Crisis Management Strategy

Competition and Change in Modern Enterprises

Simon A. Booth

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317292715
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Crisis Management Strategy, first published in 1993, is an excellent introduction to the theory and practice of crisis management in modern enterprises. Simon Booth examines the conventional approaches followed by many firms in the face of change and crisis. He warns of the dangers of theories which oversimplify the causes of crisis and their possible solutions, and which overlook the individual nature of each firm and its environment. Instead, a dynamic new vision of crisis management is offered, which takes into account different kinds of crisis demanding diverse solutions. The key role of leadership is also evaluated in relation to both internally and externally generated crises.

Drawing on case studies of leading firms facing crisis solutions in a variety of environments, this truly international volume will provide valuable insight into the experience of crisis, risk and uncertainty. This title will be of interest to students of business.

Part I

Management paradigms and perspectives

Chapter 1

The growth of uncertainty

We spend our lives in many different sorts of organisations ranging from informal family groups, structured voluntary bodies and formal bureaucracies. The common process involved in making these work effectively is management. Management is the process that differentiates socially coordinated and motivated goal oriented activity from socially uncoordinated activity. Its objective is normally to create order out of chaos to ensure survival. As such it is one of the key characteristics of human social activity. Almost all the great management theorists have been concerned with how to plan, coordinate, control and direct organisations operating in relatively unchanging environments and to most effectively return enterprises from decline and crisis to prosperity and stability. It is important to recognise the contribution such theorists have made because their work has had a significant effect on practising managers’ views of the world. Many of the conventional wisdoms that managers live by derive from the nostrums of the early theorists. Two strands of early thinking became dominant and still have a widespread influence at least partly because they often appear to confirm the intuitive approaches many managers take. They give, however, quite different perspectives on how to cope with both stability and crisis.

SCIENTIFIC MANAGEMENT

Perhaps the most important influence on management thinking and practice in the first part of this century was the work of Taylor (1947). His work and writings had a major impact on American management thinking. Today some writers (Wilson, 1992) see a neo-Taylorist ‘one best way’ approach still dominating many business schools and practised in many large companies.

The essence of this theory was that ‘the principal object of management should be to secure the maximum prosperity for the employer, coupled with the maximum prosperity of each employee’. For employers long term prosperity was seen to be as important as short term profits. For employees prosperity meant high wages and room for personal development so that they could perform efficiently to the highest level of work their abilities allowed.

Taylor argued that there was a natural harmony of interest between worker and employer, yet he recognised that in almost every organisation conflict and antagonism could be identified which could lead to crisis and collapse. He argued that the reason for this was two-fold. First, poor and inefficient management. He found that many managers were unable to effectively plan and organise the procedures and methods necessary to achieve efficiency. This led to wasted effort and time, and the employees bore the burden of such inefficiency in their low wages. Second, he found there was a widespread belief on the part of employees that increased productivity would lead to unemployment. As a result there was reluctance to go beyond the group normed performance level, and resistance to attempts by management to intervene to create more efficient systems of work. Taylor thought he saw in these problems the seeds of industrial decline in America. In his view the long term results of these conflicts would be a crisis in the firm in which either management and workers recognised the need to work together or the firm collapsed because of the inability of both parties to accurately identify the major reasons leading to poor performance. He aimed to overcome these conflicts which hindered the development of a harmonious approach to work by suggesting four principles of management:

The development of a science of work Work should be scientifically studied to find the optimum level of labour for each specific task. The actual amount of labour spent by workers on the same task should then be measured. Optimum pay would be available to workers who could achieve the optimum level of work. Those that were sub-optimal would receive less pay. He argued that each task should be separated so that workers (and supervisors) could specialise in just one activity. As a result functional lines of command could be established in which an employee would have more than one supervisor if he performed more than one specialist task over time.

The scientific selection of employees and progressive development Taylor suggested that employees should be selected scientifically to ensure they had the most appropriate physical and mental abilities to enable them to achieve optimum output. They should then be trained in the best methods to be able to achieve optimum performance within their special function.

Bringing the science of work and scientific selection and training together A major task of management was to bring together the scientifically defined work and the trained employee. If this was done accurately the assumption was that the employee would not only be highly effective in his work but also satisfied that he had the necessary ability and responsibility to undertake the work.

Constant and intimate cooperation of management and workers In Taylor’s view managers should take over all work for which they were better fitted, e.g. specification of the product, quality assurance, the method of production, price, supervision. With both employees and management carrying out the functions for which they were best suited, conflict would be eliminated. Employees would recognise the value of management and its authority because management decisions would not be arbitrary but based on scientific analysis.

Taylor’s work basically saw crisis developing as a result of internal conflict between workers and management in which management bore the main responsibility for blame as it was, in his view, the function of management to plan, direct, organise and control. The solution was his basic approach of scientific management as outlined above in which no significant changes in working practices and no improvement in effectiveness or efficiency were possible without a revolution in management to provide them with the skills and techniques to do the job scientifically.

One of the major problems with this approach was that each employee in Taylor’s view should have as few functions as possible to perform. However, the characteristic of functional management was that each employee instead of coming into contact with the management at one point only (e.g. through his team leader), might instead receive daily orders and help directly from a number of different managers, each of whom had their own particular function. In this Taylor happily departed from what he called the military type of organisation where workers had only one superior from whom they took orders.

The approach based on scientific observation and measurement of the nature of the work and of employees may have been appropriate to enterprises where there was a generally stable environment where change occurred in a predictable and measurable way. This was the case for much of American industry in the first part of this century in particular for certain sectors of industry such as large assembly and production plants. But it was certainly less appropriate in cases where it was difficult to accurately assess and measure the nature of the work to be performed, as in the case of professional employees, and in cases where external environmental change and turbulence led to the need for a high degree of flexibility within the workforce and at the same time a high degree of coordination and unity of command. Frederick Taylor’s work assumed a stable external and internal environment and relied on the ability of management to predict the future and measure any changes that were taking place. The opportunity for managers to take such a ‘scientific’ approach has diminished as the ability to collect and analyse data that accurately predicts trends over a reasonable period has been reduced by turbulence and change in the environment. Since the 1960s stability and predictability have largely been replaced with uncertainty and unpredictability in which functionalism has become less important than flexibility, ad hoc organisational arrangements and the ability to react immediately to external changes.

Most fundamentally the ‘scientific’ approach assumed that there was one best way of organising and managing for stability, change or crisis. There was a refusal to even consider alternative possible forms of organisation and management at different stages of an enterprise’s development, or in the face of crisis. Increasingly other theorists began to show that there were alternatives that could be at least as successful in coping with stability and more successful in coping with crisis.

ADMINISTRATIVE MANAGEMENT

One of the other great early management thinkers took an almost opposite approach to Taylor but he has had a significance, at least in Europe, where his views were influential. They were based on personal experience of corporate turnaround. Too often Fayol is only seen as a historical figure referred to briefly as the founder of the administrative approach to management. It can be suggested, however, that his ideas have continued to have significance because of the insights they give as to how to provide for effective internal management. Henri Fayol (1963) derived his views on management from his observations and experiences as an engineeer and managing director of a French mining enterprise. Fayol’s ideas on administration grew from his personal involvement in the turnaround of the Commentry-Fourchambault Company. The enterprise was on the edge of bankruptcy in 1888 when he took over as Directeur General. He was instrumental in closing the loss making metallurgical works at Fourchambault, acquiring new raw materials by the purchase of the Bressac pits, and improving the efficiency of the blast furnace operation. The result of what by all accounts was a dramatic turnaround was that the company was seen as in some ways the French equivalent of the German Krupps in terms of its contribution to the French war effort during 1914–18.

Fayol had learnt through personal experience how top management could steer an enterprise through crisis to recovery. His most important book, however (Fayol, 1963), was more concerned with general principles of good administration to avoid critical problems rather than the more specific issues of crisis management. It is interesting to see that from his experiences of corporate crisis and turnaround he derived the following principles for good administration. He suggested that there were six areas of activity in every industrial firm. These consisted of: technical activities (e.g. production and operations); commercial activities (e.g. buying and selling); financial activities (e.g. raising capital and appraising capital use); security activities (e.g. protection of property and copyrights/patents); accounting activities (e.g. stocktaking); managerial activities (e.g. planning, organising, command, coordination and control). He argued that the government of enterprises depended on how well these functions were carried out. If the enterprise ignored any one of these areas there would be a danger of crisis because all six were interdependent. He suggested that managerial activities were especially important. They consisted of five crucial elements:

Planning In order to function efficiently an enterprise needs a plan to provide unity, continuity, flexibility and precision. The very process of planning shows up the problems of overlap, conflict of objectives, the need for long as well as short term policies. The plan should aim to overcome all these problems to allow the optimum use of resources. Most importantly, a plan should provide clear goals for the organisation to achieve.

Organising The organisational structure must be built up to be efficient and effective in service to the plan.

Command The organisation having been set up and the plan defined the next task is to relate the plan to the human resources. This is the task of command which is concerned with ensuring that personnel fulfil their task. This can be done by instilling a sense of mission, motivating and leading by example.

Coordination Because enterprises have many different tasks to perform there is a need for coordination to bring harmony and unity of purpose to the various activities. This can only be obtained by efficient circulation of information and regular meetings.

Control This is the function which ensures that each of the others are in balance and working towards the determined goal. Inspection and performance evaluation would be undertaken by this function and sanctions would be applied by this function for poor performance.

Since the publication of his work these functions of management have become almost truisms, but in the earlier years of this century they were widely accepted as the conventional approach to managing enterprises. Fayol outlined a number of general principles of management which he had found useful in successfully managing his enterprise. He thought that they could be adapted to a variety of different circumstances and would therefore be of use to other managers:

The division of work He suggested that people should be allowed to specialise so they could build up expertise and be more productive in one area rather than spread their efforts over many areas.

Authority He thought there should be clear lines of authority. Those with the right to issue commands should also be responsible for those decisions. If they made mistakes they should be held accountable. Official authority should be distinguished from personal authority, but in practical terms he felt that the former needed the latter.

Discipline Like Taylor he felt that working discipline was essential and applied equally to all. Employees could only be expected to obey orders if management played their part and provided good leadership.

Unity of command Workers should have only one manager to avoid possible conflict. He suggested that although dual command structures were extremely common they led to unnecessary conflict in enterprises.

Unity of direction He believed that there should be one plan and one head for a group of activities having the same objective.

Subordination of the individual interest to the general interest

Fayol argued that management were responsible for the welfare of the shareholders and of employees and that there was a need therefore to ensure that all relevant stakeholders recognised that the goals of the firm as a whole were paramount over those of any individual or group. He felt that firms were like families in which the interests of the family as a whole came before the interest of any individual family member.

Remuneration He thought that pay was an important motivator, and suggested that managers had the role of ensuring that pay was competitive, and that rewards were directed to those that provided the most effective contribution to the enterprise.

Centralisation or decentralisation He suggested that a significant part of the manager’s role was to find the right balance between centralisation and decentralisation. He recognised that this depended on a wide range of factors such as the type of enterprise, the personnel and the nature of the product.

Scalar chain of command Fayol believed that a vertical hierarchy of command was necessary for unity of direction (but equally horizontal communication was seen as necessary). Fayol said that often the chain of command ‘was disastrously lengthy in large concerns’.

Order He felt that material and social order was needed to minimise the waste of resources and time. For him that meant having the right man in the right job. At the same time he recognised that it was often difficult to achieve this, especially in large enterprises where individual interests led to favouritism; he thought that it took great strength of will to restore order and sweep away abuses.

Equity Fayol advocated that a combination of kindness and justice was needed by managers when dealing with employees. It was incumbent on management to behave in an even handed manner towards all employees.

Stability of tenure He argued that because training and management development was expensive enterprises should aim to keep managers for as long as possible. He felt that instability of tenure was both a cause and an effect of poor management.

Initiative He suggested that allowing individuals to show initiative was a sign and source of strength in an organisation. ‘Much tact and integrity are required to inspire and maintain everyone’s initiative.’

Esprit de corps Finally he strongly felt that ‘Unity is strength.’ To be effective managers needed the ability to foster and develop the morale of employees. He felt that managers needed to be able to coordinate effort, encourage keenness and use effectively an employee’s abilities without arousing jealousies.

A number of these principles would be disputed today. The notion, for example, that an individual should subordinate his interests to that of the firm would be rejected in most western countries, such ...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• Introduction
• Part I Management paradigms and perspectives
• Part II Crisis management theory and risk assessment
• Part III The practice of crisis management
• Part IV Control and recovery strategy
• References
• Index