Can't Run, Can't Hide: New Rules of Engagement forCrisis ManagementPublished: September 19, 2007 in Knowledge@Wharton The corporate apologies are piling up. Mattel CEO RobertEckert apologized before a Senate subcommittee onSeptember 12 for lead paint found in millions of thecompany's toys. On September 14, TD Ameritrade CEOJoe Moglia apologized for a database breach thatcompromised customer addresses, phone numbers andemail addresses. Apple CEO Steve Jobs apologized onSeptember 6 for cutting the price of the high-end iPhone to$399 just weeks after die-hard customers waited in longlines to pay $599. Dell executives apologized in Auguston the company's corporate blog for delayed deliveries ofcertain laptop and desktop models. And in February,Jetblue apologized for canceling 250 flights during an icestorm and leaving some passengers on the tarmac for aslong as 11 hours. The common thread linking these apologies: Executives were moving quickly to stem damage to theircompanies' reputations. And while not all corporate crises are created equal, there is a playbook to handlethese events, according to professors at Wharton. First, a corporate response should take hours, not days.It should include a well-thought out apology delivered through multiple mediums and it should featuresome remediation so that the event won't happen again. The stakes are high. Companies that manage these events well tend to preserve a good reputation. Thosecompanies that take a long time to respond to a crisis may be permanently scarred by customerperception. What's different these days, say Wharton experts, is the speed with which the Internet andglobalization have facilitated the dissemination of information. This means that word of mouth -- bothgood and bad -- travels farther and faster than ever. An example of this is Jobs' open letter, which came with a $100 credit at Apple's retail or online storiesfor those who bought the iPhone on its June 29 launch. It was posted on Apple's site a day after thecompany announced the iPhone price cut. "We want to do the right thing for our valued iPhonecustomers," the letter said. "We apologize for disappointing some of you, and we are doing our best tolive up to your high expectations of Apple."Three Categories of CrisisCustomized responses to a crisis are critical given that not all crises are the same. Maurice Schweitzer, aWharton operations and information management professor, puts crises in three primary categories:Customer service issues, "failures of competence" and "screw ups that aren't related to corecompetence." The third category refers to incidents such as Martha Stewart's stock trading scandal.Although Stewart served jail time, the incident didn't reflect on her core competence, which is givingadvice on home decorating, food and entertaining.Dell's inability to fulfill orders for some laptops and Apple's iPhone price cuts are customer serviceissues, says Schweitzer. The goal here is to keep customers from giving up on the company. "WhenThis is a single/personal use copy ofKnowledge@Wharton. For multiple copies, customreprints, e-prints, posters or plaques, please contactPARS International: [email protected] P. (212)221-9595 x407. All materials copyright of the Wharton School of the University of Pennsylvania. Page 1 of 4 Can't Run, Can't Hide: New Rules of Engagement for Crisis Management: Knowledge@Wharton(http://knowledge.wharton.upenn.edu/article.cfm?articleid=1807)Apple unveils its next product, it wants to avoid having people feel like suckers," says Schweitzer."Apple doesn't want customers to wait [to make their purchase] the next time they launch a new product."JetBlue's failure to get customers to their locations in February and Mattel's manufacturing troubles inChina are examples of "failures of competence," says Schweitzer. Both companies had problems thatshould have been prevented. In Mattel's case, "the last thing parents want to worry about when they givea child a toy is safety." Mattel's safety issues, adds Wharton marketing professor Lisa Bolton require a response that appeals toconsumers' emotions. Indeed, Mattel's Eckert addressed parents' concerns directly in his September 12testimony before the Senate Committee on Appropriations Subcommittee on Financial Services andGeneral Government. "Like many of you, I am a parent," he said. "I, like you, care deeply about thesafety of children. And I, like you, am deeply disturbed and disappointed by recent events. As to leadpaint on our products, our systems were circumvented, and our standards were violated. We were letdown, and so we let you down. On behalf of Mattel and its nearly 30,000 employees, I apologizesincerely....We are doing everything we can to prevent this from happening again." Literate in Multiple MediaTo get its message out to its customers, Mattel utilized online media, its web site and video. Moreimportantly, Mattel reacted quickly. Of those steps, speed may be the most important factor, says Yoram(Jerry) Wind, a Wharton marketing professor and author of the forthcoming book, Competing in a FlatWorld (Wharton School Publishing). "The Internet means that there is full transparency and you cannothide. Anything can be distributed worldwide. Management has to respond fast and effectively." Ron Culp, a managing director at public relations agency Ketchum, agrees, noting that the traditionalnews cycle, where daily newspaper deadlines dictated how companies managed crisis communications,doesn't exist any more. A company facing a crisis used to have at least a day to respond, but now thetimetables are speeded up as blogs and online news operations report stories faster than traditional mediaoutlets. "Just a few years ago, I knew if I got a call at 10 a.m., I would have until 5 p.m. to respond withan answer (to an inquiry)," says Culp. "Today, I need to respond by 10:05 a.m."Culp also notes that companies have to be literate in multiple media. Traditional outlets, for example, areincreasingly monitoring blogs, or online diaries, for tips. By reaching customers directly via blogs,companies in crisis can deliver a more effective message. "The best approach is posting the corporateresponse on the company's web site and allowing the bloggers to take it from there," says Culp. "Thetraditional media follow." Given the new dynamics, he recommends that companies continually monitorall news sources, especially blogs, where potential problems may surface. "Companies
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