Steinbeis Consultant Holger Hagenlocher explains how companies can prepare themselves better for times of crisis
Every entrepreneurial undertaking is fraught with risk. Even during the startup stage, new companies have to accept the possibility that their products and services may not invoke a response or may not generate enough revenues. Products may even stack up in the warehouse after production. Steinbeis Consultant Holger Hagenlocher discusses how establishing a strong foundation of trust between companies and different stakeholders can help when it comes to dealing with a crisis.
Entrepreneurial activity always goes hand in hand with risk. Sometimes risks are entered into knowingly, such as deciding to sell products in a market marred by political uncertainty, or becoming unilaterally dependent on suppliers in global markets, or making production decisions despite not knowing if something will succeed. Though, companies are often unprepared when a risk evolves into a full-blown crisis. They could, however, prepare themselves properly for such situations and run through emergency scenarios beforehand. This allows Plan B to be whipped out of the filing cabinet and it becomes possible to adopt a systematic approach, covering both key business necessities and any communication measures that will need to be taken.
Identifying risk with a business environment analysis
If risks exist already and are known, the task of corporate communications is to actively make key stakeholders aware of the problem, thus sensitizing others and laying the groundwork for action as a business. To take appropriate precautions, companies need to be well informed when it comes to market developments, emerging technologies, and consumer trends.
A business environment analysis establishes the status quo on the market, identifies developments and trends early, and helps companies spot any risks of a social, political, or technical nature that may exist. Among other things, such assessments include a stakeholder analysis. In addition to examining the degree to which certain reference groups hold influence or power, this analysis looks at their attitudes and needs, also with regard to communication. In addition, a so-called issue analysis can be used to systematically root out trends and topics, and identify “weak signals” – i.e. indications of any problems that could potentially arise in the future. Specific issues, such as emerging environmental awareness, the looming climate crisis, the threat of armed conflict, but also the emergence of technical developments of a disruptive nature, can be mapped in good time through issue analysis and addressed in strategic and operational terms through issue management. The earlier any such risky issues are identified, the greater the room for maneuver and the better one can prepare to react to a potential crisis.
This provides organizations with a comprehensive foundation for decision-making regarding the future strategic direction of business operations. Analysis does not replace continuous media monitoring, however, and that includes following social media in order to react to developments at short notice.
Crisis prevention and resilience
If, despite all, a crisis does occur unexpectedly and people are correspondingly unprepared, the trust of stakeholders in a company and its products is key to weathering out the crisis. Studies indicate that firms that enjoy a high level of trust among stakeholders are in a better position and quicker to overcome a crisis. Similarly, there are correlations between the reputation and brand awareness of a company and its crisis resilience. Further surveys show that companies that score highly on trust are more successful in markets. The logical conclusion from this is that trust not only makes a company more crisis-proof, but it is also an asset of the company portfolio.
The trust afforded by investors, customers, suppliers, and the workforce also plays an essential role in managing transitions during company sales, takeovers, and periods of management succession. The stronger the trust in a company or brand, the higher the customer loyalty and retention in times of change and crisis.
If trust is a critical factor, it’s important to define exactly what trust means and how it can be built systematically in strategic terms. The world of VUCA is characterized by uncontrollable complexity – in any given situation, people are now free to choose between many different courses of action. However, customers have very little time to make decisions and this leaves them with no opportunity to consider all potential courses of action. Since customers only collaborate with others if they’re sure they can rely on them to do certain things in the future, they bank on trust (or distrust) to mitigate the complexity of a situation. Sociologist Niklas Luhmann therefore sees trust primarily as a means of reducing complexity. Trust is also of pivotal importance to business organizations, both in B2C and B2B interactions with customers. At the same time, Luhmann regards trust as a “risky down-payment” for those who invest trust. People who invest trust make themselves vulnerable to those they place their trust in, because the trustworthiness of the latter can never be fully controlled or predicted.
Transparency creates trust
In interpersonal relationships, trust is engendered through positive experiences. It stems from a sense of confidence that other parties will not disappoint after expectations are placed in them or they make a promise. This is because trust is not something that can be implemented, dictated, learned, or paid for. Companies should therefore continuously maintain positive relationships with key external and internal stakeholders. Many benefits stand to be gained by building trust. For example, trust can significantly enhance company competitiveness. It accelerates many internal processes, for example because certain controls can be done away with in daily work. People at a company are more motivated to go about their work if their tasks take place in an environment marked by trust and appreciation, and this also reduces the costs of processes. The consequences of squandered trust can be correspondingly negative.
There are many ways in which transparency helps build trust in a company. Nearby residents gain insights into things happening beyond the factory gates; employees and shareholders receive advance information on future developments at the company. The easier it is to understand decisions and actions that are taken – and the better they are explained and communicated – the more this transparency fuels trust, and that helps when a company needs more understanding from key stakeholders in a situation of crisis. If instead of a heightened sense of trust there is a prevailing climate of mistrust, risks can quickly develop into an escalating crisis.
The importance of matching communication with action
To foster trust both between and beyond organizations it is therefore important that companies ensure they engage in credible communication and that they focus on ethical and moral principles.
Trust is a consequence of professionally managed communication and one of the most important aspects of corporate communications. Accordingly, the most important goal of corporate communications must not be awareness per se, but to instill trust and understanding in the actions of a company. In keeping with this, communication must not be seen exclusively as the sharing of information. Instead, communication must also be consistent with the actions of those who communicate. Trust is boosted when expectations and promises are met. This results in stakeholders investing renewed trust in a company and, bit by bit, this makes a company more crisis-resilient.