Crisis Management as in Mattel Inc - Case Study Example

analysis of crisis management as in Mattel Inc. contents i. Introduction 3 II. Crisis event 4 III. management frameworks 7 IV. crisis management theory 9 v. AnalySing of the crisis 12 Vi. conclusion 15 references 18 i. Introduction The analytical aspect of a crisis management stands for a systematic attempt to avoid organizational crises. It is the way of managing those crises events that do occur in an organisational set up (Pearson & Clair, 1998)1. As the word suggests in itself; it is a major, unpredictable event that threatens to harm an organization, along with its stakeholders. The management part comes in as these crises are though unpredictable, yet are not unexpected (Coombs, 1999)2. There are three elements of crisis that are common to most of its definitions (Seeger, Sellnow & Ulmer, 1998)3. These are as follows - a) straight threat to the organization, b) accompanies with an element of surprise, and c) gives short decision making time All these elements are supported by four types of organizational crises (Smith & Millar, 2002)4. These types can be categorised into a) Sudden Crises; these are the crises that are sudden in character. These are represented by natural disasters or workplace violence; b) Smoldering Crises, are those problems that starts in a miniature form and gets fixed recognising the potentiality for trouble; c) Bizarre, are those crises that are like the finger in the Wendy's Restaurant Chili; and the last being d) Perceptual Crises, which is a long-running problem. This can be exemplified to what Proctor & Gamble used to have with their former corporate logo that included a half-moon and stars. The problem was by the critics who would claim it to be a symbol of devil-worship, calling for boycotts of P&G products. Crisis management plans cover all those incidents that are due to bomb threats, child abuse, natural disasters, suicide, drug abuse and gang activities (Kansas City Public Schools, 2007)5. These plans also aim to address all those people who are in need of information about a particular crisis or the way to come out of it (Virginia Department of Education, 2002)6. This paper is going explore all these aspects and will find out how Mattel Inc. fell into a crisis in 2007 and came out of it with proper application of certain theories and managerial proceedings. Mattel Inc. is a kind of case that this paper will focus and thereby will highlight the analytical aspects of crisis management. II. Crisis event Figure 1 Mattel headquarters in El SegundoMattel Inc. is recognized as the world's largest toy company based on revenue. The famous toys icons that it imports are Barbie dolls, Hot Wheels and Matchbox cars, American Girl dolls, board games. In 1945 this company came into existence by Harold "Matt" Matson and Elliot Handler, hence was the named as “matt-el". The crisis of Mattel Inc. broke on August 2, 2007. On this particular day, the Mattel's Fisher-Price subsidiary recalled almost a million Chinese-made toys. It was all because of potential hazards that came up due to the colored section of the toys which were done using lead-based paint [Fisher-Price Recalls Licensed Character Toys Due To Lead Poisoning Hazard].7 The scientific assessments was that children who suck on or ingest toys with high lead content may be poisoned, which can lead to learning and behavior problems, and even death. The cases turned worst than ever, and Mattel toys' lead in paint was found to be 180 times the limit. The estimations that came after the strict investigations, stated that the paint on the toys was up to 11% lead, or 110,000 parts per million. Whereas on the contrary, the U.S. Federal law allows a minimal of just 0.06% lead, or 600 parts per million of paint over the toys. Mattel recalled over 18 million products on August 14, 2007. The reason was that they could pose a danger to children due to the use of strong magnets that may detach. As strong small magnets could be dangerous to the children, if under any circumstance two or more were ingested, attracting each other in the intestines and causing damage. The issue went bigger than expected as it gets reported that a child has swallowed a Polly Pocket toy magnet and had to undergo a surgery. Thus there was no way left than to recall. After regular reports of similar magnetic toy parts being swallowed, causing perforation of the intestines, Mattel re-wrote its policy on magnets, finally issuing this recall in August 2007. During this crisis to the company, none of the American or European safety legislation and standards addressed the specific hazard of strong magnets. Recalled items were – Die-cast Cars character, Sarge, 436,000 recalled globally, 7.1 million Polly Pocket toys; 600,000 Barbie and Tanner Playsets; 1 million Doggie Daycare; Shonen Jump's One Piece; and thousands of Batman Manga toys. This gave an estimation of 18.2 million items being recalled in total. The crisis was so big the Zhang Shuhong, co-owner of the Lee Der Toy Company; which had made a number of toys for Mattel, committed suicide in Foshan on August 11, 20078. In BBC's Quentin Somerville boxes of toys were found made for Mattel and Fisher-Price going nowhere. There were instances that showed Lee Der business getting closed9. The act of recalling went on. After some more testing it has been found that the Chinese-made products contained levels of lead in painted parts. The amount of estimated leads was above the acceptable limit set by the company. Following these declarations, again it was recalled on September 4, 2007. This time it was 530,000 affected toys in the United States. Outside the United States, the amount was 318,00010. The effects of this crisis were very strong over Mattel Inc. The company started facing rapid declination in the market share and flat sales of its core toys. The company was even tagged with the Bad Product Award in Sydney, Australia, in November 200711. III. management frameworks The term crisis has been described by many scholars in many different ways. According to the United Kingdom’s Department for Business, Enterprise and Regulatory Reform (2008), "... The crisis should be dealt with as an operational management issue that is simply being undertaken in extreme circumstances. The crisis management framework for response is normally based on existing management structures and responsibilities. It must also reflect (or improve upon) existing lines of communication, both within the company, and with other organizations which may be affected. This approach, when developed in conjunction with the operational managers, will confirm ownership of plans and prepare the proposed framework for practical implementation." (United Kingdom, 2007) That is to say, for them it is an abnormal situation beyond the scope of everyday business. It is a state of consequences which threatens the operation, safety and reputation of an organization. The department adds that all sorts of businesses need to treat crisis management planning with the same attention as it pays attention to other business plans. There is a new research made by Oxford-Metrica, an independent adviser on risk, value, reputation and governance (Aon, 2006), regarding the future of crisis with the organisations. The assessment says that during the next five years, 83 percent of companies will face a crisis that will negatively impact the profitability of a company 20 and 30 percent. There are certain benefits attained by the organisations through the crisis management. The primary aims of these benefits include: a) The attainment of ability by the respective company to assess the situation from inside and outside the organisational setup, just the way all stakeholders might perceive it. b) Application of all those techniques to direct action(s) to contain the perceived damage spread of the organisation in the process of having the crisis. c) The whole process of crisis management is also to attain benefits in an effective way. It is further utilised to get rapid outcomes to those particular parts of business that were involved in the continuity management. d) There are also the corridors made for better organizational resilience for all stakeholders that are related to the company. e) The attained benefits pay compliance with regulatory and ethical requirements, like that of corporate social responsibility. f) There comes up a rapid development of better management applications for all sorts of serious and possible incidents g) The basic development comes in the drastic improvement of staff awareness towards their roles and expectations within the organisation. h) There is also the rapid increase in the ability, confidence and morale aspects supporting the organisation. i) The skills and proficiencies of the risk management get highly enhanced. As a result obvious risks get easily identified, mitigated through crisis and business continuity management, on the basis of the prepared version. j) The added benefit for a protected enhanced reputation at a much reduced risk of post event litigation. IV. crisis management theory The handling of crisis is the way of understanding the process to overcome of it and to attain success. It is also applicable to the preventive measures that a company can adopt before it occurs. In the situations as faced by Mattel Inc., there comes the four-phase crisis management model process forwarded by Gonzalez-Herrero and Pratt (Gonzalez-Herrero and Pratt, 1995)12. These phases are all about a) the issues that are under the management, b) the planning-prevention for the crisis, c) the crisis in itself as it appears, and d) the situations handled in post-crisis. There are some other aspects of planning and theoretical procedures that are applicable during the process of managing the company; in order to have preventions and fast remedies towards the crises. The chief aspects of planning and theoretical procedures can be listed as; i. Crisis Management Planning ii. Contingency Planning iii. Business Continuity Planning iv. Structural-Functional Systems Theory v. Diffusion of Innovation Theory Crisis management planning deals with all those causes and consequences that are related to a crisis. It provides the best response to a crisis (12Manage, 2007)13. It concentrates on safeguarding the matters that stimulates extensive media coverage. This particular planning preserves public scrutiny. It thus helps in protecting the company from any kind of negative financial, political, legal and government impact. Contingency Planning is about preparing contingency plans in advance. It is a part of crisis management plan. It is the first step to ensure an organization to have appropriate preparation for a crisis. Crisis management teams most often seems to rehearse crisis plan. It is done by developing a simulated scenario to use as a drill for the whole managerial team of the organisation. The plan stipulates that the only people to speak about the crisis are the designated managerial officials of the company. These are like the company spokesperson or crisis team members. This planning procedure allows only the senior officials to talk about the crisis to the press. It teaches how to offer a statement externally as well as internally with all the accurate information. The act of providing incorrect or manipulated information has a tendency to backfire and thus is prohibited. The preventions are all in order to have control over the aggravated situations. The contingency plan needs to have al those information and guidance that can help decision makers. These are the aspects that prepare the senior managerial officials of the company to consider the short-term consequences as well as the long-term effects of every decision. (12Manage, 2007) Business Continuity Planning stands for a smooth continuation of a company even at the break of a crisis. As a crisis causes a significant disruption to an organization, by the application of business continuity plan the company can minimize the disruption. The foremost step is to identify the critical functions and processes of the company that are necessary to keep the organization running. After the identification of the functions and processes, the organisations must adopt all those things to have its own contingencies. There are all formulated as a contingency plan in the event that one of the functions or any of the processes ceases or fails while causing the crisis to the company. All these contingencies plans are subject to variation and thus needs former rehearsals to check the favourableness to the company. The required actions in a mock-up help in identifying and preparing for the upcoming states. It allows for all involved factors to become more sensitive and aware of the possibility of a crisis. As a result, when the event of an actual crisis comes up, the team members will act more quickly and will perform effectively. (12 Manage, 2007) The appropriate adaptation of Structural-Functional Systems theory by a company can pave way for rapid recovery. As providing information to an organization during crisis is critical to effective crisis management; it is thus suggested to adopt this theory. the intricacies of information networks and levels of command making up organizational communication are all addressed through Structural-functional systems theory. The theory as a whole adopts the process to identify information flow in organizations as "networks". It is also playing vital roles in finding out the made up of members and "links" of a specified company (Infante, Rancer, & Womack, 1997)14. The application of Diffusion of Innovation theory done to further extend the sharing of the information related to the crisis. This theory has been developed by Everett Rogers. In the theory Rogers described the ways through which the innovation is disseminated and communicated through certain channels over a period of time. This particular theory of diffusion of innovation in communication occurs when an individual communicates a new idea to one or several others in his organisation. The process of this sharing involves some of the important steps. These are: a) an innovation for the applicability of the purpose, b) an individual or unit of people with the adoption gathering the knowledge of or experience with using the innovation, mentioned above c) another individual or other unit of people from the organisation, that does not yet have knowledge of the innovation, and d) lastly, a communication channel connecting the two units. Here the root is in the communication channel. It is the preconceived means by which messages get from one individual to another in the organisational hierarchical structure (Infante et al., 1997). v. AnalySing of the crisis In 2007, Mattel voluntarily issued more than 28 product recalls. The reason was the great misery that it was having 2007. These problems were leaded by the troubles with exports from China that faced two product recalls in two weeks. The company tried to get hold of every possible hope to get its message out in public. It aimed at earning high marks from consumers and retailers. However every attempt failed and the crisis took place. At Mattel, recall announcement was made federal officials. It was in accordance to public relations staff of 16. The further functioning preceded by calling reporters at the 40 biggest media outlets for a huge coverage. Each of them was asked to check their e-mail for a news release outlining the recalls. These reporters were further invited teleconference call with executives and scheduled TV appearances or phone conversations with Mattel's chief executive. The Mattel CEO Robert Eckert did 14 TV interviews on a single day of August. He had attained more than 20 calls with individual reporters the same day. It has been estimated by Goldman and Reckard that by the end of that week, Mattel had responded to more than 300 media inquiries in the U.S. alone15 (Goldman and Reckard, 2007). For Mattel Inc. the adoption of Crisis Management Planning procedure could have been an affective step towards the prevention of recalls. The company however paid special emphasis on this planning in the last part of 2007, and as a result received rapid recovery. Crisis Management Planning is applicable in order to prevent any kind of crisis from happening. It is a step towards the avoidance of significant disruption to any business. Figure 2 Mattel's Brand Mark Mattel’s response to this crisis was very diplomatic and intensive. Mattel voluntarily increased audits and testing of all products there were supposed to be marketed. The CEO Robert Eckert of Mattel Inc. responded on August 2007. While referring to the three massive products recalls for lead contamination of paint, he said, “We were let down, and so we let you down.” Contingency Planning is all about having some kind of preparations towards the sudden appearances of a crisis to a company. The fast recovery of Mattel Inc., at least in regaining its brand image is all due to Contingency Planning. There are some drills done, that teaches to get hold over the first hours after a crisis breaks. As these hours are the most crucial, it becomes very important to work with speed and efficiency. The plan also indicates how quickly each function should be performed. The management of Mattel Inc. seems to be prepared to face the situation all boldly and without any hassle. The comments and acceptance of blames by the senior managerial officials is of great appreciation. This stands for the preparedness that they availed before the appearance of the crisis. It was on September 21, 2007, that Thomas Debrowski, Mattel’s Executive Vice-President for worldwide operations, had a meeting with China’s product safety chief, Li Chanjiang. The managerial accountability of Debrowski came up very strong as he took full responsibility for the magnet recalls. In press releases, he said, “vast majority of those products that were recalled were the result of a design flaw in Mattel’s design, not through a manufacturing flaw in China’s manufacturers… Mattel takes full responsibility for these recalls and apologises personally to you, the Chinese people, and all of your customers who received the toys” (CBS News, 2007)16. Adoption of a contingency plan by Mattel Inc. prepared it in the event of crisis. The company applied it to the functions and some of the processes in order to cease them while causing the crisis to the company. The company was quite aware of the fact that all these contingencies plans are subject to variation and thus adopted former rehearsals to check the favourableness to the company. All the actions that are practice in a mock-up help all the related members in identifying and preparing for the crisis that took place. It allowed for all involved factors to become more sensitive and aware of the possibilities and helped in overcoming them in no time. Like any other organisation, all the information in flow in Mattel Inc. followed patterns called networks. These are the specified ways to discover the functioning on the company and to identify all related links to it. By following Structural-Functional Systems Theory, Mattel Inc. identified all those sources that could help the company out of any kind of crisis. These are the links of all financial back ups and contributions made by the stakeholders. Identification of all these links helped Mattel Inc. to recover from its financial breakages that were caused by the crisis of recall. Mattel Inc. applied Diffusion of Innovation theory to further extend the sharing of the information related to the crisis within the company. With the application and help of this theory, the company got the ways through which the innovation is disseminated and communicated through certain channels over a period of time could be established. Mattel Inc. had this particular theory of diffusion of innovation in communication in order to have transparency for those situations when an individual communicates a new idea to one or several others in his organisation. This laid to the rapid realization of the assumption of the crisis and as a result the preparations were made to have some safeguards. Vi. conclusion The various ways to come out of a crisis in a business needs adamant planning and strong strategical devices and organisational unity. This is very much shown by Mattel Inc. The Company adopted various ways and processes of crisis management to come up of the 2007 recalls. It adopted the process by which the organization manages a wider impact, such as media relations, and enables it to commence recovery. Apparently the company was successful enough in getting into the popular culture. It made it stand in the movie Toy Story. In the movie, T-Rex (Rex), asks Buzz Lightyear where he is from. As a reply to him, Buzz states that he's from Star Command. To this answer, Rex responds, "Oh. Well, I'm from Mattel!" - then adds it was actually a smaller toy company purchased in a leveraged buyout. This makes a strong impact over the popular culture of the toy world. It was a direct reference to Mattel's corporate history. It also stated the importance of Mattel as well as the fact that the company had produced the tie-in products for the movie. The intervention into the popular culture went further with the movie in series called ‘Toy Story 2’. Here in the movie, we got to see the tour guide Barbie taking the other toys round the toy store. In the process as she passed the Buzz Lightyear section, she says: "Mattel sorely underestimated the demand for Buzz Lightyear figures in 1995." This particular comment was undoubtedly made towards the first movie's success catching Mattel short of stock that year, that is in 1995. The impact over the popular culture was made more rigid by the movie ‘Back to the Future: Part II’. In this movie we got to see Mattel as the creator of the Hoverboard Marty Mcfly. In the story, he rides to escape Griff Tannens' gang at Hill Valley in the year 2015. In concern to this strategical interpretation, one of the directors of the film claimed that ‘Mattel Hoverboards existed and the crew had snagged a few for the movie, but due to parental concerns they were deemed unsafe for the market’. This statement was so strong that thousands of calls went into Mattel demanding to purchase Hoverboards. The application and formulations were so perfect that the company could hardly take any time for recovery. As against the ‘Bad Product Award’ in Sydney, Australia, in November 2007; Mattel in 2008 was honored at the 59th Annual Technology & Engineering Emmy Awards. This was the award given to the company for pioneering the development of handheld games with its Mattel Electronics sports titles Football and Auto Race, both published in the late 1970's. references 1. 12Manage. "Rigor and Relevance in Management", Retrieved on 13.05.08 2. Brand China' at risk after toy recall – Quentin Somerville, BBC News. 15 August 2007. [Accessed on 13.05.08] 3. Coombs, W. T. (1999). Ongoing crisis communication: Planning, managing and responding. Thousand Oaks, CA: Sage Publications, Inc. 4. "Fisher-Price Recalls Licensed Character Toys Due To Lead Poisoning Hazard" [retrieved on 13.05.08], http://www.shareholder.com/mattel/downloads/Mattel_Inc_200_A_R.pdf 5. Fortune Magazine's 101 Dumbest Moments in Business for 2007, [Accessed on 13.05.08] http://money.cnn.com/galleries/2007/fortune/0712/gallery.101_dumbest.fortune/index.html 6. Goldman, A., & Reckard, E., Aug. 2007. LA Times 7. Gonzalez-Herrero, A., & Pratt, C. B. (1995). How to manage a crisis before or whenever - it hits. Public Relations Quarterly, 40, 25-30. 8. Infante, D., Rancer, A., & Womack, D. (1997). Building communication theory (3rd ed.). Prospect Heights, IL: Waveland Press. 9. Kansas City Public Schools. Kansas City, KS. (2007). Crisis management. Retrieved on 13.05.08 10. Mattel corporate website. 4 September 2007. [Accessed on 13.05.08] 11. Pearson, C. M. & Clair, J. A. (1998). “Reframing Crisis Management.” Academy of Management Review, 23, 59-76. 12. Seeger, M. W., Sellnow, T. L., & Ulmer, R. R. (1998). Communication, organization and crisis. Communication Yearbook, 21, 231-275. 13. Smith, Larry and Millar, Dan PhD, 2002, Crisis Management and Communication; How to Gain and Maintain Control, Second Edition, San Francisco, CA, International Association of Business Communicators 14. Virginia Department of Education. (2002). Resource guide for crisis management in Virginia schools. Retrieved on 13.05.08 Read More