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Crises managed

Adrian Prior, pictured, looks at two crises or disasters for the crisis management in each case. How could the incidents have been better managed; and what could, or should, have been done differently? Adrian Prior has had some 28 years experience in the military and is a member of the Security Institute; and is taking a masters degree in security management through the University of Portsmouth.

Introduction

This essay will examine two “long fuse” (Fink, 2002, p. 53) business crises; both arguably triggered by disasters (Borodzicz, 2005, p. 80, citing Heinzen, 1996). The first crisis followed a series of fatal air crashes involving the world’s first passenger jet (the Comet), manufactured by the British owned de Havilland Aircraft Company, in the 1950’s. The second is an on-going crisis at the Fukushima Nuclear Plant in Japan; triggered by a tsunami and associated environmental disaster in 2011. Both scenarios had a “ripple effect” (Heath, 1999 p. 48); which went beyond the businesses concerned to threaten their wider industries and, in the case of Japan, arguably weaken political leadership. Utilising the methodology of Finks (2002), Augustine (1995), and others, this essay will briefly seek to establish why these examples should be classified as crises; and the quality of crisis management will be critically analysed to establish major strengths and weaknesses. The most important measures that could have been applied to enhance resilience will also be considered. The essay will not examine these scenarios exhaustively but will focus on what are considered to be the critical issues for each. The crises will be dealt with sequentially and the only comparison between each will be made briefly at the conclusion.

The de Havilland Aircraft Company in the 1950s

The de Havilland Aircraft Company stole a march on their American rivals by introducing the first commercial jet airliner into service in 1952. Although military jets had flown during the latter part of World War II, de Havilland was at the cutting edge of technology, producing a passenger aircraft that flew higher and faster than any predecessor. The Comet had four turbo jet engines and, significantly, a pressurised fuselage for high altitude flying. This was a tremendous business opportunity. The Chairman of de Havilland, at their Annual General Meeting (AGM) in 1953, hoped this “technical lead” would offer an “opportunity to capture new civil markets” (Hearle, 1953, p. 12). Only the previous year he had said: “…we enter upon this phase with great confidence…Our project for a jet-propelled airliner is now generally acclaimed as sound…” (Hearle, 1952, p. 9).

The first production aircraft G-ALYP, British Overseas Airways Corporation (BOAC) Flight 781 from Rome to London was lost on 10 January, 1954; the fuselage broke up in mid-air, 20 minutes after taking-off. BOAC voluntarily grounded its fleet and engineers suggested 60 immediate modifications to the design to rectify some of the design issues that were ‘believed’ to have contributed to the accident (Swift, 1987, p. 1-7). Comet flights resumed on 23 March, 1954, but only two weeks later, Comet G-ALYY, on the chartered South African Airways Flight 201 from Rome to Cairo, crashed into the Mediterranean Sea within 30 minutes of take-off. The entire Comet 1 fleet was then grounded, its Certificate of Airworthiness revoked by the regulators, the line production at de Havilland in Hatfield was suspended and the Government ordered a Public Inquiry, which sat in October, 1954. Was this a disaster or a crisis, or both? In applying Fink’s (2002, p. 73) “litmus test” the situation for de Havilland met all the criteria for a business crisis. It also meets the “distinctive characteristics” of Heinzen, 1996, cited by Borodzciz, 2005, p. 80), including the fact that it was triggered by disaster.

One could argue that the de Havilland, initially, did not identify the real commercial crisis to the business because the focus was on the air disasters themselves – “diversionary problems” as Fink (2005, p. 73) described them. The “prodromal crisis stage” (Fink, 2002, p. 21) had begun earlier, during the design, test and evaluation phase of the Comet’s development. The fuselage testing had not replicated the repetitive loads imposed over thousands of flights and, as a consequence, had not detected a critical “metal fatigue” issue; a phenomena not fully understood at the time, which caused complete structural failure under pressurisation at altitude. De Havilland had committed itself to considerable expansion of the company in order that they were “…in a position to do justice to the Comet…” (Hearle, 1953, p. 12). Looking at the risks, this flag-ship project might well fall within the “red zone” of Fink’s “crisis barometer” (Finks, 2002, p. 45), particularly when one considers the “impact value” and significant “unknown risk” of metal fatigue (Borodzicz, 2005, p. 2, citing Slovic et al, 1980). The Company believed strongly that their test an evaluation protocols, that focused on strength and not proven durability, were robust (De Havilland, 1979, p. 184).

One could argue that in this case the metal fatigue issue was an ‘unknown, unknown’, given the lack of understanding of such matters. However, there was also a significant warning signal, or “pre-tremor” (Curtin, Hayman, Husein, 2005, p. 29), almost a year before the 1954 losses – a less well publicised fatal crash of a Comet 1 aircraft in Calcutta, on 2 May 1953. This could be viewed as a potential “turning point”, had it been acted upon more comprehensively (Fink, 2002, p. 15). An Indian Court of Inquiry found this loss was due to severe air turbulence leading to the loss of both wings; metal fatigue was not considered. However, sufficient doubt remained that the recovered remains of the aircraft were returned to Farnborough for inspection by the Royal Aircraft Establishment (RAE). Critically, the results of these tests were not available until June 1954, just after the crashes of the same year; by which time the “acute crisis stage” was in full flood and the “chronic stage” was beginning (Fink, 2002, p. 22-24). Could this protracted crisis have been averted through better management?

Following a “period of incubation” (Borodzicz, 2005, p. 24) there were subsequent warning signals which could have enabled de Havilland to make a quicker and more decisive “intervention” (Fink, 2002, p. 62). If the Comet had been grounded following the Calcutta crash, to buy time to get the results of the testing at Farnborough, the metal fatigue issue would have been established before the two subsequent fatal crashes. This may have prevented a perilous decision to stop production of the Comet (Walker 2000, p. 37) and the financial problems that followed. These events caused a loss of confidence, evidenced by a drop off in orders for the Comet. Indeed the first order cancellation followed immediately after the Calcutta disaster (itself perhaps a “pre-tremor”). Geoffrey de Havilland admitted in his autobiography, in typical understated fashion: “…our technical reputation had suffered a reverse” (De Havilland, 1979, p. 185). The first crash of 1954 served as a second tremor, where decisive action was taken to ground flights but they resumed two months later still without understanding the metal fatigue issue. The result was the third fatal crash from altitude which crippled de Havilland’s reputation. The cost of modification to the Comet 1 and a decision to skip through Comet 2 and 3 variants and move quickly onto develop a Comet 4 made the later aircraft expensive compared with their American rivals. The Company wrote-off £4.75 million (Nixon, 1955, June 22).

The reputational damage de Havilland suffered appears to have been compounded by poor external communication policy and a curiously cold attitude to the loss of human life resulting from the Calcutta crash. Although the Company undoubtedly created a “reservoir of goodwill” (Fink, 2002, p. 96) in the years before the Comet crashes, founded on their war time reputation, this was not enough to prevent the loss of confidence. De Havilland benefitted from a supportive media in the 1950s and perhaps the Company did not feel under pressure. However, the Chairman did not even acknowledge the Calcutta crash four weeks afterwards in his lengthy statement at the Company’s 1953 AGM; he resigned following the subsequent crashes (Hearle, 1953, May 30).

On the surface de Havilland appeared to have a healthy “safety culture” (B, 2005, p. 14); an organisation who conducted exhaustive testing of their aircraft parts during development and, also as part of the post-crash investigation. However, evidence would suggest this was more of a fixation on quality not safety. Indeed in the record of proceedings for AGM’s from 1952 to 1955, the word “safety” is never used. In a letter to The Times newspaper, after the Calcutta crash, Geoffrey de Havilland said: “It is, of course, necessary, by training and meticulous inspection, to keep the closest watch on quality, for which in the past British goods always enjoyed such a high reputation overseas.” The chairman seemed almost in denial that there was a “safety” issue. Of course, financial considerations were paramount and by playing down potentially damaging publicity following the Calcutta disaster, the company share issue was oversubscribed five times in June 1953 (Hearle, 1953, May 30). But the fortunes for de Havilland quickly changed.

De Havilland struggled on in a “chronic crisis stage” under its new chairman, Mr Dixon, until 1959. After a loss of confidence in the Comet aircraft, competition from overseas and a lack of orders, Comet production ceased for good. This, combined with other factors, including a change in UK defence policy made de Havilland vulnerable and they were eventually bought out by Hawker Siddley in 1960.

De Havilland would have benefitted from some fundamental changes to ensure future resilience – commencing with a “business continuity assessment…a structured approach” (Cornish, 1999, p. 95-95). A better appreciation of the risks and associated potential for crisis was possible using Fink’s “barometer” analysis. Such a model could have exposed the likely consequences of not one fatal crash but a series of similar crashe+
s. In so doing de Havilland may have seen the longer term value of recommending a grounding of aircraft earlier and, indeed, potentially avoiding the crisis that eventually brought down the Company. “Probably no industry in the world is as completely vulnerable to crises as the airline industry” (Fink, 2002, p. 63); despite this there is no evidence that de Havilland had any kind of crisis management team or indeed plans. The halting of production of the Comet created an idle, unproductive work force, something that a business continuity plan could have made provision for.

Fukushima 2011

The Tohoku earthquake that struck north east of Japan on 11 March, 2011, measured 9.0 magnitude (offshore) and was the most powerful in Japan’s history. It caused a tsunami that killed approximately 23,000 people and destroyed the majority of the infrastructure in eighteen ‘prefectures’ in the vicinity of Sendai. In the aftermath of the giant wave, serious problems arose in the Fukushima I and II nuclear power plants. Although the reactors were automatically and immediately shut down, several core meltdowns occurred. The tsunami destroyed the back-up power supply, which cut off all electricity to the facility, so that it was unable to cool down the nuclear cores. This resulted in the meltdown of nuclear fuel rods in three of the vessels, producing radioactive particles that spread into the air and sea, following explosions in those reactors. The crisis continues two years later as the Tokyo Electric Power Company (TEPCO) struggles to cope with the challenges of decommissioning the nuclear site.

There is clearly a case to answer that although TEPCO did conduct effective crisis/disaster management planning; the key “prodromal” flaw was to underestimate the size and power of a potential tsunami, which led to design flaws at the nuclear sites, which led to the loss of the back-up power supply building (Kunihiko, 2011, p. 1002), when the tsunami hit. However, the critical failures in crisis management centred on the lack of effective command and control, the decision making and communication. As a consequence, it is argued that plans for better resilience in this context should focus on improving the command and control structures (local, national and international); revising the approach to risk analysis of low probability/high impact events; achieving synergy of business continuity management between government and private sectors; and using training and more effective regulation to improve the probability of a better outcome for the next crisis.

Japan had crisis command and control structures in place, “…modelled on the crisis management in the White House – even down to the Situation Room under the prime minister’s office” (Onishi & Fackler, 2011, June 12). This “highly structured” system relied on bringing together bureaucrats from various ministries under the direct command of Mr Kan, the prime minister (Borodzicz, 2005, p. 101). Mr Kan favoured a more flexible approach; he chose to “improvise his government’s response” and rely on a “small circle of trusted advisers”, with little experience of handling a crisis of this scale or a grasp of the technical nuclear issues (Onishi & Fackler, 2011, June 12). Whilst an approach based on “flexibility and negotiation” might suit an “ill structured crisis situations” (Borodzicz, 2005, p. 101), Mr Kan seemed to vacillate between personally intervening at the plant and leaving it to the operator. There was “no unified system” to facilitate command and control functions for all relevant stakeholders. (Onishi & Fackler, 2011, June 12).

The effectiveness of Mr Kan’s ad hoc approach was further challenged by poor communication and information management. The critical communication channel between the government and TEPCO was broken; but on 22 March, a government official, Mr Hosono, was placed within TEPCO’s headquarters; later referred to as the “Hosono Process” (Akiyama et al, 2012p. 97). This was a potential “turning point” (Fink, 2002, p. 15), “…helping the prime minister to take direct control of damage-control efforts at the plant. “For the first time, we knew what TEPCO was debating, and what they knew,” said one adviser.” (Onishi & Fackler, 2011, June 12). However, other significant information management failings occurred between TEPCO and the emergency services who did not even have access to basic maps of the nuclear sites because of security concerns (Akiyama et al, 2012, p. 105). It is indicative of the crisis management failings that Mr Kan’s cabal of advisers did not realise there was a warning and reporting system in place to predict contamination spread. This issue extended to a failure of international communications: an example is the US unilateral decision to evacuate personnel after failing to get a response from the Japanese government; leading to “serious friction between the two sides”, according to (Akiyama et al, 2012p. 97). The evidence points to communication flow severely undermined by the lack of pre-arranged command and control structures and overwhelmed by the scale of events, particularly during the “acute crisis stage” (Fink, 2002, p. 22).

Hampered by a lack of command and control structure and poor communication, it is not unsurprising that there was also evidence of “weak decision-making” at government level (Akiyama et al, 2012, p. 95). In the first crucial three days of the crisis, Mr Kan left the handling of the nuclear issues to TEPCO, focusing almost exclusively on relief efforts for the thousands left homeless (Onishi & Fackler, 2011, June 12). In this area there was a failure to initiate a “rapid response” (Borodzicz, 2005, p. 79) and win confidence in managing the crisis. Stakeholders “…expect you to do something about it – and to be seen to do it” (Bland, M. 1998, p. 53). It is assessed that the prime minister “…could have moved faster and more decisively if he had used Japan’s existing crisis management system.” (Onishi & Fackler, 2011, June 12). In contrast, at the nuclear site the manager demonstrated “creative or flexible rule breaking by key decision makers” (Borodzicz, 2005, p. 155-156) that characterises a successful approach to crisis management. He ignored orders to stop pumping seawater into a reactor to cool it, an act of defiance that may have prevented many deaths.” (Onishi & Fackler, 2011, June 12).

The Fukushima crisis continues today and has not yet reached a “resolution stage” (Fink, 2002, p. 25). Groundwater is pouring into the plant’s crippled reactor buildings at a rate of almost 75 gallons a minute. It becomes highly contaminated there, before being pumped out into storage tanks. They are running short of storage tanks and there are leaks – a situation the New York Times sees as a “new crisis” (Fackler, 2013, April 29). This demonstrates the cyclical nature of crises and how the edges can be difficult to delineate.

Clearly there are a number of areas that could be addressed to ensure future resilience. In the pre-crisis stage the focus on “prevention and preparedness” (Heath, 1999, p. 45) should have focused on growing viable crisis management structures, that met the needs of the government and stakeholders. The most important issue for Japan, in this context, is a command and control structure that dovetails with emergency services, TEPCO and local authorities; a system that “facilitates smooth and close public-private cooperation”, a system that allows for a type of “intervention” by the government in a private company (Akiyama et al, 2012p. 98).

A carefully selected and trained “crisis management team” (Curtin, Hayman & Husein, 2005, p. 97) is required in all the key organisations, with effective communication between them. Personnel selection should emphasize “aptitude in crisis management.” (Akiyama et al, 2012p. 101).

Although the risk analysis conducted before the earthquake was clearly flawed, there must be an acceptance that there is no “fail safe system” (O’Hehir, 1999, p. 41) and greater investment is required in a business continuity plan, which includes a crisis management element (Borodzicz, 2005, p. 87). The “fundamental limitations of risk analysis”, particularly for high impact low probability events, must be fully grasped, “…if we are not to be condemned to repeat past errors” (Hagman, 2012, p. 811-812). Given the significant uncertainties, “cost-benefit analysis should not always be the driver” (Bunn & Heinonen, 2011, p. 1581).

Conclusion

Neither of these crises had a successful “resolution” (Fink, 2002, p. 23-25) and the challenges faced today at Fukushima have prevented Japan from escaping the clutches of the “chronic crisis stage”, struggling to deal with the vast quantities of contaminated water being produced each day. For de Havilland there was no evidence of pre-crisis preparation, a lack of focus on the real crisis, an unwillingness to take decisive action early and an apparent contempt by management for the loss of human life. These failings cost them their reputation (confidence in the Comet 1), loss of orders and, eventually, the loss of the entire business to a rival. There is no question that de Havilland could have benefitted from all the major aspects of BCM (Borodzicz, 2005, p. 87). Fukushima by contrast had significant pre-crisis preparation but it was flawed. The command and control structures in place for such an event were not viable and maybe because of this, the prime minister chose not to use them and relied on his own inner circle, which had insufficient knowledge to control events. Distracted by the human tragedy of the tsunami, and hamstrung by poor information flow, the government failed to make effective decisions. They too would have benefitted from suitable structures and personnel proven in reliable simulations that might have exposed the weaknesses that became so evident. Both the airline and nuclear industry are exposed to low probability, high impact risk that one should not expect to fully mitigate. These crises would support the “risk homeostasis” theory (Borodzicz, 2005, p. 35, citing Peltzman, 1975 and Wilde, 1976, 1994); “…while much can be done to ameliorate or control certain risks, the threat remains…” (Borodzicz, 2005, p. 35). One may conclude that the balance of effort should, therefore, be on preparing to manage the inevitable crises, rather than investing too heavily in an overly complex risk analysis process and that is inevitably flawed.

References

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