CMCC5103 | CGSIN-00000102

OUM BUSINESS SCHOOL

JANUARY 2017

CMCC5103

MATRICULATION NO: CGSIN00000102

IDENTITY CARD NO. : H8473457
TELEPHONE NO. : 0193004822
E-MAIL : hudaburud@oum.edu.my
LEARNING CENTRE : KUALA LUMPUR LEARNING
CENTRE

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DECLARATION

Signature: Huda Burud. Date: 9/3//2017

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CONTENT

s.no title Pg.no

1.0 Introduction 5
2.0 Crisis management defined 6-12

2.1 Theories/models of crisis management 6

2.1.1 Diffusion of innovation 6-8

2.1.2 Contingency planning 8-10

2.1.3 Business continuity plan 10-11

2.1.4 Reactive crisis management model 12

3.0 Case study: Pensonic Ltd 12-15

3.1 Crisis at company 13

3.2 Management of crisis 13-15

4.0 Recommendation 15-16
5.0 Early identification of issue 17-20

5.1 Jones and Chase system model 17-18

5.2 The Cycle of Action 19-20

6.0 Conclusion 20
References 21-22

EXECUTIVE SUMMARY

The following assignment will provide a brief insight into the concept of crisis management in
organizations and why it is so important.

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The following report will begin by defining crisis, and crisis management from various authors
in order to give a wider aspect of the subject. The next section will discuss the theoretical frame
work of crisis management and will provide an understanding on the various theories that
comprise the concept of the same. Theories like diffusion of innovation, contingency planning,
business continuity plan and the reactive model have been discussed.

The next section will provide a practical understanding of the subject by taking the case study of
a local Malaysian company. This case will discuss the crisis that the company faced, the reasons
for the crisis and the management teams strategy of tackling the crisis. This case will give a
clear understanding of how companies handle crisis management. A recommendation too has
been provided for the company based on the theoretical frame work discussed in the above
sections.

The next section looks into the models that help in identifying early development of issues and
risks. The two models that will be discussed are the Jones and Chases Systems model and the
cycle of action model. The working of these models and how they are important for an
organization will also be discussed.

1.0 INTRODUCTION

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With the business environment becoming more and more challenging with each passing day,
companies find themselves exposed to new challenges, high risks and complex situations. No
company, no matter what size or type, is exposed from risks. Therefore this report will make an
attempt to give an insight into the concept of crisis management. The theories of crisis
management will also be clearly defined and explained. Furthermore a company case will also be
discussed.

2.0 CRISIS MANAGEMENT DEFINED

According to Andrianopolus (2015) a crisis is any situation or series of events that causes
individuals, teams, organizations or even an industry to spiral downwards while threatening to
have a negative impact on an organization and its stakeholders. Kadrova (2008) further added
that crisis not only adds to financial loss but can also result in loss of lives. Yet another definition
by Taneja s al (2014) states that crisis in modern times is not confined to a particular national
border or an area as it jumps from one field to another and thrives on fragmentation nor is it
confined by a beginning or ending date rather it is a vulnerability that follows a cycle of
emerging fading mutating and striking again. In other words crisis is anything that causes an
organizational to deviate from its normal path by creating a chaos.

Crisis however is not of one type. Harwati (2013), classified crises into two types namely natural
crisis and human errors. Natural crisis refers to natural disasters like hurricanes, cyclones,
earthquakes etc. whereas human errors crisis refers to bribery, corruption etc.

Kadarova (2008) on the other hand classified business crisis into four groups:

Acts of God: Storms, earthquakes (Kadrova, 2008).

Human error: miscommunication, misinterpretation of orders etc. (Kadrova, 2008).
Mechanical problem: ruptured pipes, wrong fittings, technical issues etc. (Kadrova, 2008).
Management indecision: Miscommunication, hiding minor issues etc. (Kadrova, 2008).

According to Kadrova (2008), most crises occur in the last category due to managements failure
of not taking action to a problem in the initial stages which causes it to mutate into a crisis. This
causes chaos in the organization which can have a negative impact on not only the organization
but also staff members.

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On the organization: According to Sellnow (2005) as citied in Harawati (2013), a crisis causes a
disruption of on organizations status quo. This means that a crisis, irrespective of the type of
size, can have a detrimental impact on an organization and those involved in it. Not only does a
crisis cause a disruption of the organizational stability but also threatens the originations
reputation (Harawati, 2013).

On staff members: During times of crisis, staff members undergo a lot of psychological effect
and stress. These symptoms may have a negative impact on the performances of the staff. In
other words, an organization cannot run properly due to a crisis (Harawati, 2013). A crisis can
also make it difficult for an employee under stress to take an ethical decision. Due to this
Christiansen and Kohl proposed the Model for Analysis of Ethics in Crisis Decisions that helps
analysis ethical decisions in a crisis (Harawati, 2013). This model shows the characteristics of
crisis that cause stress in individuals and also the relationship between crisis and stress that
influences an ethical or unethical decision (Harawati, 2013).

As mentioned earlier, a crisis is an event that causes a disruption in the status quo of an
organization. Crisis management on the other hand is defined as a process that is designed by
organizations to reduce or prevent the damage of a potential crisis (Kadrova, 2008). Wang (2010)
defined it as a systemic attempt of an organization with the help of external stakeholders to
prevent the crisis or to effectively manage it when it occurs. On the other hand, Taneja et al
(2014), defined crisis management as a leadership situation in which both internal and external
stakeholders team up to face the crisis. In order to understand crisis management having a clear
idea on the theories of crisis management is important in order to understand how the process
works.

2.1 THEORIES/ MODELS OF CRISIS MANAGEMENT

2.1.1 DIFFUSION OF INNOVATION

According to Sahin (2010), diffusion theory is the process in which the innovation is
communicated to the members of a social system with the help of different channels over time.
As the definition states the meaning of the theory, the four elements that make up the diffusion
theory are also expressed. The four elements are:

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Innovation: Innovation as defined by Sahin (2010) is any idea, project or practise that is
considered to be new by individuals or other audiences. However, uncertainty is an obstacle
to innovation as consequence or changes of an innovation may occur due to rejection or
adoption of the innovation (Sahin, 2010). Therefore in order to avoid consequences that may
lead to a crisis, individuals must be informed about the pros and cons of the innovation in
order to be aware of its consequences (Sahin, 2010).
Communication channels: According to Sahin (2010), communication is the process in
which individuals share and exchange ideas, information etc. to reach to an understanding.
Communication channel therefore, is the ways or means through which the information or
idea reaches the participants (Sahin, 2010). Mass media and in communication and
interpersonal communication are two channels of communication (Sahin, 2010). Diffusion
however is a social process therefore interpersonal relationships are more powerful. The
importance of communication in crisis management thus becomes a necessity as, through
proper communication the impact of a crisis and its consequences can be reduced (Sahin,
2010).
Time: According to Sahin (2010), time is a very important element of the diffusion theory
and including it in the research defines its strength. Time is of the utmost importance as
adopting innovation is a decision that is highly depended on time (Sahin, 2010).
Organizations that are quick to adopt an innovation have a better advantage than those of the
later (Sahin, 2010). Thus time plays a critical role in the adoption of innovation.
Social system: Sahin (2010) defined a social system as a set of interrelated units engaged in
joint problem solving to accomplish a common goal. Since diffusion takes place in a social
system the structure of these systems if highly influential and can affect an individuals
innovativeness (Sahin, 2010).

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The innovation-decision process is a process in which informational activities are processed in

order to motivate an individual to reduce the uncertainty about the advantages and disadvantages
of an innovation (Sahin, 2010). The process is a five stage process as shown in Table 1.0:

Table 1.0: Stages of Innovation-Decision process

Stages DEFINITION
KNOWLEDGE At this stage individuals lack information about the innovation but
are aware of its existence (Barbara, 2012). In this stage, the
individual is yet to be inspired for gathering information (Barbara,
2012).
PERSUASION At this stage the individual is motivated to gather information on the
innovation and actively seeks it (Barbara, 2012).
DECISION At this stage the individual has gathered information regarding the
pros and cons of the innovations and weighs them against using it
(Barbara, 2012). The decision then involves whether the innovation
is to be rejected or adopted (Barbara, 2012). This stage is highly
individualistic in nature and therefore is the most difficult stage
(Barbara, 2012).
IMPLEMNETATION At this stage the innovation is employed based on the situation
(Barbara, 2012). The individual may gather additional information
about the same (Barbara, 2012).
CONFIRMATION The final stage is where the innovation is confirmed to be used and
the individual may begin using it to its full potential (Barbara,
2012).
Source: Developed for report

2.1.2 CONTINGENCY PLANNING

According to Ivanova et al (2011) a contingency plan refers to a plan that is developed in order
to be used when things go wrong. In other words it is a backup plan to be implemented when the
initial plan is a failure (Ivanova et al, 2011). The UNHCR (2011) defined contingency plan as a
management tool that is used to analyse the impact of a crises that may arise in order to make the
arrangements in advance for timely and effective response. It may never be used, however it

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consists of situations that have been anticipated and has solutions and plan of action for those
situations (Ivanova et al, 2011). During crisis a contingency plan is developed in order to bar the
crisis from causing additional harm and eradicating it as quickly as possible as it helps in
identifying what can go wrong and how to tackle it (Ivanova et al, 2011).

According to Ivanova et al (2011) a contingency plan consists of an anticipated and analysed risk
or hazard and the kind of response for the hazard. In other words a good plan should identify the
events and be prepared to avoid, cope and even exploit the events (Ivanova et al, 2011). It
provides guidelines for managing disasters and crises as it defines the capabilities, abilities and
resources available to coordinate responses according to the crisis depth (Pradhan, 2016).
Alexander (2011) further adds that it is a measure developed to react to events or situations that
go beyond the normal response and which can adversely affect security, resources etc.

Ivanova et al (2011) further stated that a contingency plan involves:

The identification and description of all possible crisis situations (Ivanova et al, 2011).
Selection of one or more situations for the basis of the plan (Ivanova et al, 2011)
Determining the following:
Type and scale of intervention (Ivanova et al, 2011)
Means of implementation (Ivanova et al, 2011)
Support systems to be required (Ivanova et al, 2011).

The UNHCR on the other hand developed an approach to contingency planning that can be
applied to any crisis scenario (Pradhan, 2016). The planning process is conceptualized into four
steps (Table 1.1):

Table 1.1: UNHCRs Contingency planning process

PROCESS DEFINITION
Preparation At this stage scope of participation is defined and working group,
structure etc. are established (Pradhan, 2016). Current measures,
contingency plans and preparedness are all taken into
consideration (Pradhan, 2016).
Analysis At the second stage hazards and risk are analysed and scenarios,
assumptions, early warnings are all defined (Pradhan, 2016).
Response planning The objectives and strategies are defined at this state followed by
the response objectives and strategies (Pradhan, 2016). Also the

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functions, responsibility and accountability roles are stated

(Pradhan, 2016).
Implementing At the time of crisis the contingency plan is implemented and
preparedness assessed (Pradhan, 2016). The plan is then tested, reviewed and
updated to make it stronger for the next crisis (Pradhan, 2016).
Source: Developed for report

2.1.3 BUSINESS CONTINUITY PLAN

According to Ramesh (2012), a business continuity plan is a plan to work out a way to prevent
and manage a disaster and its consequences by limiting it to the extent to which the business can
handle. An effective business continuity plan aims to secure the business against financial
disasters (Ramesh, 2012). The elements of a business continuity plan are as discussed below:

Initiation: The first step of the plan is to get the commitment of the management and
stakeholders towards the plan (Ramesh, 2012). Management needs to ensure that they
have enough financial resources and manpower before setting the objectives, policies
and scope of the plan (Ramesh, 2012). The main aim of the business continuity plan is
to identify and reduce the risk and manage the contingency (Ramesh, 2012). The final
outcome should result in measures set up for disaster, a team trained for the situation and
a plan to guide when disaster strikes (Ramesh, 2012).
Risk assessment: This is where management identifies and analyses all the possible
risks and threats that can arise from the different sources like community wide hazards,
accidents/ sabotage, security, communication and networks threats and application errors
(Ramesh, 2012). Planning is done for both the prevention and control of the risks
therefore the result of this exercise is to develop a statement that identifies all risks,
estimates the exposure and the contingency actions to be taken (Ramesh, 2012).
Business impact analysis: This exercise is to identify the critical business functions and
the loss and effect if these arent available business (Ramesh, 2012). It involves the
business function in order to assess :

Impact
o The importance of a function to the business (Ramesh, 2012).
o Operational impact (Ramesh, 2012).
o Financial impact (Ramesh, 2012).
o Legal impact (Ramesh, 2012).

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o Loss of customers, opportunities etc. (Ramesh, 2012).

Requirements of recovery:
o Resources and records required (Ramesh, 2012).
o Minimum requirements of the resource (Ramesh, 2012).
o External sources of resources and the extent of dependability (Ramesh, 2012).
o Extent of dependability on which external Suppliers/vendors (Ramesh, 2012).
o The business functions that will be depend on it and to what extent (Ramesh, 2012).
o Time and effort required (Ramesh, 2012).
o Backups, precautions and verifications needed (Ramesh, 2012).
Strategies: The business continuity plan includes strategies on the following:
Prevention: To reduce the chances of a crisis (Ramesh, 2012).
Response: The reaction or the actions to be taken when crisis occurs (Ramesh, 2012).
Resumption: Resuming only the time sensitive business process immediately after the
interruption of the crisis (Ramesh, 2012).
Recovery: Resuming the less time sensitive business processes (Ramesh, 2012).
Restoration: Total resumption of the business process after the crisis (Ramesh, 2012).
Goals definition: After the risk assessment and Business impact analysis, the main
priorities stand out (Ramesh, 2012). Goals are then quantified in terms of:
Recovery Time Objective: Maximum time permissible (Ramesh, 2012).
Recovery point Objective: Furthest point permissible for data loss (Ramesh, 2012).
Performance degradation (Ramesh, 2012).
Risks involved (Ramesh, 2012).
Cost of implementing the plan (Ramesh, 2012).

2.1.4 REACTIVE CRISIS MANAGEMENT MODEL

The reactive crisis management model is a three step model on how to deal with a crisis at the
time it occurs (Singh and Chahal, 2015). The three steps are as discussed below:

1. GET: At this stage the organization should be careful ass to not ignore the crisis (Singh and
Chahal, 2015). The severity of the crisis should be checked along with the cause (Singh and
Chahal, 2015).
2. SET: At this stage the organization should start working towards the action plan. First and
foremost a crisis management team should be formulated along with a crisis management
plan (Singh and Chahal, 2015). This will help in controlling the impact of the crisis and help
the organization to tackle it (Singh and Chahal, 2015).

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3. GO: The final stage is where the organization should deal with the crisis in reality (Singh and
Chahal, 2015). An organization cannot simply scape the crisis with the belief that it will go
away (Singh and Chahal, 2015). Tacking the crisis from the start and with action is what will
make the plan effective (Singh and Chahal, 2015). Furthermore, communication is also very
important in times of crisis. Therefore top management must become the spokesperson for
the organization and keep employees and stakeholders informed about the crsis, the plan to
tackle it and the progress (Singh and Chahal, 2015). Lastly the organization must take
responsibility for the crisis and should ensure stakeholders that corrective actions will be
taken to handle and prevent future crisis (Singh and Chahal, 2015).
3.0 CASE STUDY ON CRISIS MANAGEMENT
PENSONIC HOLDING LTD.

Pensonic group was founded in 1965 in Balik Pulau, Penanag as a small retailer/workshop of
electrical home appliances by Dato Seri Chew Weng Khak (Pensonic, 2017). The company
established its first branch in 1974 and within two years had ventured into import, export and
distribution of appliances (Pensonic, 2017). In 1977 the company was incorporated as private
Ltd. And by 1982 the company had several branches all over Malaysia (Pensonic, 2017). In 1984
the company registered the name Pensonic as a trade mark and currently it is a trademark in over
20 countries (Pensonic, 2017). The brand has the distinction of being Malaysia, first local brand
to be marketed and with is subsidiaries is involved in the manufacturing, assembling,
wholesaling and trading electrical and electronic products (Pensonic, 2017). The company is also
looking to manufacture its products with 100% local resources so as to reduce dependency on
foreign suppliers, lower manufacturing cost and foreign exchange savings (Pensonic, 2017).
Over the years the Pensonic has evolved into a durable and reliable brand in the home appliance
market (Pensonic, 2017).

3.1 CRISIS AT COMPANY

In 2001, Pensonic Ltd, was faced by a crisis. The economic slowdown had caused many
Malaysian organizations to cut down the size and mode of operations (Azlanudin, 2009). The
New Strait Times (2001) reported that the company had poor sales and would therefore cut down
200 jobs. Furthermore the company shut down one its sub brand: Princess home appliances
(Azlanudin, 2009).

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This was done in line to stop the production of home appliances due to poor sales (Azlanudin,
2009). The production fell by almost 50% and the effects lead to the down fall of profits and the
cut down of 200 employees (Azlanudin, 2009). The Asian Wall street journal stated that the main
cause of this crisis was due to the decrease in demand of home appliances (Azlanudin, 2009).

3.2 MANAGEMENT OF CRISIS AT PENSONIC

With the worldwide demand for home appliances at its lowest the company was brought to its
knees. The officials at the corporate communication department had forecasted that a much
higher loss would be incurred if the plan to production of home appliances was not implemented
(Azlanudin, 2009).

The management decided to look at the larger picture and came to the decision that in order to
overcome this crisis, reducing the workforce and closing down the Princess Home appliance
brand would give them a better fighting chance (Azlanudin, 2009). This strategic long term plan
played right in the companys favour and thus the sub brand production was shut down
(Azlanudin, 2009).

Furthermore the company handled the crisis very well with its employees as well. During times
of crisis, especially when jobs are to be cut down employees may be against the management
(Azlanudin, 2009). The company however handled this problem by conducting a series of
meeting and briefing between the management and the employees (Azlanudin, 2009). This led to
an increased open communication between employees and management without prejudice
(Azlanudin, 2009). In addition, the management chose a transparent approach to inform
employees by sharing all facts and information about the crisis (Azlanudin, 2009). This lead to a
trust relationship between employees and management.

The companys decision to reduce its workforce also required another decision to be taken, that
of an appropriate compensation package (Azlanudin, 2009). With jobs been cut down and
production closed, the company decided to offer a compensation package to all its employees
(Azlanudin, 2009). The management of the company involved the employees in the decision
making process to prepare the compensation package in order to get a different perspective and
also to enhance communication during the crisis (Azlanudin, 2009). The package thus designed

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was deemed acceptable by the employees and was considered very generous as compared to that
given by the government (Azlanudin, 2009).

With Pensonic struggling to make ends meet, the attention of the media was fixated on the
company. Managing media relations is another very important crisis management function and
Pensonic was quick to realize this (Azlanudin, 2009). The meaddia is a very powerful medium to
influence and mould the general public view on any situation or product (Azlanudin, 2009). As a
result Pensonic adopted a very open and transparent approach in handling its media relations
(Azlanudin, 2009). For example, when sales plummeted, the Chairman of the company, in a
press conference, addressed the reporters and gave them a vivid description of the whole
scenario that had affected the company (Azlanudin, 2009). He further informed them that the
crisis was due to a worldwide reduction in demand for home appliance, the same which was
discussed on CNN (Azlanudin, 2009).

In addition to this, the Managing director of the company explained to the media the decision of
the company to cut down jobs and close its sub brand (Azlanudin, 2009). The media was also
informed about production been cut down by 50% (Azlanudin, 2009). Pensonics strategy of
using the media as an ally helped the company in avoiding negative speculation form the general
public which could have destroyed its image and reputation and would have made overcoming
the crisis even more difficult (Azlanudin, 2009).

Thus the company managed in handling its crisis by taking a quick decision. However the
company can in the future handle crisis through different ways. A few suggestion have been
discussed I the next section

4.0 RECOMMENDATION

Pensonic can make use of a contingency plan to handle a crisis in the future. As mentioned
earlier a contingency plan is developed in order to guide an organization during a crisis. In other
words it is a pre-planned plan of action that guides an organization towards better tacking the
crisis. Pensonic can adopt a contingency planning strategy. For example when demand for the
product started decreasing the company should have anticipated or forecasted that in case of
demand going below a particular level the contingency plan will be implemented. The

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management could have brought together a team of skilled employees from various functions
like finance, production marketing etc. to help with the preparation of the contingency plan.

Next the team should have identified and analysed all the risks that could be faced by the
company if demand continued to plummet. Following this the team should have identified the
main risk which is more likely to occur, in this case, the worldwide dip in the level of demand for
home appliances. Next the team should state the objective of the plan which is to ensure an
effective action plan to take the crisis if and when it rose.

Furthermore the action plan along with the roles, responsibilities, accountability, function roles
etc. should have been decided. In the case of Pensonic, the company decided to adopt a long term
strategy of shutting down its sub-brand and cutting down almost 200 jobs. However with the
help of a contingency plan, the company could have adopted a different strategy like reducing
production level a little at a time in order to save production costs. This could also have resulted
in saving the jobs of the employees and would have given the company a much better stand
during the crisis. Furthermore the decision to close down the sub brand could have been averted
as well

Another way that the company could have handle the crisis is through a Business Continuity
plan. As mentioned earlier, a business continuity plan can help to limit the disaster to an extent
that it can handle. The main aim of this plan is to reduce the risk. Pensonic can do so by first
getting the commitment of the management and stakeholders first. Next the management should
ensure that they have enough manpower and financial resources and then set the objectives and
policies for the plan.

Once the management of the company is on board, the next step is to analyses and identify all
the possible threats and risks that can rise from the community, communication, sabotage etc.
Next a contingency plan is prepared for both preventing the risk and controlling it in case of
occurrence and estimating the exposure to the risk.

After the threats and risks have been identified the management should identify the critical
business function and the loss the business would suffer if these are impacted. The business
functions are taken into consideration in order to asses impacts on finances, operation, etc.

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Furthermore for recovery from the disaster assessing a few requirements like resources, external
suppliers, time and effort, dependability on business functions etc. are all necessary.

The management then develops strategies for prevention of the crisis, responding and recovering
from the crisis. It also involves strategies for assessing which business functions will be resumed
initially and which wont. Analysing those functions which are key to the functioning of the
organization is the decision management takes here. Pensonic can during a crisis, stop those
functions whose absence wont cause any harm to the organization. Lastly the company should
define the goals and quantify them in terms of the maximum time permitted for recovery and the
extent to which data will be lost.

Both the contingency plan and the Business continuity plan are effective and efficient ways of
handling a crisis. They give a company a fighting edge during times of crisis as they have
already anticipated the worst. A contingency plan is the course of actions that the company can
follow in times of crisis. This can prove beneficial as during the crisis the chaos of a disaster can
be avoided as the contingency plan is a guideline. A business continuity plan on the other hand
provide the organization with the understanding on which functions of the business can be
continued and prioritized and which be stopped for the crisis. This help in concentrating on the
critical functions and not wasting times on those functions whose absence wont make a
difference.

Thus Pensonic can in the future continue to manage its crisis better and through improved means
by developing a contingency plan or through a business continuity plan.

5.0 EARLY IDENTIFICATION OF ISSUES.

According to Regester and Larkin (2007), an issue problem that is already or may occur. Risk on
the other hand is the possibility of an issue that has not yet occurred. In other words a risk in an
issue that has not been addressed earlier and which caused it to escalate (Regester and Larkin,

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2007). Thus an organization should ensure that it addresses an issue at its earlier stage in order to
prevent it from escalating into a risk and then a crisis. For this purpose two models of issue
management have been chosen. The first developed by Jones and Chase (1979) is the Jones and
Chse Systems model and the second is the Cycle of Action by Morley (1998).

5.1 JONES AND CHASE SYSTEMS MODEL

The Jones and Chase Systems model of issue management was coined to help organizations to
manage issues (Regester and Larkin, 2007). The model consists of five steps which will be
discussed below (Fig. 1.0)

Fig 1.0: Jones and Chase systems model of issue management

Source: Developed for report

The issue management process is as follows:

1. Issue identification: The main aim of this stage is to prioritize emerging issue (Regester and
Larkin, 2007). The issues can be classified as types, response source, geography and span of

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control (Regester and Larkin, 2007). Issues are identified through careful scanning of the
environment and developing a list of the issues (Regester and Larkin, 2007). The issues are
then prioritized (Regester and Larkin, 2007)
2. Issue analysis: At this stage, the origin of the issue is determined (Regester and Larkin,
2007). This is often a difficult task as not every issue emerges from one source. The
organization should also understand the issue and how it can impact it as an issue can
sometimes be an opportunity instead of a threat (Regester and Larkin, 2007).
3. Issue change strategy options: The third stage involves making a basic decision about the
organizations response to the issue (Regester and Larkin, 2007). Jones and Chase citied three
options to deal with the change. The three options are:
Reactive change strategy option: It involves preparing for the effects (Regester and
Larkin, 2007). This is usually due to the orahnization been stubborn and refusing to
change (Regester and Larkin, 2007).
Adaptive strategy change option: This option suggest an openness to change and
involves a plan to anticipate change and offers an alternate course of action (Regester
and Larkin, 2007).
Dynamic response strategy option: This option is for organizations that wants to become
an advocate in leading change (Regester and Larkin, 2007). Under this option,
management anticipates the issue and proposes a proposal (Regester and Larkin, 2007).
4. Issue action program: At this stage the organization decides on the policy to support the
selected change option (Regester and Larkin, 2007). This is then communicated to the
relevant parties and goals and objectives are set (Regester and Larkin, 2007). The policy is
then executed.
5. Evaluation of results: After the policy has been implemented, the action program is
evaluated. This is done by comparing the actual outcome with the desired outcome (Regester
and Larkin, 2007).

5.2 THE CYCLE OF ACTION

The cycle of action first developed by M. Morley in 1998 shows the link between reputation
management and crisis management (Fig1.1). This is because crisis in an organization can lead
to a negative consequences that can directly or indirectly affect the reputation of the organization
(Goztas et al, 2008).

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Fig 1.1: The cycle of action

Source: Goztas et al (2008)

The cycle of action model consists of two zones:

The Proactive zone: In this zone issues are identified and anticipated through a proactive
issue management plan (Goztas et al, 2008). If an issue is not identified proactively it does
not take time for it to escalate to a crisis, therefore drastic action needs to be taken (Goztas et
al, 2008). Furthermore the crisis manager should develop a crisis management plan based on
the reputation of the organization or it can be detrimental (Goztas et al, 2008). The main
elements of the proactive zone are the issue identification, reputation management, issue
interception and issue management (Goztas et al, 2008). The proactive zone basically refers
to the situation before the crisis occurs, therefore management of the issue in this zone is
very important as the reputation of the organization is at stake (Goztas et al, 2008).
The reactive zone: The reactive zone is when the crisis has occurred and the only thing for
managers to do is to react (Goztas et al, 2008). The management does not have any
guidelines to follow and therefore need to develop a plan for limiting the crisis (Goztas et al,
2008). When in the proactive zone actions are taken to stop the issue from spreading to a
crisis, in this zone the management tries to limit the consequences of the crisis (Goztas et al,

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2008). The main elements of this zone are the crisis management and damage control
(Goztas et al, 2008).

The two models that have been discussed are a very essential tools for organization as they help
in the early identification of issues. This can very helpful as an organization can not only reduce
but also eliminate a crisis from occurring if the issue is identified at its early development stage.
As mentioned earlier an issue can lead to a crisis, therefore with the help of these models an
organization can manage its issues and prevent negative consequences. Both these models also
help in developing a management plan which can be used as a guideline, thus making the job
easier for management if and when the issue arises. Furthermore by conducting a risk situation
analysis, the manager can locate a potential risk before it causes any harm and can even solve it.
Therefore models of identification of early development of issues are essential for an
organization.

6.0 CONCLUSION

In conclusion, crisis management is an integral part of business and a very important aspect of
todays organizations. Crisis management helps organization in preventing or reducing the
negative impact of a crisis. This can be done through various methods like diffusion of
innovation, having a contingency plan or a business continuity plan. All these methods prepare
an organization to tackle the crisis by helping them to forecast an issue or crisis before it occurs
in order to limit it. Furthermore, the company case of Pensonic shows another way of
approaching a crisis and ensuring successful results. Lastly, the two models of issue
management, the systems model and the cycle of action, help in understanding how an
organization can identify risks and issues at their earlier stages and prevent a crisis from
damaging the reputation as well as the stability of the organization.

7.0 References

Books:

Alexander, D. (2011). Principles of emergency management and planning. New York: Oxford
University Press.

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Regester, M and Larkin, J. (2007). Risk issues and Crisis management. USA: CIPR.
Journals:

Adrianopoulous, A. (2015), Essential steps for Crisis management and Crisis containment.
Institute for public relation, 1(12), 1-10.

Azlanuddin, A. (2009). Managing crisis communication in a Malaysian Company: A case study

of Pensonic. MBA published thesis, Universiti Putra Malasyia.

Wang, J. (2010). Organizational Learning and crisis management. Organizational Dynamics, 24,
52-66.

Goztas, A. and Koker, N. and Alemdar, M. (2008). How to manage reputation during
crisis: an analysis of turkish white meat sector during the avian
influenza (bird flu) crisis. Journal of Yasar University, 3(12), 1761-1782.
Harawati, L. (2013). Crisis management: determining specific strategies and leadership style for
effective outcomes. Asian journal of management sciences and education, 2(2), 170-181.
Ivanova, K. and Mitov, I. and Sendova, M. (2011). Contingency Planning. Bulgarian Academy of
Science, 1-49.
Kadarova, I. (2008). Principles of Business Crisis management. Faculty of Mechanical
Engineering.
Pradhan, G. (2016). Contingency planning an approach of crisis decision making. Journal of
Interdisciplinary Studies, 2(2), 1-7.
Ramesh, P. (2012). Business continuity planning. TATA consultancy services,
1-36.
Sahin, I. (2010). Detailed review of Rogers diffusion of innovations theory and educational
technology-related studies based on Rogers theory. The Turkish online Journal of
Educational Technology, 5(2), 14-24.
Singh, P. and Chahal, H. (2015). The Reactive crisis management model.
Journal of Research in Business, Economics and Management, 4(1). 249-256.

Taneja. S. and Pryor, M. and Sewell, S. (2014). Strategic Crisis Management: A Basis for
Renewal and Crisis Prevention. Journal of Management Policy and Practice, 15(1), 78-
86.
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UNHCR. (2011). Contingency planning. Interworks LLC

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