Tuesday, 22 April 2014


Malaysian Airlines MH 370 disappeared from the radar six weeks ago. The first words of the disappearance of the flight were communicated a few hours after the flight departure from Kuala Lumpur International Airport, and just before its expected time of landing at Beijing. Since that first
Crisis Management Lessons to Learn from Missing Flight MH370 Toyota and BP Management Masala V K Talithaya
communication, what the harrowed families of passengers of MH370 were getting was trickles of information – uncertainty as to where the flight had gone. There were no words as to what the Malaysian authorities were doing, though no doubt they must have been doing quite a lot to track flight. What was inadequate was information on what the authorities were doing. The crisis is still unresolved. But the disappearance of the flight provokes us to see two crisis situations and how they were handled and what lessons we can learn from them.

Toyota’s safety nightmares:

In August 2009 Toyota, the iconic auto maker, synonymous with quality, safety and customer care was on the news for all wrong reasons. An improperly installed all-weather floor mat from an SUV into a Lexus sedan by a careless dealer led to the accelerator of the car getting stuck resulting in a tragic, fatal accident. This was the most challenging crisis Toyota ever faced. The American press ran down Toyota, the government and witnesses to the plaintiff’s lawyers defamed the company. Irrelevant internal documents on the company’s public relations strategy were abused to fix Toyota. Allegations were made that the cars had electronic problems causing them to runaway and that the company had willfully concealed the facts from the public.

America’s National Highway Transportation Safety Authority (NHTSA) which was responsible for enforcing auto safety was attacked for being soft on Toyota. To undo the damage to their reputation they got tough with Toyota calling Toyota “safety deaf”. NHTSA drafted help from NASA at huge cost to tax payers to study the runaway problem. The study of Toyota electronics lugged on for ten month.

When the report came out in February 2011, the denouement was clear – there was no evidence of unintended acceleration caused by the electronics of the car. The only causes the mighty NASA found were improperly installed floor mats and sticky gas pedals that could be slow to return. There was only one accident caused by this, that of the Lexus in which the dealer had used the wrong floor mat and wrongly attached.

It was later found that NHTSA knew all along that the problem was with the floor mats and sticky pedals. Then why did they draft NASA to conduct the study? To convince the belligerent Congressmen who had concluded that the problem arose from electronics.

It was a costly proof NHTSA provided that after all they were right all along. Meanwhile, Toyota’s name was hauled in the dirt for a year. More than million dollars of tax payers’ money was spent. 

There are winners and losers as always – NHTSA got higher budget allocations, media had their sensational “revelations”, the ambulance chasers looking for hefty pay off by the courts.

But the biggest lessons were for Toyota to learn. One big lesson they learnt is that even a perceived problem is as damaging as the real problem. Secondly, how come Toyota did not challenge NHTSA that its electronics were in fine fettle and the problem resided elsewhere. Thirdly, how a giant of a corporation like Toyota, so sure of their engineering and technology could not give convincing response soon enough?

BP’s Deepwater Horizon Crisis:

In 2010 British Petroleum’s reputation was in tatters in the aftermath of the Deepwater Horizon explosion in the Gulf of Mexico resulting not only in death of eleven men, but also devastating damage to environment, particularly marine life.

Deepwater Horizon accident involved many companies: the rig was owned by Transocean, a contractor; the oil well was owned by BP (65%), Anadarko (25%) and Mitsui (10%) and therefore they were responsible for the clean up; the blowout preventer intended to control release of oil and gas was supplied by Cameron International; the cement cap for sealing the well was fitted by Halliburton. The liability of the party admitting responsibility was, indeed, substantial. As a result there has been much shifting of the buck amongst the key players. While BP’s minor shareholders blamed it for negligence, BP responded by blaming them for denying their contractual responsibility. The contractors blamed BP for the pre-explosion decisions and the regulatory authorities. The final blow for BP and its partners came when the White House oil spill commission squarely put the responsibility on BP and its partners for a string of cost cutting decisions and inadequate system to ensure well safety.

As the project operator BP was subject to intense scrutiny by the media post explosion. Soon after the explosion BP handled the crisis effectively. Tony Hayward took charge of the crisis at the scene. Not only he was available for responding to public apprehensions but also set aside $ 40 bn of company resources to meet the cost of cleaning up, and another $20 bn for compensating those affected.

But all these had to be seen in the backdrop of BP’s track record affecting the US public’s predisposition to BP.The Texas City refinery explosion of 2005 (casualty 15), the Prudhoe Bay Alaskan oil spills in 2006 were still fresh in public memory. Blotched communication, cultural chasms, the inability to cap the well provoked public anger.

To quote Tony Hayward:“What is undoubtedly true is that we did not have the tools you would want in your tool kit.”“I think the environmental impact of this disaster is likely to have been very, very modest”

Tony Hayward was a skilled geologist and engineer. Ever since he took over as CEO he gave highest priority to safety.

Crisis Management – Too Much or Too Little Information?

What lessons can we draw from these two crises?
1. Crisis management involves responding to a situation to mitigate the damage.
2. Communicating with the media and public to (a) answer public apprehensions, (b) to ensure that public opinion does not damage the company’s image and (c) in case of such highly safety conscious
Crisis Management Lessons to Learn from Missing Flight MH370 Toyota and BP Management Masala V K Talithaya
company like Toyota to protect the meticulously built reputation of a highly ethical, safety conscious company.

In the event what happened in case of Toyota was that it appeared to have been overwhelmed by the crisis. If only Toyota immediately went back to the drawing board and confirmed to itself that there was nothing wrong with its electronics, and the problem was not its making, and thereafter provided a quick response it would not have had to wring its fist for a grueling one year. Obviously Toyota had all the information. Was it a case of a highly system oriented company being overwhelmed by too much information in crisis? Too much information blocks intuitive response. Toyota went back to learn the lessons of the crisis and came back stronger with dramatic changes that improved its response to customer concerns, but at the cost of millions of dollars in loss.

In case of BP’s Deepwater Horizon the lessons were the need to disclose promptly, transparently and candidly. Tossing the problem to your agents costs you in reputation. Therefore, own responsibility. The track record of BP was a big issue. True, on taking over as CEO, Hayward made safety his top agenda. Yet, it is evident from Hayward’s statement that considering the nature of its business the company was not prepared to tackle the very low probability but very high risk eventualities like the Deepwater Horizon explosion. Secondly timely information to public is the prime need of crisis management, not speculative statement like the one the CEO made. As a technocrat the he got down to operations leaving larger issues of dealing with public rage to others. The need for the political and rhetorical skill to deal with such a crisis cannot be overstated.

By V.K.Talithaya (vktalithaya@managementmasala.com)
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On 4/22/2014

1 comment:

  1. The cost of controls to avert a crisis vis-a-vis the financial impact of the crisis is the decider for any major business organization to adopt a management mechanism. In the case of Malaysian Airline, it is a such a freak incident, which probably, no one could anticipate. But, certainly Malaysian authorities could have handled the situation in a better way to minmize the damage on their reputation, if there was a proper crisis managment machinery in place. It is certainly an eye opener for major industries to strengthen their Crisis management mechanisms by adopting ERM (Enterprise Risk Management) methodologies or Business continuity and Disaster recovery techniques.


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