Crisis Management

In business there are three main types of crisis:
• Financial crisis - short term liquidity or cash flow problems; and long term bankruptcy problems
• Public relations crisis - More commonly called "crisis communications," negative publicity that could adversely affect the success of the company
• Strategic crisis - changes in the business environment that call the viability of the company into question - for example the introduction of the automobile was a strategic crisis for buggy-whip manufacturers.

Certain preliminary measures need to be taken to prevent a crisis. Companies should always plan ahead and project likely outcomes. They should avoid decisions that have the potential to turn into a crisis. They should know their "worst case scenarios" and have a contingency plan for it.
If prevention has not been successful, then the following six steps should be undertaken immediately:
• Do an objective assessment of the cause(s) of the crisis.
• Determine whether the cause(s) will have a long term effect or whether it will be a short term phenomena.
• Project the most likely course of events.
• Focus all the most capable people (including yourself) on activities that will mitigate or eliminate the problem.
• Look for opportunities - there could be a "silver lining".
• Immediately act to guard cash flow.

If it is a cash flow crisis do not wait for further evidence before acting. Immediately take actions to maintain or increase cash flow. These could include:
• accelerating accounts receivable payments even if this requires the granting of discounts
• decelerating accounts payable payments even if this means losing discounts
• increasing short term sales
• maintaining or increasing profit margins on sales if possible
• reducing expenses:
• eliminating non-essential expenses
• selling non-mission critical assets
• reducing payroll
• outsourcing non-mission critical operations
• renegotiating loans and other debts wherever possible - obtaining interest-only loans or extended payment terms.

If it is a public relations crisis, act immediately to prevent or counter the spread of the negative information. Containment may require intense media activities. Use every media available to you to provide a counter argument or question the credibility of the original negative publicity.

Management Style

Various management styles can be employed dependent on the culture of the business, the nature of the task, the nature of the workforce and the personality and skills of the leaders.
This idea was further developed by Robert Tannenbaum and Warren H. Schmidt (1973) who argued that the style of leadership is dependent upon the prevailing circumstance; therefore leaders should exercise a range of leadership styles and should deploy them as appropriate.

An Autocratic or authoritarian manager makes all the decisions, keeping the information and decision making among the senior management. Objectives and tasks are set and the workforce is expected to do exactly as required. The communication involved with this method is mainly downward, from the leader to the subordinate, critics such as Elton Mayo have argued that this method can lead to a decrease in motivation from the employee's point of view. The main advantage of this style is that the direction of the business will remain constant, and the decisions will all be similar, this in turn can project an image of a confident, well managed business. On the other hand, subordinates may become highly dependent upon the leaders and supervision may be needed.

A more Paternalistic form is also essentially dictatorial, however the decisions tend to be in the best interests of the employees rather than the business. A good example of this would be David Brent running the business in the fictional television show The Office. The leader explains most decisions to the employees and ensures that their social and leisure needs are always met. This can help balance out the lack of worker motivation caused by an autocratic management style. Feedback is again generally downward, however feedback to the management will occur in order for the employees to be kept happy. This style can be highly advantageous, and can engender loyalty from the employees, leading to a lower labour turnover, thanks to the emphasis on social needs. It shares similar disadvantages to an authoritarian style; employees becoming highly dependent on the leader, and if the wrong decisions are made, then employees may become dissatisfied with the leader.

In a Democratic style, the manager allows the employees to take part in decision-making: therefore everything is agreed by the majority. The communication is extensive in both directions (from subordinates to leaders and vice-versa). This style can be particularly useful when complex decisions need to be made that require a range of specialist skills: for example, when a new ICT system needs to be put in place, and the upper management of the business is computer-illiterate. From the overall business's point of view, job satisfaction and quality of work will improve. However, the decision-making process is severely slowed down, and the need of a consensus may avoid taking the 'best' decision for the business. It can go against a better choice of action.

In a Laissez-faire leadership style, the leader's role is peripheral and staff manage their own areas of the business; the leader therefore evades the duties of management and uncoordinated delegation occurs. The communication in this style is horizontal, meaning that it is equal in both directions, however very little communication occurs in comparison with other styles. The style brings out the best in highly professional and creative groups of employees, however in many cases it is not deliberate and is simply a result of poor management. This leads to a lack of staff focus and sense of direction, which in turn leads to much dissatisfaction, and a poor company image.

Management by Objectives

Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are.
Management By Objectives term was first popularized by Peter Drucker in 1954 in his book 'The Practice of Management'.

It is all too easy for managers to fail to outline, and agree with their employees, what it is that everyone is trying to achieve. MBO substitutes for good intentions a process that requires rather precise written description of objectives (for the period ahead) and timelines for their monitoring and achievement. The process requires that the manager and the employee agree to what the employee will attempt to achieve in the period ahead, and (very important) that the employee accept and agree to the objectives (otherwise commitment will be lacking).
For example, whatever else a manager and employee may discuss and agree in their regular discussions, let us suppose that they feel that it will be sensible to introduce a key performance indicator to show the development of sales revenue in a part of the firm. Then the manager and the employee need to discuss what is being planned, what the time-schedule is and what the indicator might or might not be. Thereafter the two of them should liaise to ensure that the objective is being attended to and will be delivered on time.

Organizations have scarce resources and so it is incumbent on the managers to consider the level of resourcing but also to consider whether the objectives that are jointly agreed within the firm are the right ones and represent the best allocation of effort. Also, reliable Management information systems are needed to establish relevant objectives and monitor their "reach ratio" in an objective way.

MBO is often achieved using set targets. MBO introduced the SMART criteria: Objectives for MBO must be SMART (Specific, Measurable, Achievable, Realistic, and Time-Specific). However, it has been reported in recent years that this style of management receives criticism in that it triggers employees' unethical behaviour of distorting the system or financial figures to achieve the targets set by their short-term, narrow bottom-line, and completely self-centered thinking.

Management Effectiveness

In management, the ultimate measure of management's performance is the metric of management effectiveness which includes:
- execution, or how well management's plans are carried out by members of the organization
- leadership, or how effectively management communicates and translates the vision and strategy of the organization to the members
- delegation, or how well management gives assignments and communicates instructions to members of the organization
- return on investment, or how well management utilizes the resources (financial, physical, and human) of the organization to bring an acceptable return to shareholders
- conflict management, or how well management is able to utilize confrontation and collaboration skills; management's ability to be flexible and appeal to common interests.
- motivation, how management attempts to understand the needs of others and inspires them to perform. Motivation focuses on how performance is rewarded rather than how failure is punished.
- consideration, how managers seek to understand and appreciate others' values; and not merely as a means to a business goal.
- management development.