Crisis Management
Paper Presented at the International Conference “Shipping in the era of Social Responsibility” In Honour Of The Late Professor Basil Metaxas (1925-1996) Argostoli, Cephalonia, Greece, 14-16 September 2006
A Six-step process for effective Crisis Management in the Port Industry
EVANGELOS KOUNOUPAS, University of Piraeus, Department of Maritime Studies, 40, Karaoli & Dimitriou Str., 185 32, Piraeus – Greece, Tel: +30 210 414 2535, Fax: +30 210 414 2569, Email: kounoupa@unipi.gr, kounoupa@ath.forthnet.gr
ABSTRACT Crises often appear to be inevitable for a number of reasons. Traditional crisis management theory distinguishes between environmental factors and internal explanations referring to weak environmental assessment of market developments and psychological or social-political factors. Classic literature approaches attempt mainly to identify the reasons behind the occurrence of crises. Although the ability to manage crises incorporates understanding their sources, it should not be limited to that. Transport and Shipping are by definition unstable markets and the world crisis is quite common amongst Maritime Economists. Ports are exposed to various physical or business originated dangers. However existing literature does not cover the appliance of this philosophy into the area of Port Management. Based on an extensive revision of existing management literature and drawing examples from actual cases, this paper suggests a conceptual formulation for Seaport Crisis Management. Building on a process initially developed by Augustine (1995), it presents a framework within which a Port Organisation can identify, manage and finally profit from such events.
Key words: crisis planning, crisis units, management commitment, organisational learning, organizational profiting.
A SIX-STEP PROCESS FOR EFFECTIVE CRISIS MANAGEMENT IN THE PORT INDUSTRY
1. An introduction to crises. A short derivational search reveals that in Greek, the word “crisis” has both the meaning of “emergency” and “judgement”. Indeed, it is often this judgement, in a case of an emergency, which can lead an organisation to success or failure. The attacks of September the 11th in New York were an emergency situation. However, as the U.S. Administration later discovered with regards to the Dubai Ports World case, crisis (and even failure) can derive from less obvious sources. Business literature offers many definitions and different perspectives for crisis. Pearson and Claire (1997) synthesise them by stating that “an organisational crisis is a low-probability, high impact event that threatens the viability of the organisation, is characterised by ambiguity of cause, effect and means of resolution, as well as by a belief that decisions must be made swiftly”. Since decisions need to be taken, there is consequently room for managers to interfere and proceed in proper action. As it will be demonstrated, a crisis situation is a provoking field for implementation of managerial and leadership talent. Dubrowski (2004) notes that from a management perspective, “a crisis brings about a state of emergency, which due to its acuteness requires, prompts decision making and which must be as good as possible, since corrections are usually not possible.” Spillan & Crandall (2002) point out a paradox: “The diversity of crisis events requires to be both specific in preparing for worst case scenarios and, simultaneously, to be flexible in terms of planning for these events”. Crises occur and depending on the case they can be devastating for an organisation. But they can also be managed. Ideally, a crisis can even improve an organisation’s operations. Ten Berge (1991) observes that “a well-managed crisis develops the sense of togetherness among employees” creating a positive climate that lasts for long after the crisis has ended. Thus, the whole concept of management confrontation and resolution has been described as “Crisis Management”. An entire management philosophy has been developed to assist overcoming these lifethreatening events, which go far beyond the ordinary managerial fire-fighting tasks (Pearson et al 1997) and require a different approach of management than everyday business activities. In fact, emphasis cumulated on Crisis Management brings it closer to the core of strategic management (Boin et al 2003). Organisations of course function in different environments, possess different assets and operate in various scales of activity. However, Starbuck et al (1978) offers a framework for understanding crises, by referring to their external sources (changes in technology or an industry’s life cycles, an increase or a natural shift in competition) and internal explanations (organisational defects, such as poor management, weak information flows, high costs, poor marketing skills) which become worse by inaction (Smith and Sipika 1993). Crises also derive from the internal “solidifying of company recipes”. Marketing myopia caused by weak environmental assessment will not allow adjusting their subjective views about their service to the actual client needs. “Organisational arteriosclerosis” (Makridakis 1991), or else over-reliance to fixed programmes and routines that once led to success and not being responsive is also highlighted as an internal crisis source. Augustine (1995) adds that “companies sometimes misclassify a problem, focusing on the technical aspects and ignoring issues of perception”. Smith & 2
Sipika (1993) also observe that there exists a process of “denial inherent within crisisprone organisations”, while Hengsen et al (2003), state that crises tend to occur “when environmental threats match organisational weaknesses”. From a network theory perspective, the operation of any given industry is affected by the outputs of another, even when there is no profound interdependence. Thus “small glitches in one network may cascade into large-scale breakdowns in other networks” (Boin et al 2003). Other commentators add psychological (cognitive capability, mental health, commitment) or social-political factors (collective sense-making, leader- follower relations). Malicious rumours, security breaches (Hengsen et al) and Industrial relations, in the form of strikes or constant grievance up to the extreme of sabotage find their place here. As stressed in literature, the role of the Chief Executive needs to be included in this conceptual framework in an effort to explore the role of individuals in the creation of organisational crises (Habermas 1975, Swartz 1987 cited in Pearson and Clair 1998). Often, even success can be the trigger for crises by inviting imitation, motivating competition and stimulating higher fixed costs and possible conservatism (Makridakis 1991). To sum-up, anything that suddenly threatens a company’s financial and operational performance, reputation, employment retention, customer or community relations, has the potential to become a crisis.
2. Crises and the Port Industry. A port operator (either as a terminal operator or as a port authority) is by no less subjected to the above list. The external environment of the port industry is highly subject to factors such as physical phenomena (as the infamous hurricane Katrina that recently damaged the port of New Orleans). Not surprisingly, the earthquake in Kobe (1997) was seen as a contribution to the Asian monetary crisis of 1997, due to the close interdependence of regional economies to the port operation (Boin et al 2003). On September the 11th 2001, two airliners crashed on the towers of the World Trade Centre in New York and a new era of life under the threat of terrorism, global campaigns, economic recession, and numerous other side effects had commenced, to affect the lives of governments, ordinary people and entire nations. However not many realised at that point that there was another form of organisation which at that same incident lost its headquarters, its C.E.O. and some hundreds of employees. That company was the Port Authority of New York, the organisation that had built and operated the World Trade Centre. Such terrorist acts or even the threat of terrorism are triggers that can lead to major crises on the operation and critical infrastructure of a seaport. An effort to confront them, with the implementation of the ISPS Code (a security focused code) is by itself a source of another crisis. According to the American Association of Port Authorities (AAPA) the U.S. Coast Guard estimated a need for $5.4 billion need to be spent over a period of 10 years. These expenses will allow ports to cover only the basic requirements of compliance with the code. Funding these needs impose another brick in the wall. As commented by Hengsen et al (2003), the complexity of technology especially when accompanied with the human element, can be a major source of problems. In October 2004 a flaw in the Customs computer system in the Port Botany, Sydney, caused a large backlog in containers. Consequently, shipping lines chose to deviate from the port and the crisis was then exported to the broader community, where stores were preparing their selves for the Christmas pick ahead. It has to be
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noted here that the problem laid on the Customs computer system and not on the port operators system. Accidents are another source of crises, and they do have a tendency to happen despite all contingency plans. Giziakis & Bardi (2002), note that 60% of shipping accidents resulting to pollution occur within seaports. Terminals operate with hazardous materials as a part of their everyday operations and the interference of people and equipment often becomes dangerous. Safety, state Hengsen et al (2003), is as fact objective for the organisation, but the way it is perceived is subjective to the individual. When an accident goes beyond the port area, i.e. influencing the rural or physical surroundings (explosions, gas leaks,) there is room for another difficult-tomaintain situation. Even cases of accidents happening outside the port area could result in extremely severe implications. In 1996, the port of Milford Haven faced a claim for ten million pounds as compensation for an oil spill judged to be due to insufficient pilot training. Spillan (2003) characterises these cases of litigation involving customers, employees or government investigation as “Legal Crises”. However, some sources of a crisis may not be as profound as the above. The need for port services and the existence of a seaport company and the whole port cluster is a derivative of the international trade flows. In addition, it is highly depended to the other means of the transportation chain or network. A global economic recession freezes trade flows and consequently the need for seaport services. Naval blockades and increased tension will favour competitive ports and result in loss of market share. A sudden increase of cargo volumes for these countries may on the other hand cause congestions if not well anticipated with a matching adjustment in seaport service supply. The increase in ship sizes, especially these of containerships, calls for costly investment to satisfy clientele and connect port strategy and fund allocation to unstable demand in a hyper-competitive market. The emergence of new economies, namely China and India, has created a set of new ports that, based on their location, low labour cost or on state protectionism may cause a shift in global sea trade routes, forcing some seaports out of their market. Vertical integration in the liner industry makes port companies more vulnerable to hostile takeovers by global transport operators, terminal operators or shipping lines. The emergence of new competitors and the volatility of the market leave tolerate little reliance over customer loyalty, as major shipping lines will not hesitate to leave one hub port and proceed to an agreement with another. Globalisation and liberalisation of trade accelerate the process of change in the seaport industry. Inter-port competition as well, provides ground for crises, especially in the case of state-owned ports and terminals. While operation under state control is by no means necessarily connected with ineffectual management, it is profound that a private port/ terminal operator within the same port system will most probably have an advantage on organisational, financial flexibility and industrial relations with its labour force, leading in the creation of a serious threat for the previously established state company. Being components of overall infrastructure networks, seaports are usually under the constant monitoring, control as well as direct intervention of public authorities. In 2002, both the President and the Managing Director of Piraeus Port Authority were relieved of their duties overnight, following an internal dispute that was not tolerated by the Ministry of Mercantile Marine. It is often the case, top management of port authorities being beheaded in circumstances of disaccordance with governmental procedures. The gaps in the development and implementation of strategy in these cases can invite competitors to benefit from the occasion.
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In spring 2006, the Dubai based Dubai Ports World declared its intention to acquire P&O terminals in six U.S. mainland ports. At that time, the case seemed as a wise commercial agreement, offering the Arab company an increase in the number of terminals under its control and to the Federal U.S. government a way to balance its trade deficit. It did not occur then that soon political pressure would force the U.S. President to warn the congress of his intention to exercise his power of Veto, to the favour of the agreement. What in another industry would be a purely business related subject went off to become a public relations, national security, international politics and financial crisis that led Dubai Ports World to declare the selling off of its American operations (the Washington Post, March 10th 2006). From another perspective, the global trend for privatisation of ports may hide a crisis especially when privatisation has been introduced without a specific strategic intent but more as an expected panacea to public sector inefficiencies. As postulated by Baird (1999) in cases where private sector companies took over control “where commercial shipping activity has diminished, the ports concerned are now little more than real estate development opportunities (e.g. ports of Leith, Dundee, Glasgow, Cardiff etc.)”.
3. Towards a new conceptual model for Port Crisis Management. Literature in Crisis management is rich in examples from all kind of industries and markets, however little attention has been set on the complex and crucial sector of ports. Shipping accidents are mentioned as examples in some papers (Giziakis & Bardi 2002, Pearson & Clair 1998) while other documents focus on purely operational aspects (Appelman 2005). The International Association of Ports & Harbours (IAPH) and the AAPA in their publications, refer to crises from the perspective of port and maritime security (IAPH Policy and Guidance Paper, 2003, AAPA Seaport Security notes), namely suggesting ways to avoid or manage accidents and terrorist attacks. As shown above, there is more in crisis management than planning against terrorism and nature. We will try to introduce this mindset that we consider is necessary for anyone that has a stake in port management. All these approaches attempt to identify the reasons behind the occurrence of crises. As Perrow (1984 cited in Pearson et al 1997) indicates, “little can be done if we do not wish to address the sources of our troubles”. However, managing crises does incorporate understanding the sources of crisis-triggering events but can by no means be limited to that. As a mind-set, crisis management preparation enables companies “to avoid some crises, to manage others more effectively and to learn more quickly and more fully from crises that do occur” (Pearson et al 1997). The following analysis is based on the application of Augustine (1995) model for effective Crisis Management enriched with other commentators’ views on the issue and applied to the port sector.
3.1. Step One: Avoiding the crisis. Crisis management commences by actually trying to avoid the crisis. According to Smith & Sipika (1993) that shifts the interest of management more towards crisis prevention and not solely on crisis response. Constant motoring of the environment, organisational operations and hedging against unavoidable risks can be ways to avert crises. This is a constant and on going
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task that overlies over the entire operation of the environment. All possible consequences need to be considered and contingency plans be formulated. The implications of short term decisions need to be projected in the long term to reveal possible threats. An exclusive or preferential agreement with a major shipping line has to be examined under the issues of distorting competition, state intervention, monopolistic opportunities and possible legal constraints. That by no means suggests that business decision should stay in a standstill. However, at this stage, organisational culture plays a crucial role into creating a sense of creative conflict that disturbs pure technocratic procedures and allows the system to be prepared for change, when this will be required. Cultivating a sense of vigilance over possible threatening situations, events or processes allows an organisation to accept that crises do happen and incorporate that in their strategy formulation. Benchmarking techniques could be useful in order to identify the difficulties other organisations have met, and they way they had decided to handle with them. Avoiding a crisis requires the introduction of signal detection mechanisms which will perceive the warning signals and buy this precious time for the organisation to analyse and proceed to proper action. Signal detection mechanisms need to be regularly updated to remain effective and to do so it is necessary to rotate those responsible for internal and external monitoring so to avoid solidifying of recipes and loss of alertness.
3.2. Step two: Preparing for crisis. Often, impeding crises can be anticipated well in advance but not surprisingly, crises continue to happen. That means that organisations have to be prepared to manage the crisis. To do so, organisations must be clear on their key values and priorities, as these will set the ground on which any potential crisis will be managed (Pearson et al 1997). Caution needs to be taken so as not to elevate every little misfortune to the status of a crisis, otherwise panic will occur and a crisis might as well be triggered. Chief executives’ adoption and commitment to a crisis management mind-set will allow time and effort to be invested in preparing a crisis management plan and communicating it to organisation stakeholders. It has to be noted though that ports are complex environments and contingency plans should take into account the port area as a whole and not just the individual companies operating in the port. The role of the Port Security Committee, suggested by the IPHA, could be go beyond issues of security and work closer with the port cluster on areas of common interest. The creation of a crisis portfolio against incidents that may demand different responses and simulation of hypothetical crisis incidents can be designed at this stage, where key stakeholders will have been identified and will be enabled to act as forwarded observers of crisis triggers. Smith and Sipika (1993), note that the most important element of any contingency planning should be the establishment of “crisis decision units” or else crisis management teams. These teams need to be established before crisis management plans are developed. Their role will be valuable in assisting managers get a more holistic picture of the vulnerabilities of the organisation. To add greater flexibility an organisation can chose to further distinguish in a “Site Response Unit”, a sort of a First Aids team that will deal with the tactical issues of the crisis and a
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broader Crisis Management Team which under the guidance of the Crisis Manager and the CEO will strategically control the situation. Borrowing from the IPHA guidelines, the overall Port Crisis Management Plan requires “the active involvement of the local port industry. Through that co-operation generic guidance should be developed for the individual port facilities, terminals, industries etc., so as to enable these to develop their own custom made Facility Plan”. Such a plan should contain measures to increase the alertness of personnel, secure the company performance and the security of its installations. It should also stress the importance of information supply, communication and education and training of personnel. Again, these teams should be occasionally refreshed, so as to allow new people to offer new insights as well as circulating ideas throughout the organisation. “Mapping out the organisation and decision making structure can test the internal lines of communication” (Ten Berge 1991). Public opinion tracking can be also used to identify specific concerns and determine the lines of communication for external contacts. Ideally, these actions should be refined and regularly reinforced within such a Port Crisis Management Committee. This Committee should arrange simulation exercises followed by “structural debriefings” (Boin et al 2003) that will improve collective know-how and provide with crucial feedback. The dissemination of information is crucial as it will allow for better assessment of the situation and the implied risks, however, as Augustine (1995) suggests, there is a need for an appropriate crisis leader who will develop and coordinate the crisis management policy in close co-operation of all the authorities involved. It is essential that the overall co-ordination rests within a Port Security Committee. Indeed, as shown in action, just before the attacks of September the 11th, the city of New York had introduce a committee whose major task was to “… ensure the use of agency resources … while eliminate potential conflict among responding agencies which may have areas of overlapping expertise and responsibility” (Staff Statement No. 14, pg.6) The management of the situation that followed the attacks in New York by Mayor R. Giuliani rests as an example of successful coordination
3.3 Step three: Recognising the crisis. Recognising the crisis is the third stage. Indeed, perception and not reality configures the actions of individuals and organisations. Managerial culture is held as the major contributor to that. Long time reliance on rational planning procedures can also deteriorate the situation (Boin et al). Denial of a crisis is common practice among the organisations that failed to survive. Especially in the case of Public or Nonprofiting companies as is still quite common amongst Port Authorities, there is often a false “crisis-proof” mentality that obscures the recognition of crises and tends to ignore crisis signals (Spillan 2003). Although crises are by definition never exactly what one has anticipated, they do have some common denominators. These can be external, such as the lack of time, the need to respond to an escalating flow of events, media and public reactions, or internal, like coping with disbelief, tension in industrial relations, low moral, even panic and shifting of blame within the organisation. Augustine (1995) suggests the introduction of a process for consulting people from within the organisation as well as outside independent observers in order to obtain multiple perspectives on the events that occur.
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An international perspective on socio-cultural issues are also important factors when crises are about to occur. It was indeed difficult for an Arab company as the Dubai Ports World to estimate the public opinion crisis following its decision to acquire P&O terminal facilities in the U.S. However, a more crisis prone management would have reacted to the issue from the perspective of the American public which was traumatised by the recent terrorist attacks In New York. A more careful examination of the cultural – emotional context and a specific targeted lobbying and media consulting could have detected the significance of the issue and avert the political crisis that finally arose.
3.4. Step four: Containing the crisis. This is the stage in which most companies dedicate the majority of their crisis management resources. Efforts should now be directed towards “turning around the intensity of the crisis” and avoid its expansion to other “uncontaminated parts of the organisation”. (Pearson et al 1998). The importance of an already established crisis plan is that it allows companies to act fast. Honesty and quick dissemination of information is necessary to reinstate “the erosion of individual and shared assumptions of critical stakeholders” such as the employees, executives and the media (Pearson and Clair 1998). Employee participation and respect is crucial. Their confidence in management during crises has to be restored. During the recent strike in Piraeus Port Authority, (an event costing almost 6.3 million euros to the port according to the “Imerisia” 16/09/2005), extensive negotiating effort was exercised by the organisation that resulted in an agreement with employees to actually work on some days during the strike, in order to contain the crisis in a manageable size, and avoid loosing customer loyalty. Unless these cognitive, emotional and behavioural responses to the crisis are controlled, the crisis is likely to expand and lead to further failure outcomes. Management commitment can be evidenced by the direct dispatch of the Port Crisis Manager and the C.E.O. to the place of the crisis (p.ex in case of an accident) where his/her task will be to guide organisational response. Crisis management is a top priority task and this is the area where CEO’s must differentiate from other level managers and together with the Crisis Management Team, save the day for the organisation. While resolving the crisis, the rest of the Port’s managerial and organisational hierarchy must continue everyday operation otherwise the port will find itself in greater disruption. The presence of top management and the direct control of the situation should be followed by the appointment of a properly trained designated spokesperson to communicate the organisation’s facts, estimations, beliefs and efforts to its stakeholders. This is essential to reassure customers, investors and regulating bodies that measures are taken to contain the situation and avoid a future recurrence.
3.5. Step five: Resolving the crisis. The aftermath of crisis containment refers to the actual resolution of the crisis. At this stage, immediate decisions to ensure the survival of the company are necessary but need to be combined with long-term action, which will sustain the recovery. Organisational efforts should be targeted towards the complete resolution of the problem and not to a superficial dealing of the situation (Smith & Sipika 1993,
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Dubrowski 2004). If the approach to the crisis stays on the symptoms and not the causes, repetition of incidents could be inevitable. When resolving the crisis, selected strategy for each issue should now be communicated immediately to the crisis management units, so that their activities can be aligned and coordinated efficiently. Augustine (1995) stresses the speed of response as the essence of resolving the crisis. Interestingly, Calloway and Keen (1996) observe that companies that can respond fast in everyday situations are most capable of a fast response when facing crises. Once more, the foundation of a successful turnaround rests in the planning period, where “minimal services and procedures needed” have been identified and determined (Pearson et al 1997). In other words, organisational culture and structure are fundamental. Simplified crisis management structure and clear definition of roles and responsibilities is essential. The task of the Crisis Manager then is to implement “the most leveraged plan of action and continuously monitor the company’s performance against it” (Brenneman 1998). Of course while strong leadership and clear direction are necessary in resolving the crisis that does not mean that the workplace has to be repressive. Employees are a valuable asset and must be engaged in the process. Employee interests for job securing could be in direct conflict with investors’ wish for financial settlements. It is profound that a sound recovery of an organisation needs to be based in both of these pillars. Decisions regarding compensations to victims of accidents or claims from customers although appear to be very costly are in line with an organisation’s concern for its customers and its commitment to the corporation’s ethical standards. Finally, strong leadership skills include the capability of taking risks. Strategies and options must be chosen based on the facts that are known at the given time frame. This is why crisis management is a task for authorised managers only. During a crisis, waiting to collect all possible information and facts could create greater risks that deciding on current estimations, assumptions and projections. Risks could escalate even to changing management, as again suggested by Dubrowski. Perhaps drawing from the experience of a former centralised economy, Dubrowski considers that since inadequate management has led to the crisis it will also prove inadequate in its resolution. Boin and Hart (2003 cited in Boin et al 2003) stress that “crisis management thus falls within the leadership domain whether leaders like or not”.
3.6. Step six: Profiting from the crisis. Contrary to what may seem obvious, Crisis Management does not stop after resolving the crisis. The sixth and final stage of the process refers to learning and even profiting from the crisis. The crisis period can be used to re-orientate the company’s objectives and strategies (Starbuck et al 1988), shake up outdated perceptions (Ten Berge 1991) and reassess the market needs and wants (Brenneman 1998). Often, it is in a crisis situation, when nothing else can go wrong, where people find the chance to have their voices heard, and employees can learn or accept to adapt to new roles. Therefore, it is the task of effective crises managers to take advantage of any benefits that a crisis may present (Caponigro 2000). Marsh Inc. based on a publication of Oxford University stress that corporations that managed a major crisis effectively earned a 22% premium on shareholder value within a year from the event, comparing to companies that were less successful in crisis management. Profiting requires learning, and learning derives from assessing the experience obtained from a turnaround or even a failure. Unsuccessful decisions have to be
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examined and alternative actions plans can be developed to improve efficiency in managing a future crisis. The process of changing the organisation’s configuration by reducing the complexity of organisational systems and possibly the structure of business portfolios is part of this phase (Smith and Sipika 1993). A crisis situation can accelerate change and open up the business to its environments. Analysing the experiences derived from a crisis can change the organisational culture to allow for even greater organisational learning and development. A more offensive strategy would flirt with the idea that sometimes a company’s management can deliberately create crises in order to get the attention of people on a specific issue. This approach, although it could be useful in preparing for a crisis, could include the danger of lowering company morale, create a demotivating sense of manipulation and mistrust among a company’s employees. The difficulties of implementing such a technique, makes it a less effective tool in crisis management.
4. Implications for Seaport Managers. The traditional approaches to crisis management in the shipping and port industry are based on accident prevention. The cases presented above evidence that current practice of port managers are rarely formulated under the prism of network interconnection and globalised environments. The comprehensive model that was presented above may appear complicated but it is essential for effective crisis management. As shown, ports are rather demanding, complicated and interactive environments and crises that arise can cross the narrow port area to affect the whole transportation network. A decision to cease seaport operations partially or completely creates issues for businesses, regulators and end-up consumers. Therefore effective Port Crisis Managers need to realise that: Crises are inevitable and built-in elements in any interactive system. Crisis management is not only about accident prevention but covers every aspect of organisational function of the port, from technical inefficiencies to industrial relations and from lack of competitiveness to over capacity problems. Port Crisis Management must bee seen as a Proactive Strategy rather as a Response-based set of actions. Coordination of activities with the companies that constitute the port cluster is necessary. Identification of critical port stakeholders and the development of a customised communication policy are elemental. These stakeholders include employees, shipping and stevedoring companies, maritime agencies, financial investors and municipality officials, as well as law enforcement agencies, fire department, medical services and the media. Making unlikely allies before one needs them can prove vital. Overall responsibility and authorisation for any action should remain in the Port Authority, as this is the only independent institutional – regulating factor within the direct port environment. Planning should provide for crisis containment strategies for the various terminal operators (if they exist) and incorporate them to an overall port crisis plan. Communication flows within the organisation are of equal importance as those to external stakeholders.
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Utilisation of tailored-made tools (tabletop games, critical incident techniques, software management built on complexity theory, risk assessment methodologies) and expert opinions are valuable and should be used in crisis planning. A data base of incidents, caution signals must be constructed by benchmarking against situations that have happened in other ports as well as in other similar industries (shipping, transport). Comprehensive Planning within a holistic approach is necessary to prepare, recognise, contain and resolve threatening events. There is of course, no meaning in contingency planning if these plans are not tested and kept updated. A Crisis management Centre needs to be established to act as a knowledge centre for training, information dissemination and environmental scanning and will provide all necessary briefing to the Crisis Manager and the port’s CEO. Crisis Management requires the allocation of time, effort and financial resources as well as the commitment and supervision from Port’s top management. Top management should facilitate coping with change, ideally by introducing the position of a “Crisis Agent” within its management team, to increase the port’s flexibility and allow incorporation of corporate learning to the port’s everyday operations. A crisis can be the end only if the port decides it to be so. On the contrary, a crisis after being contained offers the chance for a new beginning and this is a matter of management mentality and capability.
5. Conclusion. The examination of the management of crisis process has revealed the need of a holistic conceptual approach on the issue. Crises often appear to be inevitable for a number of reasons. Constant signal detection has to be combined with realistic and updated planning and testing, which will allow the crisis-facing organisation to ideally avoid or effectively contain, resolve and finally profit from the crisis. An open culture should be established from top to bottom in order to consider crisis as an opportunity for strategy revision and closer contact to the actual market and operational needs that remained previously unattended. That will allow to built on any possible advantages and secure the future position of the port within its complex environment.
Acknowledgements. This paper is dedicated to the memory of Professor Richard Whipp (1954-2005), Cardiff University, Cardiff Business School.
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• • • •
Anonymous, Dubai Port Capitulation Likely Fraudulent, viewed 08 April 2006, Anonymous, Sydney port backlog faces crisis point, October 20, 2005, viewed 27 April 2006, BBC (1999), viewed 20 February 2006, International Association of Ports and Harbours (2002) Port and Maritime Security, IAPH Policy and Guidance Paper, viewed 19 March 2006,
References: Andersen, E. (2003), Be prepared for the Unforeseen, Journal of Contingencies and Crisis Management, Vol. 11, No 2, September 2003 Appelman, J., Van Driel, J. (2005), Crisis - response in the port of Rotterdam: can we do without a facilitator in distributed settings?, Proceedings of the 38th Hawaii International Conference on System Sciences 11 Augustine, N.R. (1995), “Managing the crisis you tried to prevent”, Harvard Business Review on Crisis Management, Harvard Business School Press, Boston 2000, pp. 87-118 Berge, C, (1991), “Planning for crises”, European Management Journal. Vol. 9, No1, pp.30-35. Boin, A., Lagadec, P., Michel-Kerjan, E., and Overdijk, W. (2003), Critical Infrastructures under Threat: Learning from the Anthrax Scare, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003. Brenneman, G. (1998), Right away and all at once: How we saved Continental, Harvard Business Review on Crisis Management, Harvard Business School Press. Boston 2000, pp. 87-118 Calloway, L.O., Keen, P.G.W. (1996), Organizing for crisis response, Journal of Information Technology., Vol. 11, pp.13 - 26 Caponigro, J. (1998), The crisis counselor: The executive’s guide to avoiding, managing, and thriving on crises that occur in all businesses. Southfield, MI: Barker Dubrowski, D. (2004), Peculiarities of Managing a Company in Crisis, Total Quality management, Vol. 15, No 9-10, 1199-1207, November – December 2004 Giziakis, K., Bardi, E. (2002), Assessing the risk of pollution from ship accidents, Disaster Prevention and Management, Vol. 11, No 2, pp. 109-114. Hengsen, T., Desouza, K.C., and Kraft, G.D. (2003), Games, Signal Detection and Processing in the Context of Crisis Management, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003 Makridakis, S. (1991), What we can learn from corporate failure, Long Range Planning. Vol. 24, No 4, pp.115-126. Pearson, C., Clair, J. (1998), Reframing crisis management, Academy of Management Review. Vol. 23, No 1, pp.59-76. Pearson, C., Clair, J., Misra, S. and Mitroff I. (1997), Managing the unthinkable, Organisational Dynamics. Autumn, pp. 51-64. Smith, D.; Sipika, C. (1993), Back from the Brink – Post Crisis Management, Long Range Planning, Vol. 26, No 1, pg 28-38 Spillan, J.E., Crandall, W. (2002), Crisis planning in the Non profit Sector: Should We Plan for Something If It May Not Occur? Southern Business Review, Spring 2002 Spillan, J.E. (2003), An Explanatory Model for Evaluating Crisis Events and Managers’ Concerns in Non-Profit Organisations, Journal of Contingencies and Crisis Management, Vol. 11, No 4, December 2003 Starbuck, W., Greve, A. and Hedburg, B. (1978), "Responding to crises: theory and the experience of European business", in Smart, C., Stanbury, W, (Eds),Studies on Crisis Management, Institute for Research on Public Policy, Toronto. Web documents: • • American Association of Port Authorities (AAPA), Legislative Priorities on Seaport Security, viewed 13 April 2006, Anonymous , Threats to Port Security Call for Integrated Public/Private Action (2002), viewed 27 April 2006, 12 • • • • • • • • • Anonymous, Dubai Port Capitulation Likely Fraudulent, viewed 08 April 2006, Anonymous, Sydney port backlog faces crisis point, October 20, 2005, viewed 27 April 2006, BBC (1999), viewed 20 February 2006, International Association of Ports and Harbours (2002) Port and Maritime Security, IAPH Policy and Guidance Paper, viewed 19 March 2006,
A Six-step process for effective Crisis Management in the Port Industry
EVANGELOS KOUNOUPAS, University of Piraeus, Department of Maritime Studies, 40, Karaoli & Dimitriou Str., 185 32, Piraeus – Greece, Tel: +30 210 414 2535, Fax: +30 210 414 2569, Email: kounoupa@unipi.gr, kounoupa@ath.forthnet.gr
ABSTRACT Crises often appear to be inevitable for a number of reasons. Traditional crisis management theory distinguishes between environmental factors and internal explanations referring to weak environmental assessment of market developments and psychological or social-political factors. Classic literature approaches attempt mainly to identify the reasons behind the occurrence of crises. Although the ability to manage crises incorporates understanding their sources, it should not be limited to that. Transport and Shipping are by definition unstable markets and the world crisis is quite common amongst Maritime Economists. Ports are exposed to various physical or business originated dangers. However existing literature does not cover the appliance of this philosophy into the area of Port Management. Based on an extensive revision of existing management literature and drawing examples from actual cases, this paper suggests a conceptual formulation for Seaport Crisis Management. Building on a process initially developed by Augustine (1995), it presents a framework within which a Port Organisation can identify, manage and finally profit from such events.
Key words: crisis planning, crisis units, management commitment, organisational learning, organizational profiting.
A SIX-STEP PROCESS FOR EFFECTIVE CRISIS MANAGEMENT IN THE PORT INDUSTRY
1. An introduction to crises. A short derivational search reveals that in Greek, the word “crisis” has both the meaning of “emergency” and “judgement”. Indeed, it is often this judgement, in a case of an emergency, which can lead an organisation to success or failure. The attacks of September the 11th in New York were an emergency situation. However, as the U.S. Administration later discovered with regards to the Dubai Ports World case, crisis (and even failure) can derive from less obvious sources. Business literature offers many definitions and different perspectives for crisis. Pearson and Claire (1997) synthesise them by stating that “an organisational crisis is a low-probability, high impact event that threatens the viability of the organisation, is characterised by ambiguity of cause, effect and means of resolution, as well as by a belief that decisions must be made swiftly”. Since decisions need to be taken, there is consequently room for managers to interfere and proceed in proper action. As it will be demonstrated, a crisis situation is a provoking field for implementation of managerial and leadership talent. Dubrowski (2004) notes that from a management perspective, “a crisis brings about a state of emergency, which due to its acuteness requires, prompts decision making and which must be as good as possible, since corrections are usually not possible.” Spillan & Crandall (2002) point out a paradox: “The diversity of crisis events requires to be both specific in preparing for worst case scenarios and, simultaneously, to be flexible in terms of planning for these events”. Crises occur and depending on the case they can be devastating for an organisation. But they can also be managed. Ideally, a crisis can even improve an organisation’s operations. Ten Berge (1991) observes that “a well-managed crisis develops the sense of togetherness among employees” creating a positive climate that lasts for long after the crisis has ended. Thus, the whole concept of management confrontation and resolution has been described as “Crisis Management”. An entire management philosophy has been developed to assist overcoming these lifethreatening events, which go far beyond the ordinary managerial fire-fighting tasks (Pearson et al 1997) and require a different approach of management than everyday business activities. In fact, emphasis cumulated on Crisis Management brings it closer to the core of strategic management (Boin et al 2003). Organisations of course function in different environments, possess different assets and operate in various scales of activity. However, Starbuck et al (1978) offers a framework for understanding crises, by referring to their external sources (changes in technology or an industry’s life cycles, an increase or a natural shift in competition) and internal explanations (organisational defects, such as poor management, weak information flows, high costs, poor marketing skills) which become worse by inaction (Smith and Sipika 1993). Crises also derive from the internal “solidifying of company recipes”. Marketing myopia caused by weak environmental assessment will not allow adjusting their subjective views about their service to the actual client needs. “Organisational arteriosclerosis” (Makridakis 1991), or else over-reliance to fixed programmes and routines that once led to success and not being responsive is also highlighted as an internal crisis source. Augustine (1995) adds that “companies sometimes misclassify a problem, focusing on the technical aspects and ignoring issues of perception”. Smith & 2
Sipika (1993) also observe that there exists a process of “denial inherent within crisisprone organisations”, while Hengsen et al (2003), state that crises tend to occur “when environmental threats match organisational weaknesses”. From a network theory perspective, the operation of any given industry is affected by the outputs of another, even when there is no profound interdependence. Thus “small glitches in one network may cascade into large-scale breakdowns in other networks” (Boin et al 2003). Other commentators add psychological (cognitive capability, mental health, commitment) or social-political factors (collective sense-making, leader- follower relations). Malicious rumours, security breaches (Hengsen et al) and Industrial relations, in the form of strikes or constant grievance up to the extreme of sabotage find their place here. As stressed in literature, the role of the Chief Executive needs to be included in this conceptual framework in an effort to explore the role of individuals in the creation of organisational crises (Habermas 1975, Swartz 1987 cited in Pearson and Clair 1998). Often, even success can be the trigger for crises by inviting imitation, motivating competition and stimulating higher fixed costs and possible conservatism (Makridakis 1991). To sum-up, anything that suddenly threatens a company’s financial and operational performance, reputation, employment retention, customer or community relations, has the potential to become a crisis.
2. Crises and the Port Industry. A port operator (either as a terminal operator or as a port authority) is by no less subjected to the above list. The external environment of the port industry is highly subject to factors such as physical phenomena (as the infamous hurricane Katrina that recently damaged the port of New Orleans). Not surprisingly, the earthquake in Kobe (1997) was seen as a contribution to the Asian monetary crisis of 1997, due to the close interdependence of regional economies to the port operation (Boin et al 2003). On September the 11th 2001, two airliners crashed on the towers of the World Trade Centre in New York and a new era of life under the threat of terrorism, global campaigns, economic recession, and numerous other side effects had commenced, to affect the lives of governments, ordinary people and entire nations. However not many realised at that point that there was another form of organisation which at that same incident lost its headquarters, its C.E.O. and some hundreds of employees. That company was the Port Authority of New York, the organisation that had built and operated the World Trade Centre. Such terrorist acts or even the threat of terrorism are triggers that can lead to major crises on the operation and critical infrastructure of a seaport. An effort to confront them, with the implementation of the ISPS Code (a security focused code) is by itself a source of another crisis. According to the American Association of Port Authorities (AAPA) the U.S. Coast Guard estimated a need for $5.4 billion need to be spent over a period of 10 years. These expenses will allow ports to cover only the basic requirements of compliance with the code. Funding these needs impose another brick in the wall. As commented by Hengsen et al (2003), the complexity of technology especially when accompanied with the human element, can be a major source of problems. In October 2004 a flaw in the Customs computer system in the Port Botany, Sydney, caused a large backlog in containers. Consequently, shipping lines chose to deviate from the port and the crisis was then exported to the broader community, where stores were preparing their selves for the Christmas pick ahead. It has to be
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noted here that the problem laid on the Customs computer system and not on the port operators system. Accidents are another source of crises, and they do have a tendency to happen despite all contingency plans. Giziakis & Bardi (2002), note that 60% of shipping accidents resulting to pollution occur within seaports. Terminals operate with hazardous materials as a part of their everyday operations and the interference of people and equipment often becomes dangerous. Safety, state Hengsen et al (2003), is as fact objective for the organisation, but the way it is perceived is subjective to the individual. When an accident goes beyond the port area, i.e. influencing the rural or physical surroundings (explosions, gas leaks,) there is room for another difficult-tomaintain situation. Even cases of accidents happening outside the port area could result in extremely severe implications. In 1996, the port of Milford Haven faced a claim for ten million pounds as compensation for an oil spill judged to be due to insufficient pilot training. Spillan (2003) characterises these cases of litigation involving customers, employees or government investigation as “Legal Crises”. However, some sources of a crisis may not be as profound as the above. The need for port services and the existence of a seaport company and the whole port cluster is a derivative of the international trade flows. In addition, it is highly depended to the other means of the transportation chain or network. A global economic recession freezes trade flows and consequently the need for seaport services. Naval blockades and increased tension will favour competitive ports and result in loss of market share. A sudden increase of cargo volumes for these countries may on the other hand cause congestions if not well anticipated with a matching adjustment in seaport service supply. The increase in ship sizes, especially these of containerships, calls for costly investment to satisfy clientele and connect port strategy and fund allocation to unstable demand in a hyper-competitive market. The emergence of new economies, namely China and India, has created a set of new ports that, based on their location, low labour cost or on state protectionism may cause a shift in global sea trade routes, forcing some seaports out of their market. Vertical integration in the liner industry makes port companies more vulnerable to hostile takeovers by global transport operators, terminal operators or shipping lines. The emergence of new competitors and the volatility of the market leave tolerate little reliance over customer loyalty, as major shipping lines will not hesitate to leave one hub port and proceed to an agreement with another. Globalisation and liberalisation of trade accelerate the process of change in the seaport industry. Inter-port competition as well, provides ground for crises, especially in the case of state-owned ports and terminals. While operation under state control is by no means necessarily connected with ineffectual management, it is profound that a private port/ terminal operator within the same port system will most probably have an advantage on organisational, financial flexibility and industrial relations with its labour force, leading in the creation of a serious threat for the previously established state company. Being components of overall infrastructure networks, seaports are usually under the constant monitoring, control as well as direct intervention of public authorities. In 2002, both the President and the Managing Director of Piraeus Port Authority were relieved of their duties overnight, following an internal dispute that was not tolerated by the Ministry of Mercantile Marine. It is often the case, top management of port authorities being beheaded in circumstances of disaccordance with governmental procedures. The gaps in the development and implementation of strategy in these cases can invite competitors to benefit from the occasion.
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In spring 2006, the Dubai based Dubai Ports World declared its intention to acquire P&O terminals in six U.S. mainland ports. At that time, the case seemed as a wise commercial agreement, offering the Arab company an increase in the number of terminals under its control and to the Federal U.S. government a way to balance its trade deficit. It did not occur then that soon political pressure would force the U.S. President to warn the congress of his intention to exercise his power of Veto, to the favour of the agreement. What in another industry would be a purely business related subject went off to become a public relations, national security, international politics and financial crisis that led Dubai Ports World to declare the selling off of its American operations (the Washington Post, March 10th 2006). From another perspective, the global trend for privatisation of ports may hide a crisis especially when privatisation has been introduced without a specific strategic intent but more as an expected panacea to public sector inefficiencies. As postulated by Baird (1999) in cases where private sector companies took over control “where commercial shipping activity has diminished, the ports concerned are now little more than real estate development opportunities (e.g. ports of Leith, Dundee, Glasgow, Cardiff etc.)”.
3. Towards a new conceptual model for Port Crisis Management. Literature in Crisis management is rich in examples from all kind of industries and markets, however little attention has been set on the complex and crucial sector of ports. Shipping accidents are mentioned as examples in some papers (Giziakis & Bardi 2002, Pearson & Clair 1998) while other documents focus on purely operational aspects (Appelman 2005). The International Association of Ports & Harbours (IAPH) and the AAPA in their publications, refer to crises from the perspective of port and maritime security (IAPH Policy and Guidance Paper, 2003, AAPA Seaport Security notes), namely suggesting ways to avoid or manage accidents and terrorist attacks. As shown above, there is more in crisis management than planning against terrorism and nature. We will try to introduce this mindset that we consider is necessary for anyone that has a stake in port management. All these approaches attempt to identify the reasons behind the occurrence of crises. As Perrow (1984 cited in Pearson et al 1997) indicates, “little can be done if we do not wish to address the sources of our troubles”. However, managing crises does incorporate understanding the sources of crisis-triggering events but can by no means be limited to that. As a mind-set, crisis management preparation enables companies “to avoid some crises, to manage others more effectively and to learn more quickly and more fully from crises that do occur” (Pearson et al 1997). The following analysis is based on the application of Augustine (1995) model for effective Crisis Management enriched with other commentators’ views on the issue and applied to the port sector.
3.1. Step One: Avoiding the crisis. Crisis management commences by actually trying to avoid the crisis. According to Smith & Sipika (1993) that shifts the interest of management more towards crisis prevention and not solely on crisis response. Constant motoring of the environment, organisational operations and hedging against unavoidable risks can be ways to avert crises. This is a constant and on going
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task that overlies over the entire operation of the environment. All possible consequences need to be considered and contingency plans be formulated. The implications of short term decisions need to be projected in the long term to reveal possible threats. An exclusive or preferential agreement with a major shipping line has to be examined under the issues of distorting competition, state intervention, monopolistic opportunities and possible legal constraints. That by no means suggests that business decision should stay in a standstill. However, at this stage, organisational culture plays a crucial role into creating a sense of creative conflict that disturbs pure technocratic procedures and allows the system to be prepared for change, when this will be required. Cultivating a sense of vigilance over possible threatening situations, events or processes allows an organisation to accept that crises do happen and incorporate that in their strategy formulation. Benchmarking techniques could be useful in order to identify the difficulties other organisations have met, and they way they had decided to handle with them. Avoiding a crisis requires the introduction of signal detection mechanisms which will perceive the warning signals and buy this precious time for the organisation to analyse and proceed to proper action. Signal detection mechanisms need to be regularly updated to remain effective and to do so it is necessary to rotate those responsible for internal and external monitoring so to avoid solidifying of recipes and loss of alertness.
3.2. Step two: Preparing for crisis. Often, impeding crises can be anticipated well in advance but not surprisingly, crises continue to happen. That means that organisations have to be prepared to manage the crisis. To do so, organisations must be clear on their key values and priorities, as these will set the ground on which any potential crisis will be managed (Pearson et al 1997). Caution needs to be taken so as not to elevate every little misfortune to the status of a crisis, otherwise panic will occur and a crisis might as well be triggered. Chief executives’ adoption and commitment to a crisis management mind-set will allow time and effort to be invested in preparing a crisis management plan and communicating it to organisation stakeholders. It has to be noted though that ports are complex environments and contingency plans should take into account the port area as a whole and not just the individual companies operating in the port. The role of the Port Security Committee, suggested by the IPHA, could be go beyond issues of security and work closer with the port cluster on areas of common interest. The creation of a crisis portfolio against incidents that may demand different responses and simulation of hypothetical crisis incidents can be designed at this stage, where key stakeholders will have been identified and will be enabled to act as forwarded observers of crisis triggers. Smith and Sipika (1993), note that the most important element of any contingency planning should be the establishment of “crisis decision units” or else crisis management teams. These teams need to be established before crisis management plans are developed. Their role will be valuable in assisting managers get a more holistic picture of the vulnerabilities of the organisation. To add greater flexibility an organisation can chose to further distinguish in a “Site Response Unit”, a sort of a First Aids team that will deal with the tactical issues of the crisis and a
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broader Crisis Management Team which under the guidance of the Crisis Manager and the CEO will strategically control the situation. Borrowing from the IPHA guidelines, the overall Port Crisis Management Plan requires “the active involvement of the local port industry. Through that co-operation generic guidance should be developed for the individual port facilities, terminals, industries etc., so as to enable these to develop their own custom made Facility Plan”. Such a plan should contain measures to increase the alertness of personnel, secure the company performance and the security of its installations. It should also stress the importance of information supply, communication and education and training of personnel. Again, these teams should be occasionally refreshed, so as to allow new people to offer new insights as well as circulating ideas throughout the organisation. “Mapping out the organisation and decision making structure can test the internal lines of communication” (Ten Berge 1991). Public opinion tracking can be also used to identify specific concerns and determine the lines of communication for external contacts. Ideally, these actions should be refined and regularly reinforced within such a Port Crisis Management Committee. This Committee should arrange simulation exercises followed by “structural debriefings” (Boin et al 2003) that will improve collective know-how and provide with crucial feedback. The dissemination of information is crucial as it will allow for better assessment of the situation and the implied risks, however, as Augustine (1995) suggests, there is a need for an appropriate crisis leader who will develop and coordinate the crisis management policy in close co-operation of all the authorities involved. It is essential that the overall co-ordination rests within a Port Security Committee. Indeed, as shown in action, just before the attacks of September the 11th, the city of New York had introduce a committee whose major task was to “… ensure the use of agency resources … while eliminate potential conflict among responding agencies which may have areas of overlapping expertise and responsibility” (Staff Statement No. 14, pg.6) The management of the situation that followed the attacks in New York by Mayor R. Giuliani rests as an example of successful coordination
3.3 Step three: Recognising the crisis. Recognising the crisis is the third stage. Indeed, perception and not reality configures the actions of individuals and organisations. Managerial culture is held as the major contributor to that. Long time reliance on rational planning procedures can also deteriorate the situation (Boin et al). Denial of a crisis is common practice among the organisations that failed to survive. Especially in the case of Public or Nonprofiting companies as is still quite common amongst Port Authorities, there is often a false “crisis-proof” mentality that obscures the recognition of crises and tends to ignore crisis signals (Spillan 2003). Although crises are by definition never exactly what one has anticipated, they do have some common denominators. These can be external, such as the lack of time, the need to respond to an escalating flow of events, media and public reactions, or internal, like coping with disbelief, tension in industrial relations, low moral, even panic and shifting of blame within the organisation. Augustine (1995) suggests the introduction of a process for consulting people from within the organisation as well as outside independent observers in order to obtain multiple perspectives on the events that occur.
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An international perspective on socio-cultural issues are also important factors when crises are about to occur. It was indeed difficult for an Arab company as the Dubai Ports World to estimate the public opinion crisis following its decision to acquire P&O terminal facilities in the U.S. However, a more crisis prone management would have reacted to the issue from the perspective of the American public which was traumatised by the recent terrorist attacks In New York. A more careful examination of the cultural – emotional context and a specific targeted lobbying and media consulting could have detected the significance of the issue and avert the political crisis that finally arose.
3.4. Step four: Containing the crisis. This is the stage in which most companies dedicate the majority of their crisis management resources. Efforts should now be directed towards “turning around the intensity of the crisis” and avoid its expansion to other “uncontaminated parts of the organisation”. (Pearson et al 1998). The importance of an already established crisis plan is that it allows companies to act fast. Honesty and quick dissemination of information is necessary to reinstate “the erosion of individual and shared assumptions of critical stakeholders” such as the employees, executives and the media (Pearson and Clair 1998). Employee participation and respect is crucial. Their confidence in management during crises has to be restored. During the recent strike in Piraeus Port Authority, (an event costing almost 6.3 million euros to the port according to the “Imerisia” 16/09/2005), extensive negotiating effort was exercised by the organisation that resulted in an agreement with employees to actually work on some days during the strike, in order to contain the crisis in a manageable size, and avoid loosing customer loyalty. Unless these cognitive, emotional and behavioural responses to the crisis are controlled, the crisis is likely to expand and lead to further failure outcomes. Management commitment can be evidenced by the direct dispatch of the Port Crisis Manager and the C.E.O. to the place of the crisis (p.ex in case of an accident) where his/her task will be to guide organisational response. Crisis management is a top priority task and this is the area where CEO’s must differentiate from other level managers and together with the Crisis Management Team, save the day for the organisation. While resolving the crisis, the rest of the Port’s managerial and organisational hierarchy must continue everyday operation otherwise the port will find itself in greater disruption. The presence of top management and the direct control of the situation should be followed by the appointment of a properly trained designated spokesperson to communicate the organisation’s facts, estimations, beliefs and efforts to its stakeholders. This is essential to reassure customers, investors and regulating bodies that measures are taken to contain the situation and avoid a future recurrence.
3.5. Step five: Resolving the crisis. The aftermath of crisis containment refers to the actual resolution of the crisis. At this stage, immediate decisions to ensure the survival of the company are necessary but need to be combined with long-term action, which will sustain the recovery. Organisational efforts should be targeted towards the complete resolution of the problem and not to a superficial dealing of the situation (Smith & Sipika 1993,
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Dubrowski 2004). If the approach to the crisis stays on the symptoms and not the causes, repetition of incidents could be inevitable. When resolving the crisis, selected strategy for each issue should now be communicated immediately to the crisis management units, so that their activities can be aligned and coordinated efficiently. Augustine (1995) stresses the speed of response as the essence of resolving the crisis. Interestingly, Calloway and Keen (1996) observe that companies that can respond fast in everyday situations are most capable of a fast response when facing crises. Once more, the foundation of a successful turnaround rests in the planning period, where “minimal services and procedures needed” have been identified and determined (Pearson et al 1997). In other words, organisational culture and structure are fundamental. Simplified crisis management structure and clear definition of roles and responsibilities is essential. The task of the Crisis Manager then is to implement “the most leveraged plan of action and continuously monitor the company’s performance against it” (Brenneman 1998). Of course while strong leadership and clear direction are necessary in resolving the crisis that does not mean that the workplace has to be repressive. Employees are a valuable asset and must be engaged in the process. Employee interests for job securing could be in direct conflict with investors’ wish for financial settlements. It is profound that a sound recovery of an organisation needs to be based in both of these pillars. Decisions regarding compensations to victims of accidents or claims from customers although appear to be very costly are in line with an organisation’s concern for its customers and its commitment to the corporation’s ethical standards. Finally, strong leadership skills include the capability of taking risks. Strategies and options must be chosen based on the facts that are known at the given time frame. This is why crisis management is a task for authorised managers only. During a crisis, waiting to collect all possible information and facts could create greater risks that deciding on current estimations, assumptions and projections. Risks could escalate even to changing management, as again suggested by Dubrowski. Perhaps drawing from the experience of a former centralised economy, Dubrowski considers that since inadequate management has led to the crisis it will also prove inadequate in its resolution. Boin and Hart (2003 cited in Boin et al 2003) stress that “crisis management thus falls within the leadership domain whether leaders like or not”.
3.6. Step six: Profiting from the crisis. Contrary to what may seem obvious, Crisis Management does not stop after resolving the crisis. The sixth and final stage of the process refers to learning and even profiting from the crisis. The crisis period can be used to re-orientate the company’s objectives and strategies (Starbuck et al 1988), shake up outdated perceptions (Ten Berge 1991) and reassess the market needs and wants (Brenneman 1998). Often, it is in a crisis situation, when nothing else can go wrong, where people find the chance to have their voices heard, and employees can learn or accept to adapt to new roles. Therefore, it is the task of effective crises managers to take advantage of any benefits that a crisis may present (Caponigro 2000). Marsh Inc. based on a publication of Oxford University stress that corporations that managed a major crisis effectively earned a 22% premium on shareholder value within a year from the event, comparing to companies that were less successful in crisis management. Profiting requires learning, and learning derives from assessing the experience obtained from a turnaround or even a failure. Unsuccessful decisions have to be
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examined and alternative actions plans can be developed to improve efficiency in managing a future crisis. The process of changing the organisation’s configuration by reducing the complexity of organisational systems and possibly the structure of business portfolios is part of this phase (Smith and Sipika 1993). A crisis situation can accelerate change and open up the business to its environments. Analysing the experiences derived from a crisis can change the organisational culture to allow for even greater organisational learning and development. A more offensive strategy would flirt with the idea that sometimes a company’s management can deliberately create crises in order to get the attention of people on a specific issue. This approach, although it could be useful in preparing for a crisis, could include the danger of lowering company morale, create a demotivating sense of manipulation and mistrust among a company’s employees. The difficulties of implementing such a technique, makes it a less effective tool in crisis management.
4. Implications for Seaport Managers. The traditional approaches to crisis management in the shipping and port industry are based on accident prevention. The cases presented above evidence that current practice of port managers are rarely formulated under the prism of network interconnection and globalised environments. The comprehensive model that was presented above may appear complicated but it is essential for effective crisis management. As shown, ports are rather demanding, complicated and interactive environments and crises that arise can cross the narrow port area to affect the whole transportation network. A decision to cease seaport operations partially or completely creates issues for businesses, regulators and end-up consumers. Therefore effective Port Crisis Managers need to realise that: Crises are inevitable and built-in elements in any interactive system. Crisis management is not only about accident prevention but covers every aspect of organisational function of the port, from technical inefficiencies to industrial relations and from lack of competitiveness to over capacity problems. Port Crisis Management must bee seen as a Proactive Strategy rather as a Response-based set of actions. Coordination of activities with the companies that constitute the port cluster is necessary. Identification of critical port stakeholders and the development of a customised communication policy are elemental. These stakeholders include employees, shipping and stevedoring companies, maritime agencies, financial investors and municipality officials, as well as law enforcement agencies, fire department, medical services and the media. Making unlikely allies before one needs them can prove vital. Overall responsibility and authorisation for any action should remain in the Port Authority, as this is the only independent institutional – regulating factor within the direct port environment. Planning should provide for crisis containment strategies for the various terminal operators (if they exist) and incorporate them to an overall port crisis plan. Communication flows within the organisation are of equal importance as those to external stakeholders.
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Utilisation of tailored-made tools (tabletop games, critical incident techniques, software management built on complexity theory, risk assessment methodologies) and expert opinions are valuable and should be used in crisis planning. A data base of incidents, caution signals must be constructed by benchmarking against situations that have happened in other ports as well as in other similar industries (shipping, transport). Comprehensive Planning within a holistic approach is necessary to prepare, recognise, contain and resolve threatening events. There is of course, no meaning in contingency planning if these plans are not tested and kept updated. A Crisis management Centre needs to be established to act as a knowledge centre for training, information dissemination and environmental scanning and will provide all necessary briefing to the Crisis Manager and the port’s CEO. Crisis Management requires the allocation of time, effort and financial resources as well as the commitment and supervision from Port’s top management. Top management should facilitate coping with change, ideally by introducing the position of a “Crisis Agent” within its management team, to increase the port’s flexibility and allow incorporation of corporate learning to the port’s everyday operations. A crisis can be the end only if the port decides it to be so. On the contrary, a crisis after being contained offers the chance for a new beginning and this is a matter of management mentality and capability.
5. Conclusion. The examination of the management of crisis process has revealed the need of a holistic conceptual approach on the issue. Crises often appear to be inevitable for a number of reasons. Constant signal detection has to be combined with realistic and updated planning and testing, which will allow the crisis-facing organisation to ideally avoid or effectively contain, resolve and finally profit from the crisis. An open culture should be established from top to bottom in order to consider crisis as an opportunity for strategy revision and closer contact to the actual market and operational needs that remained previously unattended. That will allow to built on any possible advantages and secure the future position of the port within its complex environment.
Acknowledgements. This paper is dedicated to the memory of Professor Richard Whipp (1954-2005), Cardiff University, Cardiff Business School.
References: Andersen, E. (2003), Be prepared for the Unforeseen, Journal of Contingencies and Crisis Management, Vol. 11, No 2, September 2003 Appelman, J., Van Driel, J. (2005), Crisis - response in the port of Rotterdam: can we do without a facilitator in distributed settings?, Proceedings of the 38th Hawaii International Conference on System Sciences
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Augustine, N.R. (1995), “Managing the crisis you tried to prevent”, Harvard Business Review on Crisis Management, Harvard Business School Press, Boston 2000, pp. 87-118 Berge, C, (1991), “Planning for crises”, European Management Journal. Vol. 9, No1, pp.30-35. Boin, A., Lagadec, P., Michel-Kerjan, E., and Overdijk, W. (2003), Critical Infrastructures under Threat: Learning from the Anthrax Scare, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003. Brenneman, G. (1998), Right away and all at once: How we saved Continental, Harvard Business Review on Crisis Management, Harvard Business School Press. Boston 2000, pp. 87-118 Calloway, L.O., Keen, P.G.W. (1996), Organizing for crisis response, Journal of Information Technology., Vol. 11, pp.13 - 26 Caponigro, J. (1998), The crisis counselor: The executive’s guide to avoiding, managing, and thriving on crises that occur in all businesses. Southfield, MI: Barker Dubrowski, D. (2004), Peculiarities of Managing a Company in Crisis, Total Quality management, Vol. 15, No 9-10, 1199-1207, November – December 2004 Giziakis, K., Bardi, E. (2002), Assessing the risk of pollution from ship accidents, Disaster Prevention and Management, Vol. 11, No 2, pp. 109-114. Hengsen, T., Desouza, K.C., and Kraft, G.D. (2003), Games, Signal Detection and Processing in the Context of Crisis Management, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003 Makridakis, S. (1991), What we can learn from corporate failure, Long Range Planning. Vol. 24, No 4, pp.115-126. Pearson, C., Clair, J. (1998), Reframing crisis management, Academy of Management Review. Vol. 23, No 1, pp.59-76. Pearson, C., Clair, J., Misra, S. and Mitroff I. (1997), Managing the unthinkable, Organisational Dynamics. Autumn, pp. 51-64. Smith, D.; Sipika, C. (1993), Back from the Brink – Post Crisis Management, Long Range Planning, Vol. 26, No 1, pg 28-38 Spillan, J.E., Crandall, W. (2002), Crisis planning in the Non profit Sector: Should We Plan for Something If It May Not Occur? Southern Business Review, Spring 2002 Spillan, J.E. (2003), An Explanatory Model for Evaluating Crisis Events and Managers’ Concerns in Non-Profit Organisations, Journal of Contingencies and Crisis Management, Vol. 11, No 4, December 2003 Starbuck, W., Greve, A. and Hedburg, B. (1978), "Responding to crises: theory and the experience of European business", in Smart, C., Stanbury, W, (Eds),Studies on Crisis Management, Institute for Research on Public Policy, Toronto. Web documents: • • American Association of Port Authorities (AAPA), Legislative Priorities on Seaport Security, viewed 13 April 2006, Anonymous , Threats to Port Security Call for Integrated Public/Private Action (2002), viewed 27 April 2006,
12
• •
• • •
• • • •
Anonymous, Dubai Port Capitulation Likely Fraudulent, viewed 08 April 2006, Anonymous, Sydney port backlog faces crisis point, October 20, 2005, viewed 27 April 2006, BBC (1999), viewed 20 February 2006, International Association of Ports and Harbours (2002) Port and Maritime Security, IAPH Policy and Guidance Paper, viewed 19 March 2006,
References: Andersen, E. (2003), Be prepared for the Unforeseen, Journal of Contingencies and Crisis Management, Vol. 11, No 2, September 2003 Appelman, J., Van Driel, J. (2005), Crisis - response in the port of Rotterdam: can we do without a facilitator in distributed settings?, Proceedings of the 38th Hawaii International Conference on System Sciences 11 Augustine, N.R. (1995), “Managing the crisis you tried to prevent”, Harvard Business Review on Crisis Management, Harvard Business School Press, Boston 2000, pp. 87-118 Berge, C, (1991), “Planning for crises”, European Management Journal. Vol. 9, No1, pp.30-35. Boin, A., Lagadec, P., Michel-Kerjan, E., and Overdijk, W. (2003), Critical Infrastructures under Threat: Learning from the Anthrax Scare, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003. Brenneman, G. (1998), Right away and all at once: How we saved Continental, Harvard Business Review on Crisis Management, Harvard Business School Press. Boston 2000, pp. 87-118 Calloway, L.O., Keen, P.G.W. (1996), Organizing for crisis response, Journal of Information Technology., Vol. 11, pp.13 - 26 Caponigro, J. (1998), The crisis counselor: The executive’s guide to avoiding, managing, and thriving on crises that occur in all businesses. Southfield, MI: Barker Dubrowski, D. (2004), Peculiarities of Managing a Company in Crisis, Total Quality management, Vol. 15, No 9-10, 1199-1207, November – December 2004 Giziakis, K., Bardi, E. (2002), Assessing the risk of pollution from ship accidents, Disaster Prevention and Management, Vol. 11, No 2, pp. 109-114. Hengsen, T., Desouza, K.C., and Kraft, G.D. (2003), Games, Signal Detection and Processing in the Context of Crisis Management, Journal of Contingencies and Crisis Management, Vol. 11, No 3, September 2003 Makridakis, S. (1991), What we can learn from corporate failure, Long Range Planning. Vol. 24, No 4, pp.115-126. Pearson, C., Clair, J. (1998), Reframing crisis management, Academy of Management Review. Vol. 23, No 1, pp.59-76. Pearson, C., Clair, J., Misra, S. and Mitroff I. (1997), Managing the unthinkable, Organisational Dynamics. Autumn, pp. 51-64. Smith, D.; Sipika, C. (1993), Back from the Brink – Post Crisis Management, Long Range Planning, Vol. 26, No 1, pg 28-38 Spillan, J.E., Crandall, W. (2002), Crisis planning in the Non profit Sector: Should We Plan for Something If It May Not Occur? Southern Business Review, Spring 2002 Spillan, J.E. (2003), An Explanatory Model for Evaluating Crisis Events and Managers’ Concerns in Non-Profit Organisations, Journal of Contingencies and Crisis Management, Vol. 11, No 4, December 2003 Starbuck, W., Greve, A. and Hedburg, B. (1978), "Responding to crises: theory and the experience of European business", in Smart, C., Stanbury, W, (Eds),Studies on Crisis Management, Institute for Research on Public Policy, Toronto. Web documents: • • American Association of Port Authorities (AAPA), Legislative Priorities on Seaport Security, viewed 13 April 2006, Anonymous , Threats to Port Security Call for Integrated Public/Private Action (2002), viewed 27 April 2006, 12 • • • • • • • • • Anonymous, Dubai Port Capitulation Likely Fraudulent, viewed 08 April 2006, Anonymous, Sydney port backlog faces crisis point, October 20, 2005, viewed 27 April 2006, BBC (1999), viewed 20 February 2006, International Association of Ports and Harbours (2002) Port and Maritime Security, IAPH Policy and Guidance Paper, viewed 19 March 2006,
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