Nine Types of Business Crisis

The first categorical list of Crisis Types comes from the original founder of this course at Michigan Ross, Gerald Meyers. He spent a great deal of time as a senior leader in the automotive industry and led teams through many crises. His experience had a great deal to do with the list he ultimately created. You can find this list in his book, which he co-authored with John Holusha, titled When it Hits the Fan: Managing the Nine Crisis of Business. This book is a little dated now, it was published in 1986, but the categories have stood the test of time. Professor Meyer’s nine categories are:

1) Public Perception. While almost all categories of crisis have some impact on public perception, some crises are driven almost entirely by changes in public perception. In these cases, trust is at risk and must be restored. When United Airlines dragged Dr. David Dao off of his flight, a PR crisis erupted.

2) Product Failure. When a product fails to deliver on its value promise, or worse, threatens the safety of its consumers, a crisis can develop. In these cases, product and often company confidence must be restored. In 1982, Johnson & Johnson recalled its entire market supply of Tylenol because some of the bottles had been tainted with cyanide and had caused several deaths. This has become one of the most famous product failure examples in history. It is also known for the exceptional job J&J did with its response to the crisis.

3) Market Shift. Crises can arise from major changes in a market. These changes can take place over a long period of time or can happen fairly quickly. Blockbuster Video offers a great example of a company that failed to recover from a market shift crisis. Netflix, on the other hand, leveraged the opportunity to pivot in response to the same crisis, which was stimulated by the shift in customer demand to digital media access.

4) Cash Shortage. Businesses require capital to operate. When access to cash becomes limited, a crisis will almost certainly follow. During the 2008 mortgage banking crisis in the United States, investment banks Bear Stearns and Lehman Brothers ultimately failed because bad investments led to their insolvency.

5) Management Change. While a change in senior management may not sound like a big deal to some, there are many examples of major anxiety and a lack of confidence as a result of a change in management. Perhaps one of the best-known examples is the replacement of Steve Jobs by Tim Cook at Apple. When it was announced that Jobs would be stepping down, many stakeholders expressed great concern—sufficiently, it could be argued, to create a confidence crisis.

6) Merger/Hostile Takeover. When two companies come together, the outcomes are rarely exceptional for everyone involved. A common benefit of mergers is the economy produced by merging two sets of administrative and leadership support into one. On its own, this doesn’t produce economic benefit. But when duplicative work is eliminated, usually through the release of redundant employees, economic benefit is the product of lost jobs. When jobs are at stake, especially when lots of jobs may be at stake, a crisis may result. Sprint and T-Mobile telecommunication companies made multiple attempts to merge before they were finally able to do so. With each attempt – as well as after the merger was completed – many stakeholders for both of these organizations will feel crisis-level uncertainty about the future.

7) Regulation/De-regulation. When the rules and regulations change, businesses must comply and this often has significant consequences. When the consequences are significant enough, a crisis may develop. As regulators consider different mechanisms for the improvement of services to their constituents, rule changes may create critical situations for companies. Healthcare and aviation security regulation changes have created crisis-level challenges for organizations within those sectors.

8) Human Capital. When relations between management and labor become strained, it becomes difficult for the enterprise to function effectively. In some cases, it becomes impossible. When either management or labor take extreme measures to underscore their demands, crises develop. Over the decades of automotive production around the world, human capital crises have threatened the solvency of corporate entities.

9) International Events. When the global business climate changes for any number of reasons, the interests of organizations that depend on international trade are threatened. Sometimes the climate changes because of an event, such as the Brexit vote or an international war. Sometimes they change because of a strained relationship or policy decision, such as the U.S.’s decision to increase trade tariffs with China. In either of these or any other similar case, international events can create crisis-level economic hardships for some stakeholders.

Now that you have read through Professor Meyers’ list of categorical crisis types, you should return to the top of the list and read through it again. This time, as you consider each of the nine categories, you should make note of those you believe could create a significant threat for your organization. If a number of these crisis types seem plausible at your company, make note of them in your notes or workbook. You will return to these later in the course.

If you are looking for a graduate-level exercise at this point in the course, there is one more step you can take with each of the crisis types you identify as plausible at your organization. For each type that you identify, spend a few minutes thinking through which of your stakeholder groups would be most significantly impacted by a crisis of this type. There are no right or wrong answers to the exercise, but thinking through the stakeholder impact of each scenario will prove very helpful when you use this list of crisis types to help you perform some crisis preparation planning later in the course. If you complete this optional exercise, record your thoughts in your notes or workbook.