear: that is, seemingly small events can lead to massively consequential results.” (Fuerth, 2007)

1Definition of globalization: Changes in social behaviors and technologies that allowed organizations to internationalize their product worldwide (Levitt, 1983)

2Definition of complex: The concept of "complex" is not the same as complicated. Complicated comprises many small parts, all different, and each of them has its specific role in the machinery/system. A complex system consists of many similar-interacting parts, which produce a coherent behavior) (Sammut-Bonnici, 2015)

To bring Fuerth's point of view closer, one could compare how a human brain is functioning.

The human brain is a complex organ that comprises several other interacting parts to control, receive, and send information. If one part starts to act abnormally, another part will be affected severely. In Charles Perrow's book, Normal Accident (Light, 2007), a classic in organizational sociology, is known as "normal accident theory, NAT." He argues that significant accidents are unavoidable in some complex technologies, such as the MI. As Paul 't Hart, Liesbet Heyse, and Arjen Boin (2001, p.182) argue, globalization increases the business's vulnerability and uncertainty, "as distances shrink, people and goods are moving faster and further, communication networks become more complex and indispensable, and technological advances spill over from one domain into another almost effortlessly."

Mitroff and Aspen (2003) stated that from 1980 till the 2000s, only five to twenty-five percent of organizations were adequately prepared for a crisis. Additionally, their study revealed that in the years between 1998 and 2001, the organizations that did better prepare for crises faced fewer critical situations than organizations that did not prepare for crises at all. Organizations that possess a well-structured crisis management policy are essential factors in achieving the goals of organizations, despite what may hinder the organization's continuity and survival, including threats and symptoms that may not be taken into account sometimes. Working with a distinguished, creative, and efficient crisis management policy, and depending on the personal, moral, and cognitive characteristics it possesses and its style in its roles and tasks, it can face the crises it faces.

However, as mentioned earlier, crises can take different forms, have varying degrees of danger that threatens the organization. Some of them may be internal and not observed outside the organization, although they can constitute destruction. Others may be general and take a broad scope, as massive crises affect many different organizations simultaneously; however, whatever the form of the crisis and the complex problems it produces, the organization must confront them. Its most dangerous consequences are those that affect the organization's profitability. From this point of view and because any organization cannot work in isolation from the different and renewable internal and external environmental effects, expected or unexpected, and in the face of the challenges and obstacles facing organizations of all kinds in order to achieve their plans, and to maintain their survival, continuity and even growth, organizations must have strong crisis preparation skills.

Problematization

The increasing attention toward crisis and the questions raised by the business organizations on how they should develop methods to strengthen their resilience to be able to cope with any unexpected event quickly, have led organizations to seek after various solutions to avoid or manage any crisis. Nyström and Starbuck (1984, p.54) argue that organizations could avoid most crises if they had a plan to handle such an event. Unfortunately, crises continue to happen, probably because the management did not see the warning signal before any crisis. Therefore, organizations must be well prepared to handle any sudden event in the best possible way, making the subject of “crisis preparedness” an essential part of any organization’s survival (Pearson and Clair, 1998).

Though there are some advantages in engaging in crisis preparations, some organizations still

lack a crisis management plan (Mitroff & Alpaslan, 2003). While most of the scholars mainly

focus on the concept of crisis management and how organizations should face any critical

situation, at the same time, it was found that organizations do not pay enough attention to create

a crisis preparation plan (McConnell & Drennan, 2006) i.e., most of the scholars discuss the concept of crisis management purely from an advisory perspective. But there was poorly information about how organizations are acting toward crises i.e., how do organizations prepare for a crisis? There are many reasons behind this lack of focus regarding crisis preparedness. One of them is the organizations interpretation of the crisis; they consider it an

“accident,” which means it is not expected to happen. Some organizations can also not identify the type of crisis that could severely hit them and affect their business (Spillan & Hough, 2003).

Additionally, there is often a low prioritization of crisis preparedness compared to the organization’s daily tasks. Finally, to prepare for a crisis properly, one must conduct crisis management as a whole body, which is not an easy task (McConnell & Drennan, 2006).

In other words, the main aim of crisis management is to minimize the damage made by a crisis to the maximum extent possible. Nevertheless, to be able to do that, it requires management skills and techniques to; (1) identify the underlying problem, (2) then shortens the disruption time, which will lead to (3) attenuation of the impact on the organizations (Hamidovic, 2012 p.1). Due to the significant impact a crisis could do on an organization, organizations need to think strategically and be prepared to change their actions as fast as possible, depending on the situation (Taneja et al., 2014, p.78).

The industrial manufacturing sector is one of the most important fields to build a strong economy for countries. At the same time, it is one of the most prone to crises (Johnson et al., 2017, p.167). Therefore, it is of interest to study organizations within the MI, consider crisis management, and prepare for these crises. Additionally, Sheffi (2015, p.5) underlines the importance of studying MI since a crisis can, for example, have a substantial impact via disruptions in the supply chain and lack of demand for products. Another theoretical source that emphasizes the importance of studying this industry was Drauz, where he indicated the strong relationship between crises and effects on manufacturing (Drauz, 2014). An example of what Drauz discussed on how crises affected factories’ functioning was the financial crisis of 2008 that put the automobile manufacturing industries under significant pressure to deliver their cars according to pre-scheduled schedules. That indicates the extent of a crisis’s impact on influencing the MI’s strategic choices. Another industrial crisis that is still close to our memories is the Toyota recall crisis in 2009-2010 and the Volkswagen emission scandal in 2015, which for sure appeared to these organizations as an unexpected event, and which most likely could be avoided. However, these industrial crises (Toyota & Volkswagen) have caused significant economic and reputational damage. Therefore, organizations must know that a crisis could occur anytime, and efforts should be made to address this fact.

Therefore, this study encouraged to search the area of crisis and crisis management within MO’s, one could gain more understanding about how MO prepare for crisis.

Research Aim and Research Question

By examining various streams of literature, one could conclude that it is impossible to separate

the crisis preparedness notion from the crisis management concept because crisis preparedness

is considered a sub-field of crisis management. Also, considering the lack of research regarding

crisis management in the MI, this study aims to increase the knowledge about crisis

preparedness within manufacturing industries. Therefore, it is crucial to investigate how

these MO’s prepare for a crisis by studying their preparation measures, i.e., how well prepared

are they?

Therefore, the research questions that arise are,

• RQ1: How do manufacturing organization’s prepare for crises?

• RQ2: What measures regarding crisis preparation do have?

Scope of Research and Delimitations

As mentioned earlier, the MI is one of the most prone industries to crises; therefore, it is of significant interest to get insight into the MO's feelings toward crisis.

However, since the concept of crisis management is pervasive and consists of many parts, it was essential to specify some parameters within this thesis that has been operated in. Therefore, this thesis has only covered/focused on the preparation part within the concept of crisis management, i.e., how MO’s prepare for a crisis and what measures they have. Additionally, because of the time aspect and the pandemic situation that made the organizations down- prioritize academic participation, this thesis took a narrower approach by establishing contact with a small group of people who have comprehensive experience within the area of crisis in Sweden. The reason behind the choice of merely one location is to avoid any obstacle that may disrupt work, e.g., communication difficulties and language differences.

Outline of this thesis

This thesis consists of six chapters, and are structured as follows (Figure 1):

Chapter 1: This chapter aimed to offer people all the necessary information to understand the research topic in terms of background. From the background, individuals will be led to the gap of knowledge that has been unaddressed, i.e., problematization. After a brief explanation of the issue, a research question is formulated derived from the issue. Lastly, the scope of this thesis is explained to describe the extent to which this thesis area was explored; and a boundary of the scope is defined.

Chapter 2: This chapter sets the foundation for the whole thesis by presenting all the previous research discussing the topic of crisis and relevant for this thesis for answering the research question. The chapter starts with a brief definition of terms, then an explanation of the differences between the concepts of risk management and crisis management. Following, various views on the crisis that could occur concerning an organization. After that, the concept of crisis preparedness is explained. Lastly, a table of summary of all the concepts that have been explained is provided to simplify the understanding of the various concepts; and a theoretical framework is drawn, which will be the basis for the creation of the interview guide that helps the study to answer the research question.

Chapter 3: The third chapter describes the methodological approach of this thesis. It begins

with what this study beliefs or thinks are the appropriate way of conducting, analyzing, and

using data related to a phenomenon (research philosophy) that this thesis intends to explore,

i.e., crisis preparedness. After that, a plan on how to answer the research question is describes

(research design). Then a research method is described, where a strategy on how to execute the

plan (research design) is elaborated—next, a more detailed explanation of the process on how

this thesis was executed. Later, the way the theories were chosen is provided together with

writing the literature review (the process of literature review). Then a data collection technique where the sampling method is explained along with how the data was conducted and analyzed.

Lastly, quality and ethical consideration are demonstrated.

Chapter 4: In this chapter, the empirical findings are outlined in a manner that helps the study to come closer to answering the research question. The chapter presents various things such as discovered commonalities and differences between the participated organizations regarding their view of the crisis, their experience of crisis, types of risks, and other facts that play a crucial role in deciding the way organizations need to prepare and act toward crises.

Chapter 5: Within this chapter, the empirical findings are analyzed and discussed. Through the analysis and discussion of the findings, a bridge is built between the findings and the relevant literature that has been presented in the theoretical framework, i.e., connection were made between the findings and the relevant concepts for answering the research questions.

Chapter 6: The last chapter is about the conclusion of the whole thesis by first answering the research questions, and subsequently, the implications and contributions are delivered.

Furthermore, this thesis's challenges are deliberated, and future research is suggested at the end

of this chapter.

Below find the content of all chapters outlines:

Figure 1: A thesis structure

Chapter 1 - Introduction

• Background of The Thesis

• Problematization

• Research aim & research questions

• Scope of Research and Delimitation

Chapter 2 – Theoretical Consideration

• Definition of Terms

• Risk management vs. crisis Management

• Organizational Crisis

• Crisis Management

• Crisis Preparedness

• Summary of the Theoretical Consideration

Chapter 3 – Methodology

• Research Philosophy

• Research Design

• Research Method

• Choice of Theory

• Literature Review

• Data collection & Data Analysis

• Quality Criteria

• Ethical considerations

Chapter 4 – Empirical

Findings

• Case 1

• Case 2

• Case 3

Chapter 5 – Analysis &

Discussion

• Discovered factors that influences crisis preparedness

• Business environment

• Organizational crisis characteristics

Chapter 6 – Conclusion, implications &

Contributions

• Conclusion

• Theoretical Implications and Contributions

• Managerial Implications and Contributions

• Limitations and suggestions of future research

Source: Own illustration

Chapter 2

2 Theoretical Considerations

--- This chapter elucidates various theoretical standpoints around the concepts of crisis, crisis preparedness, and crisis management. By understanding these essential aspects in the thesis, the reader will have a comprehensive picture of the topic. Hence, at the end of this chapter, a summary of the theoretical framework is presented by depicting the relationships discovered throughout the knowledge provided here. Furthermore, a summary of all significant concepts is showed in a table to make it easier to understand.

---

Definition of Terms

Before this thesis goes into depths of the world of scientific research, by examining related concepts, it’s crucial to clarify some terms that can be mixed up in interpretation. Therefore, terms such as, disaster, catastrophe and crisis need to be understandable in the simplest way it can be. Indeed, said by several researchers that the interpretation of these terms is still in a developing phase: however, it is still a presumably impossible task for researchers to sorting out this issue (Perry and Lindell, 2003). Therefore, it was difficult to ignore these terms in this thesis, because at times, there was more than one term used in a singular incident, and sometimes one term is used for more than one incident with different characteristics.

Consequently, the term disaster is defined as "a sudden onset occasions that seriously disrupt social routines, cause adoption of unplanned action to adjust to the disruption, are designated in social space and time, and endanger valued social objects" (Perry and Lindell, 2010, p.3).

There is no clear boundary between the term crisis and disaster. According to Stallings (2005), the concept of crisis is seen as a general notion which sometimes includes disasters. Also, Boin (2005) argues that "a disaster is a crisis with a bad ending." Even though the term disaster is sometimes used in this thesis, the term crisis is still a more ample concept.

On the contrary, the definition of catastrophe seems to be agreed on by most of the researchers.

Catastrophes are “situations that made a significant impact on multiple communities”, something huge that affects a large segment of a society, e.g., structures are impacted, and community functions are interrupted (Quarantelli, 2000). Despite Quarantelli's interpretation of the term catastrophe, Alexander (2002) argues that there still some blurring about the distinguishment between a disaster and a catastrophe.

However, the crises interpretation could also be different depending on the organization’s point of view. However, some common elements often are used to depict a crisis, such as

“unexpected threats, high uncertainty, and a quick decision making.” Carmeli & Schaubroeck

(2008) argues, “The diversity in the extant crises literature has caused the refinement of a clear

definition of crisis to be problematic at best, but it has allowed researchers to identify some

common characteristics of all crises.” Nevertheless, there are many different perceptions about

the term “crisis.” Despite the differences between scholars of crisis, there is still a common

favored interpretation among researchers on the definition.

Amongst the many interpretations are four interesting ones:

• A crisis is “events that threaten [the corporation’s] most important goals of survival and profitability” (Mitroff and Shrivastava, 1987, p.6).

• A crisis is “negative incidents that can cause the demise of an organization” (Chong, 2004, p.43).

• A crisis is “a disruption that can involve both employees, customers, competitors, suppliers, environment, and governments (Sheffi, 2017, p.27).

• A crisis is “(...) a crisis is a series of unforeseen events that launch a group, team or an organization into a downward spiral that is quick and will have long term effects if the situation is not rapidly handled effectively and efficiently” Taneja et al. (2014, p.78).

Among all these contrasts in defining a crisis, this study found the best appropriate definition for this term is what Pearson and Clair (1998) describes:

“A low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by a belief that decisions must be made swiftly.”

In summary, the choice of a term depends mainly on the purpose of the study. This thesis focused on the concept of crisis preparedness and crisis management in the MI. Hence, this thesis has chosen terms/definitions to capture different organizations' routines and procedures to reveal how they prepare for a crisis. Henceforward, when other terms (disaster and catastrophe) than crisis are mentioned onwards, they will be considered synonymous with a crisis definition.

Risk Management Vs. Crisis Management

In the same context of crisis preparedness and crisis management, one could not avoid the

concept of risk management. The concept of risk management is the main framework of any

process that encompasses avoidance of threats that could hit an organization and disrupt its

business. Therefore, it is essential to differentiate between crisis management and risk

management. This thesis is keen to clarify the differences between the two concepts, not to get

lost between those concepts even though the study will only focus on crisis preparedness and

crisis management. Both these concepts work within the same area; both deal with threats to

organizations, i.e., crisis management is a subset of a more prominent framework, risk

management. Usually, organizations mitigate threats by the implementation of various

management programs/plans. For instance, risk management handles threats before the

occurrence of any possible event (identify, assessment, and mitigating any future event), while

crisis management deals with threats when it unfolds or after the event (respond, manage, and

recover). It is a very thin line between risk management and crisis management; they are

dependable of/intertwined with - each other in a way, it is impossible to activate one of them

without the other if a threat occurs. Accordingly, the importance of preparation to deal with

and act immediately is crucial for the two concepts being dependable on each other (plan,

prepare, and mitigate) (Figure 2).

Figure 2: Intersection model between risk management and crisis management

Organizational Crisis

As discussed in the preceding chapter, there are some similarities in interpreting what constitutes a crisis. However, there are still some discrepancies, whether a crisis should be observed from an objective lens or subjectively, i.e., if a crisis is defined objectively. The researcher needs to solicit particular factors that need to be met to declare that this is a crisis.

While, if a crisis is defined subjectively, then the researcher’s interpretation depends on the self-exertion (experience) if it is a crisis indeed at the moment (McConnell & Drennan, 2006).

Basically, the interpretation of a crisis depends mainly on the experience of the researcher within the area of crisis.

Unfortunately, researchers are still working on this issue (crisis definition), and they did not find a clear, explicit definition. Therefore, most researchers have counted on a specific definition of crisis created by Pearson and Clear (1998, p.60) that covered both the criterias (objectively and subjectively). It encompasses how organizations should perceive an event with a distinct characteristic at a specific moment to be classified as a crisis. One such definition is:

“An organizational crisis is a low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by a belief that decisions must be made swiftly”

Pearson's and Clair's definition of a crisis has been widely accepted; however, Roux-Dufort (2007) had another point of view. They propose a crisis as a process, by viewing the organizations actions toward crisis, flaws in their internal process will float on the surface when an event occurs, even though the crisis existed prior to its appearance. This theory suggests that instead of reviewing a crisis by splitting them into pre-crisis and post-crisis phases, it should be viewed as a complete crisis process. By viewing a crisis as a process, even if an event occurred and it is unavoidable, the element that defines when an event becomes a crisis is the organization's internal process, making crisis management and crisis preparedness more essential to be implemented within the organization.

Groh (2014, p.50) continues in the same path as Roux-Dufort and argues that a crisis commences when an organization's prosperity has reached its peak and its growth begins to

Identify Assess

Mitigate

Respond Manage Recover

Risk Management

Crisis Management

Source: Own illustration

descend. Without a radical change of current business practice, the organization can suffer severely. Pollard and Hotho (2006, p. 722-723) have classified seven characteristics of significant crisis events; see below.

(1) Economic-related: Labor problems, stock market falls, economic downturns, changes in trade policy, sharp declines in profitability.

(2) Information-related: Loss of data, data tampering, loss of records, etc.

(3) Physical-related: Loss of key plant and facilities – loss and long-term breakdown, product failures, plant explosions, long-term quality problems.

(4) Human resources-related: Death of key personnel, in-organizations vandalism, corruption, resignations.

(5) Reputation-related: Adverse rumors, loss of reputation, tampering with corporate logos and websites, etc.

(6) Psychopathic acts-related: Product tampering, terrorism, criminal acts, kidnapping, etc.

(7) Natural disasters-related: Fire, flood, gale damage. earthquakes (adapted from Mitroff, 2003, p. 46).

Another classification of crises was proposed by Shrivastava and Mitroff (1987, cited in Light, 2007, p.11), where their view on organizational crises is divided into internal and external nature. They argue that the cause of a crisis can occur from a technical/economic or human/organizational/social aspect. A summary of their typology diagram is below (Table 1), where examples of internal/external crises are coupled with the type of cause.

Table 1: Shrivastava and Mitroff typology

Type Examples of internal crises Examples of external crises

Technical/economic

Major industrial accidents Product injuries

Computer breakdown

Defective, undisclosed information

Widespread, environmental destruction Natural disasters

Hostile takeover

Social crises (civil or political) Large scale systems failure

Human/organizational/social

Failure to adapt to change Sabotage by insiders Organizational breakdown Communication breakdown On-site political tampering Illegal activities

Symbolic projection Sabotage by outsiders Terrorism

Executive kidnapping Off-site product tampering Counterfeiting

As mentioned earlier, the crisis never comes in the same shapes or patterns; also, it could last for either a long or short period. Additionally, crises can be easy or hard to predict and influence. Therefore, Persons (1996, cited in Ritchie, 2004, p.671) distinguished between three various organizational crisis occurrences and duration, such as:

1. Immediate crises: Crises that appear without any prior warning, which leads to unpredictability from the organization's side when a crisis hits them.

2. Emerging crises: Crises that develop at a slow pace, which gives organizations enough time space to contain the crisis.

3. Sustained crises: Crises can last for a short period or a long time, e.g., weeks, months, or years.

Source: Own illustration

For instance, another typology inspired by Person's various organizational crises is Stephen Gundel's typology. His typology focuses mainly on two classification criteria: predictability of a crisis and the level of influence before or after a crisis. His model is all about the organization's resilience in handling crisis to "dumper" the effect and preparedness to face a crisis. For example, crises that are both easy to predict and influence can be depicted as a conventional type of crisis. However, crises that are easy to influence but difficult to predict can be seen as unexpected crises. On the contrary, if crises are difficult to influence but easy to predict, they are perceived as intractable crises. Lastly, crises that are both difficult to predict and influence are fundamental (Gundel, 2005, cited in Light 2007, p.12) (Table 2).

Table 2: Gundel’s Typology

Type Easy to influence Hard to influence

Easy to predict Conventional crises Intractable crises

Hard to predict Unexpected crises Fundamental crises

Crisis Management

To deal with an organizational crisis, organizations need to be prepared for such an event.

Therefore, crisis management has become an important topic for many organizations. Crisis management is described as a systematic process; it predicts and evaluates threats and creates strategies. These strategies aim to try to remove threats somewhere else, reduce the impact of the crises or even try to avoid them altogether (Alijuhmani & Emeagwali, 2017 p.52). Also, it is commonly known that crisis management involves stakeholders related to the organization internally and externally (Taneja et al., 2014. p 80). Therefore, organization leaders/stakeholders must engage with crisis management to influence the organization's path to resolve the situation (Alijuhmani & Emeagwali, 2017 p.52). The crisis management process often consists of several stages; the number of stages could differ somewhat depending on the researcher's interpretation. Pearson and Mitroff (1993) describe the crisis management concept as five various stages (Figure 3).

Figure 3: Mitroffs and Pearsons crisis management model

The first stage i) aims to identify early warning signals that could disrupt an organization's life.

The second stage, ii) is about preparedness and crisis prevention. In the third stage, iii) actions to prevent further spread of the crisis should be settled. The fourth iv) recovery from the damage caused by the crisis, and finally, the fifth stage v) evaluation of how the organization handled the crisis for future learning.

On the other hand, Fink (2000) has a different view on crisis management stages. He classifies them into prodromal crisis stage, acute crisis stage, chronic crisis stage, and resolution crisis stage. Another opinion on crisis management stages was discussed by Nunamaker Jr et al.

(1989), who simplified crisis management in three stages: pre-crisis stage, crisis activities and facilities stage, and post-crisis stage. Despite the differences in the interpretation of the crisis

i) Identify warnings

signals ii) Find risk factors

(preparations) iii) Prevent crisis spread

(containment) iv) Crisis recovery v) Learning from crisis

Source: Own illustration

Source: Own illustration

management process. Some similarities brings them together. First, activities that occur before a crisis. Second, activities that try to decrease the impact of a crisis when it occurs, and third, lessons learned from the crises for better future preparations. This study aims to investigate how MO’s are "preparing" for crises. Thus, the focus is on the second and third stages only (Figure 3). Because the study is seeking the organization's reaction when a crisis hits them, not before it hits them, in this way, the study will know the extent of their preparation.

Crisis Response

Once a crisis hits an organization, the first rational action is to control the damage caused by the crisis. Due to the differences in the crisis types and the level of impact, there is no easy way or a specific way to create a theoretical framework for how an organization effectively responds to a crisis. The closest studies investigated by researchers on how to respond to any crisis depend on the crisis's character (Pearson & Mitroff, 1993). In other words, actions that an organization might take toward a crisis might differ depending on the nature of a crisis. Within the literature on the concept of crisis management, it was found that crisis management can deal with crises from two different angles, internally and externally (Bundy et al., 2016).

Bundy et al. (2016) describe internal crisis management by asking what facts made a crisis occur and how to handle a crisis effectively? On the contrary, external crisis management is about responding to the crisis and maintaining the organization's image, especially if the stakeholders need to be informed.

Dealing with internal crisis management can be an uneasy task since it’s already known that a crisis does not look the same. Therefore, it is unrealistic to seek academic information about specific actions on every type of crisis. However, several investigations were made regarding how a decision has been made effectively in concerns. Most of these papers came to the same result that the issue was so-called "organizational sense-making" (Roberts, Madsen, and Desai, 2007). A crisis is usually unexpected and unexperienced by organization’s, which leads to a disruption of the employees' current mental health, which puts them at a loss in how to act towards the crises, i.e., it will confuse them. In this type of situation, the employee should have the ability to quickly create a new mental model that can cope with the unique situation. It is even more complicated on the organizational level since organizations often consist of complex systems interlinked to each other, making it even more difficult to change all the mental models toward better coordination and adaptation of the new situation. Therefore, Roberts et al. (2007) suggest that the optimal solution for avoidance of this issue is to designate a person who has a comprehensive picture of the situation and can help the organization (at all levels) via coordination of all the new measures and shifting awareness setting concerning to the crisis.

Massey and Larsen's (2006) perspective wondered why not a crisis management team (CMT)

instead of a sole person. In the example of the Metrolink train crash accident, they praised how

the organization handled the situation. By emphasizing the critical role, their CMT played to

reduce the impact of the disaster. The main reason behind this successful way of handling the

situation was particularly the clearness of every team member's task if a crisis occurs, i.e., the

well-functioning teamwork and the ease of conveying all the necessary knowledge to all

departments within the organization has made the crisis responses highly effective. Metrolink's

way of dealing with the disaster caught several researcher's attention in this field and proved

the importance of CMT within organizations. Organizations must create within its core

structure a mature environment and a culture of cooperation between all segments/function

levels of the organization toward a better crisis response and creative decision making (Sommer

& Pearson, 2007).

Regarding external crisis management, the focus is mostly on stakeholders related to the crisis, communication during a crisis, and maintaining the organization's image (Bundy et al., 2016).

When it comes to stakeholders, organizations must ask themselves how to direct their effort?

Should the organizations aim at the victims of the crisis or toward the organization's shareholders? It was found that it depends on the type of crisis – scandal, accident, or product- related accident, i.e., each crisis character requires a specific action to generate successful crisis management (Marcus and Goodman, 1991). Alpaslan et al. (2009) favor focusing on the organization's stakeholders rather than victims, they argue, because it is within their interest to realize the situation as quickly as possible. Therefore, they will be keener to take effective decisions to bring the organizations on their feet again.

Despite organization’s choices, it is also essential to address the communication to reach them (Alpaslan et al., 2009). The communication's primary goal is to alleviate the situation, protect the organization's reputation, minimize the gossip news, and reduce the stakeholder's anger and anxiety by updating them on the status (Coombs, 2015). Therefore, it is essential to choose the right approach. Otherwise, Holladay & Coombs (1996) argue that if the wrong direction is picked, that could result in another crisis since the communication between the organizations and the stakeholders is not effectively implemented. The process is ambiguous, and the indicator of success or failure of crisis management depends mostly on how stakeholders and media perceived the organization's effort (Klein & Dawar, 2004).

Crisis Preparedness

The importance of crisis preparedness has already been explored previously – if an organization is standing well prepared for a crisis, it well certainly has higher chances to effectively challenge any sudden event/crisis (Bundy et al., 2016; Mitroff et al., 1987; Pearson & Clair, 1998; Somers, 2009). Since the number of crises has increased within organizations for the last years, it has become more crucial for organizations to engage more in crisis preparation activities (McConnell & Drennan, 2006). However, what increases organization's interest in their eagerness to be well prepared for crises is that they have become more and more dependent on technology, which means the risk of complex crises rises also. The rapid development within the technological field is a commendable thing, especially when it is related to sustainability. However, at the same time, it increases the error rate (both from human and technological nature) due to its complexity. Therefore, technology-dependent organizations find the necessity of having a solid monitoring plan to avoid and process the error, i.e., crisis preparations within technological-dependent organizations are essential.

However, it is tough to monitor or rather be hundred percent prepared for technological errors since there is a high level of unpredictability, specifically when it is related to sophisticated technology matters. Hence, researching the concept of crisis preparation is relevant within this thesis.

After reviewing several existing research papers on crisis preparedness, Staupo-Delgado and

Kruke (2017) found that crisis preparedness constitutes three main pillars that build the

foundation of the notion. They found that crisis preparation consists of elements that are active,

continuous, and proactive. By actively, they mean that preparation for crisis needs to be

actively considered by creating specific actions to increase the organization's preparedness for

any event. Regarding the ongoing and proactive, they mean that crisis preparedness is an

ongoing process that never stops. Such a process aims to envision a crisis and avoid a crisis if it is manageable. If the organizations did not succeed in avoiding a crisis, they need to be well prepared for the hit. With the previously mentioned, Clair & Waddock (2007) said that the notion of crisis preparation needs to be planted within the whole organization's work processes as a strategic paradigm. However, while the foundation of the concept of crisis preparedness has been established, a clear answer on how organizations prepare for a crisis is still missing.

Researchers on this topic could not reach any conclusion (Bundy et al., 2016; Staupe-Delgado

& Kruke, 2017).

Crisis Preparation Measures

Through reviewing the concept of crisis preparedness, four main measures within crisis preparation were discovered:

1. A written crisis plans

2. Training activities, practices, and scenario settings 3. Crisis management team (CMT)

4. Creation of internal crisis preparedness awareness

To implement the measures mentioned above regarding crisis preparation, two central elements need to be recognized. Risk assessment, which will allow the organization to increase their chances to avoid any threat picture that could happen (Figure 3) and when the crisis arrives, the preparation aspect (Figure 3) is essential in this case, by taking decisive actions via quick decisions amid the crisis (Mitroff et al., 1987).

The crisis preparation process begins with the creation of a crisis plan. A crisis plan is usually an official document that should be accessed by everyone in the organization, where actions and roles should be taken if a crisis occurs (Massey & Larsen, 2006). However, the effectiveness of the document is not about its existence, but it has rarely had any intrinsic value i.e., the importance of the document is not its existence per se. On the contrary, it is about the thoughts put into the document that is matter. Because these thoughts are mainly gained from prior experiences, which will help the organization be better prepared for any future possible crisis. The precautionary thinking about other crisis scenarios that might hit the organization and how one may react to it is what matters at the end, i.e., what is most valuable to an organization is being on the proactive state continuously (Mitroff et al., 1987). However, bear in mind, as has been mentioned several times earlier, crises have different characteristics;

Hence, rationally, it will be difficult to forecast any future event/crisis. Therefore, some

scholars, such as McConnell & Drennan (2006) and Pearson & Clair (1998), warns that it is

not enough to set up a crisis plan since it may create a false sense of security. Therefore,

McConnell & Drennan (2006) continue to emphasize the importance of integrating training

with the crisis plan. Thus, an organization may need to complement a crisis with other

activities, such as training. The training aims to get the employees involved in various possible

scenarios of crisis that could hit the organization (Clair & Waddock, 2007). This will result in

a well-prepared employee with solid confidence to challenge any crisis that an organization

could be threatened, which is viewed as a very positive act. However, although the benefit of

training within organizations, McConnell and Drennan (2006) have pointed out the challenge

of creating crisis training because the shape of a crisis is unknown before it hits the

organization, the organization will find it very difficult to form the training course. This could

result in crisis training as a symbolic act, leading to a false increase of employee's self-efficacy

but does not have any actual improvement of crisis preparedness. Regarding building a CMT,

as mentioned earlier in the section of crisis management (2.4), organizations need to create CMT to be able to face crises effectively (Massey & Larsen, 2006). While some organizations do not have any CMT before a crisis appears (Sommer & Pearson, 2007), others recommended that the CMT should be created before a crisis is a fact (Massey & Larsen, 2006). Sommer and Pearson (2007) argue that establishing a CMT before any occurrence of crises is critical because the team members will have enough time to strengthen their relationship, which will result in harmony among team members and build trustfulness that rarely happens within a newly created team.

While the crisis preparations measures were mentioned above, most of the scholars argued that the most critical one is the aspect that creates crisis preparedness culture within organizations, i.e., the importance of fostering crisis preparedness culture within the organization (Clair &

Waddock, 2007; Somers, 2009). Somers (2009) has explicitly focused on the extent of the organization's resilience against a crisis. He argues that organizations should not trust in creating specific actions and plans and engaging in training. By contrast, organizations should focus more on how to strengthen their resilience, which involves creating processes and systems that help them adapt faster when a crisis is a fact. Also, he added, fostering values like openness and creativity within the organization will pave the way for the absorption of any constructive criticism that ultimately is poured into the best interest of the organization's crisis preparedness, i.e., organizations will be able to spot any early warnings signals (Clair &

Waddock, 2007).

Out of what has been presented about crisis preparedness and its different measures. It is important to remember that because of the dissimilarity of crisis, the effectiveness of the organization's approaches toward dealing with the crisis may vary, depending on the type of crisis (Mitroff et al., 1987). Therefore, training might not be as practical as expected (McConnell & Drennan, 2006). Also, the type of industry plays a crucial role in how organizations could prepare and react to a crisis, i.e., the forms of crises differ in different industries (Pearson & Mitroff, 1993). Also, another aspect that should be kept in mind is the complexity of the crisis response. For instance, organizations might find it more beneficial to focus on the internal aspect of crisis management. At the same time, other types of crises might be better to be dealt with via the external aspect of crisis management (Bundy et al., 2016).

Summary of the Theoretical Consideration

In this section, a comprehensive information about organizational crisis, crisis management,

and crisis preparedness within MI has been familiarized, in order to present an extensive picture

of the field. Below is presented (Table 3) a summary of the concepts that is related to the topic

of this thesis. Followed by a graphical depiction of the relationship that have been found within

this chapter (Figure 4).

Table 3: Summary of the various concepts

Concepts Summary

Organizational crisis/crisis

Unexpected events disturb the order of an organization's workflow and make a significant negative impact on its profitability. Since a crisis is often characterized with ambiguity and uncertainty (shape and form) organizations management need to take quick decision to absorb the negative impact caused by a crisis. However, a crisis can hit the organization externally or internally.

Crisis Management A bundle of strategies that is designated to help organizations to deal with any type of sudden negative event that occurs. The concept of crisis management consists of several phases mainly pre-crisis, in crisis, and post-crisis. While it has been researched deeply into the concept, it has been founded that it’s impossible to create a general theoretical framework on crisis management, because of difference of the nature of a crisis.

Crisis Response A procedure on how an organization respond to a crisis when it occurs.

Confrontation of crisis could be done either internally or externally (depends on the character of a crisis). With internal crisis management a crisis is dealt internally by reconsideration of the processers and strategies.

While external crisis management is often dealt by continually communication with the stakeholders to beautify the organization’s image.

Crisis

Preparedness

The measure of the organization’s preparedness concerning crisis is determined by the amount of crisis that it experienced lately. Therefore, it’s important for organizations to continuously evaluate their readiness to confront crises and being anticipatory in nature. In another word, crisis preparation is a continuous process that never ends.

Crisis preparation measures

Some measures that could strengthen an organizations crisis preparedness:

• Crisis document

• Crisis training

• Establishment of Crisis management team (CMT)

• Foster crisis preparedness culture with an organization

Source: Own illustration

Figure 4: Relationship between various measures that were observed in this thesis

Crisis Management Team (CMT)

Crisis Plan

Fostering Crisis Preparation Culture Scenario

Training

Crisis Management

Pre-Crisis Preparations

Crisis Response

Source: Own illustration

Chapter 3

3 Methodology

--- This chapter explains the research process in detail to offer the reader a clear roadmap on how this research was conducted and which method was used. The philosophical standpoint is discussed in the first part, following a research design where a plan is drawn. Furthermore, a strategy on how to execute the plan is articulated in the research method section. Next in this structure is to offer the reader clarifications on how the theories are chosen. After that, a brief description of the literature review process concerning the research process is provided.

Lastly, ethical consideration and quality criteria will be justified.

---

Research Philosophy

Before continuing with the research, one must consider the philosophical aspect of this research. According to Bell et al. (2019, p. 25-26), a research philosophy is about how a researcher believes or assumes a specific phenomenon should be interpreted. Research philosophy is divided into various aspects. However, the two most familiar aspects within business management research are Ontology and Epistemology. Ontology – is about understanding the reality of a phenomenon, i.e., understanding the nature of reality, while epistemology – talks about how people understand reality, i.e., how people discover the reality.

For instance, in this thesis, it is crucial to assume what organizational crisis, crisis management, crisis preparedness is, and how can we know what we know about these concepts? (Saunders et al., 2009, p.129).

3.1.1 Ontology

The definition of ontological assumption is how an individual interprets a reality's nature (Saunders et al., 2019, p.133). By understanding the ontological assumptions (even if the assumptions are sometimes not so obvious), the researcher can create research methods that will improve the researcher's ability to understand reality (Bell et al., 2019, p.26). Further, ontology is divided into two different aspects: objectivism and constructivism. Objectivism is a position that stands afar from a phenomenon without any influence in it. Bell et al. (2019, p.26) argue that one can view organizations and cultures by observation.

Nevertheless, in this thesis, the focus was directed toward organizational crisis, crisis

preparedness, and a constructionism standpoint. Constructionism is a position where the

objects are constantly viewed and managed by actors (Bell et al., 2019, p.27). Hence, in this

thesis, crisis preparedness in MO’s is not considered to have pre-existing rules or regulations

on dealing with a specific crisis. Their scoop of work is more based on the interpretation of

individuals regarding the situation of the organization. Additionally, this thesis viewed the

crises within manufacturing industries as socially constructed entities made by the actions and

understanding of humans. Therefore, the study utilized the notion of constructionism within

this thesis.