Many times, life throws the unexpected at us. This is not just about a drastic change in one’s personal life but also about a significant incident in our businesses. We refer to these sometimes nerve-racking events with words like predicament, catastrophe, and sticky situation. However, when it’s big, bad, and ugly, we just want to call it a crisis and move to the part where we try to handle it - which is literally what crisis management is all about. 

This article takes a look at two big names in the automobile industry, Toyota and General Motors, and what lessons there are to draw from their crisis management.

Understanding Crisis Management

What is Crisis Management? Crisis management is the overall response of a business towards an unexpected and potentially disruptive incident. Crisis management is a two-stage process that helps businesses sort out unexpected, critical incidents. 

First Stage

Let’s assume that a business crisis is a road accident. It is natural to find first responders at the scene of the event just a few minutes later. This part is played out - in a crisis - when the company identifies or gets notified of a crisis and begins powering up all of its crisis management strategies. 

Once responders get to the accident scene, they usually begin by performing CPR, cleaning wounds, and bandaging bruises. All of this boils down to delivering crucial first-aid treatment. Crisis management teams do exactly the same thing. In their case, they spring into action to understand the scope of the crisis (such as how many people were impacted), provide short-term resolutions (such as news or press releases), and analyze what steps to take moving forward. 

The first stage of crisis management ends here and for the first responders in an accident, it is at this point that they hand over injured victims to hospitals for proper treatment and medical care. 

Second Stage

Where a hospital would perform hours-long surgeries or months-long rehabilitation to the victims of an accident, a crisis management team would be issuing months-long compensations or years-long assistance to employees or individuals impacted by its crisis.A business in this second stage of crisis management will also be taking the time to review its internal and external structures to curb the reoccurrence of a crisis. 

What Qualifies an Incident as a Crisis?

There is the question of what the pointers to a crisis are, what founders and businesses should look out for, and the like. Find out about that below: 

Unexpectedness:

Crises come unexpectedly. Just like accidents, they are usually sudden and fierce, making it difficult to catch and confine them. If a crisis is foreseen or predicted earlier than it happens, then it really doesn't fit the description of a crisis. Except the knowledge of the incident occurs a very short time before the crisis actually begins.

The rationale here is that people work towards mitigating a foreseen challenge. And so if a business can envisage a crisis, then it would be in a good position to eliminate, at least, to cushion its impact.

Risk of Losing Something:

According to statistics, rumors, cybercrime, and corporate reputation are the three major areas of businesses often threatened by a crisis. It is clear how a crisis can risk the image or reputation of a business, especially when it results in critical data financial losses, or some form of injury to employees or clients. Without proper crisis management strategies, businesses stand to risk of losing the trust of their customers and partners which could stiffen patronage. 

How to Manage Crisis

The popular saying that "prevention is better than cure" brings us to the very first step in crisis management which is prevention. Rather than having a crisis to attend to and putting much-needed funds and resources into resolving it, it is better to avoid the situation altogether by taking steps to keep your business in a position of safety.

Setting out a prevention campaign involves striving to improve your business activities or policies. It might mean urging employees to regularly review and criticize each other’s performance, and work quality or creating a culture that celebrates new ideas no matter whether they seem good or not. When you spot an error or discover an area that needs improvement, you've potentially closed down a source of crisis.

Up next, you would want to prepare yourself and your business for a crisis. This is worth it, especially when something critical happens. By preparing for an emergency, you're delivering first aid training and equipment to your business. Moreover, you will be positioning your employees to be at the scene and ready to go once a crisis occurs.

Preparing involves creating a dedicated crisis management team and building their knowledge and responses. It involves teaching employees what to do first once they get the catastrophic news of a crisis. For example, taking a deep breath and allowing themselves some time to think over their next decision rather than acting based on impulse. 

Appropriate crisis management would also definitely create room for introducing the right technology to improve communication, collaboration, and performance. In addition, crisis management teams must be capable of identifying a crisis. Furthermore, they must be able to contain, resolve, and even possibly profit from the crisis - which are all steps in the crisis management process.

A Look Into How Toyota and General Motors Both Approached Crisis Management

The biggest fear of a car manufacturing company these days is developing a batch of products that have a defect right from the factory. In the instance where this defect is noticed on a large scale, a recall is initiated. This alerts all owners of the defective batch of vehicles to the potential dangers of using the product and requests them to return the vehicles to the factory. 

General Motors Crisis Management

General Motors has had a relatively successful time as a company. Launched in 1908 as a holding company, it quickly began acquiring other players in the automotive industry and soon took responsibility for producing almost half the cars in the U.S. 

Crisis

Many years of progress at General Motors did not stop it from being hit by a major crisis. In 2014, the company was forced to recall almost 27 million cars through 7 different requests.  This came after multiple reports that approximately 87 people were killed as a result of a faulty ignition switch system in the brand’s product. 

Response

The initial reaction of General Motors towards growing warnings from customers and car dealers was to label the reports as a matter of customer convenience. For some unfathomable reasons, years went by before the company’s top management claimed to catch wind of the reports. Once it did, the company swung into action, dishing out compensations to victims and the affected families. 

Stance

General Motors CEO at the time, Mary Barra, took a stance of responsibility in her crisis management strategy. Barra first expressed her company’s deep regrets about the incident and then assured the public of a change in operations. She also confirmed her company’s readiness to get to the root of the incident by aligning with an investigation by Congress and the National Highway Traffic Safety Administration (NHTSA). 

Result

The result of General Motor’s CEO Mary Barra was that it revealed competence and spoke of the company’s culture of integrity and accountability. Barra’s crisis management strategy helped to ease the tension around the incident. It also increased the confidence of existing customers as they were assured and potential customers who saw the openness and fairness displayed by the brand. 

Toyota Crisis Management 

The Toyota crisis came down on a terrible note, compared to the incident with General Motors. Toyota was the first, really famous car manufacturing company to experience a significant incident leading to a large-scale recall. However, the magnitude of the incident at General Motors was a result of its poor crisis management strategies rather than any other factor. In summary, it revealed a sickening perspective and a daring lack of remorse by the management. 

Crisis

Sometime in 2010, Toyota finally caved into pressure from the public and an ongoing investigation to recall over 5.3 million cars suspected to have a sticky gas pedal. The manufacturing fault in these vehicles caused severe accidents that claimed the lives of over 93 people. 

Response

The response of Toyota to the factory flaw in its vehicles and the death of some Toyota users was nothing but a shameful act of denial and evasion. CEO Akio Toyoda failed to address the issue directly. Instead, his communication focused on the fact that he and the entire brand were finally ready to do something about the incident. It was something along the lines of “That’s done and I’m sorry. But now I am here.”

Stance

Akio Toyoda led his company to an awkward position as regards the factory flaw, deaths, and resulting crisis. His decision to neglect the pain of the victim’s families in his crisis communication put the company in a poor light. As we imagine, it would have had a significant impact on existing customers and also reduced the desire of potential customers to own or interact with the brand. 

Result

The most outstanding result of Toyota’s poor crisis management strategy was that it was forced to pay $48.8 billion as a fine aside from the compensations made to the families of victims. 

Difference and Benefits of Both Approaches

Both car brands, General Motors, and Toyota, towed two different paths in their approach to a product malfunction crisis. We will be looking at the cases side by side to understand the perspectives and thoughtfulness as well as the results of the contrasting response of these two competitor companies to a closely similar crisis.

Response Strategy

General Motors:

For General Motors, the strategy was simply that of concern, urgency, and regret. This was expressed unmistakably in the company’s communications and actions. In summary, the strategy succeeded in reducing tensions and bringing the crisis to a swift end. 

Toyota:

The response strategy used by the Toyota brand was blame-sharing and self-defense. The company spent time detailing why the government was at fault for the failure of cars manufactured in its assembly line and trying to justify its slow response to the crisis. 

Media Coverage

General Motors:

Media coverage around the General Motors crisis pointed to the work being done to resolve the crisis, compensate families for their loss, and improve upon the company culture and practices. 

Toyota:

On the other hand, media coverage around the Toyota crisis pointed out the complacency of the brand. It led the brand straight into what it feared the most: a negative reputation. Everything about the company’s policies, ethics, and culture was discussed and largely criticized, significantly increasing the company’s crisis.

Conclusion

If you’re skimming through and just want to find one advice to take away from all this. We will say it is this, “Apply honesty, accountability, and sincere concern in your crisis management process. Be quick to respond to a crisis and put the interest of affected persons before those of your business.” This is precisely how General Motors approached its product failure crisis which paid off with a quick sweep of the issue and an appraisal from the media and general public.

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Also Read: Risk Management for Startups - The Basics