Iese Insight 15

RELEVANT
BUSINESS
KNOWLEDGE
FOURTH QUARTeR 2012 • ISSUE 15 • ieseinsight.com/review PRICE PER EDITION €18/$25
This document is an authorized copy for personal use of Mr. Monras Puig, 24/12/2012
inside
NEGOTIATION
deep insight Five strategies to be more creative
Lifesaving
CARLOS GHOSN, RENAULT-NISSAN
The famous “Mr. Fix It” discusses
future car trends
UNDERSTAND YOUR NETWORK
…and let knowledge flow
Tools for Crisis

throughout your organization
AENA
Staying airborne when crisis strikes
Management
STRATEGY: PICKING UP THE SIGNALS THAT TRIGGER CRISES
MARKETING: HOW TO MANAGE A CRISIS BEFORE IT HITS
LEADERSHIP: GUIDE TO LEADERSHIP UNDER PRESSURE
BUSINESS ETHICS: AN ETHICAL APPROACH TO CRISIS MANAGEMENT
COLLABORATION AMPLIFIED.
In an increasingly complex and competitive world, where creativity and innovation are
vital, people - everywhere - need to work more collaboratively. The family of media:scape
products brings together people, information and space in a way that augments their
interaction and amplifies their performance.
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Learn how media:scape

removes barriers to innovation.
Global leaders in workplace design

ISSUE 15
FOURTH QUARTER 2012

EXPERT INSIGHT PERSONAL INSIGHT
Five Essential Strategies Talking About a
for Creative Negotiations Revolution
Kandarp Mehta discusses why creative Carlos Ghosn, of Renault-Nissan,
offers and counteroffers play such a shares the lessons he learned
vital role in the negotiating process, and from leading one of the most
proposes strategies to help you improve dramatic turnarounds
your own negotiating skills. 50 in corporate history. 45
Editorial Leadership Under Pressure:

4 Antonio Argandoña says that crises present Communication Is Key
wonderful learning opportunities, provided that José R. Pin provides a guide to help managers
we are capable of seizing the moment. lead and communicate, so as to prevent
uncertainty from crippling the organization. 28
MY INSIGHT
5 José M. Campa believes that financial sector An Ethical Approach to Crisis Management
reforms must restore public trust in banks. Mark S. Schwartz, Wesley Cragg and W. Michael
6 Raymond Torres insists that the correlation Hoffman use the 2010 BP oil spill as a cautionary
between investment and employment cannot be example of what happens when a company fails
underestimated. to make decisions based on ethical values. 36
EARLY INSIGHT EXPERT INSIGHT

7 The relationship between innovation and price 58 Understand Your Network and Let
markups, HRM in non-Western countries, Knowledge Flow
advertising veteran Shelly Lazarus says that Marco Tortoriello maps the
nothing beats word of mouth, findings of the IESE informal networks that
2012 Automotive Survey, and the Barometer of the
employees form across
Business Climate in Spain.
functions and divisions.
Understanding them may
DEEP INSIGHT
facilitate innovation.
Lifesaving Tools for
Dossier
DeeP
insight
Crisis Management BUSINESS INSIGHT

When a crisis flares up, 66 Aena: How to Stay Airborne
nobody is safe. This dossier When Crisis Strikes?
W
Illustrations by OrIOl malet
hen a crisis flares up, nobody is safe. This dossier will help
you to manage crises better – before, during and after.
will help you to manage Using the case of the Spanish air traffic controller
STRATEGY
13 Attentional Triangulation
Picking Up the Signals
That Trigger Crises
By Claus Rerup
LEADERSHIP
28 Guide to Taking the Reins
Leadership Under Pressure:
Communication Is Key
By José R. Pin
crises better – before, during strike that closed airspace for 24 hours in 2010,
and after.
MARkETING BUSINESS ETHICS
20 Reputation & Communication 36 Cleaning Up Your Act
three experts recommend how best to deal with

How to Manage a Crisis An Ethical Approach
Before It Hits to Crisis Management
By Alfonso González Herrero By Mark S. Schwartz, Wesley
Cragg and W. Michael Hoffman
ieseinsight issue 15 FOuRTH QuARTeR 2012 11
an unprecedented situation of this kind.

Picking Up the Signals That
Trigger Crises WIDER INSIGHT
Claus Rerup presents a framework for companies
71 Ambushed by Adversity
Bosco Gutiérrez coped for 257 days in captivity.
to improve their capability to pick up on signals
His story offers valuable lessons for overcoming
that impending crises give off before they
your own worst fears and taking control of your
happen. 13
life when you find yourself a hostage to fate.
How to Manage a Crisis Before It Hits
Alfonso González-Herrero looks at the key issues LAST INSIGHT
that companies must address, with forecasting 76 Less Is More
and planning, in order to safeguard their Javier Zamora considers how SMS has changed
reputations. 20 our lives, 20 years since the first text was sent.
ieseinsight issue 15 fourth QUARTER 2012 3

editorial
FOURTH QUARTER 2012

Antonio Argandoña
issue 15
E-mail: review@ieseinsight.com
ieseinsight.com/review
A Learning Opportunity
N
PRICE PER EDITION €18/$25
ever let a good crisis go to waste. So said Rahm Emanuel,
the former Chief of Staff to U.S. President Obama,
editorial director explaining that a crisis presents an opportunity to do
Antonio Argandoña things that you never thought you could do before. Many
business people would concur: A crisis can be a golden opportunity
editorial board to shift course or capitalize on the confluence of dramatic
Prof. Antonio Dávila
Accounting and Control, circumstances.
Entrepreneurship Granted, business people normally only ever say this after
Prof. Fabrizio Ferraro surviving a crisis. A real sign of leadership, though, is being able to
Strategic Management have such an upbeat attitude before and during a crisis. Executives
Prof. Philip Moscoso need to prepare for crises, and then manage with a steady hand when
Production, Technology and
Operations Management
everything around them seems to be falling apart, leveraging the full
potential of their organizations in the process.
Prof. Javier Quintanilla
Managing People in Organizations In order for a crisis to serve as a learning
Prof. Julián Villanueva
Marketing
A crisis can opportunity, however, you have to be
willing to learn. Mediocre companies never
be a golden learn, maybe because of an unhealthy
managing editor organizational culture, or they were too
Susanna Arasa opportunity busy focusing on the wrong thing at the
editors wrong time, or they let key people slip
Jordi Navarrete (spanish edition) through their fingers who could have helped them out. As the proverb
Philip Seager (english edition) goes, if you stumble more than once over the same stump, you have no
one to blame but yourself.
assistant editors
Smart companies, on the other hand, correct what was at the heart
Lydia Smears
Santiago Velázquez of the crisis and move forward. Really great companies not only learn
from crises but anticipate them, develop protocols and train staff for
editorial contributors dealing with them, and create flexible structures and ethical cultures,
Cristina Aced which enable them to exert some degree of control over the chaos.
Rebeca Collier
Nicholas Corbishley This is crisis management, the theme of this IESE Insight, which is
Javier Moncayo packed with plenty of illustrative examples – from striking workers,
David Oliver to being kidnapped and held for ransom. As our interview with Carlos
Larisa Tatge Ghosn makes clear, it’s not easy when you’re under the gun, and you
Gemma Tonijuan may well lose sleep. But this is how you really learn. Are you up for the
Stephen Waller
Natasha Young challenge?
design
Cases i Associats
layout
Javier M. León
© 2012 IESE Insight is published 4 times a year by Estudios y
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4 FOURTH QUARTER 2012 ieseinsight

The taxpayers have had to bear the cost of the crisis.
Restoring their trust is vital.
my insight
Bailing Out Trust

ought to be assigned to a separate legal entity. Deposits,
and the explicit and implicit guarantees they carry, should
by José M. Campa no longer directly support risky trading activities.
There should also be a clear process by which debt pro-
viders assume losses in the event of solvency problems
with financial institutions. Bail-in instruments must be

The global financial crisis that started in 2007 designed to provide capital to institutions when needed.
has severely eroded the trust that used to exist between Within the hierarchy of debt commitments in a bank’s
the public and the banking sector. To rebuild that trust, balance sheet, the position of bail-in instruments must
several actions will be necessary. be clear, so that investors know the eventual treatment in
Consider how far we have strayed. Commercial bank- case of resolution.
ing used to be based on long-term relationships with cus- Banks must enhance their risk strategies to assure
tomers. Loans were granted and then held until maturity. stakeholders that sound management is in place. Risk
But over time, the size and scope of financial institu- weights in the determination of minimum capital require-
tions became increasingly complex, while the average debt ments need to be more robust. Also, the different treatment
maturity became shorter. The loans granted were pooled, of risks in internal models needs to be more consistent.
then securitized and sold to investors.
This shift to a business model of originating and dis- Financial sector
tributing financial products increased complexity and fos-
tered the growth of a shadow banking sector. Traditional reforms need to rebuild
banks got tied up with non-bank institutions that provided
intermediary services.
trust in banks.”
It was once believed that industry self-regulation, Limits on activities like real-estate lending beyond the
supervision and market discipline would be enough to capital requirements framework, such as maximum loan-
handle such developments and discourage excessive risk- to-value ratios, need to be among the instruments avail-
taking. Clearly that was not the case. able for micro- and macro-prudential supervision.
The Libor price-fixing scandal reveals an industry with Finally, banks need to augment existing corporate gov-
deep conflicts of interest and which is unable to self-im- ernance. The risk-management function of boards needs
pose adequate standards. to be strengthened. Compensation for bank managers
Supervision also failed. The Basel capital requirements needs to be reined in. And risk disclosure and sanctioning
on banks proved ineffective in restraining the strong powers need to be improved.
growth in banks’ leverage and size of their balance sheets. Certainly, the financial industry is essential for eco-
Market discipline did not work either. Indeed, financial nomic recovery and long-term growth. However, public
markets effectively rewarded bank size by charging lower trust is essential for the financial industry to function –
debt margins to the biggest institutions. trust from depositors, lenders and taxpayers that their
Who has had to bear the cost and provide the support savings are being allocated properly.
to the banks and the financial industry for the crisis? Sadly, As the saying goes, it takes a long time to earn trust but
the taxpayers. It is their trust that needs to be earned back. only a second to destroy it. As such, it is vital that banks,
So far, regulatory reforms have focused on two crucial supervisory authorities and regulators clarify and agree on
areas: additional capital adequacy and liquidity require- the goal, so that they can embark on the necessary reforms
ments, to reduce the probability of failure; and recovery to restore public trust as soon as possible.
and resolution plans by existing institutions, to minimize
the social cost should they ever fail again. José M. Campa, Spain’s former secretary of state for the
But the reforms need to go much further. The range of economy and now a professor of financial management at
activities that regulated banks can perform needs to have IESE, was a member of a high-level expert group that made
some structural limitations. If, for example, proprietary key recommendations for the European Commission on how
trading and other significant trading activities amount to a best to reform the E.U. banking sector. Read “Five Reforms to
significant share of a bank’s business, then those activities Reduce E.U. Banking Risk” at ieseinsight.com
ieseinsight issue 15 FOURTH QUARTER 2012 5

The correlation between investment and
employment cannot be underestimated.
my insight
Invest in Employment
as the boost in employment and GDP took effect.
In addition, firms facing financial difficulties, espe-
by Raymond Torres cially small and medium enterprises (SMEs), should be
given easier access to credit. These firms are the true en-
gines of job creation around the world. Unfortunately,
they have been disproportionately affected by the decline

With each passing day we witness another round of in investment during the crisis.
business closures, layoffs and restructuring, swelling the Between 2007 and 2010, SME investment in Europe
ranks of the 35 million people around the world who have fell by 16 percent a year, compared with an increase of 0.3
joined the unemployment line since 2007. This is largely percent for large firms. SME investment in the United
the result of declining public and private sector invest- States has also fallen. Given the lack of liquidity injections
ment, which, at 18.7 percent of world GDP, stands at its by central banks, direct financing through public banks
lowest level since records began. should be considered.
If the experience of the Great Depression of the 1930s
and Japan’s Lost Decade of the 1990s are anything to go
by, then employment will not return to pre-crisis levels
Want to create jobs?
until two years after investment levels recover. In coun- Then start investing.”
tries where the decline in public and private investment
has been less severe, their employment figures are some- BOOSTING DEMAND. Companies must also do their part.
what better, indicating that this correlation still holds Wage cuts are depressing consumption and household con-
true today. fidence, feeding higher levels of uncertainty.
According to the International Labour Organization’s Meanwhile, the income gap between business owners
World of Work Report 2012, a return to pre-crisis invest- and employees is growing wider. Investment in financial
ment levels would help to reduce global unemployment markets is being favored over industry profitability. In
by almost 9 percent. But what factors are hindering in- fact, increasing wages could lead to an expansion of out-
vestment in job creation? put and eventually to an increase in the growth of capital.
The first obstacle is global investment volatility, It is also essential to support unemployed people.
which in advanced economies has increased by 193 per- Sweden recovered from its financial crisis of the 1990s in
cent since the onset of the crisis. Volatile investments, part by creating stimulus measures aimed at youth unem-
such as hedge funds and futures, deprive the global econ- ployment. Implementing a Swedish-style system across
omy of the necessary momentum to create jobs, resulting the eurozone would cost an estimated 20 billion euros,
in more job insecurity. which is less than 0.5 percent of total public spending.
A second obstacle is the fact that demand growth pros- Finally, the public sector could act as a unifying and
pects are both weak and uncertain. In unstable climates, driving force of private investment, particularly with re-
firms postpone investment and hiring decisions, which gard to infrastructure. For example, U.S. estimates indi-
feeds the recessionary spiral if many of them do so simul- cate that a public investment of $5 million in broadband
taneously. This explains why liquidity in advanced econo- could create 100,000 direct jobs and 2.5 million indirect
mies has reached unprecedented levels. jobs through “network effects.”
So far, the stimulus measures implemented by govern- Clearly, there are opportunities for job creation, pro-
ments, such as expansionary fiscal policies and lower tax vided they are accompanied by adequate investment. And
burdens, have not worked. As such, it is necessary to acti- that will only be possible if governments and businesses
vate more effective measures on two fronts. work hand in hand.
SUPPORTING COMPANIES. According to our analysis, gov-
ernments could offer tax breaks to those firms that make Raymond Torres is director of the International Institute for
productive investment, and tax those that do not, especially Labour Studies of the United Nations’ International Labour
in countries with low financing costs, such as Germany. Al- Organization. He spoke on “Better Jobs for a Better Economy”
though such fiscal stimulus measures might initially worsen at the 25th Annual Conference of the European Business Ethics
deficit levels, revenue would improve in the medium term, Network organized by IESE’s Center for Business in Society.
6 fourth QUARTER 2012 issue 15 ieseinsight

early QUICK KNOWLEDGE. THINKING AHEAD.
insight
INNOVATION & MARKUPS
Does It Pay to
Innovate in Your Sector?
There is a lot of talk Naturally, companies that In other words, markups tend to
about innovation, but little incorporate new functionalities or be 2.8 percent higher after process
understanding of the actual impact new designs into their products innovation, compared with 3.9
of innovation on a company’s expect to be able to sell their percent higher following product
bottom-line performance. A new products at a higher price. innovation.
methodology estimates the impact More surprising is that process Certain sectors show higher
of a firm’s innovation activities on innovation can also lead to price markups than others. This deeper
?
markups, showing how product markups. While process innovation understanding of the firm-level
innovation and process innovation reduces costs, leading to an impact of product and process
impact not only productivity, but overall drop in prices, these price innovation offers valuable insights
also firm-specific pricing and drops tend to be somewhat lower for managers and policy makers to
markups above costs. than the drop in marginal costs, inform major investment decisions
As suspected, product meaning that firms also capture in innovation going forward.
innovation has a broadly positive some returns to process innovation
impact on prices and markups. through higher markups.
The difference in markups between innovative and

non-innovative firms, by sector
18%
16%
14%
12% 11% 10% 10% 9% 0,09
9%
7%
4%
0
Food & Furniture Chemicals Transport Office & Printing, Textiles & Plastic & Machinery Minerals Metals
Beverage Electrical Publishing Leather Rubber &
& Paper Equipment
Based on an 18-year dataset of 3,400 SMEs and 1,200 large manufacturing firms, presented in the paper, “Innovation and
Markups: Firm Level Evidence,” by IESE Prof. Bruno Cassiman and Stijn Vanormelingen, of HU Brussels and KU Leuven. For more
information, see “A New Way of Measuring the Impact of Innovation” at ieseinsight.com.
“We used to think of multinationals as companies that have one

center with multiple points of sale. Our industry is not like
that anymore. We have to form part of the fabric of the
societies in which we operate. Therefore, we have
to be Brazilians in Brazil, Mexicans in Mexico
and British in the United Kingdom.”
Santiago Fernández Valbuena, chairman and CEO of Telefónica Latin America, spoke at IESE’s Global Alumni Reunion in Sao Paulo on
November 1-3, 2012. Go to ieseinsight.com to see the full video of this and other top executives speaking on issues such as economics, health
care and the media in this fast-growing emerging market.

earlyinsight
HRM IN NON-WESTERN COUNTRIES
Local Context Matters Asian Socialist

Republics
Like many other elements of more complex, as foreign companies
CULTURE: Traditional values
management, human resource manage- import new practices. What’s needed is
of harmony and collectivism
ment (HRM) has its origin in the United a deeper reflection on HRM, which takes based on Confucian legacy. “Iron
States. But simply applying the U.S. HRM account of culturally specific character- rice bowl” concept of job for life.
model to every other country and region istics in formulating more appropriate
CHALLENGES: Tension be-
of the world unfairly implies that those policies and practices. tween state control and freedom
other regions are lacking, when, in fact, of enterprises to set their own
they are merely doing things differently. wage and workplace practices.
Globalization makes the picture even OBJECTIVES: Continue to
negotiate compromises between
IESE’s Yih-teen Lee and Marta Elvira state and enterprise-level
presented their paper “Comparative practices, such as the creation of
Human Resource Management” at an special economic zones. Pursue
Academy of Management symposium. hybridization of state and busi-
See “Approaches to HRM in Non- ness interests.
Western Countries” at ieseinsight.com.
Latin America Sub-Saharan Africa

CULTURE: Traditionally pater- losing their sense of protection CULTURE: Informal recruit- commitment, due to political
nalistic. Business organizations and trust in employers. ment networks based on fam- instability but also their short-
play a key role as social institu- OBJECTIVES: Need to invest ily and personal ties. Often poor term orientation in getting out
tions for the community. in employee education, training wages and working conditions. raw materials.
CHALLENGES: Market liber- and development, adjusting CHALLENGES: Structural OBJECTIVES: Capitalize on
alization is weakening formerly compensation to assure satisfac- adjustments are undercutting plurality of continent. Give atten-
strong labor laws. Workers are tion and quality of life. unions. Multinationals lack local tion to sustainability.
SOCIAL MEDIA & BRANDING
Nothing Beats Word of Mouth

and differentiation, she says. don’t know what it means to ‘friend’
“There is nothing as powerful in a company on Facebook. I don’t
advertising and marketing as word believe that’s the reason why people
of mouth. For your friend to tell you, go to Facebook. Give it up!”
‘I tried this, and it’s amazing,’ that’s The new media have “possibili-
almost a sure sale.” ties that we never dreamed about
When it comes to promoting a In this regard, social media when I first came into this industry.
brand, Shelly Lazarus, the Ogilvy & platforms such as Facebook have They are great add-ons: you engage
Mather advertising veteran, believes the potential to institutionalize word people, you bring them to life, you
that traditional media remain more of mouth, but companies have to nuance them, you involve people
powerful than social media networks. learn how to get them right. “When with them. But they are just one part
No amount of new media can beat we go to Facebook, it’s not to have of the cocktail. At the core of every-
the basics of solid brand positioning a relationship with salad dressing. I thing, you still have to have an idea,
a brand positioning, some differen-
Hear two exclusive podcasts with Shelly Lazarus speaking at IESE’s New York Center:
tiation that people can understand
“Social Media Platforms Still Have a Way to Go” and “Nothing Has Changed, Everything and believe in. And that will never
Has Changed,” both available at ieseinsight.com. change.”
8 FOURTH QUARTER 2012 issue 15 ieseinsight

earlyinsight
AUTO SECTOR TRENDS Spain’s Forecast:

Mostly Sunny, But
The Dealership Cloudy Patches
of the Future
Despite the difficult economic
situation, Spain remains a
destination attractive to foreign
companies, whose net investment
Margins of car 70 percent felt that dealerships reached almost $30 billion in 2011.
dealerships, especially the had to improve the service they According to a survey of more than
independent ones, have declined offered, especially in terms of 250 foreign companies with a Spanish
across Europe over the past their availability, punctuality and presence, Spain’s strong points were its
decades, reflecting power shifts in customer treatment. infrastructure, quality of life and market
the value chain. Perhaps surprisingly, more size. While human capital was rated
A recent telephone survey than 60 percent believed that positively, there were some key areas
of more than 1,000 car owners car dealerships remained very that required improvement.
in the Barcelona and Madrid profitable, perhaps indicating
metropolitan areas about their that the “show” in showroom may
experiences at car dealerships be presenting consumers with a Foreign language
1st proficiency
revealed even more worrying misleading impression of the true
trends. state of the car business.
While most respondents Maybe it’s time for dealers
said they were generally to take a look under the hood 2nd Acceptance of responsibilities
satisfied or very satisfied with and give their business a much- & objectives
their experiences, more than needed tune-up.
Cost of
3rd
What Consumers Want... broadband
MORE INFO ABOUT CARS

ON THE WEB
74% 4th Oral & written
expression skills
BETTER GENERAL
SERVICE & AFTER-SALES
SERVICE 74% 5th Bureaucratic burdens
on company operations
VIRTUAL TOURS OF CARS

ON THE WEB 73% Incentives & aid
6th for hiring workers
MULTIBRAND
DEALERSHIPS 69%
7th Phone costs
REMOTE ASSISTANCE
BY EXPERTS 66% 0 1 2 3 4 5
How Spain rates
URGENCY Importance for
foreign firms
GREATER SELECTION
OF USED CARS 57%
The Barometer of the Business Climate in
0 10% 20% 30% 40% 50% 60% 70% 80% 90% Spain was prepared by IESE’s International
Center for Competitiveness in collaboration
SOURCE: IESE 2012 Automotive Survey, carried out by IESE Prof. Marc Sachon with Invest in Spain. See “How Foreign
in collaboration with IESE MBA students. Read more at http://blog.iese.edu/auto/ Companies View Spain” at ieseinsight.com.

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Dossier
DEEP
insight
Illustrations by Oriol malet
W hen a crisis flares up, nobody is safe. This dossier will help
you to manage crises better – before, during and after.
STRATEGY LEADERSHIP
13 Attentional Triangulation 28 Guide to Taking the Reins
Picking Up the Signals Leadership Under Pressure:
That Trigger Crises Communication Is Key
By Claus Rerup By José R. Pin
marketing BUSINESS ETHICS

20 Reputation & Communication 36 Cleaning Up Your Act
How to Manage a Crisis An Ethical Approach
Before It Hits to Crisis Management
By Alfonso González-Herrero By Mark S. Schwartz, Wesley
Cragg and W. Michael Hoffman

They say every crisis is an opportunity. Have you
thought about developing your opportunities?
Part of the Solution

By Yago de la Cierva ALFONSO GONZÁLEZ-HERRERO emphasizes the sig-
Pick up your favorite newspaper and what do nificant benefits of preventive crisis manage-
you see? The inside pages are full of opinions, ment. He describes how to prevent a potentially
entertainment and sports, but the front page is dangerous situation from escalating into a full-
the preserve of a special type of news, one that blown emergency, and if that’s not possible, the
usually revolves around crises. Financial scan- measures to take to limit any adverse effects on
dals, natural disasters, kidnappings, defective your company’s reputation.
products, personal misconduct: Institutional Crises reveal the soul not only of institu-
crises are the order of the day. tions but of their leaders. Trying times expose
This reality leaves managers with three op- who is in charge and what they are really made
tions: Trust that fate will be kind and protect you of, bringing out the best and worst in people.
from calamities that hopefully only ever befall IESE’s JOSÉ R. PIN examines the key qualities of
other, less fortunate souls; believe that, should leadership under pressure: stepping up and as-
a crisis touch you personally, you will have the suming legitimate responsibility, while work-
wherewithal to weather the storm when the time ing in close collaboration with stakeholders, to
comes; or factor the likelihood of crises into your manage your response to a crisis with clarity,
ordinary business planning activities, training consistency and a human touch.
and preparing yourself in anticipation of that Continuing in this vein, three ethics profes-
fateful day. sors, MARK S. SCHWARTZ and WESLEY CRAGG, both
Crisis management as a discipline is matur- of York University, and W. MICHAEL HOFFMAN, of
ing. Although each crisis may appear unique on Bentley University, insist that sound ethical
the face of it, research shows several common principles must lie at the heart of any prosper-
bases to their causes and in their dynamics, and ous, socially responsible business. They decon-
suggests some effective steps to take to deal struct the case of the 2010 BP oil spill in the Gulf
with them. of Mexico to highlight the guiding principles
CLAUS RERUP, of the Richard Ivey School of that they believe can help executives to skillfully
Business, has conducted extensive research into manage the crises they may face.
several large-scale crises, including one that al- With the trial now under way in Spain 10
most cost Novo Nordisk its license to distribute years after the Prestige oil tanker spill, this ar-
its star pharmaceutical product in the United ticle is a timely reminder that a company’s con-
States, and another that led to youths being duct should always be directly based on and
crushed to death at a rock concert. By analyzing connected to core ethical values like trustwor-
these and other dramatic real-life crises, Rerup thiness, responsibility, caring, citizenship, re-
presents a system of attentional triangulation, by spect and fairness. In this way, you can be sure
which companies can pick up on the signals that not to be part of the problem, but to be well on
impending crises give off before they happen. your way toward a solution.
One important signal is customer complaints:
Don’t shout down company critics, he says, but
prick up your ears to their early warning signals.
For those who like their messages loud and
clear, there is another compelling argument
for implementing crisis management systems:
It saves money. Dealing with a crisis is cheaper Yago de la Cierva is secretary-general of IESE’s
when there has been prior planning versus none, Madrid campus and professor of Preventive Com-
and the cost of a company’s reputation is price- munications and Crisis Management at the Ponti-
less. The corporate communications consultant fical University of the Holy Cross in Rome.

DEEP
insight
ATTENTIONAL TRIANGULATION
Picking Up the Signals

That Trigger Crises
By CLAUS RERUP
A
ll too often, companies ignore the ated with this issue, they gradually turned their
threat of a catastrophe. They do so be- attention to problems considered riskier. Seven
cause the probability of such events astronauts died as a result, and the space shuttle
is low, and their attention is directed program was suspended for years, delaying the
toward other pressing issues. In being oblivious, construction of the International Space Station.
however, they may lose sight of hidden problems There are many examples of organizations
that trigger subsequent crises. They may also in industries such as car manufacturing, fi-
miss out on valuable opportunities for learning nancial services and oil exploration that took
and new business opportunities. their eyes off the ball, with unfortunate conse-
The 2003 Columbia space shuttle explosion quences. To keep this from happening, com-
during reentry, caused by falling debris during panies need to hone their attention skills. This
the launch that damaged a wing, exemplifies this process must occur at multiple levels through-
short-sightedness. Although tile damage on the out the organization.
shuttle from falling debris was a known problem To this end, I have developed a framework
even in the 1980s, NASA managers got used to for thinking about attention. I have also
such damage and downgraded the risk. As they identified several steps that companies can take
changed their beliefs about the risks associ- to improve their attention quality.

Picking Up the Signals That Trigger Crises
The concept of triangulation can help safe- fully understand the risks posed by these prac-
guard organizations against managers over- tices, so it is doubtful that relying on legislation
looking potential threats. By applying this alone will prevent future crises from happening.
concept, companies can develop the awareness What’s needed is a deliberate framework
needed to pick up on useful signals about a crisis that helps firms gather information over time
in the making. and across levels, that broadens understanding
Furthermore, attentional triangulation of relevant issues, and then embeds that learn-
provides companies with a fine-tuning device ing in specific organizational practices, struc-
that helps them zoom in on opportunities, focus tures and designs.
on market trends and receive vital cues that

might open pathways to new business. Attentional Triangulation
Using research on learning and attention, I have
Pushing Our Luck developed a concept called attentional triangula-
Rare events will likely have a growing impact on tion to help companies spot potential problems
companies and their operations. In many ways, early on. It encompasses three dimensions or
it seems that society is pushing its luck when it abilities. To understand the role of each , I will
comes to taking risks. use the analogy of a museum.
Take technology. In the era of Big Data, em-
ployees and managers need to analyze vast quan- 1. ATTENTION STABILITY. This is the ability to sus-
tities of information and often make rapid deci- tain attention on a particular issue over time.
sions based on what they believe the information Imagine you are visiting a museum. When you
is conveying. Swift action increases the risk that first enter, you see various paintings on the walls.
these individuals will misinterpret the data. One painting catches your eye, so you go over to
For instance, the financial industry stands examine it more closely. The more you stare at
out for using instruments that it never fully the painting, the more details you see – differ-
understood. Because all was well for a while, few ent shades of color, the brushstrokes – and your
paid close attention to threats that now seem understanding of the work grows. As you do so,
blindingly obvious. Trusting in abstract models however, you become less aware of the other
and tools without any underlying knowledge of paintings in the room. Your focus is intense, but
how they actually work ultimately means that is limited to this one specific work.
“rare” events will become less rare. Attention stability involves this deep but
In theory, regulation is designed to keep narrow awareness of what is happening in a
crises at bay. However, it is not keeping pace specific context. It is important for organiza-
with the complexity involved in many current tions to have attention stability because certain
business processes. Experts studying these features of a problem are fathomable only when
issues agree that using simple regulations to considered in depth over a longer period.
deal with complex issues is not effective. Fre-
quently, neither the regulators nor the regulated 2. ATTENTION VIVIDNESS. This is the ability to see
different issues concurrently and to identify pat-
terns. In the museum, you might step back and
executive summary scan the various paintings in the room. You start
to see connections between one painting and an-
Drawing on extensive mensions: stability, vividness other – perhaps in the style, technique or use of
research on the rare crises and coherence. Managerial color. The complexity of each painting finds its
faced by Novo Nordisk and decision-making to prevent place within an overall context.
the Roskilde Festival in Den- rare crises lies at the inter- Organizations need this ability to focus on
mark, this article presents a section of these dimensions. many issues at the same time, analyzing and
framework for thinking about By implementing a system interpreting the complex, often contradictory
attention. It identifies several of attentional triangulation, information that arises. It is only by moving
steps that companies can take companies improve their ca- from attention stability to attention vividness
to improve their attention pability to pick up on signals that organizations can start to pick up early
quality. Attentional triangula- that impending crises give off warning signals and transform those signals
tion encompasses three di- before they happen. into preventive actions.

Attentional triangulation doesn’t happen by chance.

Certain mechanisms need to be in place, so that
there is an intelligent understanding and significant
deliberation of relevant issues and opportunities.
3. ATTENTION COHERENCE. This is the ability to co- Attentional triangulation doesn’t happen by
ordinate attention stability and vividness at dif- chance. For it to work, certain mechanisms need
ferent levels. Imagine that the museum is quite to be in place to coordinate how information is
large. As you wander through various rooms on captured, so that there is an intelligent under-
different floors, you ask yourself: “What is the standing and significant deliberation of relevant
overarching idea being expressed? What did the issues, problems and opportunities.
curators have in mind?” You start to coordinate
your thoughts about what is really going on. Learning From a Crisis
Today’s companies comprise many highly In an article published in Organization Science, I
specialized departments, activities and hier- examined how Novo Nordisk, a world leader in
archies. This dispersion makes attention coher- diabetes care, used attentional triangulation to
ence essential for perceiving possible threats. recover from an unexpected crisis.
Once stability and vividness have been estab- In 1989, Novo and Nordisk, two leading
lished, coherence needs to be introduced by co- Danish pharmaceutical companies that
ordinating individuals, teams, departments and were competitors in the field of insulin
command structures. manufacturing, merged to create Novo Nordisk.
Taking the analogy a step further, imagine Although it made sense for them to join forces,
you’ve gone to the museum with a group of the merger distracted middle managers from
friends. You’ve all gone through the same rooms, attending to several weak cues that were taking
but seen different things from diverse perspec- shape in the wider regulatory environment.
tives. Afterwards, you each discuss what you saw. Employees and managers in manufacturing
You realize that, although you tried to see every- noticed these changes, but their requests for
thing, you missed a lot that your friends noticed. improving quality assurance were ignored by
Likewise, within a company, some people superiors who were focused on the merger.
are tasked with looking at specific areas of oper- Eventually, in 1993, Novo Nordisk’s senior
ations very carefully. They are doing important managers were shocked when a mock inspec-
work, but they may overlook areas beyond their tion revealed that the firm might lose its license
narrow specialization or field. They may need to to sell insulin in the United States. Nothing was
step back and expand their view before they can wrong with the quality of its product. Nonethe-
spot threats on the horizon. less, Novo Nordisk was not providing the docu-
The goal of coherence is to coordinate the mentation of its manufacturing process that
collective attention of people, units and func- U.S. authorities required before they would
tions. By sharing information and diverse in- allow Novo Nordisk to distribute insulin in the
terpretations of data, the organization is better United States.
able to reduce confusion, identify important As Novo Nordisk did not want to sell a
cues and understand what’s really happening in product in one part of the world that was not
the wider environment. perceived as satisfactorily manufactured in an-
Attentional triangulation refers to the other, it made a tough choice: It discarded six
combination of all three dimensions. It is not months of insulin that was supposed to be sold
the sum of their parts, but rather reflects their in the United States. It then implemented a new
integration and interrelatedness. Managerial validation and quality system.
decision-making to prevent rare crises lies at Yet this decision created another problem:
their intersection. It balances generality and To ensure that its U.S. customers still got their
simplicity with clarity and depth. insulin on time, Novo Nordisk had to ask its

main competitor, Eli Lilly, to temporarily supply Although the crisis cost the company an esti-
insulin to its customer base in the United States. mated $100 million in lost sales and investments
As with every business crisis, the events at in new manufacturing facilities, the changes it
Novo Nordisk presented a valuable opportun- made to foster attentional triangulation meant
ity to learn from oversights in the past and take that Novo Nordisk was selling insulin in the
steps to prevent similar events from recurring. United States within a year, and today it retains
In analyzing what went wrong, Novo its leading position in insulin manufacturing.
Nordisk discovered that some middle managers
were devoting too much attention stability Compensating for Asymmetry
and vividness to certain issues. For example, In a separate study with Morten Thanning Ven-
some middle managers were so focused on delø from Copenhagen Business School, I re-
ensuring the merger’s success that they didn’t lated attentional triangulation to a tragedy that
listen to warnings from frontline employees. occurred in 2000 at a famous rock music festival
As such, they did not notice that the regulatory in Denmark, in which nine people were crushed
environment was changing. to death. A similar tragedy occurred in 2012 at a
This lack of attention coherence to regula- rock concert held in the Madrid Arena on Hal-
tory changes across the organization was caused loween. How does insufficient attentional tri-
by the hierarchical and bureaucratic chain of angulation contribute to such tragedies?
command that had arisen since the merger. As part of our research, Vendelø worked as a
This development reinforced a tendency of not security guard for the festival. This perspective
speaking up about potential problems envis- let us directly experience the sheer magnitude
aged further down the line. of the attention challenges faced by employees
To remedy this situation, Novo Nordisk fo- on the frontline. We studied stability, vividness
cused on boosting its quality assurance depart- and coherence in relation to the behavior of the
ment from 180 to 620 employees. By adding festival organizers and the crowd.
more people and requiring them to interrelate, At the Roskilde Festival, as with many such
Novo Nordisk increased its attention capacity. concerts, individual safety guards were look-
Novo Nordisk also came up with a system ing at a very narrow slice of the audience (in-
designed to coordinate attention to weak cues dividual concertgoers). In contrast, the safety
across the chain of command, known as the team manager or coordinator working behind
Novo Way of Management. Based on principles the scenes was in charge of seeing the big pic-
such as openness, continuous learning and dia- ture (the concert). In addition, the context was
logue, the firm’s senior managers encouraged highly complex: some 50,000 people screaming
unit managers to collaborate and share know- and pushing in front of the stage, with very loud
ledge about emerging issues and respond to rare music and low visibility due to rain and fog.
events in a coordinated way. The problem arose when audience mem-
bers collapsed and crowd surfers fell on top of
them. The guards on the frontline understood
about the author that there was a problem, but they couldn’t com-
municate the message to those who could stop
Claus Rerup is an associate ambiguity and heterogeneity the concert: the coordinators behind the scenes.
professor of Organizational influence variations in This situation represents an attentional
Behavior at the Richard Ivey distributed attention, delay, in which one party sees the problem
School of Business, University sense-making and learning before the others do, but doesn’t have the
of Western Ontario, Canada. processes over time. His power and authority to resolve it in time. At
He earned his Ph.D. from the work on the Estonia ferry some point, every organization must confront
Aarhus School of Business, disaster, the Roskilde Festival this question: How can it eliminate asymmetric
University of Aarhus, accident, the rise and fall of attention fast enough for all the members on
Denmark, and completed Learning Lab Denmark, and the team to refocus their attention on the same
Post-Doctoral studies at the the unexpected crisis faced by problem and take concerted action?
Wharton School, University Novo Nordisk each draw upon At the Roskilde Festival, concert organizers
of Pennsylvania, U.S.A. His a minimum of eight years of employed simple video and radio technology
research examines how data collection. to create a system that allowed the guards to

You need to ask yourself what kind of corporate

culture you are looking to create: one that fosters
openness to information-sharing, or a culture of
simply waiting around for things to happen?
communicate instantaneously with the co- consider alternatives and pay attention to issues
ordinators, who had a bird’s eye view of the that they would not have seen otherwise. In this
crowd. Actions that used to take up to 10 min- way, the presence and input of a third-party ad-
utes can now be carried out in seconds. viser can boost the overall attention quality of
Is there technology or a simple system that business leaders.
your organization can implement to speed ex-
changes, bypass physical restrictions and elim- Reactive vs. Proactive:
inate asymmetric attention? Which Are You?
There are two ways you can think about crises:
Time for a Second Opinion You can sit back and wait until something hap-
In business, especially with entrepreneurial pens, then brace for the impact; or you can real-
endeavors, there is a strong tendency to move ize that unexpected, rare events emit signals,
quickly. Indeed, several studies – including my albeit sometimes weak ones, that foreshadow
study of Novo Nordisk – have suggested that something that is about to happen, and develop
speed can enhance attentional triangulation systems to detect those signals.
and the quality of collective attention processes. Although such systems cost money and
When decisions are made too quickly, there is no guarantee that even the most robust
however, important subtleties can be missed, attention system in the world will prevent a
including emerging issues or the big picture. crisis, critics of a proactive approach need to
Acting too fast limits the opportunity to bene- be reminded that crises cost money. The real
fit from information that is revealed only over question is whether it is cheaper to wait for the
time. It can also lead to a shallow understanding crisis and pay for the damage later.
of complex issues. Above all, you need to ask yourself what kind
With Vanessa Strike from Rotterdam School of corporate culture you are looking to create:
of Management, I conducted a study about the one that fosters openness to information-shar-
Most Trusted Adviser (MTA) in family business- ing, where employees and managers are willing
es. The role of the MTA is to help direct and tri- to speak up and listen to each other, or a culture
angulate the attention of family business lead- of simply waiting around for things to happen?
ers to key issues and cues in the environment. Organizations that have robust levels of
We found that deliberate attention delays attentional triangulation seek to engage the
introduced by the MTA – attending to cues more entire workforce and encourage everyone to
slowly, rather than faster – can actually augment expand their awareness of potential problems
attention quality. This is because slowing down on many levels. Companies that do this most
perception allows the time needed to gain other successfully are those that do it because they
points of view, which contributes to attention believe it’s the right thing to do. It’s one thing to
stability and vividness. This doesn’t mean de- say you care about improving attention quality
laying decisions for years – we’re talking about through triangulation when you can see the dir-
modest delays of a day or a week or two at most. ect consequences; it’s quite another to sustain
Our study also highlighted the value of a your commitment to attention quality when you
third party in helping organizational leaders are uncertain of the outcomes. True leadership
identify cues they may not see on their own. is based on this latter principle.
Even when the leaders of the family busi- For this reason, the role of senior and mid-
nesses we studied did not end up following the dle managers is crucial. Do they prioritize and
MTA’s advice, they were at least compelled to deliberately enact organizational designs that

Exhibit 1
Triangulating
Your Position
BOOSTING ATTENTION QUALITY REQUIRES PUTTING ATTENTION STABILITY
A SYSTEM IN PLACE THAT INVOLVES EVERYONE Intense, deep, narrow, n Third Party
IN THE ORGANIZATION & CAPTURES THEIR over time Advisers: gaining
other points of view
COLLECTIVE INSIGHTS. n Customer feedback
& complaints
In
n,
fo dia
ls io
rm lo
ne at
at gu
an or
io e v
Receive informa- ch ab
n
n
al oll
ex ia i
tion from many
ch nt
rn , c
te es
different sources
an er
in ng
ge na
Collect informa-
vi ha
s, l c
co ha
tion on-the-
ue exc
MANAGERIAL
a
ll nn
ground
og n
ab e
DECISION-MAKING
al io
or ls
di at
at
rm
io
fo
n,
In
Information exchanges, collaboration, dialogue via internal channels
ATTENTION VIVIDNESS
n Appoint ATTENTION COHERENCE
Interpreting, connecting, “facilitators” Coordinating multiple
n Next generation
contextualizing information levels & teams
insights
facilitate attentional triangulation? Do they EXPAND YOUR RADAR. Start by looking in

proactively encourage everyone to speak up different directions. Review your channels of
about threats and opportunities? Do they say, information. Are you receiving information
“This is how we run our business, because we from many different sources? As Vendelø and I
believe attentional triangulation is import- found when we studied the perspective of guards
ant?” Answering this question in the affirmative at the Roskilde Festival, frontline collection
is central to making attentional triangulation a of information can be invaluable. Organize
way of life. sessions with NGOs, or some other stakeholder
with whom you don’t normally interact, to gain a
Strengthening Your Attention different sample of raw data from the field.
Ninety-five percent of the ideas put forward in a
company may be noise, and therefore irrelevant. INVITE CRITICISM. Don’t shield yourself from criti-
You need a lot of noise, however, to find the 5 cism – invite it. All too often, people close their
percent, or even 1 percent, that yields useful sug- ears to complaints about their products and
gestions that might prevent a crisis and identify services. Instead, have open conversations with
valuable opportunities. You never know where exactly those customers. You never know what
a good idea will come from, or when someone will arise as a result. Some firms, for instance,
will say, “Something is not working right here.” create stakeholder relations departments whose
Implementing a system that boosts atten- mandate includes talking to company critics and
tion quality does not have to be expensive. In- considering their perspectives.
deed, it may save money by helping the company
avoid costly problems in the long run. Even RETHINK ORGANIZATIONAL ROLES. Novo Nordisk
small and medium enterprises can increase has officially rebranded certain managers as
their attention quality without too much cost. “facilitators,” who are a cross between an auditor
To get started, companies should consider tak- and a coach. An important part of their job is to
ing the following steps. See Exhibit 1. seek out alternative information and to identify

This is an ongoing journey that requires everyone

throughout the organization to triangulate their
position in relation to the three key dimensions of
stability, vividness and coherence.
problems that are being overlooked. They visit Don’t make the mistake of treating these
different organizational units and interview simple steps as yet another management
employees there to uncover concerns and issues procedure or success formula instituted by
that are not being openly discussed. They then top executives. Remember, the motivation
prepare a report and an action plan, with a set behind these steps is to improve attentional
timeline for making changes and improvements. triangulation and attention quality. As such,
it is more of an ongoing journey that requires
GET PEOPLE TO FOCUS ON TRENDS. Encourage everyone throughout the organization to
people to start imagining what they think is going triangulate their position in relation to the
to happen in the future regarding your product three key dimensions of stability, vividness and
or service. Maybe weave this effort into their job coherence. By being proactive, managers can
descriptions as something they have to deliver. prepare their organizations to pick up on the
Eventually, as employees seek information and signals that impending crises give off before
trends, this practice will become a natural habit. they happen.
STRENGTHEN INTERNAL COMMUNICATION to know more

CHANNELS. People need forums for talking
about emerging issues. One CEO of a company n Rerup, C. and C. Salvato. “Role of Attention
with more than 60,000 employees wanted to Triangulation in Organizational Learning Proces-
encourage more open discussion of problems, so ses.” In Encyclopedia of the Sciences of Learning,
he decided to make his e-mail inbox public. The edited by N.M. Seel. Berlin: Springer, 2012.
number of e-mails he received went down, and
he found that discussions began to flow via other n Vendelø, M.T. and C. Rerup. “Crowd Sense-gi-
internal social media channels. Strong internal ving and the Pearl Jam Concert Accident at the
communication helps to keep everyone on the Roskilde Festival.” Paper presented at the Third
same page and facilitates joint problem solving. International Symposium on Process Organi-
zation Studies, Corfu, Greece, June 2011, and
INVOLVE YOUNGER GENERATIONS. At the Richard at the Academy of Management 2011 Annual
Ivey School of Business in Canada, students Meeting, San Antonio, Texas, August 2011.
carry out projects with companies as part of their
degree requirements. Some projects last up to n Rerup, C. “Attentional Triangulation: Learning
three months. These companies value the insight From Unexpected Rare Crises.” Organization
of the students, whose unique ways of looking at Science 20, no. 5 (Sept-Oct 2009): 876-93.
the world help to identify potential problems and
highlight areas never considered before. Perhaps n Rerup, C. “Learned Ignorance and Unthinkable
there are similar ways that your organization Events: The Accident at the Roskilde Festival.”
can collaborate with universities, or introduce In Knowledge About Leadership, edited by J.P.
reverse mentoring programs, to gain insights Ulhøi, 418-30 (in Danish). Copenhagen: Børsens
from the next generation. A related idea involves Forlag, 2004.
appointing certain employees to serve as devil’s
advocates, whose job it is to argue the contrary n Strike, V. and C. Rerup. “Attention Quality,
point of view. As many senior or middle managers Mediated Attention Delays and the Role of the
are older, appointing younger workers to this role Most Trusted Advisor in Family Firms.” Working
may help to counterbalance groupthink. paper, Richard Ivey School of Business, Canada.

dEEP
insight
REPUTATION & COMMUNICATION
How to Manage
a Crisis Before It Hits
By Alfonso González-Herrero
I
n October 2012, Toyota recalled millions customers, investors and government agen-
of vehicles worldwide over a faulty pow- cies adds to the daily pressures they must with-
er-window switch. On this occasion, the stand. The impact a crisis can have on a firm’s
company took a quick decision, in line reputation is magnified by the effect of global-
with the transparency policy it had adopted ization and the speed with which information
following criticism of its actions in 2010, when travels over the Internet and social networks.
its slow response to mechanical problems led to Companies have good reason to be con-
a halt in production of several models, repairs cerned about their reputations. Reputation has
to nine million vehicles worldwide, a multimil- become a key contributor to a company’s mar-
lion dollar fine in the United States and a public ket value, accounting for as much as 63 percent
apology by the company’s president. All in all, of the total value, according to executives sur-
the crisis dealt a heavy blow to Toyota’s busi- veyed by the PR firm Weber Shandwick.
ness and reputation. Add to this the fact that two-thirds of the
Faced with such huge risks, companies are respondents to the same survey consider
naturally keen to learn how best to handle crisis it easier to build and maintain a reputation
situations. Growing scrutiny from the media, than to build it back up again once it has been

The good news is that companies can design and

implement processes that will mitigate, if not actually
prevent, the adverse effects of a crisis. The key is to
have appropriate mechanisms in place.
tarnished, and it is all too obvious why pre- imports of cucumbers from Spain. The same
serving reputation should be a core objective year, Tepco had to deal with the public relations
for any company today. This is confirmed by fiasco resulting from the nuclear accident at Fu-
research that I have conducted over the years kushima. And in 2012, Carnival Corporation’s
about crisis communication. first-quarter results were badly affected by the
sinking of the cruise ship Costa Concordia.
Nobody Is Safe However different their causes and con-
Some industries are especially crisis-prone. sequences, these crises all have two things in
One example is air travel. Recent years have common. First, they affected not only the com-
seen plane crashes, airline bankruptcies, strikes pany’s reputation and public image, but also its
and airport closures due to bad weather. business objectives, and in some cases, even
Unforeseen events can also make an indus- threatened the survival of the firm or an entire
try more risky, as the financial services sector industry. Second, they demanded an urgent and
learned recently. In the wake of the Lehman immediate public response, despite the lack of
Brothers collapse, the Madoff scandal and mul- information at hand and ongoing uncertainty
tiple bank bailouts, financial firms have strug- surrounding the events.
gled to rebuild their reputations. The good news for crisis managers is that it
As the past few years have shown, no indus- is possible to act early and prevent a great deal
try, whether in the public or private sector, is of the damage that could be caused. Indeed,
safe from crisis. In 2009, Intel Corporation had companies can design and implement process-
to pay the European Commission a massive fine es that will mitigate, if not actually prevent,
for monopolistic practices, while General Mo- the adverse effects of a crisis. The key is to an-
tors filed for bankruptcy protection. In 2010, ticipate crises and have appropriate response
the Gulf of Mexico oil spill did serious damage mechanisms in place.
to BP’s reputation and financial health. In 2011, The approach to be adopted will obviously
Spanish farmers were hit by the E. coli scare, depend on the peculiarities of each scenario.
leading some European countries to block Planning for a possible adverse decision in an
ongoing court case is not the same as planning
for an unforeseeable accident on an unknown
EXECUTIVE SUMMARY scale and with unknown consequences. In all
cases, however, there are certain steps an orga-
No industry or company reactive: Companies hoped nization can take to put itself in a better posi-
is safe from crisis. Every that nothing would go wrong tion to deal with crises.
company’s reputation is poten- and that, if it did, management
tially vulnerable to accidents, would have the competence Prevention Rather Than Reaction
strikes, cyberattacks or data and know-how to handle the Many companies take an essentially reactive
theft. How well a firm’s reputa- situation. approach to crisis management. They wait un-
tion and balance sheet hold up Experience shows, however, til they have a serious problem on their hands
in a crisis will depend on how that good crisis management before taking decisive action. Experience has
well the firm communicates requires forecasting and plan- shown time and again that this is a mistake.
with stakeholders and with ning. In this article, we look at Managers do not usually have time to react
traditional and online media. key issues companies must quickly or effectively in a crisis – unless they al-
The old-style approach address in order to safeguard ready have a clear action plan to guide them in
to crisis management was their reputations. their decision making.

Organizations need to have effective response

mechanisms and procedures in place before any
situation arises that could frustrate their plans or
damage their relationships with key stakeholders.
Crisis management must start long before defects of individual products or services, such
a problem becomes acute. And it must include as the problems that led to the recall of millions
prevention and planning measures. Organiza- of Toyota vehicles.
tions need to have effective response mecha- The other type of crisis is an unavoidable or
nisms and procedures in place before any situ- accidental crisis caused by human error or freak
ation arises that could frustrate their plans or events. Examples include the disaster at the Fu-
damage their relationships with key stakehold- kushima nuclear plant, operated by Tepco; the
er groups. They must aim to reduce or eliminate Air France Flight 447 crash; or the BP oil spill in
risk and uncertainty in order to have better con- the Gulf of Mexico.
trol of the situation. In situations that cannot be avoided, crisis
There are two possible approaches to crisis management inevitably becomes an exercise in
management, depending on the type of crisis. damage limitation. The task of the crisis man-
On the one hand, some crises are caused ager is to provide an effective response for such
by factors a company can influence or control, crises and to establish mechanisms that will
and so can be avoided if the company takes the minimize their impact on the organization.
right action. Managing an avoidable crisis (see Where a crisis cannot be avoided, the com-
Exhibit 1) is about preventing issues from es- pany will have to go through the crisis and post-
calating into a full-blown crisis. The goal is to crisis phases. But how quickly and in what state
influence the course of events, so as to reach it reaches the post-crisis phase will depend on
a point where it becomes a non-issue. This is how well the crisis is managed. The aim should
issues management. be to end the crisis as quickly as possible and
If this cannot be done, the company must not to do anything, whether by action or omis-
at least be capable of anticipating the crisis sion, that might make the situation worse.
and taking appropriate preventive measures to
limit any adverse effects. Some Rules of Thumb
Examples of avoidable crises include A company that wants to be prepared and stay
strikes, such as the Iberia pilots strike in April one step ahead of potential crises must observe
2012; trade boycotts, such as the boycott of certain rules.
Nestlé’s Fairtrade Kit Kat in 2010; and quality
GET READY FOR ISSUES MANAGEMENT. To have
any chance of preventing a crisis, you must see
ABOUT THE AUTHOR it coming. Every company and every industry
must continuously scan its environment, so as
Alfonso González-Herrero is different types of crisis. to be aware of any issues or impending changes
a corporate communications He is currently external that could affect it in the medium term. These
consultant and author of the communications director may include proposed legislation that could
book Marketing preventivo: for a leading company in bring restrictions, prohibitions or penalties.
la comunicación de crisis the technology sector and This process is based on two fundamental
en la empresa (Preventive a member of the company’s ideas: to spot potentially problematic issues at
Marketing: Business Crisis crisis committee. He is also an early stage, and then to nip them in the bud
Communication). Over the regional coordinator for Spain before they have a negative impact on the or-
course of his consulting of the European Association ganization.
career, he has advised of Communication Directors By the time lawmakers in Catalonia banned
dozens of companies facing (EACD). bullfighting in 2010, the anti-bullfighting move-

CRISIS
exhibit 1
The Need to Be Prepared
THE IMPACT A CRISIS HAS ON AN ORGANIZATION’S
REPUTATION WILL LARGELY DEPEND ON THE ACTION
G r av i t y
THE ORGANIZATION TOOK BEFOREHAND.
Planning &
Prevention
no post
CRISIS CRISIS
1. Anticipate problems and allocate
TI m e
resources to monitor the environment
2. Establish an information system, also
online ISSUES
3. Identify possible problems MANAGEMENT 1. Monitor the environment, and put early warning
4. Analyze them systems and procedures in place
5. Filter them and set action priorities 2. Carry out an internal and external risk audit
6. Draw up a map of individuals and 3. Define possible crisis scenarios, both online and
bodies that can influence the issue, offline
both online and offline 4. Appoint the members of the crisis committee
7. Set goals and define strategies in 5. Decide where the committee’s operations
relation to each issue center(s) will be
8. Implement the action plan, both online 6. Draw up a crisis plan, and decide whether it needs
and offline to be accessible online
9. Assess the results 7. Test the crisis plan with drills
8. Train the company spokespeople
9. Cultivate relationships with the media
10. Don’t forget these elements:
ment in Spain had been gathering momentum Update your Prepare
for many years. The bullfighting industry could databases (media, communications
have reacted much sooner, yet it was only until authorities, materials for possible
quite recently that the relevant professional customers) crisis scenarios (text,
Hire a news graphics, audios,
associations joined forces to set up a lobbying videos, photographs)
monitoring service,
body to block hostile moves against La Fiesta, as including online Identify the service
bullfighting is known among its fans. Control the providers that will be
development of your needed
AUDIT THE RISKS. In accidental crises, there is no corporate website Decide whether the
time for prevention, so the ideal starting point Decide whether services of an outside
to add Twitter and crisis communications
is to conduct a thorough risk audit focused on consultant or online
Facebook channels, or
identifying factors that could conceivably give a corporate blog, and communications
rise to problems in the near future or that could do it now consultant will be
exacerbate an already existing crisis. required
Prepare website
A risk audit will usually involve examining a message templates for
company from every angle, using a variety of in- emergency situations
formation sources: visits to company facilities;
interviews with managers and external opinion
leaders; analyses of consumer suggestions and
complaints; a review of previous crises in the A risk audit of a food company, for instance,
company and its industry; a workplace climate might find that the most serious crisis the
study; and analysis of published information company is likely to face is food poisoning.
and opinions in the media and social networks. It might also find that the company does not
The resulting risk report should state the have the necessary controls in place to ensure
main conclusions and the actions the company traceability of the ingredients used in its prod-
should take in order to eliminate or mitigate ucts, which would make any crisis situation
risks, while also identifying crisis scenarios for far worse; that its product labeling does not
which the company should draw up a specific include a free telephone hotline for consum-
response plan. ers to raise any issue with the company, instead

The moments immediately following the outbreak of a

crisis are decisive, both in shaping the company’s image
and in protecting its reputation. Hence, the importance
of having a written communication plan or crisis manual.
of having to go through a consumer protection bring to bear the combined technical know-how
body; or that the company has not appointed and professional experience of all its members
suitable spokespeople in the event of a crisis. and will be less subject to the cognitive limita-
tions of any one person.
PUT YOUR CRISIS PLAN IN WRITING. Having a writ- All the company’s main areas should be
ten plan is the best way to avoid the most seri- represented on the crisis committee by the re-
ous mistakes companies tend to make under ex- spective head of each area, so that any decision
treme stress, often due to lack of time to decide taken by the committee is effective and requires
and act appropriately. no further approval. The number of members
Emergency situations demand an immedi- should be limited to allow for efficient debate
ate response, which generally means that the and decision making.
response must be planned in advance. Preven- Eurovision, which is responsible for Europe’s
tive measures not only save a company’s organi- biggest non-sport TV event, the Eurovision Song
zational health and public image; they also save Contest, has a possible formula. Its crisis plan
money. provides for a crisis committee, responsible for
The moments immediately following the operational crisis management, and a crisis com-
outbreak of a crisis are decisive, both in shaping munications committee, responsible for manag-
the company’s image and in protecting its repu- ing the communication of the situation, both of
tation. Once a company has created an unfavor- which must work together effectively.
able image of itself, that image will be extremely
difficult to change. Hence, the importance of SET UP AN OPERATIONS CENTER. Although this is
having a written communication plan or crisis an issue that often gets neglected, a company
manual to help bring any crisis situation under needs to know in advance where and under
control as quickly as possible. what conditions its crisis committee will oper-
In the United States, the Monster energy ate, e.g., in a dedicated crisis room.
drink brand was recently linked with the deaths Besides the physical location of the crisis
of at least five people who had consumed the room, a company needs to consider any spe-
product, which is high in caffeine. Although the cial equipment that may be required, including
latest death is quite recent, U.S. authorities had communications equipment, such as telephone
been investigating the case since 2004, so the and fax lines, an Internet connection and e-mail
brand had plenty of time to prepare a specific accounts; audiovisual equipment, blackboards,
action plan. maps and monitors to chart the progress of
events; facilities that allow the group to work
SET UP A CRISIS COMMITTEE. A group will always be uninterruptedly for an extended period of time;
better at dealing with a crisis than an individual. and logistical matters such as the food and
If a crisis occurs that is not specifically provided drink supplies, and restrooms.
for in a company’s crisis plan, having a crisis Exactly what kind of operations center a
committee may be the company’s only hope. company needs will depend on the company
One of the first steps in preparing for cri- type and industry, geographical location, num-
ses, therefore, is to appoint a multidisciplinary ber of members of the crisis committee and the
working group to manage crisis situations. kind of crisis that the committee believes it is
In practice, a crisis committee has many ad- likely to face. It may also be advisable to set up
vantages over other crisis management options. an alternative crisis room in case the main one
The main advantage is that a committee will becomes unusable.

A Plan for All Seasons

There are different types of crisis communication plans, ranging from those designed to tackle
specific scenarios to those taking a more generalized approach.
SPECIFIC PLANS. These plans The plans are often drawn circumstances, which go far
tackle, in great depth and detail, a up in a crisis manual, which beyond those typically contained
particular problem that can affect outlines the basic steps to follow in crisis manuals.
the company in the future. The in each situation, and provides For that reason, some companies
ultimate aim is to be prepared to the necessary operational and focus on training members of
confront an adverse scenario in the communication materials. These the crisis committee, rather than
best possible way. plans may require subsequent trying to identify every possible
These types of plans are often refining to meet on-the-ground crisis scenario, and planning
adopted by companies operating realities as a new crisis breaks. the organization’s subsequent
in sectors with elevated risk of Despite criticism from some response. The goal is to prepare
suffering a particular type of quarters, the use of these types of the company to react swiftly and
accidental crisis, such as the manuals is justifiable, given that appropriately to any situation, no
energy or air travel industries. most crises have been seen before, matter how serious.
Such plans could also be in some way, shape or form. Many crisis managers believe
appropriate for companies facing As the Institute for Crisis that the sheer breadth of possible
some type of judicial process or Management has shown, there crisis scenarios makes them
governmental enquiry. are precedents for almost all difficult to predict or plan with any
situations that a company may degree of accuracy. Moreover, the
MULTI-SCENARIO PLANS. In this face. As such, it’s hardly necessary seriousness of real events can far
planning approach, the company to reinvent the wheel when it surpass those envisioned in crisis
acknowledges its vulnerability to a comes to preparing operational, plans, significantly reducing their
number of scenarios. It must define communication or business usefulness.
the actions to follow in the greatest recovery plans. General plans focus instead on
possible detail for all the scenarios defining and often rehearsing the
envisioned. GENERAL PLANS. The devastating actions to be followed in the event
However, the degree of precision impact of crises such as 9/11, BP’s of any crisis, clearly setting out
of this kind of planning is limited, blowout in the Gulf of Mexico or each committee member’s role.
given that many of the variables are the Fukushima nuclear accident From there, it would be the crisis
based on past experiences that are have highlighted the usefulness committee that would adopt the
unlikely to be repeated in the future. of planning for exceptional measures deemed necessary.
For example, when a levee along the Dique test the effectiveness of the crisis manage-
Canal in the north of Colombia ruptured in ment plan and the response of the crisis com-
2010, leading to severe flooding, the state mittee. Such drills serve two purposes: to de-
governor called a crisis committee together tect any errors or omissions in the crisis plan,
in a specially prepared operations center. It and to expose the crisis committee members
was equipped with televisions, computers, to a situation – and a level of stress – compa-
telephone lines, maps of the area and other re- rable with what they are likely to experience
sources to allow the committee to gather and in a real crisis.
process information, make decisions and in- These drills are the business version of war
form the media and other relevant audiences games. Organizations and companies such as
about the events. the Spanish airport operator Aena, Repsol,
PepsiCo and Dunkin’ Donuts regularly carry
RUN DRILLS. Practice drills should be conduct- out simulated crisis exercises to assess their
ed as part of the crisis preparation process to response capability.

APPOINT SPOKESPEOPLE. Although some think Is It Really Possible

it best that an organization communicate to Plan for Crises?
through a single spokesperson, it is rarely fea- Some people think that planning is an unneces-
sible or efficient, in a crisis of a certain mag- sary luxury, or that it is impossible to anticipate
nitude, for one person to respond effectively the kind of crises that are likely to affect compa-
to all of an organization’s stakeholders or all nies or institutions. Likewise, some companies
of the media. question whether a model based on forecasting
The important thing is not so much the and planning is useful, preferring instead to rely
number of spokespeople as the consistency on the good luck and expertise of their manag-
and uniformity of the messages they convey. ers to cope with crises.
That is why it is essential that spokespeople However, history has proved that organiza-
have media training and written materials tions that are properly prepared have a much
on which to base their statements, without better chance of surviving crises, and that im-
exception. provisation is a bad policy.
A classic example of what happens when Of course, companies need to be realistic
several people act as spokespeople without and adapt their planning to the particular cir-
a prior written agreement on the message is cumstances and, above all, to their own char-
the BSE or “mad cow disease” crisis in Spain. acteristics. Certain intrinsic factors, such as
For several months, Spain’s then-ministers of company culture, size, resources and level of
agriculture, Miguel Arias Cañete, and health, top management support, will make it easier or
Celia Villalobos, took turns as government more difficult to adopt a systematic approach to
spokespeople on the BSE crisis. The media crisis management. Depth of planning will also
were treated to mixed messages, including vary, depending on the number of companies
some off-the-cuff remarks – the health minis- or organizations involved and the geographi-
ter’s warning to housewives about using beef cal scale of the crisis.
bones when making stock caused a particular Factors such as these will determine not
uproar. To put an end to the daily contradic- only the complexity of the planning process but
tions, then-Prime Minister José María Aznar also whether companies can rely on their own
appointed Mariano Rajoy as the sole spokes- resources to deal with the situation, or wheth-
person on the matter. er they receive support from their industry or
Costa Concordia: Risk Perception & Tourism
O n Friday, January 13, 2012, the cruise

ship Costa Concordia ran aground near
Giglio Island off the coast of Tuscany, Italy.
Ibero Cruceros, given the impact on reserves.
In a report to the U.S. Securities and
Exchange Commission, the company
The ship partially sank, and the ensuing admitted that since the date of the Costa
chaotic evacuation left 30 dead and two Concordia incident in mid-January through
unaccounted for. February 26, fleetwide booking volumes,
The way the company managed its excluding Costa, had shown improving trends,
communications also foundered, betraying but were still running high single digits behind
an evident lack of foresight and planning. The the prior year, and at slightly lower prices.
first press conference, for instance, was not The company indicated that the brunt of
held until January 16, more than 58 hours the impact was concentrated in Europe, with
after the accident. the decline sharpest on the Costa routes.
Several weeks later, Carnival Corporation As a result of the provisions recorded in
was forced to set aside $515 million to cover Spain by Ibero Cruceros, and the costs of the
the loss of the ship, and a further $173 million Concordia shipwreck, Carnival posted losses of
for the loss in value of its Spanish subsidiary, $139 million in the first quarter of the fiscal year.

Many organizations are still reluctant to establish an

operations plan. I would insist that companies need
to replace intuitive responses, based on management
experience, with tried-and-tested procedures.
even from the government, as happened during replace intuitive responses, based on manage-
the Spanish cucumber crisis. ment experience, with tried-and-tested crisis
The complexity of the situation will also de- management procedures.
termine the level of uncertainty surrounding a Crises have traumatic consequences, so the
crisis. In a more complex situation, there will challenge is to anticipate them and try to pre-
be more factors to be taken into account or pro- vent them, or at least minimize the damage they
vided for, and it is more likely that some of these inflict on your organization.
factors will behave unexpectedly. Like all challenges, this calls for effort,
As such, the purpose of the forecasting and creativity and strength of will. But it has its re-
planning process is to ensure greater control ward: Companies and institutions that learn
over certain endogenous variables and to limit to manage crises will preserve and build their
the complexity of the crisis situation, thereby reputations.
reducing uncertainty.
Action plans are more common in some The views expressed in this article are the sole
industries than in others. This may be because responsibility of the author and do not necessarily
some companies are obligated by law to have represent the views of any company or organization.
emergency plans, usually coupled with com-
munication plans; or it may be because the com-
pany or industry in question has faced risks or
suffered crises in the past.
The chemical and nuclear power industries
are examples where the development of crisis
communication plans has been driven by legis-
lation. In the case of air travel and food indus-
tries, the main driver has been companies’ own
crisis experience.
That said, the extent of a company’s crisis
planning or preparation activities cannot be to know more
explained exclusively by the business sector
to which the company belongs. It will also de- n González-Herrero, A. Marketing preventivo: la
pend on factors specific to the company and its comunicación de crisis en la empresa (Preventive
business model. The culture of the country or Marketing: Business Crisis Communication).
region in which a company operates can also in- Barcelona: Editorial Bosch, 1998.
fluence the company’s readiness to implement
a crisis management plan. n González-Herrero, A. and S. Smith. “Crisis
Communications Management on the Web:
Prevention Better Than Cure How Internet-Based Technologies Are Changing
Although crises are common and regularly the Way Public Relations Professionals Handle
damage companies’ reputations and financial Business Crises.” Journal of Contingencies and
performance, many organizations are still re- Crisis Management 16, no. 3 (2008): 143-53.
luctant to establish an operations plan, a com-
munication plan, and a business continuity and n George, A. and C. Pratt. Case Studies in Crisis
recovery plan. Communication: International Perspectives on Hits
I would insist that companies need to and Misses. New York: Routledge, 2012.

DEEP
insight
GUIDE TO TAKING THE REINS
Leadership Under Pressure:

Communication Is Key
By JOSÉ R. PIN
E
verything was in place for the New with contingency plans in place. The day comes
York City marathon. The 2012 event when the unthinkable happens. What then?
was supposed to be the largest in When a crisis hits, regardless of what form
history, with 47,500 runners from it takes, the most important thing is to remain
around the world and an estimated $340 million calm. The uncertainty of the situation must
in revenues forecast for the city. But then the not be allowed to cripple the organization. To
unexpected happened: Hurricane Sandy. The stop this happening, two key ingredients are
storm pounded the United States’ eastern sea- required: leadership and communication.
board, leaving hundreds of thousands without This article examines the role of a leader
electricity or running water. Although thou- during a crisis, and how that leadership must
sands of volunteers joined city authorities to be delivered through proper communication.
help clear debris and save the race, the ravages I will draw on crisis communication and man-
of the storm proved too much. Mayor Michael agement principles, as well as use real-life ex-
Bloomberg was forced to announce the cancel- amples, including those from IESE case studies,
lation of the marathon. of companies that have experienced crises and
Let’s not kid ourselves: crises happen, even come out the other side.

Leadership Under Pressure: Communication Is Key
The first thing a good leader must do is assume

responsibility by acknowledging the seriousness
of the situation, while at the same time projecting
confidence in an eventual resolution.
Leadership: An Exercise It does not necessarily have to be the CEO

in Responsibility or president of the organization who steps up:
The first thing a good leader must do is assume It depends on the type of crisis that arises and
responsibility by acknowledging the serious- its degree of seriousness. But it does need to be
ness of the situation, while at the same time someone sufficiently high up in the organiza-
projecting confidence in an eventual resolution. Otherwise, it will look like the company
tion. If it is a crisis that poses an existential does not take the matter seriously enough.
threat to the organization or key stakeholders, Sometimes, stepping up means being phys-
upper management must step up without hesi- ically present at the scene, since that demon-
tation, demonstrating their full commitment strates commitment and a connection with
and accountability. those affected.
The CEO of Apple, Tim Cook, did just that On one occasion, New York Police Chief
in February 2012 when it was discovered that William J. Bratton, who transformed the law
Foxconn, the company’s main supplier in enforcement agency during his tenure as
China, was violating labor laws by employing commissioner from 1994 to 1996, stood up to
children as young as 14 to produce the iPhone. a group of corrupt agents. He personally con-
He reacted promptly and resolutely, asking the fiscated their badges, announcing that they
Fair Labor Association to conduct an inspec- would never work again for the department.
tion at the manufacturer’s plants and allowing Having the head of the NYPD on the scene
television cameras full access. Cook also re- showed the media, and other police officers,
sponded publicly to accusations, saying: “It’s that the issue was being taken very seriously
extremely rare in our supply chain, but our top and needed a tough response.
priority is to eliminate it totally. We’ve done Such action must be taken as soon as pos-
that with our final assembly vendors and are sible, not just to safeguard one’s image, but to
now working down into the supply chain. If we prevent further damage.
find a supplier that intentionally hires under- The Japanese car manufacturer Toyota
age labor, it’s a firing offense.” knows this all too well, having suffered one of
the worst product recalls of recent years. In
2010, accelerator defects in a number of mod-
EXECUTIVE SUMMARY els caused a series of deadly traffic accidents.
Despite the subsequent recall of millions of
Let’s not kid ourselves: crises for the crisis at hand. This its cars, the company was accused of reacting
happen, even with contingency means communicating too late, as well as underestimating the initial
plans in place. And it’s in in a personal way, with customer reaction. Toyota was also accused of
high-pressure situations like transparency, consistency covering up the problem. Toyota’s credibility
these when true leadership is and a long-term vision, so as and reputation suffered a tremendous blow,
tested. Citing numerous case to prevent uncertainty from as did its financial performance. Its stock price
studies, the author provides a crippling the organization. plummeted, wiping billions off its market value.
guide to help managers lead Companies also need to
their companies when the learn from a crisis, in order Who Takes Charge?
unthinkable happens. to prepare for the next storm Aside from upper management, there must
It starts with taking brewing on the horizon – also be operational leadership to coordinate
responsibility and assembling because, like it or not, other the crisis response. Choosing the right person
the ideal management team crises will inevitably arise. for this depends largely on three factors: the

Multinationals tend to nominate a senior executive to

assume the role of Chief Crisis Officer, who is tasked
with preparing the organization to deal with crises and
coordinate the collective response.
type of company, i.e., its size, activity and man- was the Livestrong Foundation, which was cre-
agement model; the type of crisis, e.g., faulty ated by the athlete himself to fight cancer. To
products, reputational issues, negligence or insulate that organization from reputational
environmental disaster; and the degree of ex- damage, Armstrong resigned from the board.
posure. The second organization drawn into the
scandal was the International Cycling Union.
TYPE OF COMPANY. At a small business, the This agency is directly responsible for control-
crisis manager is usually the chief executive, ling and overseeing possible cases of doping
supported by the team already in place. At a in cycling. As the fight against doping forms
mid-sized organization, the responsibility is part of its core mission, commitment and pur-
typically taken by a member of upper man- pose as an organization, its response had to
agement. Multinationals, large organizations be spearheaded by none other than its most
and government agencies tend to nominate a senior representative – ICU president Pat Mc-
senior executive to assume the role of Chief Quaid – in order to protect its credibility and
Crisis Officer, who is tasked with preparing the legitimacy as an organization. Recognizing
organization to deal with crises and coordinate that this was “the biggest crisis cycling has ever
the collective response. faced,” McQuaid did not mince his words when
The recent scandal involving the cyclist he said, “Lance Armstrong has no place in cy-
Lance Armstrong is a good example of how the cling.” He announced that a lifetime ban would
vested nature of the organization conditions be imposed on Armstrong and that he would be
a manager’s role in different ways. The U.S. stripped of his seven Tour de France titles.
Anti-Doping Agency’s decision to charge Arm- The third party to be drawn into the scandal
strong had three different kinds of fallout, each was Nike, one of Armstrong’s main sponsors.
requiring a different level of response depend- While Nike may have been less directly impli-
ing on the nature of the organization. cated, its reputation could still be tarnished
The organization most directly affected by association. At first, the company stood by
the athlete. However, as the unfolding scandal
became more serious, Nike published a state-
ABOUT THE AUTHOR ment on its website announcing that it would
be ending its sponsorship deal with the cyclist.
José R. Pin is a professor in from IESE, he has extensive
the departments of Managing experience in teaching, TYPE OF CRISIS. The type of crisis an organiza-
People in Organizations and research, consulting and public tion faces also has a bearing on the choice of
Business Ethics at IESE. He management. crisis manager.
leads the International Research His areas of expertise include If it is a product crisis, like food contami-
Center on Organizations leadership skills development, nation or a manufacturing defect, responsi-
(IRCO) and is the José Felipe career management, workplace bility should be assigned to the production or
Bertrán Chair of Governance organization and motivation, marketing department. If, on the other hand,
and Leadership in Public change management and public the problem is a case of negligence, such as
Administration. administration. He has authored a security breach in a network, responsibil-
Holder of a Ph.D. in political numerous books, research ity for the management and coordination
science and sociology from papers and case studies of the response would probably lie with the
the Universidad Pontificia on leadership and people IT department. In the case of a reputational
de Salamanca and an MBA management. crisis, such as an ethical scandal or a case of

It takes a team to resolve a crisis. Organizations that

understand this usually have contingency plans for
setting up a crisis committee comprising a diverse
range of departments and roles.
corruption, the crisis management coordina- before the outbreak of the scandal, Société
tion efforts are normally handled by the insti- Générale had reassured the market that its
tutional communications and public relations exposure to the credit crunch was limited.
department. In the wake of the scandal, some alleged
Obviously, managing a natural disaster that Kerviel could not have acted alone with-
is not the same as responding to a financial out the support and knowledge of his superi-
scandal. The human and technical skill sets ors, calling into question the credibility of the
needed to handle each situation are com- entire institution. As such, choosing a person
pletely different, as are the groups of people from outside the entity, someone with expe-
targeted by the crisis response. rience and a certain degree of moral author-
In August 2005, when Hurricane Katrina ity, was a wise move, particularly when public
devastated the coasts of Louisiana, Mississip- trust in the organization was at rock bottom.
pi and Alabama, Michael D. Brown, director of Ultimately, to whom or to which depart-
the Federal Emergency Management Agency ment an organization chooses to delegate
(FEMA), was responsible for coordinating the crisis management responsibilities depends
response. Regrettably, the agency dragged its largely on how the organization views the cri-
feet. Forty-eight hours after the storm hit, it sis, as well as which members of the public it
had yet to articulate an effective federal and most wants to reach out to.
state response. By then, New Orleans was al-
ready descending into a state of civil unrest Internal Coalition
due to extensive flooding and lack of available It takes a team to resolve a crisis. Organizations
supplies. that understand this usually have contingency
Given the scale of the disaster and the plans for setting up a crisis committee or unit.
widespread criticism of FEMA’s response, Such groups normally comprise a diverse range
then-President George W. Bush had to inter- of different departments and roles. They may
vene. In the aftermath of the crisis, FEMA, include a team leader, director of operations,
and in particular Brown, took the brunt of legal counsel, communications officer and cus-
the blame for the slow response, although the tomer service manager.
Bush administration was also heavily criti- However, generally speaking, the final com-
cized for its handling of the crisis. position of the committee is not decided until
A very different approach was taken by So- the problem faced by the organization is clearly
ciété Générale in 2008, when one of its bro- understood. The company may even decide to
kers, Jérôme Kerviel, was discovered to have bring in outside specialists or advisers.
committed large-scale fraud. The role of crisis The goal is to have enough competent in-
manager was given to Jean-Martin Folz, for- dividuals from different areas to cover a wide
mer president of PSA Peugeot Citroën and an range of possible eventualities, while keeping
independent board member of the corpora- the group small enough to respond in a swift
tion. His outside perspective, familiarity with and agile manner.
the institution and wide-ranging experience The crisis committee must be in constant
made him the ideal candidate to coordinate communication through frequent meetings.
the bank’s response to the scandal. Most importantly, it needs to act in unison, for
Besides costing the bank 4.9 billion euros, which the roles must be explicitly defined in
Kerviel’s rogue trading also seriously tar- advance.
nished the bank’s image, given that shortly Aside from its composition, the individuals

The leader and crisis committee must work hand

in hand to restore confidence in the company. This
requires skillfully managing the perceptions of those
most affected.
entrusted with managing an institutional crisis ringes were found inside cans of its soft drinks.
must have the authority to make binding deci- The crisis communications team acted swiftly
sions. If the head of the crisis committee is not and decisively. They immediately launched an
a member of senior management, then he or investigation into the claims. Within a matter
she should have direct access to it. Whether or of days, they were able to report their find-
not the CEO should be involved in crisis man- ings, which appeared to indicate sabotage. At
agement is unclear. The important thing is that the same time, the company released a video
the CEO’s presence is felt. of the canning process, depicting how impos-
Even though a crisis brings on a siege men- sible it was for a syringe to somehow end up in
tality, the company must still go about its daily its soda cans.
business. As such, contingency planning must It was the president of PepsiCo himself,
be compatible and synchronized with routine Craig E. Weatherup, who personally made
operations. the announcement that a person had been ar-
In 2005, a fire at the Windsor building in rested and charged with sabotage. Other secu-
Madrid left the consulting firm Deloitte with- rity camera video footage emerged showing a
out its Spanish headquarters where more than woman inserting a syringe into a can. Eventu-
1,200 employees worked. The fire broke out on ally, more than a dozen people were arrested
a Saturday night, yet by Monday, Deloitte em- for tampering.
ployees were working normally, albeit in sepa- PepsiCo not only got through the crisis, it
rate, ad-hoc locations. No important informa- came out stronger as a result. It had shown cus-
tion was lost, and the company continued to tomers that it had been the victim of sabotage,
offer customers service without interruption. and that PepsiCo’s quality control processes
were rigorous. Thanks to its effective handling
Communicate, Communicate, of both the crisis and customer perceptions,
Communicate Pepsi sales, which had dropped during those
During crises, information is in high demand. critical first few days, not only rebounded, but
Uncertainty increases the need for knowledge; actually ended up climbing, making it the com-
if that need goes unmet, the company can be- pany’s best summer in five years.
come victim to heightened uncertainty, ru- As this example illustrates, the ability to
mors and chaos. Hence, all institutional crises make an impact with effective communica-
pose major communication challenges. tions during a crisis is vital. It also underscores
Once a crisis breaks out, besides trying to the value of having your communications di-
fix the disaster – a task usually assigned to spe- rector on board the crisis committee (see
cialists and experts – the only choice is to com- What to Expect From the Communications
municate, communicate and communicate. Director).
The company’s communications strategy must
go beyond the immediate situation to include a Contact, Clarity,
long-term vision. Vision & Consistency
The leader and crisis committee must work Crisis communication demands a personal
hand in hand to restore confidence in the com- touch. For this reason, e-mail is not the ideal
pany. This requires skillfully managing the per- medium, because it offers only one-way in-
ceptions of those most affected. formation and lacks a human dimension. It’s
This is precisely what PepsiCo did back in also open to misinterpretation. People tend to
1993, when it had to deal with a scandal after sy- trust those whom they can see, and a person

A crisis presents an opportunity to draw upon

reserves of social capital. It should not be used to win
brownie points. It’s the respect you’ve earned prior to
the crisis that will win you respect during it.
What to Expect From the Communications Director

A crisis can reveal whether or not the communications director is an
ideal ambassador for the company. These are the qualities he or she
must have.
CONFIDENCE. In order to communicate ef- resources. Like any other department head,
fectively during a crisis, the communications the communications director must be able to
director must be up to speed on every aspect make a cost/benefit analysis from among the
of the evolving crisis. For that to happen, he or various proposals on the table.
she must have the complete confidence of the
management team and be part of their inner PROFESSIONALISM. More than ever, the
circle. Such confidence cannot be taken for spotlight will be on the company’s ability to
granted. The communications director’s role understand, plan and implement a strategy,
as media spokesperson can sometimes make and to choose the most appropri-
him or her seem too chummy with journal- ate channels for each target
ists, raising internal suspicions that they have audience. The commu-
divided loyalties. nications director’s
professionalism
LEADERSHIP. Crisis situations test the ability will be measured
of the communications director to focus on by his or her ability
the big picture and pursue larger strategic to satisfy com-
aims, while at the same time maintaining pro- munications
active communications with various internal needs under
and external groups. pressure
and
RELATIONAL ABILITY. A crisis presents respect
an opportunity to draw upon the reserves of the commitments under-
social capital that have been built up over the taken, both internally and
preceding months or years. The communica- externally.
tions director must leverage all the personal If the communications di-
relationships he or she has cultivated to reach rector lacks the information
out to the various stakeholders in the orga- requested or cannot divulge
nization. A crisis should not be used to win it, he or she should admit it,
brownie points. It’s the respect you’ve earned rather than resort to spin.
prior to the crisis that will win you respect The communications direc-
during it. tor must also be capable
of managing the power
ECONOMIC SENSE. The communica- vacuum that can arise
tions director must be capable of viewing at the onset of a crisis,
the communications strategy in economic when action plans are
terms, quantifying and optimizing available still in the works.

Companies must identify with those affected and

give them the comfort they need. In its discourse,
the company should be solemn but not distant,
transmitting concern along with its core message.
who speaks directly to them has much greater when employees who are spared the ax suffer
credibility. from low morale out of fear that they may be
The presence of a CEO or other senior ex- next – from taking hold.
ecutive inspires confidence. Their absence, by Another rule of thumb is to ensure that there
contrast, can create uncertainty, as well as the is consistency between the messages conveyed
impression that the company may be hiding in-house (internal communication) and those
something. targeting outside groups (external communica-
When the size or structure of an organization). Both must be properly aligned and coordi-
tion does not allow for such direct discourse, nated in terms of content and timing.
communication must be channeled through When a crisis breaks, the truth invariably
concentric circles: The top executive must gets out, especially in these days of 24/7 news
personally report to the company’s board of coverage. Even if they are not duly informed,
directors and key stakeholders, while at the the members of the organization will eventu-
same time ensuring that each departmental or ally find out, one way or another. At the same
section manager does the same within his or time, it is not easy to keep internal informa-
her teams. tion – legitimate or not – from being leaked
The communication needs to be clear and to the media. As a result, many companies no
sincere. When a crisis strikes, nerves and emo- longer distinguish between internal and exter-
tions can run high. Efforts should be made to nal communication, since they feel the two are
reduce tensions in a way that shows empathy: inseparable.
Companies must identify with those affected Take the example of the Spanish energy
and give them the comfort and support they company, Gas Natural. After its bungled at-
need. In its discourse, the company should be tempt to take over its direct competitor,
solemn but not distant, transmitting concern Endesa, the company set it sights on another
along with its core message. rival, Unión Fenosa. The communications
A recent example of personal, clear and sin- team carefully drew up a strategic plan to give
cere communication was U.S. President Barack a consistent and transparent overview of the
Obama’s response to the Hurricane Sandy di- process to all of the parties affected. Employ-
saster. As he addressed the general population, ees from both companies – around 20,000
Obama could be seen speaking with, consoling people spread across 25 countries – got behind
and even embracing some of the victims. the deal, thanks largely to an ambitious but
Conveying a long-term vision is also vital carefully devised communications plan that
in crisis communication. Crisis-stricken com- helped ease uncertainty. Responsibility for all
panies must offer customers and other stake- communications with employees was tempo-
holders hope that things will improve. rarily transferred from the company’s HR de-
While it is unadvisable to downplay the ef- partment to the communications department.
fects of a crisis, it would also be a mistake to This became a key strategic tool supporting the
add to the general climate of despair. Come takeover bid, and ultimately proved instru-
what may, there is life after crisis, and com- mental in its success.
munication efforts should convey that there is This example also illustrates the role played
light at the end of the tunnel. by bottom-up communications channels dur-
In crises caused by layoffs, for instance, ing a crisis. When these exist and work smooth-
communicating a forward-looking vision can ly, they enable the organization’s members – at
prevent the so-called survivor syndrome – every level of the organizational chart – to act

Crises can bring out the best or worst in people,

allowing one’s true character to shine through. The
“natural leaders” in an organization can be given
additional power or mentoring roles in the future.
as “sensors” capable of tracking the evolution true character to shine through. The “natural
of an institutional crisis, evaluating how it is leaders” in an organization can be given addi-
being managed, and even anticipating or veri- tional power or mentoring roles in the future.
fying its potential imminence. Rewarding good behavior, or admonishing
Finally, effective crisis communication re- those who were not up to the task, is all part of
quires a smooth, sincere and ongoing dialogue the learning process.
with key stakeholders, long before a crisis Once the crisis is resolved, the organization
emerges. If a climate of trust and honesty with must take steps to restore any lost credibility.
the organization’s stakeholders – employees, Many banks and savings institutions in Spain
employee committees, labor union represen- are now doing this, following their misselling
tatives, shareholders and the media – does of “preferred shares” to customers. In the face
not exist beforehand, then they are unlikely to of growing mistrust among customers and
stand by the company in its hour of need. unease among employees, some of the banks
have offered to swap the worthless securities
Looking Ahead for other financial products, in order to avoid
Crises are not all gloom and doom. They can or minimize further losses.
have positive repercussions. For example, or- Under mounting financial pressures, com-
ganizations can draw valuable lessons from panies may be tempted to focus exclusively on
how they dealt with a crisis. They can do this the short term, trying to avoid making certain
by keeping a close record of what worked and payouts or partially covering up the problems.
what didn’t, and using those lessons to estab- But focusing on economic criteria alone would
lish protocols for future reference. be a mistake, which could lead to far bigger cri-
Take the scientific community: If there ses in the long term. Managing a crisis means
were another outbreak of bird flu or the H1N1 considering more than short-term economic
virus, they already have effective preventive concerns. It means showing true leadership.
action protocols in place, based on previous
experiences, as well as all the necessary techni-
cal and material resources to combat any new
epidemic. to know more
Ex post analysis should also be extended
to the people who proved indispensible to the n International Research Center for the Media
resolution, given the way that crises can bring Companies. “Comunicación: Casos Prácticos.”
out the best or worst in people. Dircom, 2012.
Heroes may emerge, such as C.B. “Sully”
Sullenberger, the pilot of the stricken U.S. Air- n Pin Arboledas, J.R., I. Bel and F.J. Paniagua. “Gas
ways flight who managed to pull off a perfect Natural Fenosa (A): The Role of Communications
landing on the Hudson River in 2009, saving in a Merger.” IESE M-1289-E, 2012.
the lives of all 155 people on board.
Crises also have their share of villains, such n Costamagna, R., E. Rodríguez Fernández-Hidalgo,
as the captain of the shipwrecked Costa Con- L. Susaeta and J.R. Pin Arboledas. “Repsol-YPF:
cordia, Francesco Schettino, who abandoned una expropiación ilegal.” IESE DPO-260, 2012.
ship, leaving passengers and crew to fend for
themselves. n Sortheix, F. and A. Ribera. “A Trader Gone Mad?”
Such cases, though extreme, allow one’s IESE DPO-115-E, 2008.

deep
insight
CLEANING UP YOUR ACT
An Ethical Approach
to Crisis Management
By MARK S. SCHWARTZ, WESLEY CRAGG & W. MICHAEL HOFFMAN
O
ne of the biggest concerns for CEOs, if you were the CEO of a major global beverage
senior executives and board mem- chain, and it came to your attention that one
bers is waking up one morning to of your employees had charged an ambulance
discover they are facing a crisis that crew for cases of bottled water that were need-
could potentially threaten the very existence of ed for survivors of the 9/11 terrorist attacks?
their firms. Far from being hypotheticals, these are all-
What would you do, for example, if you too-real cases faced by the CEO of Union Car-
were the CEO of a major chemical company, bide in 1984 and the CEO of Starbucks in 2001.
and you discovered that a poisonous gas leak In the Union Carbide case, the CEO insist-
from your pesticide plant had led to the deaths ed that company operations in Bhopal, India,
of thousands of people living in the vicinity? Or met all existing safety standards that were

An Ethical Approach to Crisis Management
legally mandated in India at that time, and he in nets that trapped dolphins, and then added
blamed sabotage instead. That commenced “Dolphin Safe” to its labels, gaining significant
long and messy legal battles that continue to competitive advantage over other tuna compa-
this day, with some $470 million paid in com- nies in the process.
pensation and several executives convicted for Fortunately, more firms are realizing the im-
causing death by negligence. portance of preparing for potential crises like
In the case of Starbucks, calls to manage- these. The academic and consulting worlds have
ment were initially ignored – until the story also entered the arena, providing both theoreti-
was published, stirring up an Internet-based cal and practical guidance for firms.
consumer boycott of Starbucks. Only then did However, most of the information related
the ambulance workers get their money back to crisis management is treated within the field
and the CEO apologized. of strategic management or disaster/risk man-
It didn’t have to end up this way. Consider agement. This has resulted in less attention
another case of a major pharmaceutical com- being paid to the ethical dimensions of crisis
pany that discovered people were dying from management, in spite of the fact that ethical
one of its most popular medicines: How did it considerations lie at the core of most crises.
respond? And when the media accused a pro- Based on our combined decades of ex-
ducer of canned tuna of killing dolphins that perience and research in the areas of ethics,
were getting caught in its fishing nets, did it compliance and responsible business, it is our
simply ignore the complaints or did it take im- contention that executives who ignore the eth-
mediate action? ical dimensions of crisis management expose
These well-known stories of Johnson & themselves to serious risks that can lead to the
Johnson and StarKist are still held up as text- collapse of their firms. In this article, we ana-
book cases of how one should respond to a crisis. lyze the 2010 BP oil spill in the Gulf of Mexico
In 1982, when seven deaths were linked to highlight some key principles that can help
to the taking of Tylenol capsules, the CEO executives to skillfully manage the crises they
of Johnson & Johnson ordered a nationwide may face during their professional lives, with
recall of all Tylenol products. While the poi- greater responsibility and integrity.
soned capsules appeared to be an isolated
criminal act limited to the Chicago area, the What Is a Crisis?
company took no chances. Although costly, The definition of an organizational crisis by
the openness and honesty with which Johnson the academics Christine M. Pearson and Ju-
& Johnson handled the incident transformed dith A. Clair remains as relevant today as it was
the Tylenol brand into one of the most trusted when proffered in their 1998 paper, “Reframing
on the market, and led to the development of Crisis Management”: “An organizational crisis
tamper-resistant packaging and safety seals. is a low-probability, high-impact event that
For its part, StarKist announced in 1990 threatens the viability of the organization and
that it would no longer purchase tuna captured is characterized by ambiguity of cause, effect
and means of resolution, as well as by a belief
that decisions must be made swiftly.”
EXECUTIVE SUMMARY To this definition of a crisis the dictionary
adds these nuances: “the turning point for bet-
Executives who ignore directly connected to a set of ter or worse” and a “decisive moment.”
the ethical dimensions of core ethical values, such as Building on these definitions, we focus our
crisis management expose trustworthiness, responsibility, discussion on one type of crisis that an orga-
themselves to serious risks caring, citizenship, respect and nization can face – an ethical crisis – which we
that can lead to the collapse fairness. They outline how to would define as a decisive moment caused by
of their firms. The authors construct an ethical corporate a severe ethical lapse, requiring the firm and
use the 2010 BP oil spill in the culture, which will make firms its leadership to decide whether it will react
Gulf of Mexico as a cautionary better equipped to deal with based on a set of ethical values and principles,
example of what happens a crisis when it occurs, so that or based primarily on financial objectives.
when a company fails to they emerge stronger and more Examples of such crises include: prod-
make decisions based on and respected as a result. uct defects that risk causing serious harm;

environmental disasters; illegal conduct, such will be successful, but the extent to which the
as bribery; and breaches of human rights. firm’s executives and managers ground their
While ethical crises do threaten the viabil- responses in a set of core ethical values.
ity of an organization, our view is that they also
present important opportunities for organi- A Case to Remember
zations to strengthen and communicate their To illustrate this point, let’s analyze a real-life
commitment to the responsible management case that put one company’s commitment to
of their business activities and their potential ethical values to the ultimate test.
impacts. The facts are these: On April 20, 2010, an
Moreover, firms that demonstrate their explosion occurred aboard the Deepwater
ethical commitment through their response Horizon, an oil drilling rig connected to the
to a crisis not only are more likely to survive, oil company BP in the Gulf of Mexico, which
but can emerge stronger and more productive resulted in the death of 11 workers.
as a result. A lengthy struggle to plug the oil leak en-
In this regard, we concur with Peter Snyder sued, until the well was finally capped on July
et al. who stated in “Ethical Rationality: A Stra- 15, 2010, by which time upwards of five million
tegic Approach to Organizational Crisis” that barrels of crude had been discharged into the
“crises challenge the explicitness of a firm’s ocean.
ethical beliefs and the level of its top manage- Outcomes of the disaster – the largest off-
ment team’s conviction to them.” shore oil spill in U.S. history – included signifi-
In other words, it is not merely the com- cant environmental damage to the wildlife in
petence of executives and managers that de- the region, severe damage to the fishing and
termines whether a firm’s response to a crisis tourism industries along the Gulf coast, as well
as a collapse in the value of BP shares on inter-
national markets.
ABOUT THE AUTHORs What lessons can we learn from BP’s man-
agement of this crisis?
Mark S. Schwartz is Associate University and the Schulich
Professor of Law, Governance School of Business in Toronto, Core Ethical Values
and Ethics at York University’s Canada. He received his While there are many possible ethical values,
School of Administrative B.Phil. and D.Phil. from Oxford we believe that the following core ethical val-
Studies in Toronto, Canada. University, U.K. His academic ues are both universal in nature and critical to
He received his J.D. from specializations include: a firm that desires to take an ethical approach
Osgoode Hall Law School business ethics; corporate to crisis management. In fact, as Jim Collins
at York University, and his social responsibility; and Jerry I. Porras assert in their best-selling
MBA and Ph.D. specializing sustainability; the ethics book, Built to Last, companies that are guided
in business ethics from the of resource extraction; and by core values similar to those we list here, and
Schulich School of Business business and human rights. that have a sense of purpose beyond just mak-
at York University. He has ing money, tend to enjoy superior returns over
received numerous research W. Michael Hoffman is the many decades.
and teaching awards in the founding Executive Director of
field of business ethics. His the Center for Business Ethics 1. TRUSTWORTHINESS. This implies several other
most recent book is Corporate and the Hieken Professor of associated values: honesty, keeping promises,
Social Responsibility: An Ethical Business and Professional integrity, transparency and loyalty. If a firm
Approach (Broadview Press, Ethics at Bentley University does not act in a trustworthy manner through-
2011). in Massachusetts. He earned out the entire response to a crisis, it has failed
his Ph.D. in Philosophy at the from an ethical standpoint.
Wesley Cragg is the Director University of Massachusetts/ In the wake of the BP Deepwater Horizon
of the Canadian Business Amherst. He has published 16 oil spill, U.S. President Barack Obama set up
Ethics Research Network, books and over 100 articles, a National Commission to investigate what
Senior Scholar and Professor and received awards for his went wrong. The findings are available for
Emeritus of Philosophy contributions to the field of viewing or downloading at www.oilspillcom-
and Business Ethics at York ethics and compliance. mission.gov.

As BP learned the hard way, having noble aspirations

to behave in an ethical manner is one thing, putting
them into practice is another. How we behave is what
ultimately earns the trust of others.
The Chief Counsel’s final report noted that for any response to a crisis – yet it is often one
the disaster “was not, as some have suggested, of the most difficult to live up to. It requires
the result of a coincidental alignment of dispa- taking all necessary and reasonable steps to re-
rate technical failures,” but rather each tech- spond to the immediate crisis as well as ensure
nical failure could be traced back to “an over- that it does not happen again.
arching failure of management.” Acting responsibly also means not trying
According to the report, the litany of man- to shift the blame for your mistakes. It re-
agement failures included: ineffective leader- quires that you apologize, and you need to be
ship at critical times; ineffective communi- prepared to compensate those who have been
cation and siloing of information; failure to harmed as a result of your actions or inactions.
provide timely procedures; poor training and At first, BP did none of these things. The
supervision of employees; ineffective over- CEO at the time, Tony Hayward, blamed the rig
sight of contractors; inadequate use of tech- owner, Transocean, and then the cement con-
nology; and failure to appropriately analyze tractor, Halliburton. Later, reports emerged
and appreciate risk. that BP was trying to coax coastal residents
All of these undermined trust and repre- into signing settlement agreements and waiv-
sented the failure of BP to live up to its own ers that would limit the company’s liability and
professed commitment to safety, people de- cap compensation at $5,000.
velopment and doing no harm. When the government got wind of this,
Since the crisis, BP’s new Group Chief Ex- Hayward admitted it was “an early misstep”
ecutive Bob Dudley has tried to redress these and the company stopped. However, the
failures. As he states in the foreword to BP’s fact that BP had sent letters urging affected
Code of Conduct: “Laws vary from country to residents to give up their right to sue made
country and we must always comply with them, Hayward’s earlier comments that “we are re-
but as a global company, we need to go further. sponsible for the oil and for dealing with it
To be a trusted company, year after year, we and cleaning the situation up” sound rather
need to work to a consistent and higher set of hollow.
standards and follow them in everything we do
and say, every day, everywhere we work.” 3. CARING. This means caring about the impact
As BP learned the hard way, having noble of your actions on others. Against this stan-
aspirations to behave in an ethical manner is dard, available evidence suggests that BP’s ac-
one thing, putting them into practice is anoth- tions both before and following the crisis did
er. How we behave is what ultimately earns the not measure up.
trust of others. According to The Wall Street Journal, BP ap-
As such, in addition to the existence of a parently chose not to install a remote-control
Code of Conduct, it is necessary to support it shut-off valve that is required in Norway and
with mechanisms that ensure it is being up- Brazil and used by other oil companies, includ-
held. To this end, BP has set up OpenTalk, a ing Royal Dutch Shell and France’s Total SA.
confidential helpline to facilitate people being The cost of installing such a safeguard device
able to speak up, ask for help and do the right would have been $500,000 – which is not an
thing whenever they have a question or feel extortionate amount in relation to BP’s report-
that the code is being violated. ed operating revenues of $240 billion, and far
less than the billions that BP now has to pay out
2. RESPONSIBILITY. This value is the foundation for the resultant disaster.

Beyond not using available technology to safety institute would need to have complete
reduce safety risks, other reports emerged that freedom from any suggestion that its opera-
BP did not appear to be responsive to the safety tions are compromised by multiple other in-
complaints of its workers. terests and agendas.”
According to CNN interviews with oil rig For this reason, BP’s track record of work-
survivors, “It was always understood that you ing through its trade body, American Petro-
could get fired if you raised safety concerns leum Institute (API), raises doubts over its
that might delay drilling.” commitment “to drive a safety revolution in
The New York Times obtained a copy of a the industry.”
confidential survey commissioned by Trans- The Final Report states: “API’s long-stand-
ocean just a few weeks before the accident, in ing role as an industry lobbyist and policy
which workers voiced concerns of “drilling advocate – with an established record of op-
priorities taking precedence over planned posing reform and modernization of safety
maintenance.” regulations – renders it inappropriate to serve
Quoting from the same research, the Final a self-policing function. In the aftermath of the
Report to the President noted: “Some 46 per- Deepwater Horizon tragedy, the Commission
cent of crew members surveyed felt that some strongly believes that the oil and gas industry
of the workforce feared reprisals for reporting cannot persuade the American public that it is
unsafe situations.” changing business-as-usual practices if it at-
This lack of caring revealed itself again in tempts to fend off more effective public over-
Tony Hayward’s ill-judged comment about sight by chartering a self-policing function un-
how the disaster was affecting him personally, der the control of an advocacy organization.”
when he said, “I’d like my life back.” He later
had to apologize to the families of the 11 men 5. RESPECT. The philosopher Immanuel Kant in-
who had actually lost their lives in the accident terpreted respect to mean treating people as an
and would never be given their lives back. end and never merely using people as a means.
Later, in defense of going sailing on his yacht For Kant, what mattered was whether one’s
as the recovery effort faltered, a BP spokesper- actions were motivated by respect for others,
son tried to justify the jaunt on the basis that which he regarded as a basic moral duty.
“it was the first break that Mr. Hayward has had Against such a standard, how did BP’s actions
since the spill began,” reported the BBC. stack up? Again the evidence available is not en-
couraging, and the BP case is symptomatic of a
4. CITIZENSHIP. This includes abiding by the law bigger problem that has long plagued the oil and
in the jurisdictions in which you operate, tak- gas industry: putting profit before people.
ing reasonable steps to protect the environ- The Final Report to the President reiterates
ment and pitching in to help your community this point: “Project profitability depended on
as needed, especially during an emergency. how soon production could be brought on-
One way that BP could demonstrate its line. Drilling vessels were contracted on day-
commitment to responsible corporate citi- rates, increasing time pressures. Production
zenship could be to join with others in the oil processes were highly interdependent: delay
and gas industry to promote a safety culture by in one place could cause delays elsewhere.
creating a self-policing body, in much the same So there were relentless demands to drill the
way that those in the nuclear power industry wells, install the platforms, and get the oil and
did in creating the Institute of Nuclear Power gas flowing. ‘When I first started working, they
Operations (INPO) after the Three Mile Island didn’t care whether they killed you or not!’ re-
incident in 1979. membered one offshore veteran … ‘If you got
However, as the Final Report to the Presi- hurt, they just pushed you to the side and put
dent acknowledges, certain features of the oil somebody else in.’ ”
and gas industry make it harder to believe that
companies like BP could ever be completely 6. FAIRNESS. This final core value is also related
trusted to police themselves without some ex- to justice. It could be argued that BP, in estab-
ternal government oversight. lishing a $20 billion compensation fund in June
“To be credible, any industry-created 2010, has met this standard at least in terms of

Through the CEO, your firm must emphasize that, when

there is a conflict between your stated values and the
bottom line, the ethical values must take priority. Such
values must be embedded in your firm’s corporate culture.
its obligation as a responsible party to provide corporate culture are much more easily op-
compensation for the harm done. However, erationalized during a crisis. These values will
whether BP’s total response now estimated to guide your media strategy and the issuing of
be around $40 billion meets this standard is yet any apologies or admissions of fault, and they
to be determined. will help in planning ways to ensure that the
same problems don’t happen again.
Constructing an Ethical In the case of the tainted Tylenol capsules,
Corporate Culture because Johnson & Johnson prized the safety
By seeing where the ethical lapses were in the and trust of consumers so highly, the recall of
BP case, we can begin to construct ways to re- its products became a no-brainer for manag-
duce the risk of a crisis happening, respond ad- ers, above thinking about the negative finan-
equately to a crisis when it occurs, and emerge cial implications for the stockholders.
from a crisis stronger and more respected. Consider the opposite extreme: Ford’s in-
famous leaked memo that led to lawsuits over
1. ESTABLISH A SET OF CORE ETHICAL VALUES. The the safety of its Pinto car during the 1970s. In
starting point for any firm, big or small, to de- that memo, Ford had calculated and compared
velop an effective ethical corporate culture is the cost of a recall and product design changes
to establish a set of core ethical values that are ($137 million) versus the estimated cost to so-
infused throughout the policies, processes and ciety of the accident victims ($50 million) and
practices of the organization. We believe our decided that a human life was cheaper. More
suggested list of trustworthiness, responsibil- recently, when safety concerns arose over its
ity, caring, citizenship, respect and fairness Explorer vehicle, Ford shifted the blame to the
will provide a solid foundation. tire maker, Firestone, instead of immediately
Whatever your core values, they should be assuming responsibility. A nearly 100-year-old
present and stated upfront in your firm’s code business relationship between Ford and Fires-
of ethics. They should also be included in your tone ended in acrimony.
annual report, public accountability statement Your core ethical values should also be ap-
and/or social responsibility report, and should plied during hiring and firing, as well as in com-
be indicated as clearly as possible on the home pensation and promotion decisions.
page of your corporate website. There is perhaps no more fitting example
Through the CEO, your firm must empha- of living up to your stated ethical values than
size that, when there is a conflict between your when the software firm Veritas – which is the
stated values and the bottom line, the ethical Latin word for truth – chose to fire its CFO
values must take priority. after it was discovered that he had lied on his
For example, in Scotiabank’s “Guidelines résumé about having an MBA from Stanford
for Business Conduct,” President and CEO Business School.
Richard E. Waugh makes his ethical priori-
ties clear: “Each of us must always do what is 2. IMPLEMENT A COMPREHENSIVE ETHICS PRO-
right. This is always in the bank’s best inter- GRAM. Once you have agreed upon a set of core
ests, even when doing the right thing seems to ethical values and developed your code of eth-
conflict with meeting sales or profit targets. ics, then you need to engage in some ethics
We do not compromise our ethics for the sake training for all employees and managers.
of other goals.” You will need to designate an ethics officer,
Core values that are embedded in a firm’s or some person responsible for the code of

Exhibit 1
Signs of Ethical Leadership Failure
BY RECOGNIZING THESE SYMPTOMS AND SEEKING THE PROPER ANTIDOTES,
YOU CAN MINIMIZE THE OCCURRENCE OF AN ETHICAL CRISIS AND
IMPROVE YOUR CHANCES OF SUCCESS.
SYMPTOM ANTIDOTE
n Lack of Vision: Not seeing the ethical issue in front of you n View the world through “moral glasses,” so to speak
n Raise your awareness level
n Sensitize yourself to the underlying issues
n Keeping Quiet: Having ethical values, but saying nothing n Proactively communicate your values to others
n Publicly state your values in corporate documents
n Incoherence: Behaving in an incoherent way, e.g., basing n Seek better understanding of the issues
performance evaluations totally on hitting economic n Develop your expertise in ethical decision-making
targets, or not following your values through to their rightful
n Prioritize respect for people over profit
conclusions
n Inaction: Not putting your values into action, either n Actualize your values and manage their implementation
because you don’t know how or you fear the consequences to boost your effectiveness
n Hypocrisy: Not being committed to the values you espouse n Walk the walk: fully commit yourself to a unified set of
n Saying one thing but doing another: “Do as I say, not as I do” guiding principles and operate accordingly, with integrity
n Double Standards: Using a different set of values in one n Be consistent in all realms of your life
situation than those used in another, e.g., lobbying for
something at work that you would not tolerate at home with
your own family
n Complacency: Allowing yourself to become complacent, n Be humble
believing that you are already ethically complete and n Appreciate your own vulnerability and susceptibility to
mature failure
n Having an organizational mind-set and culture that believes
n Recognize that ethical management is a continual
it has achieved a perfect state of ethical nirvana process or journey, not a one-time destination
ethics, who has direct access to the board of offered amnesty to employees who were will-
directors. In addition, there must be some re- ing to come forward and help weed out corrup-
porting channels in place, via which concerns tion. Those who didn’t come forward and were
can be relayed without fear of any reprisals. later found to have been involved in shady
In most cases, crises can be avoided if em- dealing were fired and then prosecuted.
ployees feel comfortable about reporting their Changing the corporate culture is not as
concerns, and then if firms take appropriate hard as it seems, Solmssen said, adding that
and immediate action as soon as those con- employees will generally opt to make things
cerns are brought to their attention. right if given half the chance. “Our employees
In a May 2012 National Public Radio inter- are thrilled not to be part of the problem and to
view, Peter Solmssen, a managing board mem- be part of the solution.”
ber and general counsel of Siemens, explained
what his company did after it was discovered 3. GIVE ETHICAL LEADERSHIP. This is potentially
that some of its employees were routinely pay- the most critical element of an effective ethical
ing bribes to win contracts. corporate culture. The starting principle must
First, Siemens hired outside investigators be not to let short-term personal financial
to reveal the extent of the problem. Then, they gain – otherwise known as greed – outweigh

considerations of the potential negative im- undertaken by the company should always be
pact on other people. directly based on and directly connected to its
Unfortunately, in too many companies, core ethical values, such as those mentioned
the narrow pursuit of profits and fat bonuses earlier like trustworthiness, responsibility,
has prevented many leaders from setting the caring, citizenship, respect and fairness.
right ethical tone at the top. WorldCom’s Ber- Exclusive or excessive reference to, and
nie Ebbers and Enron’s Kenneth Lay and Jef- emphasis on, other values – such as profit max-
frey Skilling are obvious examples. But besides imization or protection of share value – have
those holding Time’s dubious honor of “Top led to many of the most heavily criticized crisis
10 Crooked CEOs,” there are many less well- management decisions that have occurred in
known examples that may not make interna- recent years. Besides those cases already men-
tional headlines but are no less egregious – per- tioned, think of the mess Nike found itself in
haps in your own company? when relying on local norms and business con-
Check out Exhibit 1 and see if you recog- ventions as the standard-bearer for supplier
nize any of the telltale signs of ethical leader- decisions on the use of child labor in Asia.
ship failure. Addressing these shortcomings Instead, we believe that a crisis can serve as
and failings is key for boosting your level of a defining opportunity for a company to dem-
ethical leadership. onstrate its commitment to a higher set of core
ethical values. This will put you in a much bet-
Guiding Principles ter position to survive a crisis, and moreover
Every firm faces the risk of an ethical crisis, no generate long-term goodwill for your enter-
matter how serious an attempt has been made prise. Firms that establish and sustain ethical
to build an ethical corporate culture. As such, corporate cultures also reduce the potential of
being prepared to address potential crises ef- other crises happening again in the future.
fectively and ethically is a crucial element of
strong and responsible management. We sug-
gest the following principles to guide crisis
management planning.
n Be honest, transparent and disclose all rel-
evant information.
n Remain visible and available at all times
throughout the crisis.
n Don’t hide behind company media state-
ments or “no comment.”
n Accept fault and assume responsibility if in-
deed you are or your firm is at fault.
n Don’t act defensively or try to deflect the
blame.
n Take all reasonable steps to fix the problem
and help ensure that it won’t happen again.
n Apologize when the situation calls for it.
n Demonstrate sensitivity to those who may
have been harmed.
n Ensure that the natural environment and lo- TO KNOW MORE
cal community are protected.
n Focus on respecting the rights of other n Schwartz, M.S. “Universal Moral Values for Cor-
stakeholders, not merely the shareholders. porate Codes of Ethics.” Journal of Business Ethics
n Ensure timely and fair compensation for the 59, no. 1 (2005): 27-44.
injured parties where and when appropriate.
Most importantly, everything said to any n Driscoll, D.M., W.M. Hoffman and E.S. Petry.
stakeholder – whether shareholders, employ- The Ethical Edge: Tales of Organizations That Have
ees, customers, governments, citizens, the me- Faced Moral Crises. New York: MasterMedia Ltd.,
dia or special interest groups – and everything 1995.

personal
insight
INTERVIEW WITH CARLOS GHOSN, RENAULT-NISSAN

By PEDRO NUENO
Photos by JAVIER ARIAS
“Every problem
has
a solution.
Are you ready
to pay
the price?”
Mr. Fix It
Impossible is not a word that features After joining Renault in 1996, “le Cost Born in Brazil, raised in Lebanon,
in the vocabulary of Carlos Ghosn. As Killer” helped to bring the company back educated in Paris and fluent in French,
Chairman and CEO of Renault-Nissan, into profitability, before he headed to Portuguese, English, Arabic and now
he reversed the fortunes of an almost Tokyo to lead one of the most dramatic Japanese, Ghosn splits his time between
bankrupt Nissan, turning it into one of turnarounds in corporate history. He Paris, Tokyo and other far-flung Renault-
the world’s most profitable carmakers claims that he survived the experience Nissan facilities around the world.
in the space of five years. The first of turning Japanese business culture on Having such a global career requires
person ever to be the CEO of two big its head by not understanding what they the stamina and physical discipline of
multinationals at the same time, he is were saying about him in Japanese. a superhero – which may be why he
also one of the first to demonstrate that has become a Japanese comic-book
competitors don’t have to make odd sensation. Explaining the reason for
bedfellows: “The name of the game now serializing Ghosn’s life story, the editor
is collaboration,” he says. of Big Comic Superior told The Wall
Credited with the ability to Street Journal: “He has a message of

orchestrate aggressive downsizing hope that has woken people up to new
campaigns with a baffling mix of possibilities.”
sangfroid and empathy, Ghosn has
almost as many nicknames as he has air
miles. He earned the moniker “Mr. Fix
It” at Michelin, where he turned around
operations in South America before
becoming CEO of Michelin’s North
American division after it acquired
Uniroyal in 1990.

personal insight INTERVIEW WITH CARLOS GHOSN
Talking About a Revolution

T
he world is changing, fast, and corporate PN– How is innovation revolutionizing the car
leaders are having to change with it – no industry?
more so than in the car industry, where CG– Innovation is not that “I have invented some-
the world’s dwindling oil supplies mean thing.” Nobody cares who invented it. Consum-
the race is on to find alternative ways to keep us ers care about the benefit of the innovation – not
motoring. With sales stagnating in the West and who had the idea, but who brought it to market, in
emerging economies eager to get behind the wheel, marketable conditions. Innovation, in this sense, is
car manufacturers are having to rethink how they hugely important in this industry.
do business. Currently the biggest innovation that is the
Carlos Ghosn, Chairman and CEO of Renault- dream of the industry is how to make a car that isn’t
Nissan, is well known for his innovative thinking. He dependent on oil. The idea of an electric car isn’t
has been ahead of the curve when it comes to mini- new, but what’s been missing has been the battery
mizing costs by joining forces with competitors. It’s technology. Now, that is being developed, and we’re
no longer just about mergers and acquisitions, but going to be seeing more and more electric cars on
“it’s also about long-term cooperation, cross share- the market, whether pure electric or hybrid.
holding and doing business in different ways.” Then there is the driverless car. You might think:
As he told executives who gathered at IESE’s Ma- What’s the point of having a car that doesn’t need
drid campus for a special session on sector trends, you to drive it? But imagine hitting 75 years old and
moderated by IESE Prof. Pedro Nueno, collaborat- being told you can’t drive anymore. You’re stuck;
ing with competitors isn’t the only change afoot there’s a part of your life that’s gone because your
within the industry. autonomy has been taken away.
Given the fact that we’re going to be living longer
PEDRO NUENO– Is it fair to say that there’s a revolu- – I’ve been told that 1 out of 2 babies being born
tion going on in the automotive industry today? today will live more than 100 years – this becomes
CARLOS GHOSN– Yes. The car industry is in full transfor- not so much a gimmick or gadget but about produc-
mation. It used to be based on gasoline and steel, but tivity and quality of life. Think about how much time
now it’s moving to other things. The car used to be a you spend stuck in your car, and what you could do
place where people sat for hours: There was noth- with that time if you didn’t have to concentrate on
ing else to do but pay attention to the road. Now it’s driving. This is not Star Wars technology: We have
becoming a place where companies are fighting to cars driving by themselves today.
get their apps into your car and get you busy doing
something more than just driving. PN– Do you think governments are doing enough
Geographically the industry is on the move, too, to promote electric car innovation?
going from North to South, from West to East – and CG– Some of them, yes, but they need to move faster.
not just the markets, but the capacity. Ten years ago, Most governments are facing two problems. First,
80 percent of the car market was based in developed they’re too dependent on oil, most of them don’t
countries. Today that figure is 50 percent. Within have any, and the price of oil is changing all the time.
five years, it will be 30 percent. The upshot is that Second, they’re coming under increasing pressure
existing companies have to rationalize and manage about global warming. Put simply, the world cannot
overcapacity, on the one hand, and massive invest- continue to rely on one commodity for all its trans-
ments, hiring and growth, on the other. portation needs.
Another transformation is that car companies Lehman Brothers, General Motors becoming
used to work alone. Now we are looking for scale, state-owned, the earthquake in Japan: None of what
which means joining forces. This is an industry that has happened in the past five years was predicted
is becoming more and more innovative in terms of or even predictable. Yet governments and corpora-
how to make things together, while at the same time tions continue to plan the future in a linear way. We
competing against each other in the same market. have to be better prepared, and cleaner transporta-

There should be no glass ceiling on how much people can

contribute to the company. We need to give everyone
equal opportunities to feel part of the same adventure.”
tion has to happen. government will encourage their emergence as a

We can make electricity out of anything: wind, global player, but they need time to learn, to become
water, solar, oil, coal or nuclear. If you have a prob- more competitive, to gain strength and, potentially,
lem with any one of these commodities, you can still to acquire companies outside China in order to add
make electricity and have transportation. What’s to their technological know-how.

more, the technology can be mastered in each European carmakers are going through a difficult
country and contribute toward solving the problem time right now. If a Chinese company wanted to
of emissions globally. If governments aren’t behind establish itself as a major global player, it might want
electric cars, they should be. to go for a takeover or an alliance with a large, cash-
strapped company elsewhere. Europe is where they
PN– How is the industry dealing with the rising are most likely to look.
middle class and associated issues in emerging
markets? PN– Are we seeing the demise of the European
CG– Although young people in Europe and the United car market?
States don’t idolize cars as much as my generation CG– The European industry is going to shrink, no
did, in other parts of the world, the car is the first doubt about it. Over the next five to 10 years, you’re
thing people want to buy when they don’t have one, going to see fewer carmakers in Europe, and Europe
which is why the car industry is exploding in emerg- will play a smaller role in the global industry. Right
ing markets. now, manufacturers whose main revenue comes
But we need to make them cheaper. In some from Europe are struggling to keep both their vol-
countries, you can hardly find a car for less than ume and profitability. Those with a decent market
$7,000 and that’s a lot of money for people in emerg- share in emerging markets are suffering less, but it’s
ing markets. So, we’re developing a $3,000 car in very difficult to predict who will prevail.
India in conjunction with a technical center in Chen-
nai. Indian engineers are particularly gifted at what PN– What about Japan? What role can it play in
I call frugal engineering – making something out the emergence of Asia?
of nothing or very little. However, cheaper doesn’t CG– Japan can export a lot of technology, work and
mean smaller. In emerging markets, people want the capital, and the natural destination for all this is
biggest car possible, so as to transport their family emerging Asia. Japanese companies have invested
and friends, for the cheapest price possible. massively in China and India, and in Indonesia and
Infrastructure is vital, too. In emerging mar- Thailand in Southeast Asia, and this is set to con-
kets, the best stimulus to the car industry is to tinue.
build roads and have good traffic systems. China The biggest handicap to development in Japan
is a fine example of this: They always invest in itself is the yen. If Japan can get the yen back to 100,
infrastructure before stimulating the industry, and 105, 110 to the dollar, I think we’ll see Japan playing
now they are the No. 1 car market, well ahead of the a very important role in helping and benefiting from
United States. the development of emerging markets.
PN– What role do you see China playing in the PN– How do you build a global brand without
next few years? Will it become a competitive sacrificing your national roots?
global player? CG– The challenge that every single global company
CG– Chinese carmakers are not at a level yet where faces is finding and maintaining a balance between
they represent a threat to global companies. They its history, origin and roots, while at the same time
probably have less than 50 percent of their own mar- drawing in a multitude of other people from around
ket and have made little impact elsewhere. the world who are also helping to build the brand
That doesn’t mean they won’t go global: They and the company.
will, and they’re learning fast. I think the Chinese Yes, Renault is French, but at the same time, we

The solution always has a price, and there’s always a

risk. If you’re not willing to take the risk, don’t take the
task. But if you do take the risk, you’d better deliver.”
need to be global to sell in China, India, Russia, the be sick. We had to reduce the staff from 145,000 to
United States, everywhere. We need to make sure 125,000, which was very tough in a Japanese envi-
that our colleagues in Brazil, for example, feel just as ronment. But now Nissan has 250,000 employees.
much a part of Renault as their French colleagues. The solution always has a price, and there’s al-
There should be no glass ceiling on how much ways a risk. If you’re not willing to take the risk, don’t
people can contribute to the company. Granted, this take the task. But if you do take the risk, you’d better
is easy to say, tough to do. But we need to make sure deliver. People are not willing to follow anybody ask-
we give everyone equal opportunities to contribute ing them to make a sacrifice if they don’t see results.
and feel part of the same adventure. The second lesson would be: It has to get worse
before it gets better. It’s far easier to reform a com-
PN– You’ve done a fantastic job turning around pany in trouble than one that has an average perfor-
two big companies, one in Europe, one in Japan. mance. When a company is in dire straits, you don’t
What are the most important lessons you’ve have to explain it to the staff: They can see it and feel
learned from this process? it for themselves.
CG– First and foremost, every problem has a solution. Last but not least, learn management by doing. I
You never face an impossible situation; the only used to read loads of books about management. I’d
question is: Are you ready to pay the price for the have a glass of wine, think about it and then have a
solution? Are you ready to pay a personal price? Are nice sleep. But when you’re actually under the gun
you ready to pay a collective price? doing it, you don’t sleep, you don’t enjoy a drink, you
When I joined Nissan in 1999, the company had don’t enjoy your food, you don’t do anything else.
been in decline for 10 years. Two turnaround plans And you’re going to go through this for months until
had failed because they had been so watered down you get what you want and where you want to be.
that they weren’t effective. If you water down the It might not be much fun, but this is how you really
medicine, you might feel a bit better, but you’ll still learn.
Carlos Ghosn was interviewed by Pedro Nueno
Pedro Nueno is a professor in the

Department of Entrepreneurship and
holder of the Bertran Foundation Chair
of Entrepreneurship at IESE, as well as
being President and Chengwei Ven-
tures Chair Professor of Entrepreneur-
ship at the China Europe International
Business School (CEIBS) in Shanghai. A
self-confessed admirer of Carlos Ghosn
for many years, Nueno presented him
with the International Academy of
Management Award in 2005. Nueno
previously interviewed Kathy Xu,
founder and managing partner of the
Chinese private equity group, Capital
Today, in IESE Insight Issue 11.

expert
insight
Illustration by ADRIÀ FRUITÓS

THE POWER OF CREATIVE COMEBACKS
Five Essential Strategies

for Creative Negotiations
By KANDARP MEHTA
N
egotiation is described as an art However, competition for places at his
form, and for good reason. The suc- current club is intense, and he is finding it in-
cessful outcome of a negotiation creasingly difficult to compete with the club’s
depends as much on the creativity younger strikers for a place in the first team.
of the participants’ offers and counteroffers as Rather than continue to warm the substitutes’
it does on their relative positions of bargaining bench, Sweetstrike has instructed his agent to
power. When creativity is lacking in a nego- seek a loan arrangement with another team.
tiation, results tend to be disappointing. Even During the January transfer window, a
when two counterparts negotiate a deal that struggling club in the same league needs to find
should, in theory, be equally beneficial to both a replacement for its lead striker, Mr. Goalma-
of them, the negotiations can end in deadlock. chine, who recently tore his Achilles tendon.
Consider the following hypothetical exam- Unable to find a promising youngster to fill
ple: A sports agency is representing an African in at such late notice, the club’s manager is des-
soccer player called Demba Sweetstrike. At the perate to sign Sweetstrike, who played for the
age of 32, he is approaching the twilight of his club at the beginning of his career and would
career but is still a sharp and deadly striker. take little time to settle back in.

expert insight Five Essential Strategies for Creative Negotiations
This article discusses why creative offers and

counteroffers play such a vital role in the negotiating
process, and also proposes a number of strategies to
help you improve your own negotiating skills.
Despite concerns that he may not be as pro- In total, 207 dyadic negotiations were con-
lific as Mr. Goalmachine, the club is prepared ducted, with one side taking the role of the
to offer Sweetstrike almost the same salary buyer and the other, the seller. At the end of
that he gets at his current club, despite the fact the exercise, participants were asked to write
that it far exceeds Mr. Goalmachine’s current down the first offer, the counteroffer and the
wages. conditions of the final deal. In total, 193 of the
For Sweetstrike’s part, this mid-season negotiations resulted in some kind of deal,
switch offers the prospect of more first-team while the rest ended in stalemates.
playing time and would improve his chances Out of the 193 deals, 119 were classified as
of revitalizing his career. What he most wants “creative” in that they included factors beyond
is to preserve his chances of playing for his price, while the rest were negotiations that
national team in the World Cup in two years’ ended simply on price.
time, which he sees as the perfect swan song to The analysis of the results revealed that the
his career. Indeed, he wants the switch so badly creativity of the final deal was determined by
that he has told his agent that he would even the amount of creativity deployed in the ta-
be willing to play for free, although he would bling of the first offer and the resulting coun-
never say no to more money. teroffers. Most surprising, the creativity of the
What we have, in a nutshell, is the perfect counteroffer appeared to be the most signifi-
win-win situation. Both parties may be oblivi- cant variable influencing the creativity of the
ous to each other’s precise demands, but they final deal.
both want pretty much the same thing: for Most of the negotiation research that looks
Sweetstrike to play for his old club. at the dynamics of offers and counteroffers
In such a scenario, you’d think that signing concurs that the first offer plays an anchoring
on the dotted line would be a mere formality. effect in the negotiations. However, my re-
But it’s not, as I discovered when participants search shows that as far as the creativity of the
of a course I run on negotiation participated deal is concerned, it’s the initial counter‌offer
in a similar exercise. Each had only one side of that sets the tone.
the story, and their job was to negotiate a deal. This article discusses why creative offers
and counteroffers play such a vital role in the
negotiating process, and also proposes a num-
EXECUTIVE SUMMARY ber of strategies to help you improve your own
negotiating skills.
From the corridors of political periment, the author observes Before we get to that, let’s first consider
power to the boardroom, the 207 dyadic negotiations and why being creative in a negotiation is such a
ability to hold your own around discovers that a creative solu- vital challenge for today’s hard-bargaining en-
the negotiating table is a vital tion in a negotiation depends trepreneurs, large corporations, institutions
element of success in today’s on the amount of creativity de- and national governments alike.
world. Unfortunately, many ployed in the tabling of the first
negotiations end in deadlock. offer and the resulting coun- Creativity in Negotiations
This is partly because many teroffers. Most surprising, the A negotiator enters into a negotiation to
negotiators are unable to come creativity of the counteroffer ap- achieve a specific objective or set of objectives.
up with creative, integrative pears to be the most significant Normally, the greatest obstacle to achieving
deals, which research shows are variable influencing the success those objectives is the risk of getting bogged
a significant variable in reach- of the final deal. With that in down in a deadlock, often leading to the com-
ing a conclusion satisfactory to mind, he proposes five strate- plete breakdown of negotiations.
both parties. gies to help readers be more As such, overcoming deadlocks is one of
Using a role-play-based ex- creative when they negotiate. the vital skills of experienced negotiators,

expert insight Five Six
Essential
Ways Marketing
StrategiesCan
for Change
Creativethe
Negotiations
World
In a creative negotiation, the negotiators move from

available alternatives to creating novel alternatives.
They go beyond the fixation on immediate gains, and
frame the negotiation in terms of joint gains.
especially when matters as grave as communal ventures or mergers between companies. They
harmony, the lives of hostages or even national also form an indispensable part of any entre-
security are at stake. preneurial endeavor.
In such cases, negotiators must draw upon From the corridors of political power to
all their creative resources to find ways out of the boardroom, the ability to hold your own
a deadlock and strike a win-win deal. around the negotiating table is a vital element
Such win-win deals have been central to re- of success in today’s world.
solving protracted international conflicts and As such, the art of negotiation has wit-
forging more stable and harmonious relations nessed a surge in scholarly interest within
between historically hostile nations. disciplines as diverse as international studies,
One such example was the negotiation be- conflict management, game theory, psychol-
tween U.S. President Ronald Reagan and Gen- ogy, business management and organizational
eral Secretary of the Communist Party of the behavior.
Soviet Union Mikhail Gorbachev at the Reyk- Generally speaking, the research divides
javik Summit of October 11-12, 1986. While the negotiations into two broad categories: dis-
talks may have collapsed at the last minute, the tributive, or competitive, and integrative, or
summit represented the first step toward the collaborative.
gradual normalization of relations between Distributive bargaining refers to a fixed-pie
the United States and the Soviet Union. phenomenon, in which one tries to get a bigger
Gorbachev said after the meeting: “Reykja- slice of the pie than the other.
vik is not a failure – it is a breakthrough, which By contrast, integrative agreements seek
allowed us for the first time to look over the to enlarge the pie by leading to solutions that
horizon.” would accommodate the interests of both par-
A year later, the two countries eventually ties involved.
achieved the Intermediate-Range Nuclear In other words, in distributive bargaining,
Forces Treaty. one’s win is the other’s loss, while in integra-
Such an agreement would have been un- tive bargaining, both parties work together to
thinkable had one or both of the participants achieve a better mutual result.
been unwilling to sacrifice certain strategic The term creativity in the context of nego-
interests for common gain. Even though the tiation generally alludes to more collaborative
talks faltered, they had at least served to high- and integrative final outcomes – the assump-
light the priorities of both parties and the po- tion being that for a negotiation to be creative,
tential concessions that both sides could offer. each participant must be prepared to work
This is the key to resolving deadlocks: un- closely with the other to craft an outcome that
derstanding multiple issues and identifying ar- is satisfying to both.
eas of concession, which can help both parties Peter Carnevale, an expert on negotiation,
to move beyond the one stumbling block that mediation, group problem solving and creativ-
is causing them to get stuck in the first place. ity, has identified three distinct types of cre-
ativity in negotiations:
Two Models of Negotiation n The creativity of the negotiator.
Achieving peace and forging closer, more sta- n The creativity of the process, i.e., the use or
ble relations between communities and na- demonstration of different creativity tech-
tions is one of the highest goals of negotiation. niques during a negotiation.
But negotiation also comes into play when n The creativity of the outcomes, i.e., deriving
securing mutually favorable trade agreements results that are novel, useful and satisfying
between national and regional economies, to all parties involved in the negotiation.
and when brokering the formation of joint This was the focus of our present study.

Offers and Counteroffers counteroffer hinges, to a great extent, on the

Negotiation is not a static process; it’s a dy- degree of creativity of the original offer.
namic progression of decisions, offers, de- The probable explanation for the phenom-
liberations, rejections, counteroffers and enon is that the counterpart – that is, the one
compromises. who doesn’t make the initial offer – has more
In a creative negotiation, the negotiators time available to focus on the first offer, as
are able to move from choosing among avail- well as explore and gather information not
able alternatives to creating novel alterna- contained in the first offer. By using this ad-
tives. They go beyond the typical fixation on ditional information and incorporating it into
obvious, immediate gains, and they frame the the counteroffer, not only is it more likely to
negotiation in terms of joint gains. produce a better result, but it can nullify the
In the negotiation exercise I used for the advantage of being the one who makes the first
purpose of my research, I found that some of offer.

the initial offers were, by nature, purely dis- This means that a creative counteroffer
tributive – they focused on immediate, nar- must either build on a creative first offer, or
row gains. Others included novel elements, it must create an altogether new anchor in the
some of which were unquantifiable in financial negotiation process, thereby raising the pros-
terms. pects of reaching a more creative deal.
A creative first offer that includes elements
other than price gives the counterpart more Breaking the Deadlock
flexibility in the negotiation. It also provides One of the reasons why many negotiators are
vital information about the potential for value unable to come up with a creative, integrative
creation. proposal is the failure to create trust among
In a 2002 study, Simone Moran and Ilana negotiators. Lack of trust prevents negotiators
Ritov focused on so-called logrolling – sacrific- from taking a broader view of the other side;
ing something of low priority for the giver but instead, they cling to their own deeply held as-
of high priority for the other party, in return sumptions. This leads negotiators to bargain
for something of high priority for the giver but hard on one particular variable – usually price
of low priority for the other party. They found – which may lead to a deadlock or even a com-
that such deals yielded higher combined prof- plete breakdown in negotiations.
its for both parties. This sort of negotiation What can negotiators do to keep negotia-
also tends to produce a higher valued coun- tions from descending into such an impasse?
teroffer from the initiator’s perspective than How can they overcome their single-minded
most distributive offers. obsession with short-term goals, in order to
So, a combination of creative initial and embrace a broader view of the other options
creative counteroffers is more likely to lead to available? And how can they keep negotia-
a more mutually beneficial final outcome and tions alive through a process of creative give
avoid deadlock. and take?
In the study I conducted, the creativity of To address these questions and to offer a
the counteroffer emerged as the most signifi- road map for more successful negotiating, I
cant variable influencing the creativity of the propose five strategies for developing a more
final deal. creative, dynamic approach during the nego-
That said, the degree of creativity of a tiation process.
1. Do Your Homework
ABOUT THE AUTHOR All too often, negotiators enter into a negotia-
tion lacking a clearly defined outcome. This is
Kandarp Mehta is a lecturer His book Conflict, Crisis and not to say that you need to enter the negotia-
of Entrepreneurship at IESE Creativity: A Study of Role Evolu- tion with a fixed position in mind or your heart
Business School. He earned tion in Creative Teams, studies set on achieving one single objective – quite
his Ph.D. in Management from 13 different motion picture the opposite.
IESE, University of Navarra, shoots to understand the role Instead, negotiators should establish a ne-
and a Master of Business of team creativity in fostering gotiating position that has two key elements: a
Administration from the K.S. more innovative results. He minimum or resistance point, and an objective
School of Business Manage- blogs on creativity at http:// or target point. These two poles serve to estab-
ment, Gujarat University, India. creatologue.com lish the parameters of the bargain, while at the

Essential
Ways Marketing
StrategiesCan
for Change
Creativethe
Negotiations
World
The more you know about the people sitting across

the table from you, the greater your chances of making
creative initial offers or counteroffers that will align
their interests with your own.
same time giving you room to maneuver. The negotiations at hand. It doesn’t mean listen-
resistance point is the minimum outcome to ing out only for what you want to hear. Nego-
be achieved through the negotiation; it is the tiators should be attentive to everything their
point at which a negotiator would walk away counterpart says, regardless of how trivial it
rather than continue to negotiate. may seem.
In their 1981 best seller, Getting to Yes, Roger Chris Voss is a former international kid-
Fisher and William Ury coined the term BAT- napping negotiator for the FBI who now teach-
NA (Best Alternative To a Negotiated Agree- es negotiation at business schools. In an inter-
ment) to refer to this concept. Having alter- view with CIO New Zealand, he explains the
natives gives a negotiator certain leverage in importance of active listening, which means
making demands. But this requires a strong un- “listening to the person you’re negotiating
derstanding of your alternatives beforehand. with to find out what’s driving them, what’s im-
It is also worth establishing some negoti- portant to them, what’s motivating them. This
ating principles from the outset. Fisher and way, you’re really fleshing out where they’re
Ury make four recommendations: separate coming from in a three-dimensional way. A lot
people’s problems from the issues; focus on of times, the person you’re talking with isn’t
underlying interests, not stated positions; completely aware of it themselves. There are
generate options for mutual gain; and insist things they’re expressing indirectly.”
on objective criteria for measuring outcomes. By actively listening to the other party, a
To focus on interests and generate options, negotiator may stumble upon a bargaining
you need to understand your counterpart. This chip that can unite both parties, raising the
means doing serious background work analyz- prospects of a more creative outcome.
ing your counterpart’s negotiating position, An interesting case in point was the Brasilia
and learning as much as possible about their Agreement of 1998, which finally settled a de-
strengths and weaknesses, likes and dislikes. cades-long territorial dispute between Peru
As they say, knowledge is power. The more and Ecuador. As mentioned in the book Ne-
you know about the people sitting across the gotiating With Giants by Peter D. Johnston, it
table from you, the greater your chances of was the chance discovery by the chief negotia-
making creative initial offers or counteroffers tors that they both had disabled children that
that will align their interests with your own. served to form a bond of empathy that eventu-
This will also avoid conflicts and provide the ally broke the deadlock in their negotiations.
basis for developing integrative solutions. This just goes to show that issues that may
at first seem entirely irrelevant to the topic un-
2. Listen Carefully to the Other Side der negotiation can sometimes have an enor-
It may sound obvious, but one essential factor mous impact on deliberations.
in successful negotiation is the ability to listen
to what the other party says. 3. Incorporate What You Have Learned Into
Unfortunately, particularly when it comes Your Offers
to financial matters, negotiators make the mis- Successful negotiation is not just about lis-
take of focusing on their own position. They tening to what the other party says; it’s also
try to bargain on the basis of assumptions that about acting upon the new information you’ve
go untested, due to the negotiator’s inability or gleaned by incorporating it into an attractive
unwillingness to truly listen to what the other counteroffer.
party is saying. Negotiations have often been compared
Listening is not the same as hearing. Lis- with improvisational performing arts, like
tening is about understanding what is be- jazz or comedy. The key to successful impro-
ing said and grasping its implications for the visation is having sharp listening skills and


Essential
Ways Marketing
StrategiesCan
for Change
Creativethe
Negotiations
World
The shift from negotiating one issue to negotiating

multiple issues changes the nature of the process
dramatically. It gives the parties the opportunity to
create value as well as claim value.
being able to respond quickly to the informa- openly and taking a cooperative approach. Not
tion provided. In improvisation, an artist takes doing so entails far greater risks.
the information provided by the other artists, For example, if only one side cooperates
or even the audience, and integrates it into his and the other competes, the cooperator will
or her own performance, thereby enhancing usually get the raw end of the deal. If each side
the work of the other players. is suspicious or uncertain of the other, they will
Similarly, a negotiator needs to learn to in- both opt to compete; but if they both compete,
corporate the new information that emerges both sides end up with mediocre outcomes or
during the process of a negotiation. This re- perhaps worse off.
quires identifying which information is im- However, when both sides cooperate, they
portant, and quickly making any necessary both achieve good outcomes. This was a les-
amendments to the original position, so as to son that Steve Jobs learned during Apple’s
create a better deal. struggles with its larger competitor, Microsoft.
Explaining his decision to enter into partner-
4. Overcome Institutional Resistance: ship with his longtime rival, Jobs told The Wall
Finding Common Ground Street Journal’s D: All Things Digital confer-
As any manager of a large corporation can tell ence: “Apple was in very serious trouble. And
you, it’s one thing to reach a satisfactory out- what was really clear was that if the game was a
come in a negotiation between two individu- zero-sum game, where for Apple to win, Micro-
als; it’s quite another when the two sides of a soft had to lose, then Apple was going to lose.”
negotiation are corporate behemoths. Jobs realized that trying to drive a hard bar-
Corporate negotiations, in situations like gain with Microsoft would be of no benefit to
mergers or joint ventures, take more time. Apple. Instead, he reached out to Bill Gates in
They also tend to be more involved and may the hopes that the two could forge an agree-
include larger groups of people. Indeed, the ment that would be beneficial for both compa-
closer corporate negotiations come to reach- nies. The Mac Development Team at Microsoft
ing a conclusion, the more tedious the process, became one of Apple’s best developer relation-
as legal departments must review any paper- ships, according to Jobs.
work prior to signature. This is simply a fact of This is a perfect example of integrative ne-
corporate life. gotiation in action: seeking to find common
A 2010 Harvard Business Review article ground, by listening to and understanding the
by Jeff Weiss, Aram Donigan and Jonathan interests of the other party. This is a far more
Hughes drew on the U.S. military’s experi- effective way of reaching a creative outcome.
ence of negotiating in extreme situations of The Apple vs. Microsoft negotiations also
conflict. They proposed five strategies to help underscore the usefulness of negotiating a
corporate managers navigate complex, fast- group, or bundle, of interests together, as op-
moving, high-stakes negotiations. posed to treating each issue separately, as I will
n Understand the big picture. discuss next.
n Uncover hidden agendas and collaborate
with the other side. 5. Bundle Your Objectives
n Get genuine buy-in. Bundling is a simple concept that has a lot of
n Build relationships that are based on trust power when used correctly. Bundling is group-
rather than fear. ing items together and negotiating one com-
n Pay attention to process as well as desired bined value for the group rather than pricing
outcomes. each item separately.
Corporations, the same as any other negotiator, This approach to negotiating is particularly
must commit themselves to communicating appropriate when the negotiating parties seek

to reach agreement on a broad range of issues, the effect of a particular course of action on
as is often the case, for example, in multilateral Khrushchev or the Russians than on any other
trade agreements. phase of what he was doing.”
One of the interesting findings of my study Both sides of the negotiation also struggled
is that, in creative deals, there was a much and ultimately succeeded in overcoming huge
smaller difference between the prices claimed institutional resistance, in order to strike a
in the first offer and first counteroffer than win-win solution. Both were able to stifle the
there was in non-creative deals. In creative influence of advisers who were pushing for an
deals, negotiators tended to quote prices clos- escalation of tensions.
er to the expectation of the other party, and By committing to Churchill’s maxim of
tried to create value for themselves by includ- jaw-jaw, rather than war-war, both Khrush-
ing additional variables in their offers. chev and Kennedy were able to engage in an
The shift from negotiating one issue to ne- exchange of creative offers and counteroffers.
gotiating multiple issues changes the nature Like Steve Jobs, they realized that seeking a
of the process dramatically. It gives the par- win-lose outcome would have been fatal to
ties the opportunity to create value as well as both of their interests.
claim value. Put simply, the more options that By focusing on a win-win solution, and
are on the table, the more chances negotiators using all creative negotiation techniques at
have of using creative processes to reach a sat- their disposal to achieve it, not only did they
isfactory outcome. avert a disastrous outcome, but they also laid
One of the best examples of this was dur- the foundations for much closer cooperation
ing the 1962 Cuban missile crisis. For 13 long in the future. It’s a lesson all business leaders
days, the world awaited the outcome of intense would do well to learn.
diplomacy between the United States, the So-
viet Union and Cuba. In response to the Soviet Take to the Dance Floor
Union’s placing of nuclear missiles on Cuban The anthropologist Edward T. Hall once spoke
soil, the United States had, for the first time of a “perpetual ballet” in describing a Mexican
ever, raised its nuclear alert level to one step marketplace with a number of pairs of buyers
short of all-out war. and sellers from different cultures engaged in
For the United States, the primary goal of bargaining. For me, it is fitting that he would
the negotiations was to achieve the removal of liken negotiation to a dance involving two
all nuclear missiles and Soviet military bases skilled performers who need to understand
from Cuba. The Russians, meanwhile, sought each other, adjust to each other’s steps and re-
the immediate lifting of the U.S. naval block- spond to the common music, in order to create
ade on the island. an elegant choreography.
The negotiators – led by U.S. President Problems arise when the dance partners
John F. Kennedy on the one side and the Soviet don’t listen to this common music. They need
leader Nikita Khrushchev on the other – were to find this music: to listen and discover that
willing to consider additional offers to help re- common ground, in order to arrive at a sustain-
duce tensions and find a satisfactory outcome able deal that satisfies the needs and require-
to the crisis. For example, as part of that pro- ments of both parties.
cess, the United States agreed never to invade The best strategy is to prepare well, listen
Cuba – an agreement that has been honored for well and incorporate the information received
more than 50 years. during the negotiation. As the writer Henry
Both teams of negotiators did their home- Boyle once said, “The most important trip you
work, in terms of understanding their own may take in life is meeting people halfway.”
and their counterpart’s main interests, not to Granted, all this is easier said than done.
mention their respective strengths and weak- Negotiation is a skill, and one must practice
nesses. They also actively listened to the other the framework presented in this article in or-
party’s demands and incorporated them into der to master it.
their counteroffers.
In Robert Kennedy’s memoir, he wrote: to know more
“The final lesson of the Cuban Missile Crisis is
the importance of placing ourselves in the oth- n Mehta, K. “Offers, Counteroffers and Creative
er country’s shoes. During the crisis, President Deals: Decoding the Process of Creativity in Dy-
Kennedy spent more time trying to determine adic Negotiations.” IESE Working Paper, 2012.

expert
insight
Illustration by ANA YAEL

THE IMPORTANCE OF STRONG TIES
Understand Your Network

and Let Knowledge Flow
By MARCO TORTORIELLO
D
uring the lead-up to the 2012 U.S. Though a small number of votes overall in rela-
presidential election, a study pub- tive terms, such numbers could make all the dif-
lished by the journal Nature showed ference in tight races, said the researchers.
that social networks could be used One of this study’s most important findings
to increase voter turnout during elections. The is that patterns of influence within networks are
study was based on the response of 61 million much more likely to be demonstrated among
Facebook users to a nonpartisan “get out and close friends. James Fowler, who led the study,
vote” message on the site’s news feed prior to noted that, while the average Facebook user typ-
congressional elections held in 2010. It found ically counts 150 “friends,” it was only the clos-
that such a message was directly responsible for est 10 that made the difference when it came to
60,000 more votes, and indirectly responsible eliciting a response. This suggests that “strong
for 280,000 that were spurred by users seeing ties,” even in cyberspace, may be more likely
that their friends had clicked the “I voted” but- than “weak ties” to influence behavior.
ton – the so-called “social contagion” effect. While hardly surprising, such a finding does

expert insight Understand Your Network and Let Knowledge Flow
Understanding how influence functions and is

dispersed within and among a company’s informal
networks – whether virtual or face-to-face – is essential
for getting things done today.
confirm a long-held assumption: that to enjoy grasp how informal relationships within and
influence within a social network, one must beyond their walls actually function. While ad-
have not only many friends but also many close vances in social media tools have created the po-
friends. In other words, without strong ties tential for ever-closer connectivity across units
within one’s social network, it’s very difficult to and divisions, managers still don’t fully appre-
influence others. ciate or understand how social networks actu-
This lesson is as relevant to companies as it ally work. This poses a major stumbling block to
is to political campaigners. After all, what are their businesses being able to realize their true
companies except an amalgamation of distinct, potential.
loosely or strongly connected social networks? Research that colleagues and I have con-
Companies communicate and operate ducted on social ties shows that the strength
across vast social and geographical spaces, and and structure of such ties have important im-
the ability for managers and employees to trans- plications for knowledge sharing. Based on this
fer and share valuable knowledge across these research, this article proposes a number of core
spaces is a major driver of innovation. As such, strategies that businesses can adopt to improve
understanding how influence functions and is knowledge sharing across organizational and
dispersed within and among a company’s infor- geographical boundaries, which may facilitate
mal networks – whether virtual or face-to-face better conditions for innovation.
– is essential for getting things done today.
Unfortunately, many organizations fail to The Rise of the
Knowledge Economy
Over the past several decades, knowledge has
executive summary come to play a vital role in economic growth and
development. Today when people talk about the
Companies communicate and within the organization who New Economy, more often than not they are de-
operate across vast social have the right set of features scribing elements of the Knowledge Economy
and geographical spaces. The to serve as conduits for envisaged by the late economist Fritz Machlup.
way that valuable knowledge is knowledge transfer within and The rules and practices that determined
shared and transferred across between units. success in the Industrial Economy urgently
these spaces is essential for Next, the broader network need rewriting to meet the markedly different
creating and sustaining a context needs to be developed set of needs of today’s interconnected, global-
healthy culture of innovation. to support boundary-spanning ized economy – an economy in which knowledge
To facilitate this, managers outcomes. This means resources, such as technical know-how and ex-
must look beyond formal ensuring that the ties that pertise, are as critical to success and growth as
organizational structures link the company’s informal more traditional economic resources.
to the informal networks of networks are sufficiently Research on new product development, for
ties and relationships that strong and with appropriate example, has shown that knowledge developed
employees form across range to channel vital across different functional areas, or different
functions and divisions. knowledge between units. areas of expertise within a company, is vital for
Through his research, By far the most important the generation of innovation.
IESE Prof. Marco Tortoriello step involves creating the If so, companies need to adapt their strate-
has identified a number of “best” network conditions gies and policies to provide their managers and
strategies for bolstering these that will support the transfer employees with the right skill sets, tools and
informal networks. The first of knowledge across different training to generate and transfer new knowl-
step is to institute boundary- parts of the organization, edge across the organization.
spanning operations, which which may facilitate better They also need to create working environ-
means identifying people conditions for innovation. ments and operational structures that allow

expert insight Understand
Six WaysYour
Marketing
Network
Can
and
Change
Let Knowledge
the WorldFlow
social networks to flourish across functional Jeffrey R. Hanson’s Harvard Business Review arti-
and geographical boundaries. cle, “Informal Networks: The Company Behind
The good news is that most companies have the Chart,” much of the real work of companies
upped their game in terms of investment and happens despite, rather than because of, the
commitment to ICT and social media, which formal organization. What needs our attention
are indispensable tools in the new Knowledge is “the informal organization, the networks of
Economy. relationships that employees form across func-
According to a survey published by McKin- tions and divisions to accomplish tasks fast.”
sey in May 2012, most C-level executives cite The authors recommend using network
three trends as strategic priorities for their com- analysis, mapping the myriad informal relation-
panies, all to do with digital business: big data ship ties within an organization to show how the
and analytics; digital marketing and social me- work actually gets done. By drawing up maps of
dia tools; and the use of new delivery platforms, their own and their team members’ relationship
such as cloud computing and mobility. networks, managers can form a much more nu-
Greater corporate expenditure on ICT and anced understanding of how those networks
social media represents a move in the right di- function. That knowledge can then be used to
rection. It proves that companies are, at the solve organizational problems and spur knowl-
very least, trying to keep up with the rapid pace edge transfer, they say.
of technological development. However, while the informal bridging of ties
Yet few seem to be dedicating equal effort to between departments and divisions may yield
understanding which factors actually drive indi- a rich diversity of perspectives, this knowledge
viduals’ willingness and ability to share knowl- does not automatically translate into the gener-
edge. It’s as though social networking tools are ation of innovation. The diverse, heterogeneous
being viewed as an end in and of themselves, as nature of this knowledge may lack the common
opposed to merely a means to an end, as they base necessary to integrate it for a corporate
should be. ICT investment might make it easier purpose.
to share knowledge, but it is not being used in a Also, one should not assume that everyone
deliberate way to drive knowledge sharing. is equally willing to devote time and effort to
Companies will not reap the real dividends sharing knowledge with colleagues in different
of their ICT and social media investment until parts of the organization. Indeed, certain indi-
they truly understand how the vast, complex viduals may be wary of disclosing information
web of social ties actually functions within and that could benefit other units at the expense of
beyond their walls. To do that, managers must their own.
start by looking beyond formal structures and These are just some of the challenges that
hierarchies to take in the richer panorama of managers face when trying to leverage the
informal networks, ties and relationships that knowledge-generating potential of informal
employees are forming irrespective of what the social networks. To further complicate matters,
organizational chart might say. informal social ties, unlike formal organization-
al structures, are not clearly visible nor set in
Beyond Corporate Structures stone. Quite the contrary, the informal nature of
As implied by the title of David Krackhardt and the relationships that make up a social network
means that they are in a constant state of flux.
Clearly, managers need some way of devel-
about the author oping a picture of the way social networks inter-
connect workers both within and beyond their
Marco Tortoriello is an Management Review and respective departments. They need to try to
associate professor in the Organization Science. He was anticipate the possible patterns by which social
Department of Strategic previously a faculty member relationships may evolve. Above all, they need to
Management at IESE. He at HEC Paris, where he understand the factors that determine a social
has a Ph.D. in Industrial taught business strategy and network’s effectiveness as a conduit of valuable
Administration and an M.S. in strategic social networks. knowledge and information.
Organizational Behavior and He has conducted research
Theory from Carnegie Mellon and consulting projects Observing Knowledge
University. He is currently for large multinational Acquisition in Action
a member of the editorial companies such as Alcoa and To address this, I participated in two separate
boards of the Academy of STMicrolectronics. lines of research: one with Ray Reagans of the

No doubt you can think of individuals within

your own organization who are in a position to use
their network connections to increase the amount of
knowledge transferred between units.
Massachusetts Institute of Technology and showing that occupational communities tend

Bill McEvily of the University of Toronto; and to have different perspectives on the work and
the other with David Krackhardt of Carnegie organization they serve, primarily because of
Mellon University. In a novel twist, both lines the specialization inherent in performing their
of research were based on surveys of the same own tasks. Subsequently, “managers who want
company – an R&D division of a large multina- to capitalize on the coordination of diverse
tional, multidivisional company – but each had functions face the challenge of integrating the
a markedly different focus. understandings of the different groups across
At the time of our survey, the R&D division the organization.”
consisted of 16 geographically dispersed labora-
tories, with four based in the United States, 10 in Four Factors for Building
Europe and two in Asia. A total of 276 individu- Effective Networks
als worked across the 16 laboratories and were From our two research projects, my colleagues
assigned to one of 21 technological road maps. and I were able to identify four essential ele-
Each road map was designed to support the ments for the successful acquisition of knowl-
development of a particular area of technology. edge via social networks.
The road maps under development included:
bluetooth, computer architecture, connectiv- 1. BOUNDARY SPANNERS
ity, imaging, networking, low-power devices, Put simply, boundary spanners are people who
optics, security and terminals. facilitate the flow of knowledge between indi-
The road maps often cut across laboratories, viduals or across the boundaries of a depart-
so individuals working in the same lab were of- ment or the organization itself. This boundary-
ten assigned to different technological road spanning role is neither a formal position nor an
maps, while individuals assigned to the same explicitly defined task. The boundary spanner’s
road map often worked in different labs. This ability depends almost entirely on his or her psy-
meant that pretty much all of the networks that chosocial and professional characteristics.
existed within the division spanned both orga- According to Andreas Schotter of Thunder-
nizational and geographical boundaries. bird School of Global Management, all bound-
The fact that the R&D division was dedi- ary spanners have five characteristics in com-
cated to high-tech product development made mon: high levels of what is called bipolar context
it a particularly enticing case for studying the ef- understanding; high levels of professional ex-
fects of network factors, given that knowledge pertise; strong and wide-reaching social ties;
sharing is a prerequisite for such development. intrinsic awareness of the need for boundary
During our extensive field interviews with spanning; and a global mind-set.
some of the 276 senior managers and scientists No doubt you can think of individuals within
of the R&D division, one particular term kept your own organization who are in a position to
cropping up: knowledge acquisition. Time and use their network connections to increase the
again, members of the R&D division would de- amount of knowledge transferred between
scribe successful knowledge transfer in terms units. Maybe you are a boundary spanner your-
of acquisition, suggesting that for cross-unit self?
transfers to be successful, the knowledge ac- Boundary spanners receive a lot of fanfare
quired from a contact located in a different for the supposedly effective way they facilitate
organizational unit had to be recognized, un- organizational knowledge flows. However,
derstood and adapted in a way that made it com- their true impact is debatable: Sometimes they
prehensible and useful for the recipient. increase knowledge flows between units, other
This chimes with other research by Beth A. times they actually restrict those flows.
Bechky of the University of California, Davis, The effectiveness of a boundary spanner

Six WaysYour
Marketing
Network
Can
and
Change
Let Knowledge
the WorldFlow
depends on two key factors: the skills and reli- 2. TIE STRENGTH
ability of the person fulfilling the role, and the The next three factors essential for network
broader network context in which he or she effects are: tie strength, measured as a function
operates. of the frequency of interaction; network range,
For example, because individuals can only measured as the breadth of an individual’s con-
maintain a limited number of strong ties, the nections; and network cohesion, measured as the
research that I conducted with Ray Reagans and extent to which a given relationship is embed-
Bill McEvily indicates that boundary-spanning ded within a dense system of common con-
outcomes vary significantly across strong and nections. Of these three, it is the strength of the
weak ties. In addition, the more boundaries that tie that has the most notable impact in terms
two individuals span, the smaller the overlap be- of building effective cross-unit knowledge
tween their knowledge and expertise, and the transfer relationships.
greater the difficulties they will face when shar- This makes sense: Effective access to re-
ing knowledge with each other. sources, ideas and information often hinges on
Perhaps the greatest drawback of using the quality of relationships within a social net-
boundary spanners is that an organization can work. The depth of a network will depend on
become overly reliant on the role they play in the strength of the relationships between each
bridging units or divisions that are organiza- contact, which, in turn, is a function of the dura-
tionally or functionally distant from one an- tion, frequency and closeness of their interac-
other. Once that person leaves the company,
the central link keeping those social networks KNOWLEDGE
together is irrevocably broken, and the knowl- TRANSFER
edge flows that they facilitated quickly grind to between Patricia and Oscar
a halt. See Exhibit 1. is easy
between Patricia and Sara
is not so easy
between TEAM 1 & TEAM 2
is difficult, but even more so
between TEAM 2 & TEAM 3
Strong Tie
B O U N DA RY based on TRUST
S PA N N E R & COOPERATION Lucas TE AM 3
Danger! Patricia
may act as a
bottleneck, and if
she leaves, the link
is broken
T EAM 1
Oscar Patricia
Distance
TE AM 2
RANGE EFFECT works better

within UNIT
Sara
EXHIBIT 1
More Than Meets the Eye
DESPITE WHAT THE FORMAL ORGANIZATIONAL CHART
MIGHT SAY, MAPPING HOW THE WORK ACTUALLY GETS
DONE REVEALS OTHER DYNAMICS AT PLAY. IN THIS
EXAMPLE, SARA MAY OFFICIALLY BE THE BOSS, BUT IT’S
PATRICIA WHO REALLY SERVES AS THE CONDUIT OF
KNOWLEDGE TRANSFER ACROSS THE ORGANIZATION.

By thinking about and reflecting on how work actually

gets done by individuals in your organization, it is
possible to make swift progress in identifying key
network figures and roles.
tions. Think of networks like electric cables: the a far-reaching system of relationships. When it
thicker the wire, the more power it can carry. comes to transferring knowledge across bound-
Strong interpersonal connections are usu- aries, while the effects of range are positive, they
ally characterized by trust and cooperation. are not as strong as they are within boundaries.
A higher degree of trust can facilitate interac- As with tie strength, investing in range also
tions between individuals located in units that carries its own set of risks. There is no guarantee
are culturally, linguistically and institutionally that the decision to invest in network connec-
distant. Sometimes the receivers of the new tions characterized by range will bear fruit. Par-
knowledge may express reservations, either be- ticularly in the context of cross-unit transfers,
cause they don’t want to appear ignorant by hav- there is no guarantee that the greater capacity
ing to request new knowledge, or because they for knowledge transfer that network range in-
are generally skeptical of new ideas that didn’t troduces will be large enough to support a suf-
originate in their unit. A strong tie of trust can ficient level of knowledge acquisition.
overcome such apprehensions.
Some words of warning: Although tie 4. NETWORK STRUCTURE & COHESION
strength has a relatively large effect on the level While boundary spanners and strong ties are both
of knowledge transferred, it is not advisable to important factors in interdivisional knowledge
focus exclusively on the strength of your ties. Es- transfer, the structure of a network is another
pecially in more dynamic contexts, it becomes important factor as a conduit of effective knowl-
difficult to know beforehand which knowledge edge transfer.
transfer relationships will be most beneficial. David Krackhardt and I analyzed a specific
Also, because the benefits that a strong tie type of network connection: Simmelian bridg-
creates take time to develop, individuals must ing ties, that is, ties in which the parties involved
decide to invest their own time and effort be- are reciprocally connected to one another, and
fore the benefits of knowledge sharing become each party is also reciprocally connected to at
known. As such, an individual who focuses ex- least one other third party.
clusively on tie strength risks wasting valuable According to the German sociologist and
time and energy in unrewarding knowledge philosopher Georg Simmel – after whom Sim-
transfer relationships. melian ties are named – transitioning from a
dyad, or pair of connected individuals, to a com-
3. NETWORK RANGE pletely connected triad, where three or more
According to our research, the network range individuals are mutually and reciprocally con-
effect was much smaller in magnitude than the nected, serves three basic purposes: It mitigates
strong tie effect. But the range effect was not the pursuit of individual self-interest; it reduces
limited to a particular knowledge transfer re- the bargaining power of single individuals; and it
lationship. Consequently, the positive effect facilitates cooperation and conflict resolution.
that network range has on the level of knowl- These features become particularly relevant in
edge acquired in cross-unit transfers can be uti- the context of ties or bridges spanning different
lized across a much larger number of cross-unit boundaries or parts of an organization.
knowledge transfer relationships. Our research found that Simmelian bridges
While network range helped to transfer that were embedded in a clique of reciprocally
knowledge across boundaries, its effects were connected individuals promote more open and
actually stronger within boundaries rather than complete knowledge sharing among the parties
across boundaries. This seems to suggest that involved. Moreover, the bargaining power of
the most effective way to transfer knowledge single individuals becomes less disruptive than
within a given business unit, or area of techno- it would be in the case of an isolated bridge be-
logical expertise, is through the development of tween two individuals.

Six WaysYour
Marketing
Network
Can
and
Change
Let Knowledge
the WorldFlow
Individuals involved in simple dyadic ar- the positive expectation among participants
rangements have equal footing in the relation- that these efforts will be reciprocated. Over
ship. In the event of either one deciding to leave, time, cooperation becomes a shared value in
the bridging tie is severed, and with it, the flow densely connected structures. Individuals with
of inter-unit knowledge. third-party ties become naturally more inclined
In contrast, with a Simmelian structure, to devote time and effort to knowledge-sharing
common third parties increase the stability of interactions with other members of the clique.
bridging relationships by reducing dissension
and facilitating conflict resolution. That greater Harnessing the Power of Networks
stability, in turn, promotes the development of What should managers interested in harness-
shared meanings and common understandings, ing the talent of their workforce do? Here are
lowering the interpretive barriers that charac- a few ideas, based on the previously described
terize bridging relationships. concepts.

Simmelian ties are more likely to foster co-
operation and knowledge sharing because of 1. ANALYZE & MAP VITAL INFORMAL NETWORKS
First, you need to visualize the structure of your
organization’s informal network. Who goes to
whom for help or advice? How are important
matters discussed and resolved within
the organization? How do the lines of
trust and cooperation emerge with-
TE A M 3
Strong Tie
based on TRUST
& COOPERATION Lucas
THIS ARRANGEMENT
TE AM 1
• mitigates self-interest
Patricia • reduces power of single
Oscar individuals
• facilitates cooperation &
conflict resolution
Distance
• encourages lateral thinking &
diversity of opinions
KNOWLEDGE SHARING
FOSTERED
Sara
David
TE AM 4
TE AM 2
EXHIBIT 2
The Power of Simmelian Ties
USING THE EARLIER EXAMPLE, TRANSITIONING FROM A DYAD TO TRIAD
WOULD PROMOTE MORE OPEN AND COMPLETE KNOWLEDGE SHARING,
AND AVOID THE POTENTIALLY DISRUPTIVE INFLUENCE OF SINGLE ACTORS.

in and across organizational boundaries? nections involved. Managers will need to think
Granted, mapping the informal network is for themselves about what is most appropriate,
easier said than done. However, through obser- depending on what is called for at the time.
vation, by listening to employees’ requests and
by asking simple questions about what would 4. DON’T PUSH IT TOO FAR
help them get things done, it is possible to de- By all means, do as much as you can to create
velop an intuition of what each of their networks conditions that are conducive to the emergence
looks like. and development of novel, diverse relationships
Bear in mind that it’s impossible to build a – or stronger, more embedded ones, depending
perfectly representative network picture. But on the objectives you seek to achieve.
by investing a bit of time thinking about and But whatever you do, do not try to overengi-
reflecting on how work actually gets done by in- neer what these networks should look like. Striv-
dividuals in your organization, it is possible to ing too hard to create or manipulate the shape
make swift progress in identifying key network of your organization’s informal networks will
figures and roles. likely be met with fierce resistance by the par-
ties involved. This would derail any attempt to
2. IDENTIFY AREAS OF WEAKNESS understand them: Instead of supporting them,
Once a “good enough” map is available, it is time you could end up destroying them. Trying to
to identify areas for improvement and poten- mold the informal network into the likeness of
tially critical roles. As mentioned before, there the formal organizational chart will never work.
are risks involved should a key boundary span- To leverage the power of networks, start by
ner decide to leave your organization. For this talking with people, learning from their needs
reason, it is important to identify who the “lone and then helping them to create the conditions
bridges” are, and then start working around for the right network connections to emerge, in
those to create third-party connections that order for new knowledge to flow and for every-
would reinforce the bridge, and help to make one to get their jobs done.
the relationship more stable. Indeed, reinforc-
ing the bridging tie with other individuals has
the added benefit of facilitating cooperation and
the flow of knowledge across more parts of the
organization. See Exhibit 2.
3. BOLSTER TIE STRENGTH, NETWORK RANGE & to know more

NETWORK COHESION
Generally, the greater the complexity of the n Tortoriello, M., R. Reagans and B. McEvily.
task performed, the greater the importance of “Bridging the Knowledge Gap: The Influence of
forming and nurturing strong ties and cohesive Strong Ties, Network Cohesion and Network
networks. Range on the Transfer of Knowledge Between
On the other hand, overinvesting in the Organizational Units.” Organization Science 23,
development of strong, stable and dense con- no. 4 (July-August 2012): 1,024-39.
nections might generate a tunnel vision that
hinders the ability to think creatively about n Tortoriello, M. and D. Krackhardt. “Activating
persistent problems. Cross-Boundary Knowledge: The Role
In this case, it might be better to have a of Simmelian Ties in the Generation of
spread-out network, with people interacting Innovations.” Academy of Management Journal
who don’t normally interact with each another. 53, no. 1 (February 2010): 167-81.
This could encourage more lateral thinking,
thanks to the diversity of knowledge and per- n Bechky, B.A. “Sharing Meaning Across
spectives able to be accessed through having a Occupational Communities: The
wide-ranging network. Transformation of Understanding on a
Given each organization’s varying circum- Production Floor.” Organization Science 14, no. 3
stances, it is hard to provide a clear-cut recom- (May-June 2003): 312-30.
mendation. Part of what determines the effec-
tiveness of these network features has a lot to n Krackhardt, D. and J.R. Hanson. “Informal
do with the nature of the tasks being performed Networks: The Company Behind the Chart.”
and the brevity or longevity of the network con- Harvard Business Review, July-August 1993.

66
insight
business
FOURTH QUARTER 2012 issue 15

When
AENA
Strikes?
Crisis
Airborne
How to Stay
ieseinsight
AFP/Getty Images
business insight aena
When air traffic controllers go on strike, the

pressure is on for all the various bodies involved to deal with this
unprecedented situation.
H
aving a captive customer base of hundreds On the morning of December 3, 2010, the government
of thousands of people may sound like every unveiled a package of new measures to tackle the eco-
business’s dream – but not if “captive” means nomic crisis, including the possible part-privatization of
“held hostage” when your service becomes Aena, which air traffic control staff considered a step too
paralyzed. This is effectively what happened to the airport far. Ninety percent of controllers failed to turn up for their
management company, Aena, in December 2010. shifts, forcing the closure of Spanish airspace. No one could
At the start of one of Spain’s biggest holiday weekends, say when it would reopen, nor when flights would return to
around 5,000 flights were cancelled and 700,000 people normality, given the number of canceled flights that now
were left stranded when air traffic controllers went on had to be rescheduled.
strike, shutting Spanish airspace for 24 hours. The pressure was on for all the various bodies involved
Passengers, the media and the government alike all to deal with this unprecedented situation.
demanded answers – but what was the message that Aena
needed to communicate? Someone’s Got Some Explaining to Do
An ongoing dispute with air traffic controllers over The story made unflattering headlines internationally,
their work conditions had finally bubbled over into a full- as countries widely reported on their nationals being left
blown crisis. The government stepped in to declare a “state stranded in Spain. Aena’s competence was being ques-
of alarm” – an action not taken in Spain since its transition tioned. Its communications department was flooded with
to democracy. Aena was facing one of the worst crises in inquiries.
its history. Aena had the responsibility of communicating with cus-
tomers, the public, the media and its own staff. For Aena’s
The Buildup to Boiling Point new communications director, this was the first major crisis
Like many crises, this one didn’t arrive out of the blue, but she’d had to face, and the communications handbook didn’t
had its makings in the fact that air traffic controllers were cover what to do for incidents on this scale. Working in her
still operating under an expired labor agreement, which favor was her own professional background as a journalist.
they were in the process of renegotiating with the govern- Prior to the crisis, she had built up good working relation-
ment. They wanted new working conditions, permanent ships with the media.
contracts and – one of the big sticking points – a base sal- For their part, the air traffic controllers issued state-
ary of 6,000 euros per month, the highest of any air traffic ments through their trade union. The union spokesperson
controller in Europe. had the formidable task of trying to sway the media and
Tensions between air traffic controllers, Aena man- public opinion, who were outraged not only by the havoc
agers and the government were made worse in February wreaked on their holidays, but also by wage demands that
2010 when the government extended controllers’ working seemed completely out of order.
hours without changing their existing conditions, which All parties had a lot of explaining to do. What messag-
amounted to a salary reduction of 40 percent, and meant es should they send? How should they inform staff of the
shorter breaks. plan of action? How should they inform passengers? How
That summer, controllers took an unusually high num- should the true position of the air traffic controllers be ex-
ber of sick days. Although some suspected this was a sly plained? How could social media networks be used to get
form of industrial action, the government went ahead and these messages across?
approved new work and rest times, which did not meet with The clock was ticking. The military had been called in,
the controllers’ demands. holidaymakers wanted to travel and defiant workers were
A warning shot was fired in November 2010 when con- being threatened with jail. Aena had to decide – and fast.
trollers at the Santiago airport declared a wildcat strike on The world was watching.
the grounds that they had already covered their set work-
ing hours for the year. A case study on “Aena: The Air Traffic Controller Crisis”
Other air traffic controllers threatened similar action (M-1271-E) by IESE Prof. Julián Villanueva, Ignacio Bel, com-
at other airports, but Aena – having lived with such threats munications director of IESE Madrid, and research assistant
for this long – did not think they would go through with it. Francisco Javier Paniagua is available at www.iesep.com

BUSINESS insight aena
You must be the one who sets the pace of your communications,
always mindful of the media and your key public.
Haste Makes Waste

mum tension for communications directors, who
must respond to the heavy pressure on them to
by José M. Velasco provide information, while at the same time mak-
President, Dircom,
Spain’s Association of ing sure they have all the facts before them, and
Communications Directors as complete a picture of the situation as possible,

before giving out that information. Speed should
not lead to haste.
On December 3, 2010, my wife and I were about The spokesperson should be determined ac-
to leave our New York hotel on our way to J.F.K. cording to the audience and the severity of the
Airport to return to Spain, when I received an crisis. Above all, you need to choose the right mo-
SMS from Iberia advising me to check my flight ment for your formal communication.
status, as there had been a number of cancel- For example, when there is some break-
lations. After more than two hours of failed at- through, such as a service recovery, that is a good
tempts, I managed to speak to a person in the moment to provide information, always staying
Miami office, who confirmed that our flight had one step ahead of the media by providing them
indeed been cancelled and would be rescheduled with updates before being asked.
for the following day. To be in the position to do this, it is necessary
Once I found out the cause of to maintain open lines of communication with
the chaos, I felt more an- the relevant authorities. Remember, too, that
ger toward the air traffic information circulates at lightning speed,
controllers than Aena, Manage media expectations, with social media networks creating a
who seemed slightly less but avoid acting in haste multiplier effect.
blameworthy on this oc- When faced with a service dis-
casion. The Spanish govern- ruption, as in the case of Aena,
ment’s strong reaction of authorizing the three fronts must be managed
military to take control of air traffic control Follow this simple rule: a in a coordinated way: the
operations facilitated the work of Aena, single message, a single social front, to mitigate
which was then able to devote it- spokesperson, a single tempo the consequences on
self to the primary task of any people; the operational
crisis situation: offering the front, tackling the causes;
most complete and up- and the communications front, which draws
to-date information Give regular progress reports, on the previous two and addresses its key
possible. especially when there is some public, in order to prevent the problem
Although each cri- breakthrough to report from turning into a wider political debacle.
sis is different, they My experience tells me that the great-
must all be addressed est crisis management failures have been
using the same professional standard. caused by not giving the human side
Whole handbooks have been written on enough thought. The fact that Aena
the subject, but their tidy theories don’t handed out water and snacks to affect-
always hold up during real, messy emer- ed passengers was a gesture in the right
gencies. direction.
I adhere to this simple formula for If more companies took this basic les-
managing a crisis: a single message, a single son to heart when managing their own crises,
spokesperson, a single tempo. perhaps they might succeed in at least redi-
The first message given is the most impor- recting their key public’s anger elsewhere, if
tant one. When a crisis erupts, the media de- not succeeding in calming heightened emo-
mand a quick response. It is a moment of maxi- tional states altogether.

Trust between those producing messages and

those receiving them is imperative.
Be a Trustworthy Partner
speculation. You want to do everything possible
to enhance the perception of being a reliable
by Kay Kitazawa partner in the crisis. Once you have secured pu-
Rebuild Japan blic trust, internal communication becomes that
Initiative Foundation much easier.

The possible part-privatization of Aena, which
seems to have contributed to the strike, must be
My advice for Aena is derived from some of cast within the wider context of the economic cri-
the lessons we’ve learned at the Rebuild Japan sis, which is beyond the control of Aena executives.
Initiative Foundation (http://rebuildjpn.org/en/), Given the negative international media coverage
an independent commission established in the af- and public outrage that this crisis generated, Aena
termath of the Fukushima Daiichi Nuclear Power executives could try to appeal to the controllers’
Plant accident that occurred in Japan on March sense of responsibility, rationality and pride, in or-
11, 2011. The inadequate response to that crisis der to get business back to normal as soon as possi-
caused many citizens to lose trust in the so-called ble. Everyone should see that the longer this crisis
“authorities,” and this frustration has galvanized drags on, the less profit and the more damage for
us to learn from those mistakes and recommend everyone – the controllers, Aena and even the na-
lessons as a policy reference going forward. tion. This would serve to focus minds on reopening
First, communication is key. In any crisis negotiations with even greater resolve.
communication, the trust between those The big challenge is to keep earning
producing messages and those re- trust throughout the crisis. Proactive so-
ceiving them is imperative. As cial media outreach can be a powerful
such, Aena should streamline Attend to immediate measure to multiply your communi-
its communication processes, necessities first to help reduce cation capacity. For example, recrui-
anxiety and unease
so that news and information ting credible third-party allies
are conveyed to the stranded can help to automatically
passengers without delay – not only about im- spread messages in high
mediate necessities like food and accommoda- volume.
Make sure your spokesperson
tion, but also timely updates is sincere and an authoritative However, when
on the unfolding situation, source of credible information it comes to explai-
which will help to reduce ning the situation,
anxiety and unease. Aena has to be the one
Second, Aena has Recruit third-party allies to help spread responsible for continuous transmission of
to be an authoritative your messages – but only when their news and analyses of the situation – because
trust has been genuinely earned
source of informa- if Aena doesn’t put the information in con-
tion. What happened in text, someone else will, and they are under
Japan – and which must be avoided – is that no obligation to do it fairly. Only when
no single authority was able to provide third-party allies can attest to Aena’s
clear, accurate explanations of the cir- side of the story will their voluntary
cumstances surrounding the problems efforts become beneficial.
nor coherent measures for how to res- Crisis management is about anticipa-
pond to them. This gave rise to frustration ting unexpected events and responding to
and suspicion as to why the “experts” were them in such a way that you effectively trans-
not forthcoming in clarifying matters: Were form the situation. Aena’s new communica-
they hiding something? tions director could become a leading light by
The spokesperson who relays the infor- offering explanations that are clear, coherent
mation must be sincere and steer clear of idle and, above all, trustworthy.

Changing the tone depends on how managers behave and

communicate during this crisis.
Give Peace a Chance

Doing all this will yield profound and immedi-
ate benefits. First, managers will be less combative
by James E. with employees, and likewise employees will be
Lukaszewski less confrontational toward managers. Everyone
President, The Lukaszewski

at every level of the organization will have achiev-
Group Division/Risdall PR
able mandates for guiding their own behavior. Such
positive conditions will create an attractive work-
Labor negotiations are often defined ing atmosphere. This boosts retention, because
by confrontation, intimidation, insult, humilia- employees and managers alike will be focused on
tion, discrediting the hopes of others and inten- building better workplaces.
tional misrepresentation, until one side gets worn So, what should a war-torn organization like
down and grudgingly gives in. Even before the ink Aena do? Before a ceasefire can be achieved, those
has dried on whatever agreement is finally reached, involved must start by establishing an expectation
some are already busy plotting their next battle. of peace through these seven steps.
Waging war in the name of peace is an extraordi- n Teach managers to communicate in positive
nary contradiction. The Aena crisis presents a stra- ways. Change the language of management.
tegic opportunity to change the existing paradigm of Simplify organizational goals. Commit instead to
n
labor negotiations. Instead of resorting to the same the growth and improvement of the workforce.
old techniques, which only serve to perpetuate the n Revamp organizational infrastructures, so that
war mentality, my suggestion is to begin working employees can access information and deci-
toward a new strategy of “waging peace,” sion-making as and when they choose.
transforming the polarized employee vs. n Reduce the barriers to direct communica-
management conflict into some- tion at all levels of the organization.
thing positive that improves the Move from a mentality of n Communicate in real time. Say less,
lot of everyone involved. restructuring to enabling people but make the communication
In this regard, how managers to perform their jobs better more important. Say it now
behave and communicate during and do it now.
Foster positive
this crisis plays a powerful role in conditions that will
n Keep constructive
achieving this objective. create an attractive conversations mov-
To the outside world, working atmosphere ing, powered by
especially during labor positive engagement
Say less, but make the
negotiations, it can with the leaders.
communication more important,
appear that the man- direct, accessible
n Work from an altitude that gives per-
agement imperative and constructive spective rather than platitudes.
is simply to improve Because managers tend to hold more of
efficiency through con- the cards, they ultimately control whether
stant restructuring. Yet survey after survey there is peace or not. Employees have little
has shown that what employees really or no control over their jobs, company
want is authentic leadership that en- assets or future market conditions – but
ables them to perform their jobs better, they do have control over their own atti-
and more open communication. tudes and personal commitment to fos-
As such, the road map for peace requires the tering an environment that is fulfilling rather
following principles in everything you say and than fraught with conflict.
do: Be positive, constructive, outcome-focused, If the leaders and employees of Aena are
prompt, engaging, inclusive, reflective, pragmat- tired of the negative words and fighting, then
ic and personally committed to making positive why wait for the next crisis? Both sides need to
incremental improvements every single day. find the courage to give peace a chance.

wider
insight
Cristian Baitg
How the kidnapped
Mexican architect Bosco
Gutiérrez coped for
257 days in captivity

offers valuable lessons
for overcoming your
own worst fears and
taking control of your life
when you find yourself a
hostage to fate.
Amb u s h e d by
e
Adv r s i t y
W
ednesday, August 29, 1990, Despite the shock of what has just happened
began as a normal workday to him, he manages to stay calm. He asks for a
for Bosco Gutiérrez. But as Bible, which his captors deliver to him, along
the Mexican architect heads with some food.
toward his car on his way to work, someone He imagines what they’ll do next: They’ll
grabs him from behind. contact his family, strike some sort of deal and
“Shut up or we’ll kill you,” he is told as he the whole thing will be over soon. Of the ab-
is handcuffed and bundled into the back of a duction stories he’s heard of in Mexico, they
waiting car. usually don’t last for more than a week, he tells
Blindfolded, he is aware of changing cars himself.
as they travel to an unknown location. Once This reaction is indicative of a success-ori-
there, his captors drag him to a quiet place, ented mind-set: When faced with a traumatic
where he is locked up. situation, the sooner you are able to confront
When his blindfold is removed, he sees your worst fears, control your anxiety levels
two men standing before him wearing hoods. and assimilate the reality of your predicament,

wider insight
To realize that freedom is inside yourself is to

discover that the will is the most important muscle
in your body.”
the better you will be able to survive and thrive. group enters the room and hands him a note
The uncertainty, threats and uncontrol- with instructions, so he can record a video
lable situations faced by the average busi- message for his family. They give him a sign to
ness person may never be as extreme as what hold and place a microphone near his lips.
Gutiérrez went through. But his story of how He gets emotional when saying goodbye
he mustered the strength within himself to to his wife, Gaby, and his five children. Yet he
overcome his ordeal offers valuable lessons remains optimistic. Knowing there is someone
on how to keep your wits about you when you out there who loves him and is waiting for him
find yourself suddenly ambushed by adversity. keeps his hope alive and his energy levels up.
It helps to feel needed, to feel you belong. Be-
Mind Over Matter sides, he tells himself again, these things usu-
Four days pass. Gutiérrez hasn’t slept a wink. ally resolve themselves within a few days.
Being an architect, he is able to calculate that He is handed some notes asking him to
the place where he is being held is around three detail his family’s day-to-day movements. He
meters long by one meter wide and less than is incensed. They can kill me if they want, he
two meters high. It contains a bed and a toilet. thinks, but I will never betray my family!
Some months earlier, he had delivered a Days go by and still Gutiérrez refuses to
lecture on “Richness of Internal Space,” about give his kidnappers the information they
the influence of home interiors on personal seek. They threaten him, saying they won’t
inner space. His professional projects are initiate any negotiations for his release until
steeped in this notion of creating restful spac- he cooperates.
es of silence, solitude, serenity and joy. Now, After agonizing about what to do, he even-
confined to these cramped quarters, he real- tually gives in. Immediately, he feels the shame
izes it’s time to put those theories to the test. of betrayal. His spirits sink and he stops eating.
A man claiming to be the leader of the Such a response is to be expected when one is
forced to make a decision or to act in a way that
Bi o
goes against one’s principles. It generates in-
ner anguish and turmoil.
An Architect With At one point, one of the kidnappers pours
him a whiskey to lift his spirits and passes him
Solid Foundations a note that reads: Viva Mexico! The man mo-
tions for him to drink to Mexican Indepen-
B osco Gutiérrez is
responsible for numerous
high-profile architectural
projects, including the World
Trade Center in Mexico City. He
dence Day on September 16.
Gutiérrez accepts the whiskey but pours it
down the toilet. With this act of defiance, he
feels as if he has regained some of his own free
will. “To realize that freedom is inside yourself
considers himself a disciple of is to discover that the will is the most impor-
Luis Barragán, one of the most tant muscle in your body.”
important Mexican architects Without the will and the determination
of the 20th century, mixing to be, to become and to do, we are mere ro-
modernism with the essence bots, and prone to failure. Such resilience is
of Mexico. Gutiérrez was vital for dealing with adversity and achieving
kidnapped when he was 33 years your goals.
old, having just won honorable
mention at the 1990 Mexican Mental Mantras
Architecture Biennale for his After this incident, Gutiérrez decides to take
home that he designed. the reins. “Human beings have a surprising
capacity for adaptation, so long as they act

wider insight
I had to take advantage of the circumstances to grow

internally. We have forgotten the importance of
meditation, reflection and introspection.”
with pragmatic intelligence,” which for him

translates into a “set of commandments” for
not giving up. Writing these down helps to ob-
jectify these ideas.
Other kidnapping victims – such as Terry
Waite, the British mediator in the Lebanon
hostage crisis who was held for more than four

years between 1987 and 1991 – have come up
with their own mental firewalls against failure.
Writing for the BBC, Waite remembers One of the images that
saying three things to himself that sustained Gutiérrez drew to mark
him during his captivity: the passage of time
n No regrets: You may not have done every-
thing well, but stay focused on the things you
did do well. His bigger enemy is being left alone with
n Don’t wallow in self-pity: There are always his own thoughts. His kidnapping becomes
people far worse off than you. a personal struggle with himself. “I had to
n Don’t get overly sentimental: Don’t dwell on take advantage of the circumstances to grow
loved ones and all the missed opportunities internally.”
in life. This leads him to do some serious soul-
Gutiérrez must learn to live with the feeling searching. With his vision of reality literally
that he may never get out of this alive. The limited to such a small space, “I had to focus
more he accepts the reality of things beyond on a higher level, so I decided to concentrate
his control, the less anguish he feels. on God.”
He avoids focusing on his fears, which He turns to prayer as a way of externalizing
would only serve to compound them. Instead, the dialogue between his conscience and his
he considers the glass half full: He has shelter ego, which makes him feel less alone.
and sufficient space to move around in, physi- When facing problems and feeling alone,
cally he’s fine and he’s getting fed. having something outside yourself – whether
These are vital strategies for dealing with a wise counselor or a belief in a higher power –
anxieties: Look for the positive in even the can be an anchor in the storm.
most desperate of situations; and maintain a “Human beings in the 21st century skim
healthy, motivational dialogue with yourself, over the surface of things rather than delve
verbalizing what it is that you want and what deeper in search of peace. We have forgotten
you must do to achieve it. the importance of meditation, reflection and
introspection. We need to find the balance be-
Reframing the Situation tween the superficiality of life, with its insta-
The negotiations are not going well, and the bility, on the one hand, and developing greater
kidnappers are growing agitated. Gutiérrez depth and awareness, which brings stability,
decides to write them a letter: “We’re both cap- on the other.”
tives here: you as guards and me as prisoner. The
least we can do is treat each other with mutual Making the Most of Time
respect, until you get your money and I get my Accepting reality is one thing, adapting to
freedom.” The kidnappers accept these terms. it quite another. Gutiérrez tries to treat his
Instead of judging his guards, Gutiérrez surroundings as another of his work proj-
tries to see things from their point of view: ects. He requests cleaning supplies and
They are only doing their job. He decides to starts tidying up.
forgive them. For their part, the guards respect Inactivity never helps to deal with prob-
his space. lems. Rolling up your sleeves and getting

wider insight
It doesn’t matter if you’re kidnapped or free, you can

always value time.” The experience taught Gutiérrez
to “live every minute of freedom intensely.”
down to work is a great stress reliever. to the future. Even the mundane act of squash-
To keep his strength up, he asks for a ba- ing a mosquito constitutes a daily triumph,
sic diet of milk, cereal, fruit, vegetables, some which Gutiérrez documents on the wall along
meat or boiled fish, yogurt and tea. An avid run- with other modest milestones.
ner, he also develops his own exercise routine, Keeping a journal in which to record small
which involves running in place in eight-minute wonders and personal achievements is a use-
cycles, remembering the people in his life and ful habit to chronicle our lives and track our
giving thanks for them during one minute each. progress in relation to personal goals. A jour-
As there is no day or night in his hideout, he nal requires discipline, as documenting each
marks the passage of time on the wall. His only step is an important part of realizing the whole
time reference is a music cassette being played journey.
outside his room on a continuous 30-minute In conjuring up memories of past events,
loop. He draws a curved line on the wall to keep Gutiérrez discovers many gaps: “gray, empty
track of his 16 waking hours. Using the tape as a months that went by like water flowing over
guide, he marks off 30-minute intervals until he rocks, without leaving any trace.”
has 32 points on his “clock.” This enables him He reflects on the lack of intensity with
not only to establish a daily routine for clean- which he has lived his life. From that day on,
ing, prayers and exercises, but also to antici- he resolves to make the most of the time he has
pate meal times. left: “It doesn’t matter if you’re kidnapped or
As important as establishing a routine is, free, you can always value time.”
like Robinson Crusoe, Gutiérrez has to con-
trive ways of giving meaning to his existence A Man With a Plan
and framing it within a broader context, which Part of his mental gymnastics involves com-
allows for building a past and looking forward ing up with an escape plan. Just as his family
Morale Boosters: Take Note!

In a situation as extreme as a kidnapping, all communication is extremely
delicate. Gutiérrez’s family had the benefit of experts in such matters to
help them navigate this fraught process.
T he ransom negotiations were

conducted through newspaper
classifieds. If the newspaper did
not publish the ad on the scheduled day,
suspicions would be raised on both sides.
contained a seemingly unremarkable
logo, which was made up of geometric
shapes that matched the architectural
angles of his own home.
This was the first of many veiled
The photos and video recordings that messages to come, transmitting the
the kidnappers took of Gutiérrez were warmth of his family and secretly
sent to his family as proof that he was informing him about how his children
still alive, but Gutiérrez himself had were doing, and how the negotiations
no contact or news of his family – until were progressing.
one day he noticed an ad that had been You never know when an
placed in the newspaper, obviously for his encouraging note, a well-timed
benefit. message or an inside joke might be the
The ad was titled “Richness of Internal lifesaving morale booster that sustains
Space” – the name of his lecture that a desperate person in his or her hour of
inspired him during his captivity. It need.

wider insight
is fighting to secure his release, he must do his

part, too, to fight for himself. The point of hav-
ing goals is that they spur you to action, taking
you one step closer toward achieving some
desired result.
To be ready for any eventuality, Gutiérrez
spends half an hour every day figuring out his
escape. He notes the individual characteristics
and habits of his five guards – how they orga-
nize their shifts, the role each one plays and,
most importantly, when they’re out.
One day, he feels sick to his stomach, so
one of the guards brings him a bottle of ant-
acid. Gutiérrez realizes he can use it. With the

blades from his shaving razor, he manages to
carve out a piece of plastic from the bottle. He
hides it, along with some wire from the bed, for
just the right moment.
The opportunity presents itself when he
notices the guards have deviated from their “Those few minutes were like a movie, all
normal routine. From his room, Gutiérrez happening in slow motion,” he recalls. “My
gestures through the surveillance camera mind worked on autopilot. My adrenaline
for someone to come, but nobody does. He levels were through the roof. It was a sublime,
doesn’t hear any noise coming from outside. memorable moment that I will never forget.”
For the first time since his capture, he realizes Gutiérrez finds a taxi and convinces the
he has been left completely unattended. skeptical driver to take him home. When he
He removes his makeshift artifacts from pulls up in front of his house, his wife and
their hiding place. He plans to use them to lift children are there, as if waiting for him, like a
up the outside door latch from the inside. He dream come true. His wife had prayed that if
figures he’ll just try it out to see if it works. her husband ever did return, she would be the
first one there to receive him.
No Turning Back, Push Forward After going through such a harrowing or-
It is Sunday, May 12, 1991. Gutiérrez inserts deal, readapting to normal life again can be
the wire hook and plastic wedge in the gap be- difficult, especially in assimilating changes
tween the door and the frame. He jiggles the that took place during the interim. It can be a
outside latch and the door cracks open. slow, disconcerting process. Attaining closure
His heart pounding, he tentatively ven- is hard, especially when those responsible are
tures out of his cell. Although he doesn’t see never caught or brought to justice, as was the
anyone, he loses his nerve and starts to turn case with Gutiérrez.
back. The thought of actually escaping after Looking back now, however, he regards
so many long months of captivity still feels in- his experience as “a second birth,” which
credibly risky to him. But when he tries to close taught him to “live every minute of freedom
the door again, he realizes it’s impossible to do intensely.”
so from the inside.
As with so many occasions in life, there’s Article written by Santiago Velázquez,
no going back. He has committed himself to a Assistant Editor of IESE Insight.
course of action.
He moves toward a hallway. From there,
he sees an open window and, just two meters
away, one of the guards lying on a bed asleep.
He tiptoes toward the window. TO KNOW MORE
He jumps out the ground-floor window
and ducks down. He’s in a courtyard. He spots n The true story of Bosco Gutierrez’s kidnapping
a door in the perimeter wall. He crouches his is retold in the book 257 días. Bosco: la historia
way over to the door, and when he tries it, it real de un hombre que no se dejó vencer por el
opens. He makes it outside! miedo by José Pedro Manglano (Planeta, 2012).

Twenty years since the first SMS was sent,
we still like our messages short and sweet.
LAST INSIGHT
Less Is More
tion of instant messaging applications emerged, enabling
us to share not only messages but also images, and not just
by Javier Zamora with individuals but with entire groups. What’s more, it
could serve for professional as well as personal use.
Thanks to WhatsApp, many remote workers can stay
in touch with their colleagues from afar. Growing ranks

Merry Christmas. On December 3, 1992, a young of executives use Twitter as a channel for content and
British engineer, Neil Papworth, sent this message from branding. Many organizations conduct virtual meetings
his computer to the brick-size Orbitel 901 phone of Vo- using applications like FaceTime. And where would real-
dafone’s Richard Jarvis. It was the first SMS ever sent. Al- ity TV shows be without SMS-enabled voting?
though it happened 20 years ago, it seems like yesterday.
SMS (Short Message Service) was conceived as a way
for mobile phone operators to page clients about voice Texting revolutionized
messages or missed calls. It quickly became the medium
of choice for low-cost mobile communication: Between
our communications.
2005 and 2011, the number of text messages sent glob- How did SMS gain
ally more than quadrupled, hitting 8 trillion and count-
ing, and generating an estimated $200 billion in revenue. such popularity?”
This widespread adoption of text messaging was not
something that even the pioneers themselves could have However, as with any innovation, SMS opened up a
imagined. How did SMS gain such popularity? whole new can of worms. Carriers now complain that
Three factors came together: first, the populariza- such applications are costing them billions of dollars in
tion of mobile phones, largely driven by operators lost revenue every year, because messaging services are
subsidizing handsets; second, the compatibility occurring “over the top” – riding on top of the existing
of SMS beyond the operators’ own networks; and Internet connection, and the service provider gets noth-
third, the motivation of consumers, especially ing in return.
young people, who were looking for a way to avoid Instead of being the great time saver it was designed
exorbitant calling charges. to be, executives are starting to complain that texting is
The low-cost message service limited the length becoming a workplace distraction, with a negative im-
of each message to 160 characters – positively wordy pact on productivity. Others warn of the perils of texting
compared with today’s Twitter standard. To mini- on everything from driving, to children’s socializa-
mize their communication time, users developed tion skills, to sore thumbs.
an entirely new language of abbreviations, sym- Be that as it may, our appetite for texting
bols, emoticons and inventive spellings that would does not seem to be diminishing. While the
make language purists shudder. 160-character limit has been loosened, appli-
Text messages revolutionized our interper- cations for the brief type of messaging first
sonal communications. We went from asynchro- introduced by SMS continue to proliferate.
nous e-mails, which still felt a lot like writing Even in technology, it appears that some
formal letters, to an interactive form of in- things never change; chief among these is
stant communication that felt altogether the concept that - is +.
iStockphoto/Thinkstock
more spontaneous, vibrant and personal,

helped by the intimacy of an anytime, any- Javier Zamora (@JavZamora) is a lecturer
where device that just kept growing small- in the Department of Information Systems
er and smaller. at IESE. He regularly participates in the
And that was only the beginning. The IESE technology blog, Face IT (http://
advent of smartphones added continuous blog.iese.edu/faceit). Watch the video
Internet access to our real-time communi- “20 Years of SMS: A Nw Lnge Is Brn :)” at
cations. As bandwidth grew, a new genera- ieseinsight.com.
76 FOURTH quarter 2012 issue 15 ieseinsight

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RELEVANT

Tools for Crisis

Learn how media:scape

Global leaders in workplace design

FOURTH QUARTER 2012

Editorial Leadership Under Pressure:

EARLY INSIGHT EXPERT INSIGHT

Crisis Management BUSINESS INSIGHT

three experts recommend how best to deal with

ieseinsight issue 15 FOuRTH QuARTeR 2012 11

an unprecedented situation of this kind.

ieseinsight issue 15 fourth QUARTER 2012 3

FOURTH QUARTER 2012

4 FOURTH QUARTER 2012 ieseinsight

Bailing Out Trust

with financial institutions. Bail-in instruments must be

ieseinsight issue 15 FOURTH QUARTER 2012 5

they have been disproportionately affected by the decline

6 fourth QUARTER 2012 issue 15 ieseinsight

INNOVATION & MARKUPS

The difference in markups between innovative and

“We used to think of multinationals as companies that have one

ieseinsight issue 15 fourth QUARTER 2012 7

HRM IN NON-WESTERN COUNTRIES

Local Context Matters Asian Socialist

Latin America Sub-Saharan Africa

SOCIAL MEDIA & BRANDING

Nothing Beats Word of Mouth

8 FOURTH QUARTER 2012 issue 15 ieseinsight

AUTO SECTOR TRENDS Spain’s Forecast:

MORE INFO ABOUT CARS

VIRTUAL TOURS OF CARS

ieseinsight issue 15 fourth QUARTER 2012 9

IESE Business School selects XIRRUS to

XIRRUS, the world leader in high-performance wireless networks

Visit our case studies:

DOMO INFORMÁTICA APLICADA

Illustrations by Oriol malet

marketing BUSINESS ETHICS

ieseinsight issue 15 FOURTH QUARTER 2012 11

Part of the Solution

12 FOURTH QUARTER 2012 issue 15 ieseinsight

Picking Up the Signals

ieseinsight issue 15 FOURTH QUARTER 2012 13

on market trends and receive vital cues that

14 FOURTH QUARTER 2012 issue 15 ieseinsight

Attentional triangulation doesn’t happen by chance.

ieseinsight issue 15 FOURTH QUARTER 2012 15

16 FOURTH QUARTER 2012 issue 15 ieseinsight

You need to ask yourself what kind of corporate

ieseinsight issue 15 FOURTH QUARTER 2012 17

Information exchanges, collaboration, dialogue via internal channels

facilitate attentional triangulation? Do they EXPAND YOUR RADAR. Start by looking in

18 FOURTH QUARTER 2012 issue 15 ieseinsight

This is an ongoing journey that requires everyone

STRENGTHEN INTERNAL COMMUNICATION to know more

ieseinsight issue 15 FOURTH QUARTER 2012 19

REPUTATION & COMMUNICATION