Research and Review into Crisis Management: Mitigating Disaster

A crisis is a major occurrence with a potentially negative outcome. However, almost every crisis contains within itself the seeds of success as well as the roots of failure.

At a conference in Japan on June 21, 2006, a Dell laptop suddenly exploded into flames, and lucky for its owner the fiery blast occurred while the PC was sitting on a table and not in his lap. An onlooker reported that the notebook continued to burn, producing several more explosions over the course of about five minutes.

On August 15th, members of Dell Inc.’s Global Corporate Communications/Investor Relations organization were part of a team facing an unprecedented challenge. The team had been working with regulatory agencies in various countries for an announcement of the largest recall in the history of consumer electronics, 4.2 million Dell branded lithium-ion batteries, with cells manufactured by Sony. The announcement was leaked to the press and

Dell accelerated its plans by 12 hours, including launching the recall Web site early. The focus of the Corporate Communication/Investor Relations team and key business leaders remained clear: to effectively and efficiently inform customers, employees and shareholders about the recall.

The recall, one of the largest in the history of the U.S. Consumer Product Safety Commission, couldn’t have come at a worse time. According to a closely watched annual study by the University of Michigan, Dell’s efforts to improve service, which it only recently acknowledged publicly was inadequate, appear to be paying off. That progress is a key part of a long-awaited turnaround at the world’s largest PC maker, which is struggling with a host of problems, including sluggish sales growth in its core businesses.

The news of the notebook computer recall hits just as Michigan released its American Customer Satisfaction Index (ACSI) showing that Dell’s customer-satisfaction score jumped 5.4% from a year ago, to 78-a point above the industry average. That puts Dell in second place, behind Apple Computer, whose score rose 2.5%, to 83.

Dell’s recent improvements follow many quarters of poorer service that became fodder for countless customer complaints, sometimes publicized on high-profile chat rooms and blogs. Consumers, which account for about 14% of Dell’s total revenue, have complained of hold times stretching for 30 minutes or more, numerous call transfers, dropped calls, and, perhaps most important, an inability of the call-center representatives to communicate clearly and answer their questions. Indeed, many consumers posting on blogs and chat sites continue to complain bitterly about Dell.

Literature Review

In contrast to the disciplines of emergency and risk management, which deal primarily with natural disasters, the field of crisis management deals mainly with man-made or human-caused crises, such as computer hacking, environmental contamination, executive kidnapping, fraud, product tampering, sexual harassment, and workplace violence. Unlike natural disasters, human-caused crises are not inevitable. They do not need to happen. For this reason, the public is extremely critical of those organizations that are responsible for their occurrence.

Nonetheless, even with the best of frameworks and the best of preparations, it is unfortunately still the case that not all crises can be prevented. This even holds true for those crises that we know with almost complete certainty will occur. But the impacts of all crises can be lessened if one has a thorough understanding of the ‘essential basics’ of crisis management. While not all crises can be foreseen, let alone prevented, all of them can be managed far more effectively if we understand and practice the best of what is humanly possible (Mitroff and Anagnos, 2001).

Effective management of information is vital to the operations of most organizations. Some years ago Wells said “Without adequate communication an organization will soon grind to a halt” (Wells, 1978). More recently Bakewell has pointed out “Communication is the hallmark of good management” (Bakewell, 1997). Good communication goes hand in hand with effective management of information. Effective management of information at a time of crisis is even more vital, when damage to an organization’s reputation or damage to established goodwill can result in severe damage to operations.

An organization’s reputation is as important as any other corporate asset, and many organizations have some kind of crisis plan intended to protect that reputation should something go wrong. This is when effective management of information (controlling communications) is so vital – and always difficult.

A few basic rules have clearly emerged from some recent crises. First of all the importance of telling the truth. Second, rather than let the media network speculate, use the media network as a opportunity to disseminate your information. Leave no room for speculation – “if you can’t tell them something, tell them why you can’t tell them” (PR Journal, 1995).

Perhaps another basic rule to be mentioned at this point is the need to apologize promptly when appropriate. Sir Jeremy Morse, banker and past chairman of the Institute of Bankers, maintains that it almost always pays to issue an early apology. Although this could lead to an organization being blamed for something which is not its fault, he comments: “Nevertheless, there are two central reasons why this is usually the right course. First, externally, the public respect an apology freely given rather than one that comes after a considerable period of stonewalling. Secondly, internally, an early apology frees managers to sort out the problems far more effectively than if they are still maintaining an outward front that nothing is wrong” (Haywood, 1994, p. 177).

However, Black (1993) points out that if a lawyer is present there may be pressure not to express sympathy in case this is taken to imply liability: “Lawyers must be told that the consequences to the company of not communicating and showing sympathy in practical terms are sure to be much worse than if an open policy of full information and generosity is adopted.”

It is vital to realize the speed of media coverage because of new technological developments. Not only can stories be relayed by mobile phones and faxed from cars, but they can also be sent from helicopters and bounced off satellites. Pictures too can be taken by digital computerized cameras and sent down telecommunications lines: When Greenpeace staged its high-profile stand against the sinking of the Brent Spar oil platform, it not only posted information on the Web, but was reported to have airlifted sophisticated filming equipment and a satellite down station on to the rig, so that they could provide their own VNRs direct to news outlets (Nicholas, 1996a). This means that it is unlikely that there will be a time delay between an incident or crisis erupting and the resulting media coverage. This emphasizes the need to react quickly at a time of crisis, and to let all parties know immediately about the action you have taken. “Communicating effectively was now more often seen as of the same importance as putting the problems right.” (IPR Journal, 1995, p. 14). Furthermore, the media are in competition and hungry for the most newsworthy stories. Generally bad news is very newsworthy and more sensational (Ashcroft, 1994). If immediate information is not available, this leaves room for speculative stories.

Methodology

This paper reviews how Dell itself has responded to the challenges raised by bloggers, how it has enhanced its customer services and how it has itself undertaken social media initiatives. We use a proven customer loyalty metric the Net Promoters index to assess whether these initiatives have been successful. We conclude that Dell has made some limited progress in reducing negative consumer commentary about its customer services. Where Dell has been most successful is in creating a conversation about its own social media initiatives: Dell has absorbed in its own product planning and its communications the hard lessons of the ‘Dell Hell’ experience, and opened a dialogue with its customers, which is directly benefitting its word-of-mouth approval rating.

Findings

A crisis can be divided into six stages. First, the detection of prodromes is a way for the company involved to predict any potential occurrence. For example, if an organization in the same line as yours is faced with a crisis, then you may start looking out. The second stage is prevention. It refers to how a company can prevent a crisis. That can be done by maintaining public relations programs, or by establishing a corporate culture, or even by including a crisis management plan in the strategic planning process. The third stage is containment. It is a process of limiting the amplitude of the crisis, the impact of the crisis and the spread of the crisis. Then, the next stage is recovery. It consists of two major aspects: getting the organization back to normal, and restoring stakeholder confidence in the organization. The following stage, learning, is a post crisis process consisting of examining the crisis, looking at what was lost and what was gained, and how the organization functioned during the crisis. Finally, the last stage is the adjustment of the crisis management plan and crisis communication team. In view of what was achieved in the learning stage, the crisis management plan and the crisis communication team must be updated and any new risks uncovered by the crisis should be incorporated in them.

Detection of prodromes

It turned out that this occurrence was not an isolated case. In December last year, Dell launched a massive recall of about 35,000 notebook batteries contained in laptops that were deemed to pose a potential fire risk. The company said at the time it had received three reports of batteries overheating, and while no injuries were sustained, damage to a tabletop, a desktop and minor damage to personal effects had been recorded. The problem is not limited to Dell laptops. According to the US Consumer Product Safety Commission, as many as 43 laptop fires have been reported in the US alone since 2001.

It has been almost ten years now since we were first warned about the dangers of the lithium-ion accumulators/storage batteries, the only ones that include a flammable liquid in a pressurized container. In case of short-circuit, they can go up in flames and explode. This is therefore why this kind of battery is rarely used in do-it-yourself tools and hybrid cars. However, they are very popular in IT as they offer an energy density between two and four times superior to those of traditional batteries (nickel-cadmium, hybrid-metal or lead). Also being much lighter, they facilitate the manufacture of miniature devices able to hold a whole day with one single charge.

Several cases of explosion have occurred in the past few years, but they were rarely given publicity in the media. At best, these explosive batteries were considered to be isolated incidents. At worst, they were seen as fabrications. In the summer of 2006, the context changed, after several explosions in Singapore in June, and in Utah in July.

After an enquiry, we learnt that the problem had been diagnosed more than one year ago. Between 2004 and 2005, Dell analyzed a dozen batteries that had overheated. They detected a fault in the lithium-ion cells of its supplier Sony. Some small particles could infect the cells, provoke a short-circuit and overheat the battery.

The fault would have been repaired in February 2006. Sony reviewed its manufacturing process as well as its quality control in order to limit the presence of these particles, and eventually everything was back to normal. But nothing had been done for the batteries already on the market. “At the time, we had no serious confirmation of disaster, fire or explosion. There was therefore no reason to launch a substantial operation”, added a member of the conception team for the Latitude laptops. We have to wonder: was Dell waiting for a drama to start before making a move?

Today, Dell admits having known about these problems for more than a year, but declares that they had trouble in evaluating the seriousness of the situation. They also needed time to find the source of the problem, before launching a modest recall. However, it’s quite possible that Dell was simply trying to protect itself by sending some information to the Consumer Product Safety Commission, which would have allowed them to negotiate in a better position in case of litigation. The US Consumer Product Safety Commission actually doesn’t blame Dell for anything, indicating that the company did its job by acknowledging the problem.

It is not the first time that Dell acted this way; it happened three times in five years. Already in 2001, 284 000 computers had been recalled for the same kind of symptoms, and 35 000 others in December 2005. However, during their press conference, the American giant renewed its confidence in Sony, which would keep its status of battery supplier for the laptops of the number one worldwide.

Prevention

During 2005 and 2006 Dell experienced a series of financial shocks. On November 10th 2005 Dell announced quarterly profits had dropped 28%. On May 9th 2006, and again just a few weeks later on 21st July 2006 Dell announced that its earnings would not meet previous guidance. These profit warnings arose from a combination of continued price pressure on margins in the PC business and also the fall-out from its attempts to strip costs out of the business by a) off-shoring customer support functions and b) ending unprofitable aspects of warranty repair. Dell’s actions created an outburst of anger from customers on the receiving end of this cost cutting. Jeff Jarvis’s blog was symptomatic of this criticism.

Dell responded to their critics by making two major changes:

They began by investing an additional $150m in their customer service operations. The result (according to Dell) is that the average waiting time for support calls has come down from nine minutes to three minutes.

They launched an official Dell customer services blog (summer 2006) along with two further “social media” sites “Dell Studio” and “IdeaStorm”.

Containment

On July 31st, Engadget posted photos of a Dell notebook that had caught fire in Singapore. Its comment: “We’ll keep posting these until we see a recall or a solution, so please, Dell, treat them right”.

By then, Dell was working closely with the government to figure out the scope of the problem. It turned out that the glitch was the same as it had been the previous year: metal particles inside the battery were causing the problems. Apple’s problems with overheating batteries had been cropping up in the online media during the spring and summer as well. The CPSC’s Stern says Sony connected the dots and figured out which of its batteries and which of its customers were affected. After The Inquirer, a European site for computer hardware news, expressed serious concerns about the batteries, Dell and Sony proposed a second recall to the CPSC.

On August 13th, writer Theo Valich reported on The Inquirer site that another recall was on the way. Magee said the leak came from a Dell insider, whom he refused to identify. “I attribute being on top of the story to old-fashioned print journalism standards-cultivating, and, if you’ll excuse the pun, not burning such contacts,” he says. The formal recall was announced a day later, on August 14th.

Once Dell announced the recall, it, too, harnessed the Web to reach out to the disgruntled computing masses. On August 14th, the company set up a Web site (www.dellbatteryprogram.com) telling customers how to get a replacement battery. On its customer-service blog, (www.direct2dell.com), Dell also published some postings from executives and staffers about the recall (Appendix 1). These included blow-by-blow descriptions of Dell’s response from Alex Gruzen, senior vice-president of the company’s Mobility Product Group, and a detailed explanation of how lithium-ion batteries work from Forrest Norrod, vice-president of engineering.

The company also elicited dozens of comments from customers, some of whom were plenty irked. On August 15th, George Johnson demanded to know why Chairman Michael Dell hadn’t responded to questions about the battery problems at a press conference the previous day in Sydney, Australia. “When he was asked about the recent problems and if there were any developments, he did not volunteer the information that a new battery recall was in the works. If he was so concerned about customer safety, why was the announcement held over until after the press conference was over?” asked Johnson. 

But most people who commented praised Dell for its response. “I commend Dell for looking out for the consumer on this issue,” wrote Jim Jones. “I have been fearful of leaving my system on while unattended. It’s nice that I can leave my system on overnight and not have to worry about my house catching fire.” 

Dell credits the blogosphere for helping it get through the crisis. “Information travels around quickly,” says spokeswoman Gretchen Miller. “Also, it’s another channel to get the message to our customers so they can be safe.” 

On August 15th, Dell received more than 50 million hits on https://www.dellbatteryprogram.com, responded to more than 135,000 phone calls and received more than 150,000 battery replacement orders. Dell shipped the first replacement units the day it announced the recall. Dell’s Corporate Communication/Investor Relations team played a critical role in the implementation of the recall by developing and executing a strategy based on a key central message: Dell had taken aggressive, proactive action to retrieve and replace all suspect batteries with a clear focus on customer safety. The team worked to help key the stakeholders’ message to customers that the safety of Dell’s customers was of utmost importance. This message was supported by articulating the benefits of the company’s direct business model including:

1) Dell’s detailed information on units sold to customers, including the unit’s configuration when it shipped to the customer.

2) Dell’s records of customer contact information, which enabled Dell team members to reach out to customers immediately.

3) Dell’s close relationship with its suppliers, such as Sony, which enabled the company to identify the problem, diagnose it and find a remedy. By working so closely with suppliers, Dell was able to respond in a way unlike any other company in the industry.

Recovery and Turnaround

In February 2007 Dell went further and launched IdeaStorm and StudioDell. IdeaStorm allows Dell users to feedback valuable insights about the company and its products and vote for those they find most relevant. StudioDell is a place where Dell users could share videos about Dell-related topics. IdeaStorm has already been the site of an extraordinary exercise in stakeholder democracy – the reprieve of Microsoft’s Windows XP operating system.

Have Dell turned the corner? To answer this question Market Sentinel analyzed stakeholders’ perceptions of Dell customer service. The analysis compares the sentiment of online commentary before and after Dell’s commercial slump and their new online customer initiatives. We believe that anyone wishing to track the financial prospects of Dell over the next few quarters could do worse than to watch the key metrics on word of mouth.

Using the Net Promoters, we identified five key topics of commentary about Dell customer service and placed each post into one of these categories, according to the most central concern expressed (Appendix 2).

• Speed (the length of time it takes to get through to someone at the call centre, to get through to the right person to address caller’s concerns, to get issue resolved, to get problem fixed, to get delivery of items etc.)

• Off-shoring (customers’ feelings towards technical support’s relocation from USA/UK to

India and other countries, especially in relation to language problems)

• Errors (inaccuracies in dealing with Dell customer service e.g. wrong items sent, orders lost, incorrect delivery details etc.)

• Technical Competence (of Dell technical support staff)

• New Initiatives (Direct2Dell, Dell IdeaStorm, StudioDell, engaging directly with bloggers)

The distribution of comments about Dell customer service between the categories remained roughly constant in the two years, with the largest share accounted for by general comments, followed by comments about the speed or promptness of service, and then comments about off-shoring. A significant change year-on-year was the number of comments, predominantly positive in tone, which were gathered in the second wave about Dell’s new customer initiatives. Although this was encouraging, the most immediate conclusion to be drawn from the Dell Net Promoters analysis is that negative commentary outweighs positive commentary across almost all categories. This is not at all unusual for a study of customer service attitudes, as people come to message boards or blogs in search of answers to problems they have failed to solve with the customer support services of the company in question. The tone is therefore somewhat negative.

Have Dell’s actions had any noticeable effect upon online feeling on customer service? The good news for Dell is that opinion has improved overall, but there are still areas for concern.

There is a slight improvement in customers’ feelings about Dell’s speed of service (up +4) and technical competence (up +1). This improvement is offset by increasing dissatisfaction with the policy of off-shoring technical support (down -12) and with the ongoing problem of order, service and delivery inaccuracies (down -8). However, there are two significant positive shifts in opinion about Dell. The first finding is the positive reception given to Dell’s new customer initiatives.

However, the recent deterioration of Dell’s customer service had eroded much of the goodwill of the online community. Commentators are wary of show without substance. “What will be definitely interesting to see is if Dell does anything with these comments or is this yet another example of a company putting all their efforts trying to make themselves look better instead of actually being better” “…as long as they follow through and put some of the ideas in action. If they don’t do this, people will realize that they don’t actually have the power to influence the company and Dell is just trying to give that illusion” “…if nothing comes out of this you’ll bring the wrath of khan down on your head” The guarded welcome is spelled out clearly by B.L. Ochman on her whatsnextonline.com blog:

“I don’t know if that will make Dell’s lousy service any better, but it shows they want to listen, and that’s where recovery can begin”.

The second shift in opinion which we found in our analysis is the reduction in the negative comments about Dell’s customer service. Although the overall mood still appears quite gloomy across all comments, with a Net Promoters Index of -20, this is a considerable improvement on the position 12 months earlier when the Net Promoters Index stood at -38.

Changes in the sentiment of commentary seem to lag service delivery. Many of the positive comments which were collected in the first wave of this study traded on the long term legacy of Dell as a provider of best-in-class customer service; the negative comments were more likely to be customers’ reports of unsatisfactory customer service experiences in the recent past.

At the beginning of 2007 negative stories about customer service continued to circulate in message boards and in blogs, but these are now being counterbalanced by those who have more positive stories to tell having benefitted from the effects of Dell’s re-investment in customer service. It took many years for Dell to establish the reputation for exemplary customer service which it had built up in the years up to 2001, before technical support was off-shored to India and Dell cut back on engineer visits to customers’ homes. This reputation, as a long term legacy, is still present in some loyal customers’ minds. But the fallout from ‘Dell Hell’ means that Dell now has a different and conflicting reputation to deal with – poor service from a company which doesn’t care about its customers. And it is this reputation which is freshest in the mind.

Learning

On August 14th, the Associated Press chronicled incidents stretching back to 1999, including, among others, a Lufthansa fire in Chicago, a UPS plane in flames in Philadelphia, and an emergency landing by a plane carrying the then-Vice Presidential candidate John Edwards, all apparently the result of computer batteries’ spontaneous combustion. It did not require great prescience to anticipate that air flight safety would dominate inevitable coverage of the burning batteries and their subsequent recall.

The issue should indeed have been a main component of crisis war games at Dell. Once the recall was inevitable, Dell can reasonably have anticipated the necessity to talk loud and clear about air flight safety, and it should have been prepared to do so at the earliest possible moment.

By delaying any announcement, Dell harmed its position on multiple fronts. It allowed the Consumer Product Safety Commission to define the story and cloak itself in the garb of public protector. Nor was the agency shy about describing the recall as the “largest computer-related recall in history.” The magnitude of the disaster became an integral part of the story reported in the first few paragraphs of both the Austin American-Statesman and Wall Street Journal Online on August 15th. Words like “largest” or “first” or “worst” become the story itself. 

At the strategic level, there’s a best practice called “Bad News All At Once” predicated on the time-tested wisdom that full and fast disclosure shortens the life of most stories. In fact, the art of both Investor and Consumer Relations supports this best practice almost every time. Investors want nothing more than closure, a sense that a crisis, no matter how multifaceted, will be resolved in the immediate future. Consumers, meanwhile, can be wooed back, but not so easily if the story drags on indefinitely, a new twist on each front page edition. 

Bad News All at Once contains bad news in the exact meaning of the word “contain.” By stanching the flow of revelations, the story is separated from events that may still lie ahead. There are times when major news, like a terrorist plot or a hurricane, can indeed minimize attention to your story. It’s a factor to weigh – but not simply assume. In Dell’s case, the terrorist revelation magnified its crisis to an extent that must have been unimaginable when the company first decided to delay.

Now there’s the Securities and Exchange Commission account practices probe to further elongate the Dell litany. Unlike the terrorist story, this time bomb has been ticking since last year. There may be good practical and legal reasons why Dell did not reveal this material event.

On the positive side, Dell seems to have done a better job working with Sony to coordinate a response to the crisis by avoiding the no-win scenario we’ve seen in the past when major brands blame each other in the national media. Customers do not care who is at fault. They only care that the problem gets fixed. 

Even here, Dell’s performance was, unfortunately, less than perfect. In the opening paragraphs of those August 15th stories, we read that Dell “blamed” Sony for the problem. Only further down in the Austin story – and nowhere in the Journal story – does a Dell spokesperson express confidence in Sony.

The fact that many other computer manufacturers may face the same product liability represents an opportunity for Dell to offer some sort of industry-wide support to safeguard products. Such an initiative would underscore Dell’s public safety leadership even as it reminds the world that it is not the only computer company with a problem. It is a company that is resolved to correct the problem and it deserves the recognition for doing so.

Here are some basic lessons learned from the Dell laptop battery crisis: 

Predict the future. Play war games. Had Dell done so, they might have anticipated that their exploding batteries were an airline disaster story waiting to happen, even without the terrorist plot that ultimately magnified the story.

In determining when to disclose, watch for material events and early warning triggering mechanisms that compel public disclosure as soon as possible.

Disclosing Bad News All At Once shortens the life of a negative story and contains it by preempting substantive links to other stories.

An industry-wide public safety leadership role generalizes the problem beyond your own company.

Adjustment of CMP/CCP

Dell is reaching out into the world of blogs and user-generated media. Perhaps the most potent and valuable business lesson Dell has absorbed from its experiences lies in the way the company has taken into its business methods the idea of dialogue with its consumers.

In the following blog post by Lionel Menchaca Dell digital commerce manager, he outlines in turn each of the advantages of opening a dialogue with customers online. It is worth reprinting the post in full and highlighting the lessons Lionel identifies:

1. Brands can quickly learn about and address, product bugs and issues;

2. Brands can open an additional communication channel for customer service;

3. Brands have to listen to their consumers – and that means monitoring the web;

4. Brands can use blogs to help manage crisis communication;

5. Brands can enhance off-line conversations with consumers based on what they have learnt online;

6. Brands have to be honest and admit it when they get it wrong.

Dell said: “Our policy [towards blogs] in the past may have been ‘look, don’t touch.’ Today, it’s more like ‘listen, and join the conversation the right way’ (Appendix 3).

Conclusion

The Dell Corporate Communications/Investor Relations team’s focus was to engage key media, such as the New York Times, CNBC, and leading regional media, to ensure a wide distribution of the key messages. Within the first 12 hours of the recall, a Dell executive participated in interviews with the Today Show and Bloomberg TV and later in the process worked with global outlets such as BBC World News. Members of the Corporate Communications/Investor Relations team from around the world briefed industry analysts and responded to a number of inquiries from TV, radio, newspaper and wire services.

The team faced challenges in responding to the volume of the media requests and with the expected quick turnaround of information. Team members across communications disciplines responded to help. The story shifted when Apple followed Dell’s recall 10 days later. At that time, none of the other PC manufacturers had made any statement that they could have been impacted by the same contaminated battery packs. Ultimately, Lenovo, Toshiba and Fujitsu also announced recalls, and eight weeks after the Dell announcement, Sony announced the recall of batteries used in its VAIO notebook line. Within 60 days after the recall launch, the story evolved from the initial but inaccurate perception that the battery issue was solely a Dell issue to the accurate story – that the Sony battery cells were the sole cause of the issue. In the process, Dell became a model for