Wednesday, September 11, 2013

Addressing a Problem Before it Becomes a Crisis

Crisis situations often begin as less threatening problems.  Let’s review a few examples as reported in the media to see what they have in common.

·                   An explosion and fire at Chevron’s refinery in Richmond, California was apparently caused by the rupture of seriously corroded pipe.  According to the Chief of Cal/OSHA, Chevron’s employees had recommended replacing that pipe several years earlier.  Chevron now faces almost $1 million in proposed penalties and litigation by the City of Richmond and thousands of residents.
·        
           Despite objections from its safety engineers, Pacific Gas & Electric cut tens of millions of dollars from its annual budgets for natural gas pipeline inspections and maintenance.  In 2012 a pipeline owned by PG&E burst, causing an explosion that killed eight people and destroyed many homes.  The company has paid tens of millions of dollars in lawsuit settlements and is facing a proposed nine-figure fine by the state Public Utilities Commission.
·        
           Johnson & Johnson’s McNeil subsidiary was involved in a so-called “stealth recall” of tainted Children’s Tylenol in order to avoid the adverse publicity of a public recall.  This virtually erased the public goodwill Johnson & Johnson earned by its exemplary response to the Tylenol scare thirty years ago. 
·        
            Ford Explorers equipped with Firestone tires rolled over when the tires failed, resulting in more than 100 deaths and even more injuries.  An insurance company claims analyst noticed a pattern of these accidents and notified the National Transportation Safety Board.  Firestone's CEO admitted that the company did not analyze the claims data for several years.  This crisis cost Ford at least $500 million, seriously damaged the Explorer brand, and caused the stock price of Bridgestone, Firestone’s parent, to drop by 60 percent.

These examples show that problems seldom go away.  If responsible action is not taken promptly to address a problem at its source, it may develop into a full-blown crisis that threatens the financial security and reputation of the company. 

I suggest the following approach to problems that arise in a company’s operations:

·        Know the business inside and out, so you can anticipate the areas where problems are most likely to occur.  Those areas may include products that could cause serious injuries if they malfunction, plant operations that could produce significant environmental damage, financial transactions that could generate large numbers of consumer claims, and regulatory developments.

·        Establish a process to monitor each of those areas.  The process may involve an ongoing review and analysis of product complaints, periodic safety inspections or routine audits.

·        When a problem develops, investigate the cause of the problem promptly.  Try to figure out why the problem happened so it can be corrected at its source.

·        Take responsibility for correcting the problem.

·        Consider making restitution.

·        Never cut corners with public safety.


This approach to problems should mitigate a crisis if one develops and may avoid a crisis situation altogether. 

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