A2 Objectives and Strategy Unit 6

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A2 Objectives and StrategyUnit 6

• Contingency Planning

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Crisis in business

• Crisis an unexpected event that threatens the
  well being/survival of a firm
• Some are predictable and quantifiable (changes in
  exchange rates) and contingency planning is
  necessary
• Others are totally unexpected (Asian Tsunami)
  where crisis management will be used
• Task Produce a mind map with examples of crises
  for a business. You may discuss it with the
  person next to you. (5 mins.)

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Crisis in business

• Environmental disasters e.g. oil spillage
• Fraudulent activities of employees e.g. Enron
• Health scares e.g. BSE, SARS, Bird Flu
• Major customers withdrawing their custom e.g.
  Rover closing for suppliers
• Faulty or dangerous products e.g. Cocal Colas
  Dasani Water
• Workforce strikes e.g. Fire service, London
  Underground workers
• Hostile takeovers e.g. Malcolm Glazer
  Manchester United
• Pressure group activities and unwanted media
  attention
• Competitor launching new product
• Demand and fashion changes
• Severe recession or slump
• Machine failure production problems

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BBC, 2005
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BBC, 2005
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BBC, 2004
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BBC, 2005
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Contingency planning vs. Crisis Management
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Contingency Planning

• Preparing for unexpected and usually unwelcome
  events that are reasonably predictable and
  quantifiable
• Usually non-critical events, time to prepare and
  gather data and ask what if questions
• Crisis Management
• Responding to a sudden unexpected event that
  poses a significant threat to a firm.
• Damage limitation, heavy emphasis on Public
  Relations and media relationships
• Need flexible approach and a quick responsive
  crisis team

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Contingency Planning (The stages)

1. Recognise the need for it
2. Distinguish between critical and non-critical
   future issues, deal with critical first e.g.
   computer system crash for a bank is critical
3. List all possible crisis scenarios using what
   if and sensitivity analysis
4. Look for ways to prevent the crisis
5. Formulate crisis plans how should each
   department act and what resources are necessary
6. Simulate the crises and the operation contingency
   plan using software or actual exercises

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Sensitivity Analysis

• Technique used to reduce uncertainty in
  decision-making
• Looks at how much changing variables will impact
  on results of decision
• E.g. what would happen if a machine fault could
  not be fixed in 10 days but 20 days, How will a
  15 increase rather than 10 increase in raw
  materials cost impact on the business
• The analysis uncovers at what level variables
  does the project become unacceptable

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Costs of Contingency Planning

• Can be very time consuming
• Requires highly qualified staff to work on it
  (expensive)
• May be seen as a waste of money if nothing
  ultimately goes wrong

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Effects of crises on a functional area

• Each function of a business will be effected and
  must be able to respond and manage a crisis
  situation.
• Task Describe how each of the following area
  will respond in a crisis? (5 mins)
• Marketing
• Finance
• Operations
• Personnel/Human Resources
• Think about examples such as the Dasani
• and the Buncefield oil depot fire examples

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Answers

• Marketing Public relations needed to limit
  damage to reputation
• Finance Immediate cash expenditure needed on
  advertising campaigns, clean up campaigns or
  response to a hostile takeover bid
• Operations Need careful contingency plan to
  ensure customers needs met, particularly if JIT
  is used
• Personnel Direct autocratic leadership needed,
  quick decisions and internal communication
  necessary, effective, rapid and truthful external
  communication needed

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Risk Management

• All firms face risk
• Management must rehearse the many things that
  could go wrong
• The damage caused to a reputation could be
  permanent
• Risk must therefore be carefully assessed and
  managed

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Student Activity

• In groups you must analyse the potential crisis
  your chosen business may face and then produce
  contingency plans and crisis management
  strategies for each crisis.
• Group A - Bills Butchers
• Group B - Tyre manufacturer supplying a car
  manufacturer
• Group C A clothing retailer such as FCUK
• Group D BP (British Petroleum)
• Group E Nestle
• Each group must come up with potential crisis the
  other businesses may face. Each group must then
  describe any contingency plans or how they would
  crisis manage the crisis proposed.

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Student Activity

• Complete question 2 on exam paper January 2004