Sources of crises – classification of origins

Sources of crises is, from experience, a topic that is often ignored in post analysis – and that’s a big mistake!

In a different post, I presented the definition of crisis and crisis management. In another, I presented how crises manifest themselves. This post expands the topic and classifies crises according to the source of their emergence. Typically, it may seem that a crisis comes out of nowhere. It is only when a particular crisis is analyzed in depth that it turns out that, indeed, it arose for a specific reason.

Sources of crises

There can be various sources of crisis, especially when looked at in great detail. However, categorizing them, there are not that many at all. For my purposes, I distinguish nine sources of crisis formation:

  1. Environmental (don’t call them “natural”!),
  2. technological,
  3. economic,
  4. legal and legislative,
  5. conflictual (confrontational),
  6. resulting from hostile actions,
  7. resulting from organizational negligence,
  8. resulting from violence in the workplace,
  9. the result of gossip and hostile communication.

Environmental crises

Environmental crises, as the name suggests, come from the natural environment. Environmental hazards can be considered earthquakes, volcanic eruptions, hurricanes, floods, fires resulting from, for example, lightning strikes, tsunamis, etc.

The above paragraph used to be called “natural crises,” but adjusting to what is written on the #NoNaturalDisasters page, I decided to stop using this phrase. On the above page, the description refers more to the term “natural disaster,” but in any case, I decided to avoid this term so as not to cause confusion.

Quoting the text from the #NoNaturalDisasters page:

There’s no such thing as a ‘natural’ disaster…

The term “natural disaster” is incorrect and misleading.

The #NoNaturalDisasters campaign builds on the decades of work and research carried out by DRR practitioners and academics and aims to change the terminology to show that whilst some hazards are natural and unavoidable, the resulting disasters almost always have been made by human actions and decisions.

The discussion on why disasters are not natural isn’t new. It’s been written about, discussed and debated for many, many decades. This online campaign seeks to build on those discussions and reach new audiences.

The best way to demonstrate this is to take an example, let’s consider a flood. The dictionary definition is that a flood is the inundation of large areas by water as a result of a river surging. Looking at it objectively, flooding, as such, is a threat arising from nature. However, a flood itself, if it does not affect areas inhabited, or cultivated, by people, does not necessarily mean disaster. What’s more, it’s often the case that the disaster itself is the result of human actions (decisions), such as permission to develop floodplains. It was only in 2018 that a law appeared in Poland (amendment to the Water Law Act) that de facto prevents the construction of houses in floodplains. And there are entire housing estates located in such areas, such as Cracow’s Złocień estate, which is crossed by the Serafa River, which causes flooding of blocks, streets and underground garages during large downpours.

Thus, it can be seen that the source of the crisis is theoretically the environment (the river in the above example), but in fact it is the decision to build a housing development in a vulnerable area (the legal source). In this case, the problem is to be solved by reservoirs, one was built in 2015, with an additional two to be built by 2023.

Crises of technological origin

Crises of technological origin can be divided into two main categories, system errors resulting from, for example, design errors, software errors, and human errors such as work accidents.

Examples for these errors could be multiplied, but I will give only one group that perfectly illustrates the issue, namely data leaks. They are very commonly caused by errors in software design, implementation, or integration. The consequences of such errors can be severe, starting with the leakage of personal data, which someone can use, for example, to take loans, ending with errors that cause loss of life or health. Data loss can be very costly for an organization. Customers may leave, there may be fines from authorities, lawsuits, negative press, etc.

Economic crises

The category of economic (economic) crises is one closer to our intuition. She also falls into two categories, internal to the company, organization or state, and external, resulting from changes in the economy.

Sources of economic crises can be various, there are at least several factors that can cause such a crisis in a company. Examples include lack of profitability, lack of funds, lack of resources, poor management and poor customer service.

Lack of profitability is one of the most common causes of internal economic crisis. When a company does not make enough profit, it has less money, or not enough money to pay its employees, supplies and other expenses. In such a situation, the company can’t afford raises or bonuses for its employees, and it has no way to invest. It may end up being forced to cut services or even lay off some employees. This is obvious, but lack of profitability is one of the most common reasons why many companies go bankrupt.

Another common cause of internal economic crisis is lack of resources. An example is the limited supply of semiconductors, which translates into a whole host of problems in various industries, such as IT (computer availability) or automotive (whoever is waiting for a hybrid car knows). What’s more, even a short-term reduction in resource availability can have a big impact on the entire economic system, as the blockade of the Suez Canal demonstrated.

Another factor causing internal economic crisis in a company can be poor management. If a company’s managers do not do their jobs well, they may not be able to ensure the proper functioning of the organization. They may fail to keep employees motivated. This can lead to issues such as low morale, poor productivity and high employee turnover, which can result in an inability to deliver services. They may also prepare their business strategy poorly, such as the marketing and sales strategy for a newly launched product, which will translate into low sales, this will translate into lack of funds, and then you know.

A very underestimated factor that can lead to an internal economic crisis is poor customer service. If a company does not take care of its customers, it loses money, loses its reputation, loses its position in the market. It may also have to pay more for insurance or other expenses. For example, if a company has numerous complaints about its products or services, it may have to pay more for advertising or raise the price of its product or service, which in turn may reduce sales.

Legal and legislative crises

Legal and legislative crises are a very intriguing category. The sources of legislative crises can lie in changes in the law that, for example, remove the legal basis for a company’s operations. An example of such a potential crisis could be the recurring discussions about a ban on fur farming. If the ban were enacted, the farms would lose the legal basis for their operations.

Legal crises can happen to any organization. It can happen when an organization conducts activities that will be interpreted as illegal, there are many examples, such as the Optimus case (Polish company) and similar ones, resulting from the interpretation of the law by the fiscal. Legal problems can also result from ignorance or lack of understanding of regulations by company employees. It is important to know the laws that apply in a particular area and what the consequences are.

A legal crisis can cause a company to lose money, its reputation and, in the worst case, cease to exist. It can cause the company and its employees to be treated like criminals. On top of all this, there are legal fees, lost time, potential fines and penalties, and so on.

Conflict (confrontational) crises

Conflict (confrontational) crises can arise, for example, because of clashing interest groups within a company or organization. One often hears about “internal politics” or “internal political games” in various organizations and companies.

Internal organizational conflicts can cause many difficulties for a company. The first is the lack of clear leadership, as leadership is usually challenged during conflicts. In business, you need a person who can lead the team, conflict can prevent this. Another problem caused by conflicts is that employees are unable, and frequently unwilling, to trust each other. When there is a lack of trust among employees, it is difficult to cooperate and perform tasks together. The third issue is that conflicted people do not communicate with each other unless they have to. There is no way to get a message across when you don’t want to. This means that the organization can have a difficulty with decision-making, for example, and this can lead to further issues.

In the case of internal conflict, you have to find a way to resolve it. Conflict management is a separate field and perhaps material for a separate entry. In general, conflict needs to be resolved (not extinguished, resolved), such as holding a meeting with all team members and explaining the situation. In business, we may not like each other, but we should be able to work with each other. If we don’t know how to do that, then we should part ways. After such a meeting, you should make sure that everyone agrees with the decision that was made. It is also important to make sure that everyone is clear about their role in the situation.

Crises arising from hostile actions

Crises arising from hostile actions can include global actions such as armed conflict, as well as local ones such as terrorist activities, sabotage, or even the actions of competitors.

It is easy to imagine a business crisis that is caused by a competitor who decides to use unethical or illegal practices to pick up customers, destroy a company’s reputation, or otherwise harm the company. The means may vary, but the goal is usually one, which is to destroy the company to take over its market.

Examples include acts of unfair competition, such as collusion by other market participants to get rid of another organization. Some of these unethical or illegal methods are used by competitors, others by the government. The government may use unethical or illegal methods to harm a particular organization, such as by giving contracts or exclusive rights to some activity to a competing (preferred) company.

In some cases, the attack doesn’t even have to be directed at the company. It could be an attack on a specific employee, supplier, or customer. In such a situation, it may be (and typically is) necessary to act against the attacker. It is necessary to act quickly to limit the damage, and sometimes even to save the company.

Crises resulting from organizational negligence

One of the more obvious categories is crises arising from organizational negligence. These range from the kind of simple “someone didn’t include something in the procedure,” to errors in strategy, such as directing attention to the welfare of shareholders rather than customers, to errors in management. This category often reveals itself as an escalating crisis.

Organizational negligence is a common cause of corporate failure. They can be the source of many business problems. This common issue, could be avoided by implementing operating procedures, or using proper safety plans. Companies are prone to accidents. They can be small or large, but they are all exposed to the same risks. Accidents can be caused by a variety of factors, ranging from the company’s product, employees, equipment, and the environment.

Imagine a case where a company operated in a way that was unsafe for its employees. They did not follow safety procedures, and management did not take the necessary steps to ensure safety. The factory had been operating for a long time and was well established. However, over the years there had been more than a dozen accidents at the plant, and management had failed to act and implement the necessary changes. Another accident occurred. This time, an employee was electrocuted when he came into contact with an unprotected electrical wire on the production line. The employee suffered severe health damage and decided to sue his employer. The investigation revealed that management knew about the dangers of working in this factory, yet continued to operate without taking any steps to prevent a recurrence of such an accident.

The result may have been that the company incurred litigation costs and injury compensation payments. The factory lost its reputation and people began to leave their jobs, fearing for their health and lives. In addition, unions launched strike action to force an upgrade in safety. This translated into the need to conduct an audit and implement a new security system. As a result of management negligence, security procedures were not in place, leading to an avoidable business crisis.

Crises resulting from workplace violence

Media reports are increasingly reporting on crises resulting from workplace violence. This is not just physical violence, but also psychological or economic violence. I know of a case where practically the entire team handed in their terminations due to a new boss who turned out to be a bully.

An example would be a manager who bullies his subordinates. He forces his subordinates to work overtime without proper pay or rest breaks. Or he assigns unreasonable tasks that he does not delegate properly. He is not fair to his employees. Subordinates do not even try to talk to this manager’s supervisor because they are afraid of upsetting him if information about their complaint reaches him. The manager’s behavior undermines the morale of employees, who fear being fired. They are afraid to tell higher management about what is happening because they fear retaliation. People start quitting, rumors start circulating that this organization is not a good place to work.

It turns out that the organization is beginning to struggle with a shortage of people to work with. Few people want to get hired, even though the company offers a very attractive social package in addition to salary. Due to the lack of manpower, the execution of orders is delayed, the organization has to pay contractual penalties. Moreover, some customers are withdrawing from cooperation, as are suppliers who are not getting paid on time. Another case of a crisis that could have been avoided.

Crises resulting from rumors and hostile communication

Last, but especially relevant these days, rumors and hostile communication can be a source of crisis. I’m sure most people have heard of at least one case where one organization released (officially or not) unfavorable (and not necessarily true) information about another organization, which caused big problems for the latter. At least initially because there were also cases where the “attacking” organization became a victim of its actions.

A business rumor is information that may not be true, but which has been believed and spread in the community. Rumors can cause a business crisis for two reasons. The first reason is that the rumor is untrue and harms the organization in question. The second reason is that the rumor is true, but the company fails to deal with it properly, to respond appropriately.

An example of a business rumor is when someone starts to believe that a company is collapsing, when in fact this is not the case at all. Consider the following scenario, the rumor began with a blog post that was written about a certain company. The blogger claimed that the company was about to declare bankruptcy. He also stated that the company has been selling the same product for a long time and doesn’t really have an idea about its future.

The company responded to this blog post. It informed the blogger that the company will not go bankrupt and that it has a future, with plans to release new products. The company also stated that the blogger was wrong about the company and that he was not a reliable source. The blogger ignored the company’s response and continued to spread the rumor. The rumor spread to other blogs. People began to believe the rumor. They started sharing the blog post and the rumor on their social media accounts.

After a while, the company received countless negative comments and feedback. The company was forced to moderate comments on its social media accounts. In addition, the trust of customers, suppliers, and investors was shattered, making it necessary for the company to take additional measures to rebuild that trust.

Moreover, it’s worth to mention the cancel culture. This is an increasingly popular form of action in social media. It is a method of punishing individuals or companies that are perceived as problematic or offensive. It is a form of mob justice that is used to force certain behaviors from companies, or to silence people who have dissenting opinions.

As of 2019, invalidation culture is on the rise. Social media users were quick to label anyone with whom they disagreed as a racist, sexist, homophobic or simply “the bad guy.” They expressed their dissatisfaction on Twitter, Facebook, Instagram and other platforms. They used phrases such as “cancel,” “unfollow,” “block” and “report.”

The cancel culture has become ubiquitous and out of control. People use it to attack those with whom they disagree on political, racial and sexual grounds. They also attack companies that act differently from what they expect. It is used to silence those who have a different opinion. It is also used to “punish” those who have not actually done anything wrong, but fall victim to an online lynching. This is a consequence of the speed at which information spreads on the Internet. People often “act” by passing on a post, clicking “unfollow,” etc. without checking whether the information on which they base their decision, which they pass on, is true. The Internet has become an unpredictable place. Even if someone has the best of intentions, someone else can take advantage of this and make a particular company face a crisis.

Summary

In conclusion, the nine sources of crises presented show that a crisis can come from any direction. Each crisis shows that the future can be unpredictable, volatile, and that it depends on a great many factors. However, the above list is also a source of valuable information. The more we know about the causes of crises, the more we can prepare for them. And it is the avoidance of a crisis that should be the goal of every organization. Prevention is better than cure – as Hippocrates, the forerunner of prevention, proclaimed.