Strategic Risk Decision Making - Term Paper Example

Strategic risk decision making Name Institution Subject Instructor Date Table of Contents Table of Contents 2 1 Introduction 3 1.1Crisis as a threat to reputation 3 1.2 Formation of reputation 4 2 Crisis threats 4 2.1The responsibilities for response to crisis 5 3 Management of crisis 6 4 The phone hacking scandal in News Corp 8 5 Conclusions 9 1 Introduction Apparently, any organization is bound to face crisis and no organization is immune to such scenarios. At such times of crisis, it is very vital to have an effective communication framework flowing through all the stakeholders including the top management employees to the lower level workers and to the shareholders as affirmed by Coombs (2007) According to Coombs (2007), a crisis can be termed as the perception of an event which is not predictable and is threatening crucial expectations of the stakeholders in the company and it has the capacity to impact greatly on the performance of an organization and possibly bring forth unwanted outcomes. A crisis cannot be foreseen but, one can anticipate its coming even though it’s not possible to predict the time it will hit. Their repercussions are usually far reaching including a substantial lose in property, financial or environmental loss. Stakeholders of the company will answer to crisis inform of Post-crisis communication. 1.1Crisis as a threat to reputation Reputation can be termed as the overall stakeholder’s evaluation on how well a particular organization is meeting their prospects based on behaviors of the past. Reputation in the cases of organization includes a number of things including valuables held by the organization, intangible assets like patents, goodwill and copyrights and the environment. It is well known that the reputation of a company has a positive impact on the financial performance thus its increasing its shares and portfolio, it also attract stop employee talents since the stars will be attracted to go and work in such organizations, it improves the chances of the organization to generate invest interest, it gives the company the chance to gain competitive advantage and increases the return on investments. 1.2 Formation of reputation Reputation in organizations usually develops through the information received by stakeholders about the organization. The stakeholders of an organization get such information by interacting with the organization, media and advertising reports and information from second hand sources which include the people (Davies, 2011). However, much of reputation for a company is earned through the new media and that’s why an organizations media feature is so crucial for reputation management. Alternatively, second hand information which is mainly got from web blogs and the social media is critical for one crisis as was evidenced by Wal-Mart and Kryptonite. Since the reputation of an organization is evaluative, stakeholders will always compare what they already know about the company in order to determine whether the organization is meeting their set goals or not. If the organization does not meet their expectations, an expectation gap develops which is really problematic to the company. 2 Crisis threats Consequently, a crisis is usually sudden and not prepared for and it greatly disrupts the operations in an organization and poses a great financial and reputational threat to such an organization.at some times, such crises can cause physical, emotional or emotional and financial harm to the stakeholders in the organization. According to Bryson (2004), a wide range of the stakeholders are usually affected by the crisis and these include, the customers to the organization, the employees , the supplier to the organization and other stakeholders like the shareholders or the general public in case the company is a multinational. A crisis affects the reputation of the company since it gives people a leeway to have a negative thinking about the company. Similarly, Fearn (2001) affirms that, the media and the internet play a big role in the damage of reputation to a company in a crisis. It has been realized that a huge proportion of the organization will learn about the crisis affecting their company through media reports and internet and a small proportion gets the information by being informed directly by the oraganisation.in the event that the crisis shift from favorable conditions to unfavorable ones, there is usually a shift in the way the stakeholders of the organization react with the it and thus the benefits of a good reputation dwindle (Davies, 2011). In other extends the stakeholders may resort to cutting ties with the organization or increase the problem by spreading negative information through the word of mouth about the company. The crisis management field is cognizant of the reputation value to the company and the epitome of the concern here is about reputational capital. This can be said to be the total stock of social assets or perception that the organization has I the public. This is not easily earned but it is accumulated over time as he company interacts with its customers.in times of crisis, such capital is lost thus a company with more of pre-crisis reputation is more likely to survive since this reputation will act as a buffer to guard against the loss in reputation and hence it will heal from the crisis faster than the others. 2.1The responsibilities for response to crisis The first responsibility of the management is to guard the stakeholders from any harm whether physical, emotional for financial and not to protect the reputation. The management should be at the forefront to inform its stakeholders on what to do protect themselves from the physical threats posed by the crisis. This may involve information the customers that there I contaminated food and thus they should not eat it or by use of sirens in case there is a release in chemicals or nuclear thus alerting them to move o safer grounds. This can be passed directly to the customers either by the word of mouth or sirens or through the news media by running adverts on televisions or posting in the company website. A crisis will always demand information and thus by passing the information in advance to the stakeholders, they will be more psychologically prepared to deal with the stress to be posed by the threat (Bryson, 2004). Similarly, the stakeholders will be demanding to know what the management of the organization is doing to protect them from loss and harm posed by the crisis.it is considered unethical to respond to crisis by first focusing on the reputation of the organization but it’s always better if the physical and psychological needs of the stakeholders are borne in mind first. After ensuring that the stakeholders are settled, the crisis managers can turn to safeguard the reputational assets. This is provided by situational crisis and communication theory. 3 Management of crisis This aspect is employed by the managers to deal with crisis in organizations. this can be defined as a strategic plan employed in response to a crisis or in the event of a negative occurrence with the aim to remove some of the inherent risks or uncertainties and give the company the capacity to control its destination.at the times of a crisis, the emotions of all stakeholders are on the edge, the brain don’t function correctly and the events occur so suddenly such that its nearly impossible to draft a working plan (Fearn, 2001). The sole objective of crisis management is to help make concise and timely decisions based on the best facts gathered and offer a clear thinking when the organization is operating in such unexpected conditions. If the manager has a good understanding of this, then the implications of the crisis can be reduced significantly.in case we have the right plans and capabilities at hand before the occurrence of a crisis, then the damage and the time to recovery can be reduced. The most publicized approach used to respond to crisis is the Ian Mitroffs five staged theory. In the first phase of this model, we have the signal detection. It is believed that the entire crisis will show some early warning signs. If the management is alert enough and responds to these warnings early, then the crisis can be prevented before their occurrence. The second phase is the probing and prevention whose aim is to annihilate the possibility of the crisis occurring and to mitigate the effects of those which have occurred despite the much efforts employed. The third phase is the; Damage containment which prevents the damage of the crisis from spreading further and infect other parts which have not been affected n the organization and the environment (Davies, 2011). After this, we have the recovery phase whose intent is to return the organization back to normal operating conditions soonest so as to avoid the loss of customers. The last phase is the learning where the organization knows the areas which were done well a poorly so as to prepare the company handle crisis better in future. According to Coombs, a crisis is divided into three distinct stages. These are the pre-crisis stage. These involve the actions employed before the occurrence of the crisis and they involve signal detection, prevention and preparation for the crisis. The second stage is the crisis event which begins with a trigger occurrence meaning that the crisis has begun. It involves the recognition of the crisis and containment. The last stage is the post crisis stage which involves evaluation, learning and follow up to stakeholders. 4 The phone hacking scandal in News Corp After the rage caused by the emergence of the phone hacking scandal, the management decided to take calculated moves in order to avert more serious damages from happening. According to Davies (2011), the first step was the withdrawal from taking over BSkyB news as was announced by News Corporation CEO Rupert Murdoch; this was to avoid the damage in reputation caused by the hacking scandal in news Corp. from spreading further to the new company. Similarly, a number of resignations followed mainly to ensure that the stakeholders’ confidence in the company was maintained. Top level executives in the metropolitan police and the news international left the company (Bryson, 2004). Similarly, dismissals were given to the employees who failed to resign including Matt Nixson. Leaves and suspensions were also issued to Dick Fedorico pending result from IPCC. At the climax of it all, News Corp communicated to its stakeholders publicly and apologized for letting journalism down. And assured the stakeholders by running in the Britain national newspaper ’putting right what’s gone wrong ‘this addressed what the organization was doing to restore the public concerns. The most common communication strategy used during the crisis was the use of news media as the company executive gave signed statements in newspapers and television. This was aimed to ensure that majority of stakeholders got to know that the company was doing all it could to contain the crisis. During the time of crisis, the company head Rupert Murdoch was the most dominate speaker thus ensuring that the public got to realize that the company was committed to ensuring that all got well(Fearn, 2001) . He was always on the television, online and also issued signed statements in newspapers. He also made visits to the victims of the phone hacking scandal. 5 Conclusions In conclusion, since a crisis has a damaging effect to the reputation of accompany, they usually affect the ways in which the stakeholders of the company interact with the organization under question. After a crisis, communication is always good to try repairing the effects it has caused on the reputation of the organization. SCCT is normally used to give an evidence based framework to understand how reputation protection brought about by post-crisis communication can be maximized. SCCT research is normally experimental and does not use case studies. It seek to unearth how the crucial elements in a crisis situation affect the attributes about the crisis in question and the stakeholders reputation, and thus helping understand how the The company head Rupert Murdoch, chose to first own up the mistake and apologized to the public for what the company was doing. Later, an assurance was given to stakeholders that the company was doing the best and the effects of the scandal were to be less. The company employed the Coombs model. During the pre-crisis period, we had indicator signs which signified the likelihood of the crisis, at this time the company tried to prevent the crisis by refuting claims and making itself clean. During the crisis event, the company contained it by communicating with stakeholders and also issue of statements that all was well. During the post crisis period, senior employees of the company resigned, arrests were made and new members were appointed, this was made to avoid the damage from spreading further and to prevent future occurrence. References Bryson,M., 2004 'What to do when stakeholders matter: Stakeholder identification analysis techniques', Public Management Review, 6, 21–53.  Coombs, T., 2007. “The negative communication dynamic: Exploring the impact of stakeholder affect on behavioural intentions”. Journal of Communication Management, 11 (4): 300-312. Davies, N., 2011. "Phone-hacking scandal widens to include Kate Middleton and Tony Blair". The Guardian. Retrieved on 29th Oct, 2012. Fearn, B., 2001. “Crisis Communication: A Review of Some Best Practices”. In Heath, R. L. (ed). Handbook of Public Relations. Thousand Oaks: Sage Publications. 479-485. Read More