In the context of product recalls, crisis management can be defined as the systematic attempt often initiated by the management of the organization to avoid organizational crises or to manage those crisis events that do occur using various crisis management strategies classified into four main categories, namely denial, involuntary recall, voluntary recall, and “super-effort” (Chen, Ganesan & Liu, 2009).
Crisis management is related to business in the context that inability to contain or deal with crises has the potential to not only cause negative publicity, which in turn affects consumer’s attitudes, beliefs and future purchases (Vassilikopoulou, Lepetsos, Siomkos & Chatzipanagiotou, 2009), but also to damage carefully developed brand equity, occasion revenue and market share losses, and destroy investor confidence in the organization, leading to either a decline in the financial value of publicly traded companies or the unwillingness of investors to continue providing funds to private firms (Chen et al., 2009).
Personal Experience with Organizational Crisis
Working as a marketing executive for a computer manufacturing company, I once led a team of marketers in developing a strategy to recall thousands of laptop computers sold in North American, Asian and African markets due to a potential burn hazard. With the knowledge that this crisis could have negative ramifications on our plans to regain competitiveness in these markets, I prevailed upon other team members to initiate a voluntary recall of the products manufactured with a faulty DC-In.
In managing the crisis, I disclosed adequate information to customers as to why the laptops were being recalled. To maintain corporate image and reputation, I prevailed upon the management to consider meeting the costs involved in taking the faulty gadgets to the designated collection points, and in advertising in mainstream media to ensure that all our customers were kept informed.
Extant literature demonstrates that “voluntary recall includes the disclosure of information regarding the crisis and the recalling of the product before an agency’s order” (Vassilikopoulou et al., 2009 p. 67). Since I used the voluntary recall strategy to deal with the crisis, it could be argued that I voluntarily took responsibility for the defective products and never denied culpability or even delay the recall process.
The article by Chen et al (2009) sets out to investigate how various product-recall strategies, especially proactive versus passive recall strategies, influence organizational performance in terms of stock returns. The authors of this article employ a quantitative research methodology with a descriptive design to examine product recalls and the strategies employed by the management of various firms to deal with the crises during a 12-year period, from 1996 through 2007. As already mentioned, proactive and passive conflict management strategies are used to assess how companies sampled from the CPSC recall announcements managed their product recalls. The major finding of this study “is that contrary to the conventional wisdom, proactive recall strategies have a more negative effect on the firm’s stock returns than passive strategies, regardless of firm and product characteristics” (Chen et al., 2009 p. 215).
The study also finds that proactive crisis management strategies (e.g., voluntary recall and super effort) tend to be utilized more often by less reputable organizations, while organizations of high repute utilize passive crisis management strategies (e.g., involuntary or silent recall). Overall, as suggested by the authors, this article contributes substantially to the study of crisis management in business by demonstrating that organizations need to be particularly receptive to how the stock market might interpret proactive conflict management strategies because there could be considerable, adverse ramifications in terms of stock market reactions associated with these conflict management strategies.
From experience as well as the summarized article, it is evident that a company might avoid the negative impact from a crisis by ensuring effective communication between and among the concerned stakeholders so as to ensure that these parties have the correct information on the crisis scenario, including what is being done to contain or resolve the crisis.
Chen, Y., Ganesan, S., & Liu, Y. (2009). Does a firm’s product-recall strategy affect its financial value? An examination of strategic alternatives during product-harm crises. Journal of Marketing, 73(6), 214-226.
Vassilikopoulou, A., Lepetsos, A., Siomkos, G., & Chatzipanagiotou, K. (2009). The importance of factors influencing product-harm crisis management across different crisis extent levels: A conjoint analysis. Journal of Targeting, Measurement and Analysis for Marketing, 17(1), 65-74.