Crisis Management in Reverse -

Capitalizing on Shocks to the

System

January |2011

Crisis Management in Reverse - Capitalizing on Shocks to the

System

In every sector all over the world, companies fail, collapses that are sometimes

triggered by seismic events. Such moments present significant opportunities (or

threats, if not seized) for the company that is prepared to capitalize on them.

Crisis in the business world can take many shapes and forms. It can come in the

form of fraud, the collapse of Barings Bank being an example, whereby a several

hundred year old company can be wiped out over a weekend due to the secret

trading and subsequent losses of just one trader. Or, it can come in the form of an

oil spill, a possibly avoidable catastrophe that almost wiped out one of the largest

companies in the world just last year, BP.

These types of shocks to the system are not uncommon, and lately, are happening

in rather high frequency around the world, across dozens of different sectors.

Many companies have in place crisis management strategies, tactics they will

deploy in case such catastrophes befall them. Be it financial reserves to get them

through hard times or a boardroom full of lawyers on standby, companies are

rather prepared to handle adverse situations.

It’s the rare company, though, that has a plan in place to seize on the failures of

its competitors. Such incidents present golden opportunities for companies in

sectors that have had a key competitor take a hit, opportunities that can change

the dynamics and structure of that sector for a time to come. Just as companies

have crisis management strategies on standby to deploy should they be needed,

so too should they have them ready if and when a competitor is hit with a crisis.

On a high level, every company should examine their own sector, from both a

local and global perspective, to identify past crises that have caused a shock to the

system. The key purpose of such an effort would be to identify learnings to take

away from the outcomes of the crisis – what happened, how did the company

respond, how did its competitors respond, what happened to the company and its

competitors, what was the long-term outcome, etc.

Aside from learnings to be had from examining such past crises, we recommend

companies also take the following four principles to heart, adhering to them if and

when a shock to the system does occur in the form of competitor failure:

1. Maintain Neutrality – Taking a shot at a competitor when they’re down, as tempting as it may be, should be avoided at all costs. Failure of a competitor to maintain ethical standards, have proper oversight, manage risk, or take the right precautions are all the kinds of things that can happen to any company at any given time. Criticizing a company for a failure today will be impossible to explain should the same failure affect one’s own company down the road. Not only is it dangerous in this manner, but it also can come off as petty and unnecessary. A

final negative outcome of such behavior can be the long-term grudge it can create between the parties, should the company under fire survive the crisis. Companies should maintain neutrality on such issues at all costs, leaving the

criticism to the media and sector watchdogs. Avoiding press exposure as much as

possible is highly recommended at such times.

2. Be on Acquisition Standby – Should the company in crisis collapse, be ready to acquire their client base, their assets, etc. Ultimately, some value is left behind in the wake of a company going under, value that one’s competitors will be after as well. Companies need to be ready at all times to make a move should such a situation occur, before their competitors do. This is exactly what happened in the case of XL, one of the biggest leisure companies in the UK, which collapsed in January, 2009. Virgin Holidays swooped in to acquire its customer base, which it brought under a new brand it launched called TCD (as XL’s customer segments were quite different than Virgins, thus the launch of a new brand). The acquisition brought over one million new customers to Virgin Holidays, nearly one third of its current base. Such a strategy should even be in place even if bankruptcy is not in play – GM,

Ford, Chrysler, and Hyundai all went after Toyota’s base, targeting them with cash

rebates, when the car-maker suffered its accelerator scandal, which caused them

to suspend sales for a period of time. Toyota’s competitors saw a significant

opportunity and went after to it, benefiting from this shock to the auto sector.

Whatever the strategy, it should be sustainable. Goodyear, for example, saw an

opportunity to replace Firestone as the key tire supplier of Ford automobiles,

when that relationship fell into crisis due to Firestone’s tire failures. However,

though Goodyear benefited in the short-term, their inability to produce the

necessary quantities due to capacity issues prevented long-term success from

occurring.

3. Consider Competitor Coalitions – Crises occasionally present an opportunity for competitors of the company in jeopardy to unite, to take a group stand or action as a statement for the positive. Such was the case when Exxon-Mobil, Chevron, Shell, and ConocoPhillips teamed up to put together $1 billion USD into a venture called “Marine Well Containment Company,” shortly after BP’s Gulf of Mexico disaster – a venture aiming to develop technology and response plans for capturing and containing oil spills. BP has since requested to join the coalition. 4. Become Transparent –When Lehman Brothers collapsed in 2008, consumer confidence in all financial services companies also collapsed, with assets being withdrawn at unprecedented rates. The fear consumers had during those days that their own financial services institutions would also collapse drove this panic. Competitors in such situations who have nothing to hide should become as transparent as possible, making it clear in every possibly way that they won’t also collapse. This can be done in the form of new and transparent audits, communicated with phone calls to high value customers, and press conferences / releases conveying that there is nothing to worry about. Corporate communications need to be ready, with a comprehensive plan as to how to handle such situations.

Ultimately every company in every sector, no matter how local, regional, or

global, should take the time and effort to make sure they are ready for shocks to

the system. It can take only one such incident to forever change the future path of

a company, for the better or worse.

Forte Consultancy Group | Istanbul Office www.forteconsultancy.com

About Forte Consultancy Group

Forte Consultancy Group delivers fact-based solutions, balancing short and long term impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety of service offerings for numerous sectors, approached in three general phases – intelligence, design and implementation.

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