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Lynn Wooten
  Lynn Perry Wooten

Lessons Learned from ImClone and Martha Stewart

9/26/2007 --

By partnering with human resources development, firms can build the organizational capability to manage crises effectively.

ANN ARBOR, Mich.—As newspaper and Internet headlines continue to banner stories about product recalls, industrial accidents, executive malfeasance and consumer fraud, the companies involved find themselves scrambling to contain unfavorable publicity, identify and correct underlying problems and rebuild their corporate images.

Yet, most leadership teams are ill-prepared to manage such crises, which can wreak long-term havoc on profitability, reputation, market position and human-resource management systems, says Lynn Perry Wooten, clinical assistant professor of strategy and management and organizations at the Ross School.

Firestone's bungling of a product recall on defective tires, and Boeing's mishandling of a walkout by 17,000 company engineers—the largest white-collar strike in American history—are just two examples of how leadership failed to act responsibly and effectively in the face of a crisis. Conversely, Wal-Mart demonstrated impressive organizational agility in its preparation for and management of the Hurricane Katrina disaster.

What many executives don't realize is that crisis leadership is more than communication, Wooten says. Such leadership entails a complex set of competencies associated with realignment of resources and change management, as well as strategic thinking and an organizational-learning perspective.

Wooten argues that when this set of competencies exists in a firm's leadership and crisis-management teams, the company is more likely to rebound and regain its footing after a crisis. She suggests that human resources development plays an important role in building this critical organizational capability, which is so necessary for crisis management.

"The leadership competencies required of executives in times of relative calm are fairly distinct from the skill set needed to manage a crisis effectively," Wooten says. "Human resources development contributes by identifying managers who can be skillful under conditions of great uncertainty, time pressure and stress, and by developing these capabilities in others who should be part of the crisis-management team."

Pre-crisis planning and preparation is crucial because leaders usually do not have enough time to bring themselves up to speed on issues or to act agilely once a crisis strikes, she adds.

In a new research paper, Wooten and co-author Erika Hayes James of the University of Virginia, develop a leadership-competencies framework for the management of four categories of crisis: accidents, scandals, product safety/health incidents and employee-centered events. Using qualitative data and analysis of 20 firms that experienced crises between 2000 and 2006, the two researchers identify leadership competencies needed for handling each of five phases in the crisis-management cycle and show how these competencies are linked to human resources development. They also provide case studies of companies that failed or succeeded in the different stages of crisis management.

The five phases and associated competencies include:

Signal Detection phase: Leaders must sense early-warning signals of a possible crisis. Leadership competencies: Sense-making and perspective-taking.

Prevention and Preparation phase: Leaders must avert or prepare for a crisis. Leadership competencies: Issue-selling, organizational agility and creativity.

Damage Containment phase: Leaders must keep the crisis from spreading to other parts of an organization or its environment. Leadership competencies: Decision-making under pressure, communicating effectively and risk-taking.

Business Recovery phase: Leaders must implement short- and long-term plans designed to help the firm resume business as usual. Leadership competencies: Promoting organizational resiliency and acting with integrity.

Learning and Reflection phase: Leaders must encourage learning and re-examine critical lessons from the crisis. Leadership competencies: Learning orientation.

"Ultimately, competent crisis leadership requires leaders to gain or enhance their human and social capital through education, training, practice, experience or natural ability," Wooten says. "By partnering with human resources development in this effort, organizations have an opportunity to create a competitive advantage."

Written by Claudia Capos

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847