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The use of scenario-based planning for management executives.

THE USE OF SCENARIO-BASED PLANNING FOF MANAGEMENT EXECUTIVES

Sometimes you just cannot win. Executives at the Clorox Co. certainly were well intentioned in the spring of 1991 when they engaged their image consultants, Ketchum Public Relations, to draft a crisis management plan (CMP). By envisioning any number of hypothetical disasters that could strike the large bleach and chemical manufacturer, Ketchum never envisioned that the document it was preparing was about to become a national embarrassment for Clorox.

In developing the draft CMP for Clorox, which the client had never seen, crisis experts at Ketchum did their job. They considered several worst case scenarios including a potential boycott of Clorox products by some unspecified group, a scientific report that one day might link chlorine (an ingredient in bleach) to cancer in humans, and other hypothetical crises.

One such situation that Ketchum pondered was the potential response by Clorox if a major environmental group and "unalterably green" journalists attacked the company. If so, Ketchum felt its client should accuse them of "environmental terrorism." Although the crisis plan was still in its draft stage, the CMP was leaked by an unknown party to the leading environmental activist organization, Greenpeace. That group, in turn, leaked the document to the press.

Now, in newspapers across the country, Clorox was unwittingly being pitted against an activist group that had never announced any plans to boycott Clorox Bleach. From its Oakland, Calif. offices, Clorox issued a statement regarding the Ketchum plan, stating that: "Clorox management was not involved in its preparation, and is not acting on its recommendations."

Several interesting observations can be made about this incident. First, it is important and encouraging that major corporations such as Clorox are actively engaged in crisis planning; the utilization of crisis experts was virtually unheard of a decade ago. Second, in a very meaningful way, the case highlights a management reality that provides a lesson to every manager who cares about preserving his or her own reputation: no document is ever sacred. Assume that anything you write can and will be widely distributed. Third, the Clorox case illustrates that Murphy's Law (anything that can go wrong, will) is inexorably tied to crisis management.

Whether you work for Clorox or any other organization, you will find that effective crisis management generally requires that managers use three important resources:

* People;

* Internal and external resources; and

* Access to knowledge.

The crisis management team

Every organization should create a crisis management team before the need for such a group is evident. Senior managers may be tempted to include a large number of managers from various segments of the organization, yet the collective judgment of most crisis management experts and practitioners interviewed by the author suggests that a small, dynamic team is ideal.

With a small group consisting of usually 10 persons or less, management has the ability to generate exciting discussions, learn the frustrations and concerns raised by key executives, and still be able to focus upon a workable agenda. As an organization moves closer to developing a CMP, executives will want to select a smaller group to assist in preparing for crisis by staging a series of scenarios.

Although the titles may be different in certain kinds of organizations, these individuals are certainly pivotal to most crisis management teams:

* Attorney: In the event of a crisis, an individual with a legal background is essential in today's litigious society. Whether this individual is in-house corporate counsel or serves as an hourly consultant, he or she should be involved in the review of any crisis planning document that will be drafted. An attorney can help management consider what statements should or should not be made, whether a statement of apology would be perceived as an admission of guilt or a sincere gesture of goodwill, and whether details on the nature and severity of a chemical spill or industrial accident may help investigators or complicate matters in the future.

For example, hospitals are precluded by some hospital association codes from stating in press releases information about the condition of patients after a disaster. In the private sector, attorneys will want to advise management on whether consent forms may be necessary before the press could photograph employees in a plant, or before senior managers are even interviewed. At a college or university, counsel will want to address questions as to whether an administrator can discuss allegations against a student, given the fact that Congress enacted the Buckley Amendment prohibiting the distribution of specific information on the status of any enrolled student to an outside party without authorization from the individual.

* Public Relations: A communications expert should certainly be an active member of the crisis management team. This individual has ideally worked for the broadcast or print press and thus understands the needs of reporters in covering a crisis or disaster. In preparing a CMP, the public relations expert will review the many issues regarding news releases and press conference details. She or he may eventually be asked to coordinate rehearsals for those managers who may speak to the public, regulators and the press.

* Technical experts: Each organization should designate specific unit managers whose technical backgrounds are superlative and whose personality and experience will enhance overall corporate performance during a crisis. For example, in a major electrical utility, a company may wish to designate as many as five managers who would be "on call" and have received crisis management training in advance. Each of these individuals would have a specific, indepth engineering background that is not found elsewhere in the company. It would be extremely embarassing in the event of an emergency for a company to have to engage an outside consultant to discuss a matter that the organization should have been able to address with in-house resources. For this reason alone, management needs to study the depth of its talent far in advance of crisis.

* Finance: Although the human aspect of a crisis is always the most important, there is no doubt that a severe crisis can and does often cause fiscal havoc for a company. For this reason, the company treasurer, controller or financier should be on call in the event of a crisis. This individual should possess extensive insight into company assets and liabilities, outstanding notes and other debts, how securities and other holdings are held, and the nature of various insurance and contingency policies. More importantly, this person should be asked in the drafting stages of a CMP to develop a list of potential sources of credit that the company may need to quickly access should extra capital be needed in the event of a major corporate crisis.

* Telecommunications: When Johnson & Johnson recalled 22 million bottles of Tylenol in 1982, it received hundreds of thousands of phone calls from concerned consumers. Similarly, almost every major company that has experienced a major crisis- and many smaller ones as well - will attest to the fact that the one area they were largely unprepared for related to telecommunications.

Access to an 800 system, extra phone lines, multiple fax machines, electronic mail systems and other facets of modern technology are essential for surviving a major corporate catastrophe. A telecommunications expert can help an organization decide on the layout of a crisis center, what technology including word processors and copy machines, should be present in that room. Working with a security consultant, a telecommunications manager can also help a company prevent unauthorized access to sensitive information.

* Regulatory Affairs: Since almost every company or organization is governed by one or more agencies at the local, state or federal levels, a regulatory expert should be a key member of any crisis team. This person should be fully familiar with all requirements the government imposes regarding notification of any disaster, accident or spill. She or he will want to review the CMP to insure that protocol is established in terms of who should make phone calls and file various reports and statements. She or he will also want to coordinate follow-up communication with regulators.

In addition, the process of recalling a product requires a series of steps that transcend many areas of the company, and a regulatory expert is often the most capable individual of overseeing that detailed process. Typically, the seasoned regulatory affairs manager has been active in one or more trade associations and has credible contacts at that group's national headquarters. He or she should make inquiries as to what other companies in this industry have done to prepare for a crisis, and should ascertain copies of any manuals or crisis management plans from other organizations willing to share them.

* CEO/representative: The CEO of the company, or his/her designee, should be actively involved in the development of a crisis management plan. Cognizant of the role of employees, stockholders, customers, vendors and many other publics, this individual can provide depth in terms of what realistically could and could not be done in the event of a disaster. In addition, this executive should directly address the concept of geography: in the event of a natural disaster such as an earthquake or flood, where could our operations be relocated to so that basic functions such as payroll and inventory can continue uninterrupted?

Consider the example of ARCO Oil and Gas Co., which has enjoyed a long-standing agreement to allow the Employee Information Service of Pasadena, Calif. to relocate its operations in Plano, Texas, in the event of a disaster. A "swat team" of key employees has been designated who would leave California as soon as possible so that operations could resume in Texas within 12 hours. EIS data files are copied each evening in Pasadena and sent by courier to Dallas for archival storage. Dual computer software and compatible telecommunications equipment is in place in Texas.

The seven individuals referenced above form the nucleus of the company's team. Naturally, in a multinational corporation, the team may be considerably larger and include senior officers representing different areas of corporate interests. But at a minimum, almost every organization will want to include these seven managers in its core group.

Fact finding

In preparing its plan, these managers need to have definitive information at their disposal. To prepare for this effort, the group will ideally set a schedule of several planning sessions before a single word of a CMP is even drafted. This is called the fact finding phase. Throughout this period, managers will want to identify what written data they need at their disposal to prepare a lucid CMP. This data would typically include:

* How many individuals it employs, the dollar value of salaries and benefits, and the amount it spends locally or within the region;

* What multiplier effect the purchasing power of the company has upon the economy of the area;

* Summaries of corporate philanthropy in the past three years; including both cash and in-kind contributions by the company to area charities; also the extent to which employees volunteer their time to local groups;

* A master list of all locations where the company does business, the names of plant managers, number of employees who work there, value of the facility for insurance purposes, and whether or not the plant is owned by a subsidiary or through a joint venture with some foreign entity;

* Tax payments and special assessments paid to the local municipality; if a non-profit organization, what voluntary payments in-lieu of tax may be paid annually;

* A listing of awards and citations the company has been presented in recent years from trade associations, chambers of commerce, state offices of economic development, community and civic organizations, and other such groups;

* A list of all cognizant local, state and federal laws which the company must comply with on a regularly-scheduled basis. This would include inspections required by the U.S. Food and Drug Administration, the Department of Commerce, Occupational Safety and Health Administration, Department of Agriculture, and many others;

* Profiles on products made or distributed; the type of machinery or equipment used; dates of most recent inspections by various state and federal agencies; and

* A written historical overview of the company, including when founded, how the company prospered through acquisitions or new ventures launched, and a brief summary of its future plans.

After the crisis management team has requested and received this data from various officers of the company, it should go to phase two.

Scenario development

With this information in hand, the team will now wish to examine what possible crises could occur in the coming years. Within the discussion, the group may wish to consider product recalls; explosion or chemical leak at a plant or facility; death of a CEO; rumors of a corporate takeover; major investigation by a regulatory agency; a negative story about the company in a leading newspaper or trade journal; act of terrorism or sabotage against the company; loss of the firm's largest customer whose defection could cause others to follow; a group of stockholders filing suit against the company; and organized labor targeting the firm for a job action.

Scenario development is not a hit-and-run experiment. When organized properly, scenario development can be a dynamic and extraordinary learning experience for those managers who participate.

Ideally, the company will ask one member of the team to serve as its permanent chairperson. This person has the responsibility to lead the group in a series of provocative discussions that initially revolve around the theme of "what if?"

The first scenario meeting might find the chairperson serving as a rotating "judge and jury," prodding managers to react to a series of questions that may get them agitated, defensive, or at least concerned. The entire purpose of a scenario session is to remove managers from the tempo of their traditional staff meetings and to increase their awareness that one significant crisis could cause them the single worst nightmare of their professional career. Thus the chairperson may want to review the list of corporate crises listed earlier to raise awareness of the types of crises to be discussed. In generating discussion, he or she might ask:

* What if we were sued tomorrow by the National Wildlife Federation because we just levelled 18 acres of forest in Oregon for our new facility?

* What if a producer from "60 Minutes" called late today, indicating that the network's team is investigating our company on charges of consumer fraud and that their crew wishes to meet with our CEO tomorrow morning? What should we do?

* What if one of our employees leaked our design plans to a foreign competitor?

* If our operations were severely disrupted by a natural disaster such as a tornado or earthquake, where could we relocate within a matter of hours or days to maintain some continuity of operations? What cooperative agreements could be made in advance with other companies or facilities so that this process could be accomplished in an efficient manner?

* What if it were determined by a federal agency that our product is potentially harmful and that the government demands a recall? Do we seek an injunction order and refuse compliance, or do we comply, possibly laying off workers?

* What if a plant explosion or chemical leak occurred at our plant? Who would be in charge? Whose responsibility is it to call the local authorities and state agencies? If neighboring homes and businesses suffer losses due to our accident, should those parties contact our insurance agent directly without our knowledge? Are we covered in the event of such a calamity?

In each of these cases, and in the many more that the chairperson may develop in advance, role-playing should be seriously considered. In a role-playing scenario exercise, each member of the crisis team assumes a position within the company that is not the one they traditionally hold. This is important because it exposes that individual to new thoughts and managerial challenges that they otherwise may never be asked to ponder.

While the scenario exercise is underway, an administrative assistant should be taking detailed notes so that the reactions, statements and suggestions of the various group members can be recorded and later evaluated for inclusion as the crisis management plan is being drafted. This person will also later serve as a resource to the team because since they were not formally participating in the scenarios, they could later debrief the team on their impressions of groupthink processes.

Two-hour scenario sessions are most ideal. There are some basic rules that will help scenario sessions operate smoothly:

* The chairperson should never inform the team members in advance about the nature of the crisis they will be facing that day.

* The chairperson should handle him or herself in a serious manner. The purpose of the exercise is not to amuse or entertain the group; it is to challenge them into responding to a threat the company may one day face.

* Technical resources needed to enhance the exercise should be made available in the scenario room before the team gathers. Thus, if the chairperson wishes to have a fax arrive during the session, a fax line should be hooked up and someone elsewhere in the facility should send a printed message at a pre-designated time. Similarly, the chair may wish to arrange to have a colleague posing as a newspaper reporter call at a particular point during the meeting on a speaker telephone.

* The chairperson will also want to arrange to have a secretary interrupt the meeting with additional urgent messages and phone calls. As much as possible, the chairperson should attempt to create chaos so that team members will have a sense of the urgency and reality of crisis management. This includes phone calls, memos, frantic messages, visits from local officials or regulators, protestors outside the windows - whatever works realistically dramatizing the possible crisis.

* Team members should agree as a unit in advance that their statements, reactions and suggestions throughout the scenario sessions are to be kept confidential and are for discussion purposes only.

Ideally, scenarios should be conducted in a crisis control room if one is already established at the company's facility. This lends a degree of seriousness and reality to these sessions.

Several situations may develop during scenario sessions that senior management should be careful of. They are important because they reflect human nature, motivation and questions of turf, but they also reflect the bias that each of us brings to our duties each day. These concerns include::

* No one manager or department should be allowed to dominate planning or scenario sessions. Those individuals interested in climbing the corporate ladder in an expedient manner may see these sessions as a unique opportunity to showcase their talents via elaborate or expansive grandstanding that has no intrinsic value to the issue at hand. There is nothing wrong with politely reminding these people that: "We are going astray. Let's get back on track."

* No one manager or department should be allowed to not participate in discussions; session leaders should work vigorously to encourage participation. While it is human nature that some people are quieter than others and may feel intimidated by the presence of senior executives, they are being paid to provide insight and guidance into one of the most strategically important series of decisions in the company's history.

An anonymous evaluation of the session leader's skills should be held after each session so that she/he can review their performance with an eye towards improvement.

Questions of budget should be directly addressed. In some cases managers will not make recommendations to a group because their previous requests for equipment or services have been repeatedly denied. Yet the crisis scenario may provide a unique forum for that manager to convince senior executives that previous requests were not folly.

Three sessions work best

In most mid to large-sized corporations, at least three scenario sessions would be scheduled focusing upon those three crises that the team members agree are most potentially devastating to the organization.

Let's say that the first scenario session focuses upon a major boycott of company products that has just been announced by a leading environmental activist group. The chairperson will want to ask those managers present to assume different positions for the next two hours. He or she will ask them to respond as if she or he was the designated company officer. In doing so, they must try to understand the motivations and needs of each of these characters in the scenario.

A realistic character list for the group to portray would include:

* CEO of the company;

* President of the environmental group;

* A news reporter from Cable News Network (CNN);

* Representative of the company's labor union;

* Spokesperson for the company;

* Chairman of the board of the company (major stockholder); or

* A protestor who is carrying a sign outside your headquarters.

For this scenario to generate concrete benefits for all involved, the chairperson needs to actively encourage and maintain participation. For example, he or she may first ask the CNN reporter to sit next to the company CEO and ask a variety of questions in rapid-fire succession about the company, why it has been targeted for a boycott, etc. The designated CEO should attempt to answer as many questions as he or she can, even to the point of making up statistics and situations to keep the conversation flowing. In doing so, they will want to be realistic in their presentation of ideas. The group should play close attention to where the CEO accurately states the ethics and intentions of the company, and where he or she overstates, overpromises or oversimplifies.

After 15 to 20 minutes of that role playing concluded, the CEO could then be told that there is a telephone call from the company's largest stockholder who is deeply concerned about news of a boycott. The stockholder will then ask a series of questions about what steps the CEO plans to take, how he/she intends to maintain the value of the company, how major finance houses will be apprised of developments, and what regulatory issues (such as notification to the Securities and Exchange Commission) may be needed.

With that conversation concluded, the group would then ask the union officer to meet the company's press spokesperson in the hallway. Naturally, union members are concerned about the impact of a boycott on cutbacks in hours or layoffs of workers. Union members may not want to cross picket lines from environmental groups. These and a variety of other issues should be raised in detail by the two parties.

After these and several other conversations that are contrived by the chairperson in advance have concluded, the group should gather a week later. At this time they will come prepared, having reviewed transcripts or summary notes of these sessions. Led by the chairperson, they will want to vigorously debate the ramifications of the previous discussions. In particular, the chairperson should help the team conduct an earnest post-evaluation on these points:

* Did we effectively respond to the immediate crisis we faced, or did we allow ourselves to answer problems and questions that were irrelevant?

* What resources were effectively used, and which departments or managers were not adequately utilized by the team? If we were to grade the responsiveness of those who were asked for assistance during our mock crisis from A through F, what would those grades be, and why?

* Who was the most effective overall manager on the team during each of the three scenarios, and why? Would this person be an appropriate individual to head a crisis management team in the event of a real disaster? If that person so agrees, what tools and resources will she or her need to effectuate their performance in the future?

* Where did we succeed? Where did we fail? What did we fail to anticipate?

Communicating the message

After fact finding has been completed and scenarios have been staged and evaluated, the public relations and public affairs department managers of an organization should address the crisis management team. They will wish to present in detail their plan of action that addresses each of the major three crises that the company has considered. Specifically, the communications specialists will want to address:

* Given the experience of the team during the scenario sessions, who is the most appropriate person(s) to speak for the company in the event of a crisis? Should this person be sent to a professional media consultant for training on answering press questions? Would courses in public speaking or managerial communication at an area college or university enhance this individual's presentation style?

* Where should the crisis central room be located within the company? Should a permanent area be designated and so equipped, or is space at such a premium that a make-shift situation will need to be considered? If equipment cannot be permanently dedicated for this purposes, what technology will be borrowed from what departments? What kinds of software or other item will be needed? A series of phone jacks should be installed in this room in advance so that the local phone company can quickly install lines for multiple public inquiries.

* In presenting draft news releases, press kits and historical data to the crisis team, the communications specialists will want to inform the team on what new communications materials should be developed and held aside until and unless there is a crisis. This may include economic impact information, detailed chemical analysis of materials stored on the property, or other sensitive but not proprietary data.

* The communications specialist should inform the team of what media is likely to cover any or all of the three principal scenarios the group has already considered. She or he should also address how their office will monitor the press, and what clipping or video services will be engaged to provide clips and copies of newscasts for later evaluation by the group and its attorneys.

* After discussions and evaluation of the scenario sessions have been accomplished, the communications team should present a graphic that clearly delineates the chain of command in a crisis so that there will be no question as to who has what responsibilities in the event of a disaster. Copies of that chart should be made widely available to all departments so that a lower-level manager who has received no training and little exposure to the entire process will not embarrass the organization, albeit unknowingly.

* A communications plan informing employees of the events surrounding a disaster is essential to success. If employees first learn the details of a company's disaster from the news media before hearing about it from management, the credibility of the senior team will certainly be impaired. Further, after years of spending energy and money on programs that spawn teambuilding and trust in the workplace, a few ill-timed announcements to the press could lead employees to question the sincerity of those in control.

* The role of clients should not be ignored, even before the crisis management plan has been drafted. The communications specialist should work with the team to ascertain how the company will keep clients abreast of developments as they unfold.

A good example is the Secaucus, New Jersey-based firm of Schiavone Construction. Beginning in 1984, the company faced negative publicity after being indicted. Its managers were charged with allegedly defrauding the New York City Transit Authority of $7.4 million in a minority business enterprise scandal.

In June, 1987, a jury acquitted all of the accused company managers, but the company's former executive vice president, Raymond J. Donovan, was not so fortunate. He was then serving as President Reagan's Secretary of Labor, and in the midst of the controversy was forced to resign his cabinet post. But the lingering doubts about Schiavone, despite the acquittal, were immense. The company's embarrassment thus not only reached the White House, but triggered other ramifications as well: at least 20 key managers left the company, $500,000 had to be spent on public relations consultants, and more than $100 million in contracts was lost. Maintaining the trust of clients is absolutely essential during and after a crisis.

These steps, taken individually and in concert, will help the team better understand what motivates various parties in a crisis. In seeking to understand the legitimate needs of reporters, union organizers, employees, stockholders, public interest groups and regulators, managers will be better equipped to face the inevitable crisis. With these skills in hand, the management team will be better prepared to cope with the myriad of factors that can complicate a difficult period in the life of an organization.

Laurence Barton is associate professor of management at the University of Nevada, Las Vegas. He is the author of Crisis Management: Communication In The Heart of Chaos, to be published in July 1992 by South-Western Publishing.
COPYRIGHT 1991 Institute of Industrial Engineers, Inc. (IIE)
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Barton, Laurence
Publication:Industrial Management
Date:Nov 1, 1991
Words:4775
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