6 Types of Business Crises (With Examples)

We keep hearing we live in uncertain times. You never know when and what can change the trajectory of the businesses. Knowing this is why it’s surprising that only 49% of U.S. businesses have a formal crisis communications plan. 

In addition, only 28% of businesses say they have an informal (e.g., undocumented) crisis communications plan with options, actions, and decisions that may be required for specific, defined crisis scenarios.

An informal plan is better than no plan, but when a crisis hits, a seamless communication plan will help you avoid bumps.  

Organizations trying to excel in their crisis management strategies must address crises with a more strategic approach.

What is Crisis Management?

Crisis management involves the strategic handling of unexpected events or situations that pose a significant threat to an organization’s reputation, operations, or finances. It’s a proactive and systematic approach to identify, assess, and address potential crises, aiming to minimize their impact. A comprehensive crisis management plan typically includes protocols, communication strategies, and predefined actions to navigate various types of crises effectively.

Why is Crisis Management Important?

Protects Reputation and Credibility

Preserving a positive reputation is paramount. Effective crisis management helps mitigate the impact of negative incidents on brand image and public perception. By handling crises transparently and responsibly, companies can minimize reputational damage and maintain trust among stakeholders.

Preserves Business Continuity

Crises can disrupt normal business operations. Having a crisis management plan in place ensures a structured approach to navigate through challenges swiftly, minimizing operational disruptions and financial losses.

Enhances Stakeholder Confidence

Transparent and proactive communication during a crisis reassures stakeholders—customers, employees, investors, and partners—that the organization is capable of handling adverse situations. This confidence is crucial for maintaining loyalty and support during challenging times.

Mitigates Legal and Regulatory Risks

Crises can often lead to legal implications or regulatory scrutiny. A well-prepared crisis management strategy, including legal counsel, aids in compliance, reducing potential legal repercussions and associated financial penalties.

Opportunity for Improvement and Growth

Each crisis offers a learning opportunity. Assessing how crises are managed helps refine existing strategies, policies, and protocols, fostering organizational learning and continuous improvement.

Common Types of Business Crises With Examples

Crisis management teams are helpful for proactive preparedness, anticipating potential problems, and making key decisions to resolve them. They also understand the different types of business crises. Here are the six most common types of different business crises with examples. 

1. Financial Crisis

A financial crisis occurs when a company faces severe monetary challenges, such as bankruptcy, insolvency, or liquidity issues, which can threaten its financial stability and overall operations. 

Examples of the financial crisis include Delta Air Lines filing for bankruptcy due to losing customers following the 9/11 tragedy and businesses closing down their locations due to COVID restrictions in 2020. 

2. Data Breach Crisis

A data breach crisis occurs when sensitive information is compromised, leading to privacy breaches, regulatory penalties, and loss of customer trust. 

This type of crisis has gained much attention, and security has become a top priority for many companies after the infamous Facebook x Cambridge Analytica scandal

When it comes to data security, centralized digital data is easier to secure and manage than physical documents; companies invest in automated data extraction solutions. Data extraction can enforce consistency and adherence to predefined rules, improving regulatory compliance. 

3. Labor Crisis

This crisis involves conflicts with employees, labor unions, or work-related incidents that disrupt operations, cause strikes, or damage an organization’s reputation as a responsible employer.

The most recent and famous example of a labor union strike is the ongoing SAG-AFTRA strike that started in May 2023, caused by the disagreement over streaming residuals and regulation of self-tape auditions. 

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4. Reputation Crisis

A reputation crisis arises when negative publicity, scandals, or controversies damage an organization’s image, credibility, and public perception, often decreasing customer trust and stakeholder confidence.

An example of such a crisis happened at the height of the 2020 Black Lives Matter movement when CrossFit’s former CEO, Greg Glassman, stated that “he didn’t mourn George Floyd’s death.” He followed it by saying that racism and police brutality weren’t systemic problems. As a result, brands such as Reebok and Rogue dropped the brand. After apologizing, he stepped down, but not after hundreds of former Crossfitters wanted nothing to do with the brand.

5. Product Recall Crisis

This crisis emerges when a company needs to recall its products due to safety concerns, defects, or health hazards, resulting in potential legal liabilities, financial losses, and reputational damage.

Arguably, the most definitive product recall of all time is the Tylenol incident in 1982, which started when seven people in the Chicago area died between September and October. This situation became the gold standard of how a company can successfully handle a major crisis due to Johnson & Johnson’s swift response. 

They recalled all Tylenol products from store shelves. Johnson & Johnson used the media to issue a national alert to tell the public not to use the Tylenol product. They established a 1-800 number to respond to inquiries from customers concerning the safety of Tylenol.

6. Natural Disaster Crisis

Natural disaster crisis encompasses disruptions caused by unpredictable events like earthquakes, hurricanes, floods, or wildfires that can impact a business’s facilities, supply chain, and operations, requiring immediate response and recovery strategies.

Amazon and Mayfield Consumer Products made headlines in December of 2021 due to their poor handling of one of the most devastating tornadoes of the year. It became known that around 15 employees asked to go home early when tornado warning sirens began blaring. At least five workers reported that supervisors warned employees they could be fired for leaving before the end of their shifts. The negligence of the companies cost eight people their lives. 

Best Practices in Crisis Communication

Develop a plan before you need it

Effective crisis communication begins with preparation. Develop a comprehensive crisis communication plan outlining roles, responsibilities, communication channels, and protocols for different crises. Regularly update and test the plan to ensure it remains relevant and effective. Provide training to key personnel to ensure they are equipped to handle communication under pressure.

Delegate responsibilities and minimize miscommunication

While creating your plan, consider the selection of an appropriate spokesperson, strategies for proactive mitigation of harm, and guidelines for responding to social media for your staff. It’s also important to decide which communication channels will be employed to ensure employees remain informed, whether utilizing your corporate intranet, SMS, email, or group chat platforms.

The plan should also include:

  • Hierarchy for information sharing
  • Roles and duties of team members
  • Frequently asked questions
  • Anticipated risks that may arise
  • Approach for introducing updates and next steps

Respond in a timely manner

In any crisis, timely communication is crucial. Provide accurate and transparent information to stakeholders as soon as possible. Avoid withholding critical details or downplaying the severity of the situation, as this can erode trust and credibility. Transparency helps manage expectations and demonstrates your commitment to addressing the issue.

Prioritize your team

When a crisis hits, remain calm. Work with your crisis team and employ a systematic approach to crafting and disseminating communications. When in doubt, over-communicate. And always put your people first. 

Like it or not, people will be talking and sharing information about the crisis. Taking charge of your crisis communications is your opportunity to reinforce transparency, decency, confidence, and loyalty.

Consult legal and crisis management professionals

It’s wise to have a legal professional on standby before you issue any communications to the public, as they can ensure compliance with regulations, mitigate any potential legal and reputational risks, and provide insights based on precedent and past cases. This strategy helps the organization anticipate potential legal challenges.

Resolving a Crisis: A Data Breach Incident Scenario

Context: Imagine a scenario where a multinational tech corporation faces a data breach, compromising sensitive customer information. This breach has the potential to tarnish the company’s reputation, violate privacy regulations, and erode customer trust if not handled promptly and transparently.

Action Steps

1. Immediate Response and Containment

  • Activation of Crisis Team: The company immediately activates its pre-established crisis management team, including IT experts, legal counsel, PR professionals, and senior executives.
  • Assessment and Containment: IT experts identify the breach’s scope, the affected systems, and the data compromised. They isolate the breach to prevent further unauthorized access.

2. Transparent Communication

  • Designated Spokesperson: A designated spokesperson, usually the CEO or a senior executive, addresses the public to acknowledge the breach and reassure stakeholders of swift action.
  • Public Announcement: The company issues a transparent public announcement via press releases, website notifications, and social media platforms, informing customers about the breach, the steps taken, and the measures in place to mitigate damages.
  • Customer Support Channels: Establishes dedicated customer support channels (hotlines, emails) to address customer concerns, offer guidance, and provide assistance.

3. Compliance and Collaboration

  • Regulatory Compliance: Collaborate closely with regulatory bodies to ensure compliance with data protection laws and regulations. This includes reporting the breach to relevant authorities within the required timeframe.
  • Cooperation with Law Enforcement: If necessary, collaborate with law enforcement agencies to investigate the breach and track down potential perpetrators.

4. Remediation and Recovery

  • Data Restoration and Security Enhancement: The IT team works on restoring compromised data from backups and implements enhanced security measures, such as encryption and multi-factor authentication, to prevent future breaches.
  • Employee Training: Conduct comprehensive training sessions for employees on data security protocols and best practices to prevent future breaches.

5. Post-Incident Assessment and Improvement

  • Post-Mortem Analysis: After resolving the immediate crisis, the company conducts a thorough post-incident analysis. They assess what worked well, areas for improvement, and updates the crisis management plan accordingly.
  • Communicate Learnings: Share key learnings from the incident internally to enhance preparedness and externally to showcase the company’s commitment to learning and improvement.

Navigate Business Crises With Transparency

Crises can be unpredictable and challenging to manage, and a crisis communication plan can provide a roadmap for handling the situation and mitigating its impact. By staying prepared and adopting a proactive approach to crisis management, organizations can emerge stronger and more resilient from even the most challenging situations. 

About the Author

Lizi Gigauri is a Jr. Marketing Coordinator at Alphamoon. She supports Sales and Marketing teams via content, copy, and research. You can find her on a bike or at the cinema in her free time.