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1. Discuss the importance and role of crisis and crisis management in international business firms.
2. Describe and compare any 2 or 3 of the 4 Crisis Management Frameworks/Cycles you have learnt and discussed in class in Week 6.
3. Choose any ONE framework, describe it and apply it to the Samsung Galaxy Note 7 Crisis Case analysing

Case background

The highly anticipated Samsung’s Galaxy Note 7 was expected to produce many accolades for the company. The purposes had looked promising as well with power packed features inbuilt in the 5.7-inch phone. However, all that expectations started to vanish when one of the Note 7 phones caught fire while during plugged in for the charge. The fire catching case is not the first of its kinds and has already had happened before. In past, laptops from Sony went through similar stages. Lithium batteries commonly being used in phones, laptops, and other electronic devices are believed to be prone to catching the fire (Australian Popular Science, 2018). The phone that started so well with lots of wave reviews from different media resources such as Wired, Time, The Verge and others ended with strong criticisms from across the globe. Circumstances got worsened with Apple successfully launching its flagship iPhone 7 and Google releasing its official Android phone. Samsung was expectedly slow in responding to this crisis. Samsung finally decided to delay the shipment of fresh Galaxy Note 7 phones. It was followed by recalling the already sold devices from various parts of the world. In addition to these steps, Samsung offered an exchange offer for those who have purchased Note 7 phones. The offer was whether going for fresh Note 7 phones or for any of its two flagship phones Galaxy S7 or S7 edge phones. The replacement of Galaxy Note 7 did not either perform well as the Southwest Airlines Flight 994 had to evacuate in response to the replaced Galaxy Note 7 that went up in smoke (Australian Popular Science, 2018).

On a broader note, a crisis is a state which threatens to harm one's reputation (Booth, 2015). From the business perspective, a crisis can be defined as a potential threat that stems from either internal or external influences. These potential threats arise when crisis become an actuality. This stage is termed as a crisis event (Sadgrove, 2016). Risk event is mainly used and followed while managing the crisis. Crisis event can affect an individual, business and also the society (Zhang & Chao, 2016).

A potential crisis should never be completely avoided but rather dealt with crisis management strategies. Proactive approaches are required to avoid any threats from a potential crisis. On a similar note, crisis management can be understood as the ongoing process that identifies, evaluates and prioritize between numbers of potential crisis. It also designs procedures and stages to be prepared for dealing with the crisis (Jin, Liu & Austin, 2014). Both opportunities for gain and prospects of losses need to be closely studied to understand, analyzed and weighed up as these are vital factors to business success. Project-based, financial, operational and strategic crisis management teams can be applied to manage the crisis (Linnenluecke, 2017). It shows the importance to identify the business sector in which the crisis belongs to.

Importance and role of crisis and crisis management in international business firms

Main features of crisis are uncertainty, and the level of exposure to that uncertainty (Iaquinto, Jancenelle & Macpherson, 2017). It is, therefore, can be said that if more features or information are available there will be less countering with uncertainty and also that the chances of a crisis occurring will be smaller. This is also known as decision making during the crisis times (Iaquinto, Jancenelle & Macpherson, 2017). According to Dahles & Susilowati (2015), few of the key characteristics of crisis management and governance can be outlined as below:

  • Crisis or risk events can bring in both negative and positive outcomes
  • The longer the time spent on identifying the potential risk, the harder will be to predict risks
  • Crisis management, in fact, has no universal way of dealing with any crisis. It actually depends on circumstances, risk or crisis preferences, organization, and potential loss or gains
  • Crisis can be categorized into several categories like financial, business, operational, technological, administrative, marketing etc.
  • Crisis situation gives the opportunity to earn abnormal profits whereas it also can introduce to potential losses

In addition, a crisis can stem from both external and internal resources. Examples of internal resources include incompetent staff, ineffective internal communication, unproductive knowledge management, incapable information systems etc. External resources could be like natural disasters, media reporting, government policy, competitors etc. As mentioned earlier, risk management is about effectively identifying and analyzing the potential risk and taking suitable and relevant measures to be prepared for the situation. According to what authors say Ki & Nekmat (2014), crisis management can be classified into the following stages:

  • Crisis Identification
  • Crisis Escalation
  • Crisis Intervention
  • Crisis Resolution

These four phases represent a systematic approach towards identifying, analyzing, prioritizing and managing potential pieces crisis within the business environment. According to the Crisis Management Framework which will be used later on in this report, pieces of crisis should be categorized based on priorities and be treated sequentially. Categorisation will be done by identifying the likelihood of the occurrence and possible consequences. Pieces of crisis or risk can then be dealt with accordingly by either accepting, avoiding, reducing or transferring which itself depends solely on the risk assessment results (Kim & Krishna, 2017). The final stage of a risk management cycle is technically or factually the first stage that checks the processes in place and determines to make the best use of the risk management strategies in dealing with the crisis. Apart from the risk management framework, some universally approved strategies can also be adopted. Fischbacher-Smith and Fischbacher-Smith (2016) recommends that being objective and proactive, remaining sceptical and willing to adapt to feasible emerging trends are few of most calculative and approved ways to prevent a crisis from happening.

An understanding of risk and successful application of crisis management is one of the management approaches which is vital for every business belonging to irrespective of countries and industries. As opined by Herbane (2014), potential risks should never be avoided as it soon can transform into a crisis and that companies with low-level of risks will have fewer opportunities also. Such companies will certainly struggle to gain the competitive advantage. Crisis management should not just be a compliance issue but rather the ongoing and proactive features of operational teams for risk management. It needs to be embedded into the company’s culture, so that, they are already prepared to take on potential risks and prevent these to turn into a potential crisis. The importance of crisis management can be understood from a number of benefits as listed below that it provides to its bearer (Taneja et al., 2014):

  • A proactive approach towards risk management ensures that opportunities are not lost but are rather transformed into advantages
  • Those that are good at identifying potential risks and are also able to effectively manage the pieces of crisis will hold the competitive advantage
  • To those that are proactive towards identifying potential risks and are updated with the latest risk management capabilities, will be needed to spend less time on crisis management
  • Crisis management helps to prevent negative crisis events to occur
  • Firms with better crisis management capabilities will be able to gain the trust of investors
  • Crisis management capabilities enhance the possibility to meet corporate objectives
  • Crisis management motivates towards adapting to emerging trends

Characteristics

The number of benefits of a crisis management approach as discussed just proves the necessity to implement it within different sectors of operations.  

There are broadly four components of Crisis Management Cycles as listed below (Liou, 2015):

  • Identification
  • Escalation
  • Intervention
  • Resolution

In this section of the report, two components will be chosen and compared against each other to understand the importance of each of the components in the crisis management. Those two components are identification and resolution. Identification represents the first stage and resolution the last in the crisis management cycle.

IDENTIFICATION 

RESOLUTION

· It is about identifying the potential risk which could soon occur to become a crisis

· There can be multiple crisis events in a business

· Potential risks can be identified if management has sufficient tools like risk management framework, conducts regular brainstorming sessions, facilitates documentation reviews etc.

· It is technically the first stage towards resolving or mitigating risks

· Resolution can also adopt a number of forms such as speaking on different forms of media

· Resolution can be introduced if a business is aware of both problems and solutions

Table 1: Comparison between Identification and Resolution

(Source: Antonacopoulou & Sheaffer, 2014)

Both identification and resolution are parts of a crisis management framework; however, both deals with different tasks. Both are parts of a sequential approach towards mitigation of crisis. Hence, it is important to effectively apply relevant tools specific to both terms to produce better outcomes. Identification of potential risks or the crisis event is the first step towards resolving the issue. Until and unless crisis events are not known, decision-making under crisis conditions will certainly hamper. Hence, this will eventually affect the resolution stage of the crisis management framework. Crisis-related to any business division such as operations, financial, etc. need to be identified to know the nature of risks and severity of escalations from various media resources to effectively analyze the level of intervention it demands. The level of intervention will communicate the kind of resolution that a specific crisis requires to be dealt with. A resolution, on the other hand, is technically the start of a risk management approach. It involves a lot of brainstorming sessions to identify tools, strategies, and resources to be used to resolve or mitigate the crisis. Brainstorming sessions will educate on tools and strategies to be adopted to manage the crisis. Not all companies can have the adequate and potential crisis management tools and strategies as it depends significantly on organizations’ internal capabilities and the external pressures.

Crisis management framework contains several components which serve different purposes in treating a crisis. This section covers the application of various components of crisis management framework on Samsung Galaxy Note 7 Crisis case (Esposito, Nobili & Ropele, 2015).

Avoidance

This is the first of all components of the chosen framework. Avoidance means not letting potential risks to become the pieces of crisis. This can be done by effectively identifying potential risks in different business divisions of organizations. In the context of the Samsung's Galaxy Note 7, avoidance could have been attained by doing extensive research works on replacement models. Those who have purchased a Galaxy Note 7 they could have saved their spending, had the replacement phones performed well. However, similar things were repeated again. Samsung's decision to offer one of from Galaxy 7 or Galaxy 7 Edge was good; however, they should not be back with the next lot of Note 7 without reviewing, identifying and analyzing the potential risk.  

A descriptive comparison of 2 of the 4 Crisis Management Cycles learned in Week 6

Preparedness

It suggests using a systematic approach towards resolving the crisis. Preparedness is a good way to deal with the crisis as such the battery explosion cases. It encourages to deploy a crisis management team on investigating reasons for the explosion. There are certain legislative policies such as Emergencies Act 2004 which govern the functioning of a crisis management team (Legislation.act.gov.au, 2018). The act provides required guidelines to deal with a crisis situation. Preparedness is also about accumulating the required resources to identify the root causes of the explosion and resolve the crisis. Organizational learning is also a part of preparedness that enhances organizations' inner capabilities to identify, analyze, and prioritize the pieces of crisis. Organizational learning helps in situations as such of Samsung’s by encouraging brainstorming sessions. On being applied to Samsung’s explosion case, organizational learning could have shown a number of ways to understand and cope with the crisis.

Root cause analysis

It helps to find the root cause behind a crisis. Since Samsung is a multinational company and offers the world's best hardware to be used in phones, the level of severity of crisis will also be bigger. The battery blast case is a critical issue and has occurred in not so appropriate time for Samsung. It is because Samsung's arch rival Apple had entered with its flagship model iPhone 7 and that Google had also launched an Android enabled phone. There was the need to compete with these two models; however, on the other hand, Samsung was struggling to find ways out of the battery explosion crisis. Root cause analysis is an important step towards identifying what went wrong with lithium battery as there is a need to avoid any such stories from repeating in future.   

Response 

A response is a primary step towards resolving or mitigating the crisis. Samsung being the world's renowned makers of phones had needed to take the immediate actions. It did so; however, failed to adopt strong measures.

Resolution  

Resolution is the last stage which takes every action to ensure damages are effectively repaired. Since Samsung is one of the widely reputed phone makers in the world, the crisis became bigger as well. From media to public, it spread to different parts of the world. To deal with such a bigger crisis, Samsung had needed to respond on a bigger note. It did so by offering an exchange offer to customers who had purchased Galaxy Note 7. However, it failed to analyze the root cause behind battery explosion as the replacement lot of Note 7 did not either perform.

Identification

According to the crisis management framework, pre-crisis background stage is about avoidance and preparedness. Avoidance encourages to reduce the likelihood of developing any crisis. In the case of Samsung Galaxy Note 7, the company should have checked the battery's performance because lithium batteries have proved defaulter in past as well. Similar incidents have happened with Sony's laptops in past. Avoidance means having enough resources to measure risks to prevent any crisis from happening. The pre-crisis stage when Samsung was busy promoting the highly-hyped Note 7, it had also needed to monitor whether every risk measures are appropriately in place. It is important to have knowledge of various risk area to avoid the occurrence of a risk event. Few of such risk areas are internal and external risks. Internal risks could be anything from the incompetent workforce to leadership challenges. External risks could be a change in government regulation or unstable economy etc. Avoidance can be achieved by running regular risk audits as this will help to identify potential risk areas. Reputation is an intangible asset for Samsung and needs to be protected with the help of responsible management, employees, business partners, and other stakeholders. Reputations can be fragile if consumers lose their trust in a brand like Samsung.

Preparedness can also be a part of a pre-crisis stage. It means getting prepared for an unwanted crisis. As stated by Bergh et al., (2017), when there are bigger risks in business, opportunities will also be bigger. Samsung being one of the top two largest phone companies in the world, is always looking for opportunities. Hence, risks will also be larger for the company. It is, therefore, important for the company to have a better preparedness against any potential crisis. It can be done by following a few strategies. One of the strategies is having crisis management teams. These teams will be in regular monitoring of potential risks in any of the different business divisions of Samsung. Organizational learning for risk and risk management is highly beneficial for companies like Samsung. Samsung needs to have an organized crisis management plan that has every essential of a risk management plan. Few of the essentials of a crisis management plan is that Samsung has both clean up and PR plan in place to respond to a crisis. Samsung needs to know the different ways of dealing with a crisis like expressing remorse, assuming and taking responsibility for the crisis, and dealing with the government and media. Samsung needs a single spokesman who can deliver a consistent voice as part of the crisis management plan (Coombs, 2015). Preparedness would also mean that Samsung is well aware of scenarios that could be the part at any point in time. However, offering Galaxy Note 7 again as the replacement for earlier shipments of Note 7 just indicates that Samsung did not do the exercise works.     

Resolution

An actual occurrence of risks is termed as a crisis point or risk event. In case of Samsung, risk event was the moment when first of the battery explosion case had happened. The first thing to do in such a situation is to use the ‘Root Cause Analysis' tool to review and identify the root causes of the crisis. It appears as if Samsung had not gone for it or did not rely on data fetched with the ‘Root Cause Analysis'. The first stage of a ‘Root Cause Analysis’ is to analyze the crisis. It is followed by the second step which is to set objectives for identifying a crisis. Samsung did acknowledge the incident in media and had promised of doing the repairs; however, it appears as if it lacked appropriate objectives for the crisis management. In spite of responding strongly to the crisis what they did was reoffering Note 7 as the replacement for earlier shipments. The strategy failed to deliver as the explosion of lithium battery did not stop but rather continued with the second lot as well. In spite of offering Galaxy Note 7 as replacements, it could have been better to identify and analyze the root causes of battery explosion. Samsung did a dual damage to their brand image with the replacement lot.

The crisis response and management are about responding to the crisis and managing it effectively. Communication is one of the key factors of crisis response. It is particularly the responsibility of the spokesperson to handle the criticism and respond to the crisis with effective words. Effective words will include a commitment to take immediate actions, effective interaction with media personnel and ensuring no repetition of such a thing in the future. The spokesperson for Samsung immediately announced the recall of Galaxy Note 7 phones. It was soon followed by an exchange program where the first round of phones was exchanged with Galaxy S7 or S7 Edge and Galaxy Note 7 phones. Consumers would assume that the second lot is an improved version; however, it created similar issues. It was banned from carrying in planes in response to explosion happened in one of the Southwest Airlines Flight. The crisis response was loosely handled. As a result, the Galaxy Note 7 could only last for two months on market.  

Samsung was holding the top slot for quite a while in terms of Android hardware makers. Apple and Samsung instead of Apple and Google were being seen as strong contenders for the top slot in the smartphone industry. However, repeated offenses for phones catching fire would perhaps change the scenario. While Samsung was busy dealing with battery explosion, Apple was enjoying with its new flagship iPhone 7 that looked better than ever and Google had also been able to release an Android phone. Such things are never good for market performance as at that point in time Samsung was left with no flagship phone to release. This would be interesting to see how Samsung can save its market dominance and bounce back with powerful phones (Australian Popular Science, 2018).  

Samsung has a lot to learn from the failures of Galaxy Note 7. From now onwards, Samsung needs to focus on testing devices before it enters the market. There is a need to work on its crisis management plan. There is a need to work on objectives which should specifically aim to respond and manage the crisis with timely and relevant objectives. The smartphone industry had many leading brands competing for substantial market shares, it has now become denser with more potential phone makers are entering. Some of the leading names include MI2, Oppo and Lenovo which have steered the mobile phone industry with a bunch of features in the budgeted range. Customers had limited options to go with, now they have ample of options to select from. They have options both in budgeted and premium-priced phones. Interestingly, hardware quality in MI2, Vivo, and Oppo is sometimes even better than the likes of Samsung, Sony, LG, Nokia, and others. It is, therefore, high times for reputed brands such as Samsung to innovate quickly to meet customers' needs both in budgeted and premium range phones. Reputed companies like Samsung cannot afford to repeat similar mistakes as circumstances have now changed and customers would not necessarily roam around one brand. Customers have no point of staying with Samsung if they have other options as well which are either equally good or even better than the Samsung.

Conclusion

In summary, it can be concluded that identifying the crisis and appropriately responding to the crisis event is necessary to retain the loyal customers. Crisis management is an integral part of a business which is critical to the success of reputed brands. In an increasingly growing market competition, it is important that multinational companies are good at everything from operations to value chain management and to the crisis management.

References 

Antonacopoulou, E. P., & Sheaffer, Z. (2014). Learning in crisis: Rethinking the relationship between organizational learning and crisis management. Journal of Management Inquiry, 23(1), 5-21.

Australian Popular Science (2018). How To Blow Up A Phone Launch. [online] Australian Popular Science. Available at: https://www.popsci.com.au/gadgets/how-to-blow-up-a-phone-launch,439262 [Accessed 26 Sep. 2018].

Bergh, D. D., Sharp, B. M., Aguinis, H., & Li, M. (2017). Is there a credibility crisis in strategic management research? Evidence on the reproducibility of study findings. Strategic Organization, 15(3), 423-436.

Booth, S. A. (2015). Crisis management strategy: Competition and change in modern enterprises. Routledge.

Coombs, W. T. (2015). The value of communication during a crisis: Insights from strategic communication research. Business Horizons, 58(2), 141-148.

Dahles, H., & Susilowati, T. P. (2015). Business resilience in times of growth and crisis. Annals of Tourism Research, 51, 34-50.

Esposito, L., Nobili, A., & Ropele, T. (2015). The management of interest rate risk during the crisis: evidence from Italian banks. Journal of Banking & Finance, 59, 486-504.

Fischbacher-Smith, D., & Fischbacher-Smith, M. (2016). Crisis management as a critical perspective. Journal of Management Development, 35(7), 930-940.

Herbane, B. (2014). Information value distance and crisis management planning. SAGE Open, 4(2), 2158244014532929.

Iaquinto, A. L., Jancenelle, V., & Macpherson, W. G. (2017). Finance-oriented directors and crisis management: Blissful ignorance in the hospitality industry?. Journal of Hospitality and Tourism Management, 32, 82-88.

Jin, Y., Liu, B. F., & Austin, L. L. (2014). Examining the role of social media in effective crisis management: The effects of crisis origin, information form, and source on publics’ crisis responses. Communication research, 41(1), 74-94.

Ki, E. J., & Nekmat, E. (2014). Situational crisis communication and interactivity: Usage and effectiveness of Facebook for crisis management by Fortune 500 companies. Computers in Human Behavior, 35, 140-147.

Kim, S., & Krishna, A. (2017). Bridging strategy versus buffering strategy: enhancing crisis management capability in public management for relational and reputational improvement, and conflict avoidance. Asian Journal of Communication, 27(5), 517-535.

Legislation.act.gov.au (2018). Emergencies Act 2004 | Acts. [online] Legislation.act.gov.au. Available at: https://www.legislation.act.gov.au/a/2004-28 [Accessed 26 Sep. 2018].

Linnenluecke, M. K. (2017). Resilience in business and management research: A review of influential publications and a research agenda. International Journal of Management Reviews, 19(1), 4-30.

Liou, Y. H. (2015). School crisis management: A model of dynamic responsiveness to crisis life cycle. Educational Administration Quarterly, 51(2), 247-289.

Sadgrove, K. (2016). The complete guide to business risk management. Routledge.

Taneja, S., Pryor, M. G., Sewell, S., & Recuero, A. M. (2014). Strategic Crisis Management: A Basis for Renewal and Crisis Prevention. Journal of Management Policy & Practice, 15(1).

Zhang, L., & Chao, P. (2016, June). Social media as a platform for understanding consumer concerns in product harm crises and designing crisis management strategies in China. In 4 th International Conference on Contemporary Marketing Issues ICCMI June 22-24, 2016 Heraklion, Greece(p. 522).

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