Question

Crisis management is one of the major functions of the manager. Discuss three major causes of crisis in organizations and the procedures in managing them effectively.

Stakeholder management is critical to the survival and success of organizations. Organizations have many stakeholders/publics and so are their expectations and demands on the organization. These different and many expectations, coupled with the limited resources at the disposal of the organization put pressure on managers to prioritise these stakeholders and their expectations. As the Public Relations manager of a company of your choice,

A. Distinguish between stakeholder theory and shareholder theory.

B. Discuss why it is important for the organization to manage its publics.

C. Discuss what stakeholder salience is and its implications to organizational success.

Answer 1

• The three major causes of crisis in organizations are:

- Financial crisis- this crisis occurs when a business loses its revenue and its assets become a lower value than the liabilities for the firm. The company will be unable to pay its debts in this crisis. This crisis occurs when there is significant drop in demand or service for the company. The best way to manage crisis is to attract investors and influx the organization with money. This would improve the process and the company would be in a better position to handle the crisis. The company needs to look for new ways to generate income in the long-term and its ability to adapt to the changes in demand.

- Technological crisis- This crisis occurs when the organization’s technology fails. For example, in e-commerce companies, if the server breaks down, then it would lead to major loss for the company. To manage this crisis, the IT team needs to work immediately to resolve the issue. Also, the company should have backup of the data so that it can be retrieved in such crisis. After the problem has been resolved, the IT team needs to analyze the causes and set up safeguards to prevent such occurrence in future.

- Natural crisis- this is the crisis that occurs due to the natural disasters. The company needs to assess its environment and create a business development plan (BCP) to continue the normal course of business in crisis. Emergency responses also should be set up by the company to respond to this natural crisis in the event of happening.

A. According to the shareholder theory, the shareholder own part of the company’s shares and stocks. The management has the duty to increase the returns for the shareholders. The corporation’s primary responsibility is to meet the needs of the shareholders as they are in-charge of the company’s resources allocation (such as investments). On the other hand, the stakeholders have an interest in the company for other reasons than just stocks or shares. According to the stakeholder theory, the business/corporation have an ethical duty to the shareholders and the individuals who are interested in the performance of the company and those who would be both harmed or benefit by the performance of the company.

B. It is important for an organization to manage its publics because it helps to establish the brand identity in the society and among the employees. It also helps to market the business more effectively than those without PR. PR marketing include raising awareness. This makes the people realize that the company/business exists. PR also ensures that the company’s image is maintained through its marketing activities. Managing publics also includes raising the bar for the company’s authority, relationship management and the company’s ability to manage its reputation or image. It also increases sales eventually increasing revenue.

C. Stakeholder salience refers to the extent they are vocal and visible for a project or purpose. It is important because a high vocal stakeholder would be able to define the requirements which are the key factor in stakeholder management. The stakeholder takes decision that is beyond their usual expertise and defined authority. They are important for the success of the organization as they define what is required and also take decisions that are pertinent for the pursuit of organizational goals. In other words, stakeholder salience refers level of priroity the managers give to their stakeholders and their claims in the decision making process. This involves participative decision making the whole project a success.