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Are Organizations Ready for Crisis? A Managerial Scorecard

Anne H. Reilly

This exploratory study sought to develop and test a new construct, "crisis readiness," and to examine the relation- ship of organization size, prior experience with crisis, and managers' job level with crisis readiness. A survey methodology was used to measure managers' perceptions of their organizations' levels of readiness for crisis. In the sample of managers surveyed, the seventy.^nine respondents reported on average slight agreement that their organizations were ready for crisis, although they disagreed on average that they were well-informed about their organizations' crisis management repertoires. The study found strong support for the hypothesis that in- creasing size is associated with increasing crisis readiness, and partial support for the hypotheses that prior experi- ence with crisis and higher job levels are associated with higher crisis readiness scores. The implications of these results are discussed, together with some suggestions for organizations concerned with increasing their readiness for crisis.

AS THE BUSINESS environment gets more complex, so do the crises ex- perienced by organizations. The ex- amples of Tylenol, Challenger, and Bhopal illustrate that major crises not only affect the organization involved,

Anne H. Reilly is a doctoral candidate in the Department of Organization Behavior, Kellogg Graduate School of Management, Northwestern University, and a former commercial banker. Her primary research interests are organizational crisis, strategy, and change. She is presently at work on her dissertation, which focuses on strategic preparation for better crisis management in the banking industry.

The author gratefully acknowledges helpful comments by Robert Duncan, Denise Rous- seau, Larry Cummings, and Robert Dewar on an earlier version of thispaper.

SPRING 1987

but also have significant repercussions throughout the community, the in- dustry, and sometimes the world. Crisis management is becoming an increasingly important issue as man- agers seek ways to cope effectively with these high-magnitude threaten- ing events.

To date, most of the organizational behavior research on crisis has focused on case studies of specific crisis events, frequently political crises (Her- mann, 1972; Allison, 1971; Starbuck, Greve & Hedberg, 1978). The study described in this paper uses a different unit of analysis. Instead of con- centrating on particular events, this study addresses the general issue of

crisis readiness in organizations. The study surveys individual managers about their perceptions of .their firms' readiness for crises. Managers are an important component of an or- ganization's readiness for crisis be- cause managers are critical actors in any organizational change situation (Tushman & Romanelli, 1985; Ham- brick & Mason, 1984).

This empirical study had several goals. First, .this study proposed a new construct, "crisis readiness," and conducted an initial empirical test of the construct's validity. The concept of crisis readiness merits examination because of its implications for effective crisis management: an organization

which is ready to cope with crisis should be better able to manage it, ceteris paribus, than an organization which is not prepared. A survey in- strument was developed to measure perceived crisis readiness, and its psychometric properties were assessed. This instrument is a useful diagnostic tool, enabling an organization to ex- amine, from its managers' perspective, the firm's ability to cope with tin- expected threats. The instrument identifies weak spots in the firm's crisis management repertoire, and it can sensitize the organization's mem- bers to the possibility of crisis occur- ring.

In addition, this study also sought to explore the relationships between certain key organizational character- istics and perceived crisis readiness rating. Data on these relationships are useful in determining what factors play a part in improving an organi- zation's readiness for crisis. Testing these hypotheses is also important for purposes of integrating crisis readi- ness into the existing organization theory research. Finally, this study represents exploratory research with the goal of learning more about the domain of organizational crisis. The data generated from this study will be useful in both theory-building and future research, as it provides some insights into managers' perceptions of the general organizational crisis do- main.

DEFINING ORGANIZATIONAL CRISIS

A review of the organizational crisis literature shows that crisis has been defined in numerous ways, with multiple criteria. According to Her- mann's definition (1963, 1972), a crisis is a situation incorporating three conditions: (1) a threat to high priority goals; (2) a restriction in the amount of time available for response; and (3) a surprise to decision makers (1972:13). The managers inter- viewed by Reilly (1986) suggested that a situation represents an organi- zational crisis if it manifests the fol- lowing five attributes: high magnitude, requires immediate attention, an ele- ment of surprise, the need for taking action, and is outside the organiza- tion's control. Some researchers also

argue that an organizational crisis is best viewed as a turning point (cf Turner's "precipitating event" (1976); Kanter's "galvanizing event" (1983)).

The definition of organizational crisis used here draws from Milburn, Schuler, and Watman's concept of organizational crises as "situations in which organizational survival is, and is perceived to be, at stake" (1983): 1161). This definition implies ele- ments of high magnitude, the need for taking action, and the necessity of a timely response. Specifically, the survey instrument defined an organi- zational crisis as a situation which potentially threatens the existence of the affected organization.

THE STRATEGY OF CRISIS READINESS

Many researchers have noted that an organizational crisis can serve as a determinant of a firm's strategy, forc- ing an abrupt change in a company's strategic plans and orientation (Mintz- berg and Waters' "imposed strategy," 1985; Ouinn, 1977; Tichy, 1983). Van de Ven and Hudson (1985), sug- gest that crises may sometimes even be necessary for an organization to reach its action threshold for making needed shifts in its strategic plan. As Pennings notes, "it may be a crisis situation that provokes a decision leading to a change in the past strategy toward a new direction in the future" (1985: 4 ) .

The view of organizational crisis taken in this study adds a reciprocal dimension to the relationship between crisis and strategy. Not only does crisis affect strategic outcomes, but strategy affects crisis outcomes as well. Like Hrebiniak and Joyce (1985), this perspective proposes tiat both environmental determinism (the occurrence of threatening events) and strategic actions (an organization's crisis management repertoire) must be studied in order to fully explain the crisis outcome. An organization which has strategically prepared for potential crisis should be better able to manage the threatening situation, ceteris paribus, than an unprepared counterpart.

Strategic preparation for crisis is critical to effective crisis management

for numerous reasons. First, crisis readiness strategies can improve the environmental enactment process (Pfeffer & Salancik, 1978) through making potential crises salient to the firm (cf Kahneman, Slovic & Tversky, 1982). Identifying potential weak spots in the organization's crisis man- agement repertoire, such as informa- tion dissemination or media relations, can serve to counteract any illusion of invulnerability (Janis & Mann, 1977) to crisis.

In addition, scholars and practi- tioners alike have argued for the bene- fits of rehearsing for crisis (cf Milburn et al, 1983; Fink, 1986), as the mili- tary does with its war games. Kiesler and Sproull note that the process of preparing may be as important as the content: "The plan itself may not work, but planning activities pro- vide an opportunity for cognitive re- hearsal of coping with high uncer- tainty" (1982:563). Finally, crisis readiness can serve as an important means of building slack (Thompson, 1967; Pfeffer and Salancik, 1978) into the organizational system, slack which can provide additional resources at a time when resource availability is critical. For example, if time and managerial attention are assumed to be crucial crisis management resources, a crisis preparation plan can serve to buffer the demands on those resources during a crisis (Fink, 1986; Smart, Thompson, and Vertinsky, 1978).

THE CRISIS READINESS CONSTRUCT

The forms and natures of possible organizational crises are infinite, and bounded rationahty clearly prohibits organizations and individuals from developing specific contingency plans for every conceivable crisis situation. Crisis readiness is therefore defined broadly here as the readiness to cope with the uncertainty and change en- gendered by a crisis. Crisis readiness is an "umbrella strategy" (Mintzberg and Waters, 1985): an umbrella of crisis readiness general guidelines which are appropriate for complex, unpredictable, and uncontrollable en- vironments (cf Mitroff, 1986).

The construct of crisis readiness is proposed to have the six core com-

80 COLUMBIA JOURNAL OF WORLD BUSINESS

ponents listed below. Each component was operationalized in this study using a separate subscale to assess managers' perceptions of the particular dimen- sion.

1. The organization's ability to re- spond quickly to a crisis.

2. How informed the managers are about the organization's crisis management repertoire.

3. Managers' access to the organi- zation's crisis management plans, resources, and tools.

4. How adequate the firm's strate- gic crisis planning is.

5. The organization's media man- agement ability in a crisis.

6. The perceived likelihood of crisis striking the organization.

Together, these components are pre- dicted to denote how ready an organi- zation is to deal with potential crises.

THE SIX FACETS OF CRISIS READINESS

Organization's Quick Response Ability

In general, an organization unable to respond rapidly to a potential crisis will be less ready to manage that crisis effectively (cf Milburn et al., 1983; Reilly, 1986). Most crises are characterized by a sense of urgency; a rapid response is therefore critical in controlling the damage or avoiding the losses engendered by the threaten- ing situation. Response time in crisis may be determined by numerous or- ganizational characteristics or proced- ures: e.g., its ability to make appro- priate decisions quickly (cf Janis and Mann, 1977; Kiesler & SprouU, 1982); its flexibility (cf Harrigan, 1985); and the level of organization members' resistance to change (cf Staw, 1982; Weick, 1982).

How Informed the Managers Are

If managers and other key em- ployees know little about the resources and tools allocated for crisis response, they cannot be ready to deal with the occurrence of unanticipated threats (cf Turner, 1976). Their efforts to respond to a crisis situation will be short-circuited by the unavailability

of necessary information which can be as basic as the home telephone numbers of key managers or the firm's legal counsel. Furthermore, restrictions in communication and in- formation dissemination processes, as well as content, can also endanger an organization's crisis readiness (Mirvis and Marks, 1986; Staw, Sandelands & Dutton, 1981).

Managers' Access to Crisis Management Resources

An organization's readiness for crisis depends as much on key per- sonnel's access to its crisis manage- ment repertoire as it does on their level of infonnedness about that reper- toire. Good decisions and knowledge about crisis management plans are of little use without effective deployment of resources (cf Smart, Thompson & Vertinsky, 1978). Organizational structure (such as Kanter's integrative versus segmentaUst organizations, 1983) may determine resource access, as may power and politics. Managers may vie for control over crisis man- agement resources: "emergencies are distinguishing for the actors involved . . . Crises are occasions for managers to demonstrate competence," accord- ing to Kiesler & Sproull (1982:562).

The Adequacy of Strategic Crisis Planning

This dimension aims to capture the organization's overall focus on strat- egically planning ahead specifically for crisis. An organization with inade- quate crisis planning may not be attending to tiie abrupt shifts or ac- cumulating problems in its environ- ment (Turner's "failures of foresight," 1976; Aldrich, 1979) which can pre- cipitate a crisis. As Pfeffer and Salancik (1978) note, if potential crises are not salient to the organiza- tion's selective perception mechanism, and such "environmental changes are consistently missed, the organization will be unprepared to face ithreats to survival" (1978:81). In addition, a firm with inadequate crisis planning is unlikely to have specific resources allocated to crisis preparation—e.g., backup computer systems or a public relations department, thus lowering its readiness for potential crises.

Organisation's Media Management Capabilities in Crisis

The fifth facet of crisis readiness proposed in this study adds an ex- ternal dimension to the crisis man- agement repertoire. Efficient, rapid internal operations may not be enough to ensure effective crisis management; the organization may also have to interpret a major crisis event to its environment. According to one ex- ecutive interviewed by Business Week, "If you aren't geared up and ready to inform the public [about the crisis], you will be judged guilty until proven innocent." (12/23/85:75). Inmost cases, the interpreter of the crisis will probably be the media. Because the potential consequences of mishandling the media can be so high (cf Fink, 1986), media management ability is proposed as an important component of crisis readiness.

Managers' Perceived Likelihood of Crisis Occurring

Assumptions of rational organiza- tional behavior (cf Thompson, 1967) would suggest that an organization which perceives a high probability of experiencing crisis would attempt to deploy resources to prepare for such an event, hence increasing its crisis readiness. However, an organization which is likely to be hit with a crisis may not exhibit high levels of quick response ability, informedness, access to resources, media management cap- abilities, and adequate crisis planning.

Even if an organization believes that it is subject to potential crises, it may not act on this attitude by preparing for them. Perhaps the or- ganization has fallen prey to an "illu- sion of invulnerability" (Janis and Mann, 1977) because of a sincere belief that the firm can handle any- thing the environment might throw at it. Or the organization may play ostrich, responding to a threatening environment with unconfiicted inertia (Janis, 1985; Janis and Mann, 1977) or threat-rigidity behavior (Straw et al., 1981). Furthermore, the perceptions of one manager may not coincide with those of the organiza- tion's dominant coalition (Thompson, 1967; Pfeffer & Salancik, 1978): al- though an astute individual manager

SPRING 1987 81

may perceive a high probability of crisis striking his organization, the rest of the organization may assign zero probability to the occurrence of crisis.

The first five components of the crisis readiness construct are all ex- pected to be positively related to an orgatiization's "crisis readiness" as well as positively related with each other. However, because of the rea- sons outlined above, the sixth pro- posed component — perceived likeli- hood of crisis occurring — and the other five dimensions are predicted to be unrelated. Thus,

Hypothesis la:

Managers' perceptions of quick response ability, informedness, resource access, adequate crisis planning and media management win all be positively and signi- ficantly related with each other.

Hypothesis lb:

Managers' perceptions of the likelihood of crisis occurring to their orgatiizations will not be related to the other five com- ponents of crisis readiness.

THE RELATIONSHIP OF CRISIS READINESS WITH OTHER ORGANIZATIONAL VARUBLES

This study also sought to test some hypotheses concerning the relationship between certain key organizational variables and perceived crisis readi- ness. Three factors were proposed as important independent variables in- fluencing managers' perceptions of their organizations' crisis readiness: (1) the orgatiization's size; (2) the company's prior experience with crisis (two organizational-level variables); and (3) the manager's job level (an individual-level control variable). As will be discussed below, prior research yields conflicting predictions concern- ing the direction of these variables' effects on crisis readiness scores.

An aggregate measxure of crisis readiness consisting of the sum of all item scores on the six subscales was used as the dependent variable in testing this model. A low score on this aggregate measure denotes a high degree of perceived crisis readiness.

Organization's Size

The substantial research on the re- lationship between organizational size and various organizational outcomes provides conflicting implications re- garding the association between or- gatiizational size and managers' evalu- ations of crisis readiness. Size was operationalized in this study as a five- level continuous variable according to the number of employees. The five levels used were 1-25; 26-100; 101- 1000; 1001-10,000; and over 10,000 employees.

On the one hand, some research suggests that increasing size may be associated with decreasing crisis readi- ness. Large organizations may suffer from cumulative control loss (Wil- liamson, 1975), which restricts their cotnmunication and itiformation dis- semination ability, while resource ac- cess may become highly centralized and restricted in large firms (cf Kanter, 1983). Hannan and Freeman (1977) argue that large organizations are more likely than smaller ones to exhibit structural inertia; hence, com- pared to small firms, big companies could be less able to respond quickly to a crisis situation. Big companies in the life cycle stage of bureaucratic decline may respond to potential crises with formally rather than sub- stantively rational behavior programs (cf Dewar & Walsh, 1985). In Star- buck's (1983, 1985) terms, they may act as bureaucratic action generators, responding with an tmreflective, in- appropriate approach to a potential crisis.

In contrast, other research on size imphes that larger orgatiizations may be more ready to cope with crisis than smaller firms. Because bigger organi- zations tend to have more slack re- sources (Katz & Kahn, 1966), they may be more able to survive the en- virotmient resource scarcity engender- ed by a crisis than may a small un- dercapitalized organization (Aldrich, 1979). Increasing size has been as- sociated with an increasing number of specialized functions and standard- ized procedures (cf Pugh, Hickson, Child & coUeagties, 1963, 1972, 1974); hence, big companies are more likely to have specialized crisis management teams and tools than smaller organizations. Furthermore,

because of their larger resource pool and specialized structure, bigger or- ganizations will be more apt to have specific boundary spatining activities (Thompson, 1967; Pfeffer & Salanick, 1978), such as public affairs depart- ments or economic and industry an- alysts on staff. This focus on the environment could increase crisis readiness through improving the or- ganization's quick response ability and crisis preparation orientation.

Here, it is proposed that the bene- fits of more resources, specialized functions, and greater environmental scanning will outweigh the disadvan- tages of structural inertia and bureau- cratic action generation in perceptiotis of crisis readiness. Hence,

Hypothesis 2: As organizational size increases, crisis readiness scores increase.

Organisation's Prior Experience with Crisis

As with the research on size, the organizational theory literature has some contradictory implications for the relationship between prior experi- ence with crisis and present level of crisis readiness. A dummy variable was used to operationalize past history of crisis in this study.

Some research would suggest that past experience with crisis may yield some organization behavior which makes the company less ready to cope with future crises. For example, a prior crisis may have strengthened de- fensive routines (cf Argyris & Schon, 1978) or conflict, (cf Milburn et al., 1983) within the organization, or en- gendered the threat-rigidity effects noted by Staw, Sandelands, and Dut- ton (1981), all of which could lower the firm's quick response ability as well as restrict information dissemina- tion and resource access. Further- more, several researchers have argued that organizational actions are char- acterized by rigid tmderlying assump- tions which are difficult to change (cf Mitroff, 1984; Starbuck, 1985; Weick, 1982). Such assumptions (for ex- ample, "money spent to prepare for something which will probably never occur is money wasted") may persist despite strong historical evidence to

82 COLUMBIA JOURNAL OF WORLD BUSINESS

the contrary (e.g., poor performance in prior crises), keeping the organiza- tion's crisis readiness low.

However, other research provides the opposite implications, suggesting that organizations which have experienced crisis in the past should exhibit greater readiness for future crises. Proponents of organizational learning (cf Argyris & Schon, 1978) would argue that an organization which has been through a crisis should have gained knowledge about how to re- spond to future crises from the crisis experience. For example, if the firm mismanaged its media relations dur- ing a prior crisis, the organization would now be more knowledgeable about dealing with the media. Vicar- ious learning may also occur (cf House & Singh, in press) from the organization's industry competitors. If the industry context is characterized by recurring threats, the organization may learn how best to cope with them through both its own experience with past coping behavior plus the observed behavior of its industry competitors. Furthermore, the sahence heuristic (Kahneman et al., 1982) may affect managers' evaluations of their or- ganizations' crisis readiness. If the company has had past experience with an organizational crisis, especially re- cent experience (cf Hambrick, 1981), managers at all levels may be aware of and informed about the firm's crisis readiness repertoire.

The prediction made here is that organizational leaming and salience will outweigh threat-rigidity effects and rigid assumptions in affecting present crisis readiness levels. Thus,

Hypothesis 3: An organization which has ex- perienced a crisis in the past will show a higher crisis readi- ness score than an organization which has not experienced a crisis.

Manager's Job Level

Given the methodology of this study, manager's job level was pro- posed as an important individual-level control variable because of its poten- tial inflationary impact on organiza- tional crisis readiness ratings. Studies

by Hambrick and his colleagues (cf Hambrick, 1981; Hambrick & Mason, 1984) of the effects of top manage- ment characteristics on organizational outcomes have shown that job level (along with other variables such as age, education, and career experi- ence) can affect an executive's per- ceptions about his organization as a whole. In this study, job level was operationalized as a continuous vari- able with six levels, ranging from (1) owner/officer to (6) line or staff em- ployee. The same coder assigned all job level ratings in order to assure consistency across levels.

Several reasons may explain why a higher job level may be associated with a higher rating of crisis readiness. First, compared to lower level man- agers, upper level managers tend to have longer tenure with their firms, and longer tenure has been related to greater commitment (cf Salancik, 1977). Higher level executives who are more commited to their firms may tend to view their companies favor- ably across the board; this halo effect may spill over into the crisis readi- ness rankings. Second, because of the nature of their powerful positions and their limited peer group, top execu- tives may also be more prone than middle or lower level managers to the effects of illusion of control (Langer, 1975) and group think (Janis, 1985; Janis & Mann, 1977). Upper level managers may thus be more likely than lower level managers to believe that they and their organi- zation are ready to manage any crisis. Finally, the salience heuristic (Kahne- man et al., 1982; Kiesler & Sproull, 1982) may also play a part: the higher an executive is in the organi- zation, the more likely s/he is to know about and have access to any crisis readiness resources the com- pany has in place.

This study attempts to control for the predicted positive relationship be- tween managerial position in the hierarchy and the reported organiza- tional crisis readiness ratings by in- cluding job level as a control variable. Thus,

Hypothesis 4: The higher the job level, the higher the crisis readiness score.

METHOD

Respondents

Seventy-nine individuals from sev- enty different organizations located primarily in the Midwest voluntarily completed the survey instrument. A wide range of industries and occupa- tions was represented in the sample (Kish's purposive sampling, 1965), ranging from retail store manager, newspaper editor, attorney, hotel pub- lic relations executive, banker, pharm- aceutical researcher, marketing con- sultant, physician, academic admini- strator, accountant, engineer, software sales manager, to entrepreneur. All respondents were employed full-time; 97% were coUege graduates. Their career backgrounds were varied. Fifty- two percent of the sample reported job experience in sales, marketing, or distribution at some point during their careers; 44% had had experience in general management; 32% had worked in finance or accounting; 29% in human resources or public rela- tions; 27% had worked in production and operations; 20% had job experi- ence in engineering, design, or R & D; and 10% reported experience in legal work. The mean tenure in their present position was 3 years, with a range in tenure from a few months to ten years. The respondents ranged in age from 24 to 75, with a mean age of 36.

Procedure

The survey instrument used in this study was a four-page questionnaire. For purposes of inducing a common frame of reference, the cover letter included the following definition of organizational crisis: "A situation may be considered a potential organiza- tional crisis if it represents a significant threat to the existence of the affected organization." In addition, three ex- amples of organizational crisis were provided: Union Carbide's industrial disaster at Bhopal, the Tylenol tamp- erings, and a hypothetical small con- struction company whose bookkeeper embezzled the company funds and fled to South America.

The first section of the survey in- strument included twelve demographic questions in three categories: organi-

SPRING 1987 83

zation (e.g., size, company's experi- ence with crisis); job (e.g., occupa- tion, tenure in position); and indi- vidual (e.g., age, personal experience with organizational crisis). The second section of the survey consisted of thirty items about organizational readi- ness for crisis and six items about specific crisis management tools and procedures. The respondents were asked to rate their level of agreement or disagreement with items 1 through 24 using a five-point scale anchored by 1 = Stron^y Agree and 5 = Strongly Disagree. The remaining twelve items also used five-point scales, but the anchors were specific to the questions asked (such as very important to very unimportant, or very accessible to very inaccessible). The five-point response array was judged adequate, as only 3 respond- ents marked a few in-between values. Two missing data values ("I don't know" and "Not relevant") were provided.

The crisis readiness items in the survey instrument comprised six sub- scales. Each scale originally con- sisted of five items measuring the respondents' perceptions of the six proposed dimensions of crisis readi- ness: quick response ability, informed- ness, resource access, media manage- ment ability, adequacy of crisis plan- ning, and perceived likelihood of crisis. One outlier item each was eventually removed from the access, media management, and likelihood subscales.

RESULTS

Measures and Indices

Table 1 lists the mean values for the instrument's six scales. As shown, the respondents indicated strongest agreement with the likelihood of a crisis occurring to their respective or- ganizations (mean response = 1.82). The mean responses for the ability to respond quickly, access to crisis management resources, media man- agement readiness, and crisis planning scales were on the agreement side of the scale ratings, with the mean values relatively close to the neutral mid- point anchor. And in general, the respondents considered themselves

somewhat ill-informed about their or- ganizations' crisis management reper- toires (mean response ^ 3.16). The reliability indices were calculated by SPSS-X using Cronbach's alpha pro- cedure (SPSS, Inc., 1986). As Table 1 shows, the reliabilities of these ex- ploratory scales were good, particular- ly the scale reliabilities for crisis planning, informedness, and quick response ability.

Intercorrelations

One of the goals of this exploratory research was to examine the construct validity of the crisis readiness concept, testing how the proposed subscales related to each other (Ghiselli et al., 1981). Table 2 summarizes the in- tercorrelations among the six proposed dimensions of crisis readiness. The table shows strong support for both Hypotheses la and lb. As predicted, quick response, informedness, access, crisis planning, and media manage-

ment were all positively and signi- ficantly correlated with each other, and there was no statistically signi- ficant relationship between perceived likelihood and the other five dimen- sions of crisis readiness.

Factor Analysis

The survey items were factor an- alyzed in order to identify the com- mon dimensions of perceived crisis readiness underlying the measures. The SPSS-X principal analysis pro- cedure with a varimax rotation was used (cf. Comrey, 1973). With 27 items, and using the "little jiffy" tech- nique (Comrey, 1973), the factor analysis yielded three factors. Given that the crisis readiness construct pro- posed six dimensions, the principal analysis procedure was rerun with four, five, and six factors. But the three-factor structure remained clean- est. These factors explained 53.2% of the common variance in perceived

TABLE 1

Scale Means

Scale

Quick Response

Informed

Access to Resources

Crisis Planning

Media Management

Likelihood

and Cronbach's

No. Items

Alpha Reliability Coefficients

Mean*

2.66

3.16

2.61

2.69

2.54

1.82

Reliability Coefficient

.858

.891

.772

.896

.744

.713

* On a five-point scale, with 1 = Strongly Agree

TABLE 2

Quickness

Informed

Access

Crisis Planning

Media

Likelihood

Scale

Inforined

. 7 4 * '

Intercorrelations

Access

. 6 2 * *

.77**

Planning

. 8 7 * *

. 8 8 * *

. 6 7 * *

Media

.28*

. 5 2 * *

.41 * *

. 3 9 * *

Liicely

.05

.09

.05

.02

-.04

** p < .01 * p < .05

(two-tailed tests) n = 79

84 CoLUMBLA. JOURNAL OF WORLD BUSINESS

crisis readiness. Table 3 presents the results of this factor analysis. The first factor generated explained 40.5% of the common variance. As shown, it appeared to be a general factor comprising high factor loading on all five Planning items, all five Quick Response items, all five Informed items, and all four Access items. The four Media Management items loaded together on Factor 2, while the third factor was comprised of the four Likelihood items.

Regression Analysis

This study also explored the rela- tionship of crisis readiness ratings with several organizational character- istics. Table 4 summarizes the results of the multiple regression analyses. As shown. Hypothesis 2 was sup- ported, as increasing organization size was significantly related (P < .02) to higher evaluations of crisis readi- ness. The results showed partial sup- port for Hypotheses 3 and 4, with beta coefficients in the predicted di- rection but not statistically significant. As proposed by Hypothesis 3, a com- pany which had experienced crisis in the past was associated with a higher level of current crisis readiness. Table 4 also shows that the higher the job level, the higher the crisis readiness score, as predicted by Hypothesis 4.

As discussed above, perceived likelihood of crisis was predicted to exhibit a different response pattern than the other components of crisis relationship; thus, this component re- ceived special attention in the an- alysis. First, size, experience with crisis, and job level were regressed on an aggregate crisis readiness score which excluded the likelihood items, but the same pattem of results was observed. These three independent variables were then regressed on the likelihood subscale alone. In this analysis, past experience with crisis was shown to be a statistically signi- ficant predictor of crisis likelihood scores.

Managers working for an organi- zation which had undergone a crisis in the past rated their organizations as more likely to experience crisis

than managers working for an organi- zation which had never experienced crisis. The other two independent variables had a minimum effect on these results.

DISCUSSION

Construct Validity

As discussed above, factor an- alysis of the survey item pool yielded

TABLE 3

Item

Factor Analysis of Crisis Readiness Items

Dimension Communality FACTORS 1 2

TABLE

Planning

Quickness

Planning

Quickness

Informed

Quickness

Informed

Quickness

Planning

Informed

Planning

Access

Informed

Access

Quickness

Media Management

Likelihood

Variance Explained

Variance Cumulative

.82

.72

.71

.72

.67

.73

.63

.65

.57

.56

.66

.70

.44

.58

.44

.42

.39

.23

.77

.55

.24

.26

.73

.37

.31

.26

.86

.84

.83

.82

.80

.76

.75

.74

.73

.71

.68

.66

.63

.59

.55

.48

40.5

REGRESSION COEFFICIENTS

Variable

Aggregate Crisis Readiness Score

Size

Past Experience

Job Level

• T h e

Beta

-.279

-.105

.172

lower the score, the higher the crisis readiness

.02

n.s.

.49

.61

.71

.47

6.8

47.3

.08

.84

.61

.55

.50

5.9

53.2

n = 79

SPRING 1987 85

a three-factor structure explaining a total of 53.2% of the common vari- ance. Although this study proposed six facets of crisis readiness, this three-component factor structure may be explained if crisis readiness is con- ceptualized as comprising both in- ternal and external elements. Factor 1 was a general factor loading on aU the Quick Response, Resource Access, Informedness, and Crisis Planning items. This pattern may imply that an organization's crisis readiness may include a four-facet concept compris- ing the firm's internal functionings. Perhaps these dimensions are per- ceived as too similar or too. closely related for managers to distinguish among them: e.g., quick response ability may be determined by level of informedness, resource access, and adequate crisis planning. This poten- tial explanation is strengthened by the statistically significant intercorrela- tions among the four subscales; as Table 2 shows, no intercorrelation is less than .62.

The remaining two scales broke out cleanly in the factor analysis. All four media management items loaded together on the second factor; all four likelihood items loaded onto Factor 3. These two dimensions reflect an ex- ternal dimension of crisis readiness: the ability to interpret environmental demands (perceived likelihood) and the ability to communicate with the environment (through media manage- ment) . Therefore, among this sample of managers, an organization was per- ceived as ready for crisis if its internal house was in order—as reflected in the Quick Response, Informedness, Access, and Planning dimensions— and if its external activities were under control—Media Relations and Crisis Likelihood Assessment.

The subscales themselves showed good reliability, as Table 1 illustrates, and they exhibited the predicted pat- tern of interrelationships. Table 2 indicates support for Hypothesis la and convergent validity (Cook & Campbell, 1979), with the first five dimensions positively correlated with one another (P < .05); in fact, nine of the ten intercorrelations were signi- ficant at the P < .001 level. In addi- tion. Table 2 showed that, as Hypo- thesis lb predicted, there was no

statistically significant relationship be- tween an individual's expectation of crisis occurring and his rating of any dimension of his organization's readi- ness for crisis. The results of both the scale intercorrelations and the factor analysis show clearly that man- agers can and do distinguish between assessing the probability or organiza-, tional crisis and assessing the level of organizational preparation for it.

Relationships with Other Variables

As shown in Table 4 above, the results of the multiple regression an- alyses provided strong support for Hypothesis 2, concerning the positive relationship between organizational size and perceived crisis readiness; partial support for Hypothesis 3, which predicted that a company which had experienced crisis in the past would be more ready for crisis at present; and partial support for Hypothesis 4 concerning the role of job level as a control variable in the equations.

The link between organizational size and crisis readiness found in this study is a strong one supported by both the regression and the correla- tional analyses. No sigiiificant rela- tionship was found between size and past history with crisis, or size and likelihood of future crisis. Hence, among this sample of managers, large organizations are not perceived to be more subject to crises; they are per- ceived to be more prepared for them. Furthermore, the correlation between size and job level was not significant, so the observed relationship between size and perceived crisis readiness is unlikely to be a sampling artifact due to job level of respondent.

The fact that Hypotheses 3 and 4 received support in direction but not in significance may be a function of this study's methodology. For ex- ample, managers whose organizations have experienced crisis may rate their organizations more harshly in terms of their present crisis readiness be- cause they remember the problems and mismanagement during past crises. Managers in companies who have not experienced crisis may therefore be rating their organizations' crisis readi- ness from a different baseline (Ghis-

elli et al., 1981). Job level may not have emerged as a statistically signi- ficant predictor of crisis readiness evaluations because of this survey's sampling plan. The manager re- spondents differed across levels as well as across organizations, and they were expected to differ in their knowl- edge of their firms' crisis management repertoires.

IMPLICATIONS AND CONCLUSIONS

Crisis readiness data generated from managers' perceptions of their organi- zation is important. This data is use- ful at the level of the single organiza- tion for measuring the managers' knowledge of the organization's crisis readiness procedures and plans, or assessing their access to crisis man- agement resources. This survey can be used to identify weak spots in an organization's crisis management rep- ertoire (e.g., media relations or com- munication networks), thus highlight-: ing potential difficulties in crisis man- agement plan formulation or imple- mentation. In addition, managers' perceptions about their organization's crisis readiness can be compared with the firm's public stance on crisis man- agement planning, as one means of contrasting desired crisis readiness with actual crisis readiness.

Furthermore, the results of this study have some broader implications for those firms concerned with in- creasing their readiness for crisis. Ac- cording to this sample of managers, there is a strong likelihood that their firms may experience a crisis in the future. This high probability assess- ment implies that crisis management merits the attention of a rational or- ganization (Thompson, 1967). How- ever, despite these managers' overall opinion that crisis is a likely con- tingency for their firms, this sample of managers reported only slight agreement that their organizations were ready for crisis. This gap be- tween high likelihood and low readi- ness suggests that prudent organiza- tions should: (1) reassess their as- sumption about the likelihood of crisis occurring, and (2) move to increase their readiness for crisis.

The dimensions of crisis readiness proposed in this study can provide a

86 COLUMBIA JOURNAL OF WORLD BUSINESS

useful framework for accomplishing these objectives. The first step is diagnosing the particular weak points. According to the study's results, while quick response ability, resource access, crisis planning, and media manage- ment ability are generally adequate, managers did perceive substantial room for improvement in these areas. Furthermore, this study revealed that organizational communication pro- cesses are clear candidates for in- creased attention in most firms. The manager respondents reported on average that they were not well- informed about their organization's crisis management repertoires. Qr- ganizations may be restricting crisis management information to all but a select few managers, a policy which has the advantage of confidentiality but the disadvantages of reduced in- formation fiow and fewer contributing decision makers.

The next step is to determine how organizational characteristics, such as the firm's strategy, structure, culture, and leadership, may be contributing to the specific suboptimal crisis readi- ness dimensions. For example, a slow crisis response ability may be a func- tion of a highly bureaucratic organi- zation which delays the crisis decision-

making process through rigid proce- dures and red tape. Step three involves modifying the organization's activities so as to improve its crisis readiness along the focal dimensions. For ex- ample, an internally-focused, produc- tion-driven organization may be able to strengthen its strategic crisis plan- ning process through adopting a long- term organizational strategy which focuses on external contingencies, such as industry changes and tech- nological shifts, as well as internal issues of efficient production.

This project's findings about the relationship of size and past history with present crisis readiness also im- ply some tentative suggestions for or- ganizations trying to improve their readiness for crisis. The managers surveyed in this study reported in- creasing size and past experience with crisis as positively associated with present crisis readiness. While these attributes may not be manipulable organizational characteristics, organi- zations may nevertheless be able to select some relevant aspects of large size and past history and incorporate them into their current crisis prepara- tion activities. For example, smaller organizations interested in raising their level of crisis readiness can copy

larger firms by allocating resources and people to environmental scanning and boundary spanning activities, thus speeding response time to external events. Organizations who have never experienced crisis can learn about crisis readiness techniques by carefully examining the organizational systems, procedures, attributes and behaviors of competitors who have undergone a crisis.

The issue of strategic crisis man- agement warrants such future study, and the field is open for research at multiple levels, from managers' per- ceptions of their organizations' crisis management repertoires to organiza- tions' tactics in responding to crisis situations. Given the increasing fre- quency of high-magnitude organiza- tional crises, perhaps the first step is to challenge our existing assumptions about an organization's susceptibility to crisis in today's complex environ- ment. According to Mitroff and ICilmann, "The phenomenon of cor- porate strategies forces us to acknowl- edge that our earlier images of the corporation and its relationship to the surrounding world are no longer suf- ficient to make sense of and to cope with the world in which we now live" (1984:18).

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