How to Define a Crisis
In the Stanford Design Thinking Process one out of the 5 stages of the design process is called “Define”. This stage highlights the importance of defining a problem, in order to solve it. Usually in product design you will do this with a problem definition followed by a product specification. The same applies to a crisis. In order to solve a crisis, you first need to define the crisis.
Now if we look at the Cambridge Dictionary and its definition for the word “crisis” we get the following:
“A crisis is a situation that is extremely difficult or dangerous, when there are many problems.”
From this we can deduct that a crisis is a collection of problems with a lot at risk. Therefore, a simple and single problem statement will probably not suffice or will it? What I found by reflecting on our crisis was that crisis in general is a highly complex scenario and even more so in a family business. In family business you tend to have a high emotional component coming in due to the family. A crisis in the business may cause a crisis in the family or vice versa. Additionally, we can make the following statements about a crisis to describe it:
A crisis is a highly dynamic and highly specific scenario, thus there is no generalized and exact definition possible.
We live in an ever so more complex world with complex systems, which leads to more complex crisis.
Our world is more connected than ever and therefore containment is increasingly difficult.
As mentioned above there is no generalized definition for a crisis (par the dictionary), especially in academia. When you read through literature there have been a few attempts at defining crisis from an academia perspective. But crisis as such is very individual to the scenario at hand, which is one of the reasons why crisis usually surprises us. So how does a crisis develop? Can we find way to identify a coming crisis early enough to stop it? When can we talk about a crisis? Is there anything worse than a crisis?
When Do We Talk About a Crisis?
In general, we can use the magnitude of a problem as a good determinator. A crisis is a huge problem, but it is still solvable. Once we overstep that line it becomes a disaster. For example, a natural disaster is a huge problem, that as such is not solvable, it is completely outside our control. What we are then left with is damage control. Saving what can be saved. We have no direct and immediate impact on a hurricane for example. All that we can do is to take care of people that have been impacted, we can clean up afterwards and rebuild, but we cannot stop it from happening when we see it coming. Similarly, in a company crisis, there is a point when the company is not saveable anymore and we then have a liquidation event. Here the company either goes into bankruptcy or the company must be sold - either in bits and pieces or as a whole. So where does that put a crisis?
Usually we can classify a problem into 4 categories going by magnitude: a malfunction, an emergency, a crisis, or a disaster. Malfunctions are small issues that can be dealt with easily, usually with a standard solution. This is for example a production machine having an issue and an engineer fixing it by replacing a component. An emergency is larger. If we take the machine example a typical emergency would be that the bearing of a machine suddenly breaks and the machines shaft rips through the machine. Fixing it will take a longer time, or we need to replace it with a new one. A crisis would be, that we cannot fix the machine and we do not have the money to replace it. Meaning our production line stops and thus our cash income.
What Can Cause a Crisis?
To be honest, as any company scenario (especially in family business) is highly individual, a crisis can be caused by anything. A family issue from divorce, to drug problems or any other behavioural issue can turn into a crisis for the company. Or it can be something completely external. A political crisis, where due to sanctions half your customer base disappears. A new legislation that you did not know about makes your production line illegal. Your main customer or your main supplier goes bankrupt. Some other popular causes can be internal changes that you are trying to make, and the workforce is against them. You can be a victim of fraud or changing currency rates suddenly cause some of your contracts to have a negative yield.
Crises Trend
Another thing to keep in mind are crises trends. What do I mean by that? Based on the factors “time” and “public interest” (this is a term that is important from a communication perspective) there are 3 trends a crisis can go through. We can discern between sudden, latent and recurring crisis.
A sudden crisis is usually a sudden and unforeseen event, such as a breakdown of a machine, a fraud etc., that has a massive impact in a very short time. A latent crisis is a crisis that builds up and could have been avoided, like an unplanned succession, a lack of innovation, or lack of maintenance. A recurring crisis is a crisis event that will happen on a regular basis. Usually a crisis like that is part of your business. A prime example is the pharma industry. Regularly after introducing a new medication to the market a crisis event happens due to some side effects, or medicines are too expensive, and this will be a topic to publicly attack the company for their perceived “greed”.
Good risk management can see and manage a latent crisis before it explodes and prepares for a recurring crisis ahead of time, knowing that it has a high probability of happening and is part of your business. Sudden crises can be planned for as well. Tools such as scenario planning can help prepare for probable scenarios and good risk management can weigh up for which crisis scenarios you can get insurance or not.
In my opinion, most crises can be defined as a latent crisis. If you look at the crisis you have (or had) in more detail, you should be able to see that most have developed over time. In our current predicament (the Covid-19 Disaster), you could say that the crisis you are going through right now - be it personal or business - can be defined as a sudden crisis. However, my personal bet would be that - if we look deeper- in reality you have a latent crisis that has just been sped up or magnified due to this external event. Here it is important to discern if you have an exogenic or endogenic crisis.
Crisis over Time
In the next step it is crucial to look at your crisis and try to define where you are on the time axis. In the graphic below we can roughly divide a crisis into 4 phases that we usually run through. At first it will only be a potential crisis and ideally good risk management can act accordingly and on time, so that no real crisis develops. The next phase we call “latent crisis”, which is a bit confusing because we already use the same term for a crises trend. In this phase with every day that passes your crisis grows in a linear fashion. After that we are in an acute crisis, where the curve becomes exponential and the problem starts to become large extremely fast. Most people/companies only notice at this point that they are in a crisis and will start to scramble to solve it. And the last phase usually is a catastrophe, which will have extreme consequences. A catastrophe does not have to be the end of a company but more often than not it is.
In the time axis above you can see at which phase of a crisis is accompanied by which kind of “management” scenario.
To sum up the above we can thus look at the following questions to try to define our crisis:
Do we really have a crisis? What is the magnitude of our problem: Malfunction, Emergency, Crisis or Disaster?
Do we have an exogenic or an endogenic crisis? Maybe both together?
Is our crisis sudden, latent or sustained?
How advanced is the crisis? Where are we on the time axis?
In our case as a family back in 2014 we could have answered those questions in the following way: + How did we really answer them back then?
We had a crisis; back than we had different opinions and rather defined it as an emergency
We in reality had an exogenic and endogenic crisis together, as we had an ongoing discussion about handing over the business to the next generation and then an external event struck; we saw it purely as an exogenic crisis and this caused heaps of problems down the road
Again, we had a sudden and a latent crisis; we only really saw the sudden one
We were on the acute side of things right from the “start”; we initially defined it more as a potential crisis, which quickly developed into a catastrophe
From a Macro to a Micro Definition
Once we have defined the crisis in a general manner, what do we do next? Here comes the hard part. We now have a kind of “macro” definition and now it is time to go into the “micro” part of things. This is where the crisis will become specific to the situation and the set-up. No business is the same and no family is the same either. There are a few general rules and as my experience is from a family business, I will focus on family businesses.
We have two “bubbles” – the family and the business. Therefore, we need to look at both and see where the crisis lies. This is a deep process, where we look at behavioural characteristics in the family as well. Most wealth loss is caused by behavioural reasons. Emotions make humans act irrational and irrational decisions (especially in a crisis) are usually not good. Keep in mind that you can have more than one crisis together. You can have a crisis in the family and one in the business (as we did), but you can also have more than one crisis in the family or more than one in the business. Moreover, often we think the crisis is in the business, but it is in the family and vice versa.
For example: The son is “forced” by his family to work in the family business as sales manager. Deep inside however, he would rather have his own business or work in a completely different area like design. Now sales are dropping, and we think there is something wrong with how we sell or the product needs to be innovated. In reality the reason lies in the family and the crisis goes much deeper. The son was already forced to study economics, while he always wanted to go to design school. Just on a side note, it is never a good idea to force people to do a job, you will not get good results from them. Alternatively, we might think the son is doing a bad job as sales manager, while in reality the product is not innovative enough any longer and customers are going to competitors.
I hope this example shows that it is not easy, and we should never draw quick conclusions in defining a crisis. I know that time usually is a big issues in a crisis, but as I love to say:
If you think you have a minute, you really have an hour and if you think you have an hour, you really have a day and so on.
5 Steps to a Specific Crisis Definition:
Analyse the company and family bubble
Look at everyone and speak with everyone, from management and family, even down to the employee. Empathy is the key to this. We want to have a qualitative and quantitative approach, as in we speak to everyone on a qualitative basis.
Get an outsider to help. Often your “knowledge” of the business or the family will cloud your judgement. We usually think that we know much more than we do. Especially if we are young or old (Dunning-Kruger Effect).
Once the information is gathered, we can evaluate what we have and keep an eye out for the overarching themes. The descriptions may not 100% reflect the real problem, but the issue will be in the rough “area”. If several employees and family members claim that the patriarch/CEO is a tyrant, or too old for his job, then there is an issue that needs resolving. Even if the claims are untrue, we humans are very good at self-fulfilling prophesies.
Once all the “problems” are found, make a comprehensive list of them, and use problem statements to really define each. From there you can start to map out criteria for a solution and then it is time to go and solve the crisis.
A few last words of warning from my own experience. Do not take the definition process of a crisis lightly. We did and the results were not very appealing. As with everything in live, if your foundation is not right, you will head in the wrong direction and pe prone for mistakes. Both can cost you dearly in a crisis (don’t be scared of either thou!). Take the time to define the crisis, even if you think you do not have the time - MAKE THE TIME.
