Overview
Discussion: Every organization will face a crisis at some point. Some get through it well, and some do not. Here are two examples of crisis management, one good and one bad: (Source: brandfolder.comLinks to an external site.)
Johnson & Johnson
- The crisis In 1982, seven people in Chicago died after taking cyanide-laced capsules of Johnson & Johnson's over-the-counter medication Tylenol. The incident remains unsolved. The company's response has become a textbook example of how to manage a crisis.
- The response: Johnson & Johnson immediately launched a massive response to the incident, which included halting all product advertising and sending 450,000 messages to healthcare facilities and other stakeholder groups. It also issued safety warnings to consumers. Despite the evidence indicating that the toxic substance was accidentally introduced through the store shelves and therefore not the company’s fault, the company did not try to hide the truth, and the brand eventually started making tamper-proof packaging. James Burke, the company’s CEO at the time, even went so far as to express regret later on that the company did not immediately switch to a more secure caplet immediately following the incident.
- Key takeaway: Tylenol’s response is regarded as one of the best crisis management strategies in history. In fact, according to RETRO REPORT on YouTube, it has created the script that corporations still use today. The media generally praised J&J for its actions in handling the situation and helping the Tylenol brand recover. One of the most important lessons in this example is that transparency and integrity will go a long way towards managing a crisis.
Uber
- The crisis Uber went from one of the most celebrated brands in the world to one of the most reviled in a matter of months. The ride-hailing company started 2017 off in hot water when it was revealed that CEO Travis Kalanick was serving on an advisory council to President Trump. #DeleteUber was born, and Kalanick announced that he would be stepping down from the council shortly after. The hashtag made a comeback two times the following February. First, when Uber continued operating at JFK International Airport during a taxi strike in protest of President Trump’s immigration ban, sparking a company crisis. And second, when ex-employee Susan Fowler Rigetti leveled claims of sexual harassment and gross HR misconduct at the company. But it wasn’t until a few days later when the hashtag really gained momentum when a video surfaced of Kalanick arguing with an Uber driver about a drop in driver pay. February 2017 also saw Uber slapped with a lawsuit from Google. The technology giant claimed Uber stole technology from their self-driving vehicle division, Waymo. The suit was abruptly settled a year later when Uber paid Waymo $245 millionLinks to an external site.. The tech darling is also in hot water for using technology called Greyball to elude authorities worldwide, and has seen several executives, including their former CEO on the board of directors, step downLinks to an external site..
- The response: Kalanick announced an immediate investigation into the issue, but early investors voiced concerns over the impartiality of the internal investigation and the company’s private arbitration clause. In regards to the video, Kalanick released a statement on Uber’s website saying, “I must fundamentally change as a leader and grow up.” But for many Uber customers, the damage was done, and the video was viral.
- Key takeaway: While the business continued to release statements concerning each incident, it’s hard to ignore the fact that missteps keep piling up. A lack of transparency has been Uber’s biggest failing in handling much of the public interest, which has impacted both their reputation and their bottom line. A heartfelt letter from the CEO promising to be a better leader won’t get the company far unless the public sees steps and actions taken to get there. For this reason, Uber is a classic example of crisis management gone wrong.
In times of crisis, businesses often rely on specific metrics to guide their response strategies and manage stakeholder expectations. The selection and prioritization of these metrics can significantly impact a company's ability to navigate through the crisis effectively (see cases above). For example, during a financial downturn, a company might focus on liquidity ratios and cost-cutting measures, while in a public relations crisis, sentiment analysis and customer trust metrics could become paramount.
Questions for this week:
- How should businesses determine which metrics to prioritize during a crisis? Discuss the relationship between the choice of metrics and the effectiveness of crisis management strategies.
- Consider how different types of crises—financial, operational, reputational—require different metrics and approaches. What are the risks of focusing too narrowly on specific metrics, and how can businesses balance short-term crisis management with long-term strategic goals?
- Use real-world cases to illustrate your points and support your analysis with data where possible.
Assignment: To respond to a volatile inflation crisis, should the CEO of Burger & Bites, a fictional fast-food chain, introduce dynamic pricing to its restaurants? The company's input costs are increasing quickly since several of its ingredients come from other countries. Meanwhile, the CEO is facing intense pressure from investors to boost margins. Using its new digital menus and mobile app, the company could start adjusting prices in real time based on factors from inventory levels to regional demographics to weather. Consumers are used to dynamic pricing in air travel and hotels, but will they accept it at a fast-food restaurant? Some franchisees and members of the leadership team are worried about backlash. Burger & Bites has a reputation for fairness, consistency, and community connection, so changing prices often could alienate customers and damage loyalty. In addition, it could lead to charges of discrimination if some groups are offered higher prices than others, potentially causing a social media-fueled scandal. The CEO isn't sure how best to proceed.
Read the case, A Fast Food Company Considers Dynamic Pricing, in your Harvard Coursepack.
You are a consultant for McSkinny and Company, worldwide consultants known for their expertise in offering creative solutions for crisis management. Write a memo for the CEO that explains the pros and cons of dynamic pricing and its potential impact on both customer satisfaction and the bottom line. Close with a recommendation to proceed or not. If you elect not to proceed, offer alternatives to deal with volatile inflation.