Learning From the Titanic: Business Lessons on Crisis Management

By Hank Moore, Corporate Strategist

The 100^th anniversary of the sinking of the Titanic caused many people to reflect on the glamour that was lost and the opportunities that faded.

I think the Titanic can be used as an analogy to business. The Titanic was a monument to human folly and arrogance. It started with pomp and potential. But it turned into a lot of what-ifs and missed opportunities. So, too, is the case with business, which should learn the lessons from the economic downturn and corporate scandals.

One of my books is entitled “The High Cost of Doing Nothing.” Each year, one-third of the U.S. Gross National Product goes toward cleaning up problems, damages, and otherwise high costs of doing either nothing or doing the wrong things.

On average, it costs six times the investment of preventive strategies to correct business problems (compounded per annum and exponentially increasing each year). In some industries, the figure is as high as 30 times...six is the mean average.

The Titanic

One of the greatest tragedies in history, the sinking of the Titanic, can be attributed to carelessness, insufficient planning, and stubborn pride.

People literally went down with the ship while still quoting the ship’s marketing hype, “Everybody knows this ship cannot sink.” They really believed the spin and rationalized it as a false hope to avert disaster. They were so sure, thought tragedy could not happen to them, believed themselves to be invincible, had false senses of security, and exhibited unnecessarily stoical behavior when confronted with the harsh realities of death.

In 1912, the Titanic, a Trans-Atlantic ship on its maiden voyage, hit an iceberg and sank. Though some people escaped by lifeboats, there were still 1,502 people killed.

If any of following things had occurred, chances are that every life would have been saved. The Titanic would not have sunk if any of these precautions/actions had occurred:

• Management...had the ship’s officers heeded one of the six iceberg warnings.
• Planning...had the ship’s design required better lighting to see a potential collision.
• Timing...had the ship hit the iceberg 15 seconds sooner or 13 seconds later.
• Planning...had the watertight bulkheads been one deck higher.
• Supplies...had the ship carried enough lifeboats.
• Regulations...had the distress signal to a nearby ship been heeded and acted upon.

Not only did the people die, but it was the end of an era in travel. The credibility of steamships was shaken. Safety became more important in the luxury travel industry. Other forms of travel could serve customers better, faster, and cheaper. Concern about corporate savings at the expense of quality was raised.

Think of other disasters that brought similar concerns home and forced major changes in planning, policy, safety, implementation, and accountability:

1. Fires and collapses in commercial buildings due to use of substandard materials or improper safety precautions.
2. Citizen outcries over prejudice, hate, and bigotry actions by people in charge
3. Unnecessary duplication of services by public sector and nonprofit entities
4. Chemical plant explosions
5. Improper discharge of substances into the ozone
6. Maneuvers, where improper planning cost property and lives
7. Insensitivity of organizations to their customers

People at Work

The current success rate for organizational hires is 14 percent. If further research is put into looking at the total person and truly fitting the person to the job, then the success rate soars to 75 percent. That involves testing and more sophisticated hiring practices.

Retaining good employees, involving training, motivation and incentives, is yet another matter. According to research conducted by the Ethics Resource Center:

• Employees of organizations steal 10 times more than do shoplifters.
• Employee theft and shoplifting accounting for 15 percent of the retail cost of merchandise.
• 35 percent of employees steal from the company.
• 28 percent of those who steal think they deserve what they take.
• 21 percent of those who steal think the boss can afford the losses.
• 56 percent of employees lie to supervisors.
• 41 percent of employees falsify records and reports.
• 31 percent of the workforce abuses substances.

One out of every 20 employees has substance or alcohol abuse problems...with resulting behaviors that, in turn, adversely affect another 20 people in their lives. Employees with substance abuse problems cost their companies $7,000 per year in downtime or lost days; $9,500 in make-good and work redo; and another $15,000 in opportunity and credibility costs to the organization. Companies with good Employee Assistance Programs reduce these high costs and retain the services of valuable workers.

The old adage says: “An ounce of prevention is worth a pound of cure.” One pound equals 16 ounces. In that scenario, one pound of cure is 16 times more mostly than an ounce of prevention.

Human beings as we are, none of us do everything perfectly on the front end. A learning curve always must exist. Research shows that we learn three times more from failures than from successes. The mark of a quality organization is how it corrects mistakes and prevents them from recurring.

Running a profitable and efficient organization means effectively remediating damage before it accrues. Processes and methodologies for researching, planning, executing, and benchmarking activities will reduce that pile of costly coins from stacking up.

Doing nothing becomes a way of life. It’s amazing how many individuals and companies live with their heads in the sand. Never mind planning for tomorrow...we’ll just deal with problems as they occur. This mindset, of course, invites and tends to multiply trouble.

There are seven costly categories of doing nothing, doing far too little, or doing the wrong things in business:

1. Cleaning Up Problems: Waste, Spoilage. Poor controls. Down time. Lack of employee motivation and activity. Back orders because they were not properly stocked. Supervisory involvement in retracing problems and effecting solutions.
2. Rework: Product recalls. Make-good for shoddy or inferior work. Poor location. Regulatory red tape. Excess overhead.
3. Missed Marks: Poor controls on quality. Fallout damage from employees with problems (for example, a substance abuser negatively affects 20 people before treatment is applied). Undercapitalization. Unsuccessful marketing. Unprofitable pricing.
4. Damage Control: Crisis management. Lawsuits incurred because procedures were not upheld. Affirmative action violations. Violations of OSHA, ADA, EEOC, EPA, and other codes. Disasters due to employee carelessness, safety violations, oversights, etc. Factors outside your company that still impede your ability to do business.
5.  Recovery and Restoration: Repairing ethically wrong actions. Empty activities. Mandated cleanups, corrections, and adaptations. Employee turnover, rehiring, and retraining. Isolated or unrealistic management. Bad advice from the wrong consultants. Repairing a damaged company reputation.
6. Retooling and Restarting: Misuse of company resources, notably its people. Converting to existing codes and standards. Chasing the wrong leads, prospects, or markets. Damage caused by inertia or lack of progress. The anti-change “business as usual” philosophy. Long-term expenses incurred by adopting quick fixes.
7. Opportunity Costs: Failure to understand what business they’re really in. Inability to read the warning signs or understand external influences. Failure to change. Inability to plan. Over-dependence upon one product or service line. Diversifying beyond the scope of company expertise. Lack of an articulated, well-implemented vision.

7 Primary Factors of The High Cost of Doing Nothing:

1. Failure to value and optimize true company resources
2. Poor premises, policies, processes, procedures, precedents, and planning
3. Opportunities not heeded or capitalized
4. The wrong people, in the wrong jobs. Under-trained employees
5. The wrong consultants (miscast, untrained, improperly used)
6. Lack of articulated focus and vision. With no plan, no journey will be completed.
7. Lack of movement means falling behind the pack and eventually losing ground.

What Could Have Reduced These High Costs:

1. Effective policies and procedures
2. Setting and respecting boundaries
3. Realistic expectations and measurements
4. Training and development of people
5. Commitments to quality at all links in the chain
6. Planning
7. Organizational vision

A regular contributor to www.trainingmag.com, Hank Moore has advised 5,000-plus client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses, and nonprofit organizations). He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism, and Big Picture issues that profoundly affect the business climate. Moore conducts company evaluations, creates the big ideas, and anchors the enterprise to its next tier. The Business Tree is his trademarked approach to growing, strengthening, and evolving business, while mastering change. His current book is “The Business Tree,” published by Career Press. Moore also speaks at conferences and facilitates corporate retreats on strategy. He has advised two U.S. Presidents and spoken at five Economic Summits. To read his complete biography, visit http://www.hankmoore.com.