Group 3

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Title: What theory can be found to underpin the inevitability of a crisis?

Group 3 Members:

Janine Jaquet
Bram Boerman
Kenny Ensink
Perry Trienekens
Daan Verkaik

Presentation date: April 23th 2012

Slides of our presentation can be found here: File:Lecture group 3 wiki.pptx

Introduction

In the slides presented in the lecture on April 23rd we elaborated on how crises come to exist. We looked at various theories that explain the beginnings of a crisis, the development of a crisis, and how crises can be ended. Our thoughts about this subject are based on the several different causes for a crisis. These are human causes, technological causes and the unpredictable. Below, we will explain what we mean with these three “pillars”.


Firstly, though, we must establish the definition of crisis we are using. We will be using crisis as described by Holling and seegers. This means that we see a crisis as something that is usually unexpected, that it creates uncertainty and that it signifies a need to change.


We have put a glossary of the articles on this wiki concerning the causes of crisis, which can be found here.

Cause of crisis: humans

There are several ways for humans to create a crisis. One could think of a simple human error that could take down a server or two, but that is just a relatively small crisis. One of the explanations of human causes for a crisis is the Icarus paradox, where problems come from either companies or managers changing from what characteristics made them successful to having those characteristics cause their downfall. This paradox teaches us that if we aren’t careful about the thoughts and strategies made by a company they may lead to big mistakes after a longer period of time.


Another reason for crisis, which may exhibit during a merge of two companies, is that the culture within the one company doesn’t fit with (parts of) the other company. According to Malekazedeh and Nahavandi, there are four strategies on how to handle the differences in organizational culture for merging organizations.

Cause of crisis: technology

The main reason we have found for technology to cause a crisis was a theory called disruptive technology. Development of technology can be either evolutionary or revolutionary, and both kinds have their own characteristics. Disruptive innovation is when great steps are made, but that precisely because of the innovation being so great it is possible that companies need to rethink their business strategies and/or logic. If companies fail to adapt to these disruptive changes, a crisis emerges.

Cause of crisis: the unexpected

The final pillar, or group of reasons we identify is the unexpected. This might be the hardest type of crisis to deal with, and to predict.


The first and probably the most well known type of crisis is the black swan. These are unexpected events that can’t really be predicted. In this theory one of the notable characteristics of a sudden change is that it can be positive instead of just negative. Where most crisis theories deal in warning about the the dangers that come from sudden changes, the story of the black swan is not necessarily a negative one. Our other finding on this is the thoughts about chaos theory. In this theory there is the thought that in the end there will be something a manager can’t handle which then causes a crisis.

Conclusion

The research question for this case study was the following: “What theory can be found to underpin the inevitability of a crisis?”

As we have seen are there several causes for a company to get into a crisis. These could be technical reasons, like disruptive innovation, human error, like the Icarus paradox or even the unexpected in the form of a Black Swan. These are the three pillars that we described above. Also, certain theories, such as Holling (2001) and the Black Swans by Taleb (2007), state that crises are inevitable.


While most of these theories have devised ways of dealing with a crises, we indicated that there are many possible causes for a crisis to occur and that these causes come from different directions. It is our belief that it certainly is possible to prepare oneself for crises, but that there are so many variables that could play a role in creating a crisis that you can’t prepare for nor protect from all.

This effect is amplified by the different causes of a crisis. A company might be great at seeing new business opportunities in disruptive technology, but the same company may not be as good at combating human errors like we encountered in the Icarus Paradox.


We have seen that organizational culture can play both a positive and a negative role in supporting change. Merging organizational cultures may have the tendencies of a crisis in some circumstances, but can also be used to advance the organization and its employees to perform better in the future.


As a last note while it hasn’t been really highlighted in our presentation or the information here we wish to remind you all that a crisis doesn’t have to be a bad thing. The Black Swan can have positive effects and drive your company forward.


All in all we conclude that - building on the literature we reviewed - crises are inevitable, but aren’t necessarily ‘life threatening’ for an organization, depending on how one harnesses its abilities to adapt to new circumstances, albeit through cultural or technical ways.

References

  1. Holling, C.S., 2001. Understanding the complexity of economic, ecological, and social systems. Ecosystems 4, 390–405.
  2. McShane & Von Glinow, 2010. Organizational Behavior: Emerging Knowledge and Practice for the Real World (5th ed.). New York: McGraw-Hill.
  3. Miller, D. 1990. The Icarus paradox: How exceptional companies bring about their own downfall. New York: Harper Business.
  4. Seegers, M. W., Sellnow, T. L., & Ulmer, R. R. (1998). Communication, organization and crisis. In M. E. Roloff (Ed.), Communication Yearbook 21. Thousand Oaks, CA: Sage.
  5. Taleb, N. N. The Black Swan: The Impact of the Highly Improbable (New York: Random House, 2007).
  6. Yu, D., & Hang, C. C. 2010. A reflective review of Disruptive Innovation Theory. International Journal of Management Reviews, 12(1).
  7. Zuijderhoudt, R.W.L., Wobben, J.J., Ten Have, S., Busato, V., “De logica van chaos in veranderingsprocessen”, Holland Management Review, nr. 82, 2002, blz. 59 – 67.