CRISIS PLANNING AMONG GUATEMALAN SMALL BUSINESSES: THE ASSESSMENT OF WORST-CASE SCENARIOS

CRISIS PLANNING AMONG GUATEMALAN SMALL BUSINESSES: THE ASSESSMENT OF WORST-CASE SCENARIOS John E. Spillan, Pennsylvania State University Dubois William Rick Crandall, Concord College Almost every type of business organization experiences crisis events. Crisis management seeks to minimize the impact of these events. While the crisis management literature is abundant concerning larger organizations in developed countries, little has been written on this subject concerning small businesses in less developed countries. This study examines the perceptions and experiences of Guatemalan small retail business owners/managers in relation to crisis events. The results indicate that a majority of these organizations do not have formal crisis management plans. Reasons for this lack of planning are offered and implications for management are presented. Crisis management involves mitigating the impact of an unfortunate and unexpected event in the life of an organization. Many large organizations have sophisticated crisis management plans and teams on alert to respond in the event of a crisis. However, because of their size, many small businesses managers may believe that the issue of crisis management is irrelevant and has limited importance. These organizations might adopt an it can t happen to us mentality, assuming that crisis events happen only to other organizations or that they are somehow protected from a crisis (Mitroff 1989). Other small businesses managers may believe that they do not need to worry about a crisis, because they have insurance to cover any losses or work interruption that

22 may emerge from the crisis. Unfortunately, insurance does not cover such intangible items as company reputation and customer goodwill. A third reason smaller organizations may not adequately address crisis management is that they believe they lack the resources to do so (Barton 1993). All three views are short sighted and, if perpetuated, can be detrimental to the success of the small business operation. Although crisis management research is growing in large organizations in developed countries, little has been written about crisis management practices of businesses in less developed countries. This study of small retail businesses in Guatemala examines how business owners from a less-developed country perceive and respond to the concept of crisis management and contingency planning. Even though Guatemala conducts business basically the same way most developed countries do, the priorities and goals of businesses there are often different from those one might observe in a developed country s business operations. LITERATURE REVIEW Development of Crisis Management Crisis management and contingency planning have been recognized as an important area of management concern for both academics and practitioners (Barton 2001; Caponigro 1998; Booth 1993; Mitroff 1989; Perrow 1984). As a result, a great deal of research regarding crisis and contingency management and analysis has been conducted. Several investigators have focused on the individualistic or case study approach, based on practical experience (Allison 1971; Meyers & Holusha 1988; Shrivastava 1987). Other researchers have studied crisis and contingency management from a comparative point of view (Perrow 1984). Still other studies have centered on the empirical analysis of crisis management and contingency planning (Fink 1986; Pauchant &

Volume 5 (2001) Crisis Planning in Guatemala 23 Mitroff 1992). All of these studies conclude that crisis management is a process that develops strategic practices to prepare the organization against threats from both internal and external environments (Booth 1993). While the study of crisis management is a relatively young discipline, it has evolved through several stages. First came the empirical studies, then there was the work that linked the empirical studies to the general descriptive models. Subsequent research, or the third stage of development, focused on the theoretical explanations of cause and effect. Finally, there was the movement towards a predictive capacity to test the theoretical explanations (Booth 1993). Currently, there is an attempt to integrate the important, fragmented parts into a multidisciplinary approach to crisis management (Pearson & Clair 1998). Even though crisis management and contingency planning ideas have been highlighted in business periodicals and academic literature for over three decades, businesses in an ever-changing global economy confront new and more sophisticated internal and external threats that may affect their viability or survival. As a result, it is important that both academics and practitioners research the crisis management and contingency planning activities of businesses in developing countries. As the globalization issues become essential to sustainable business development, this study focuses on providing an overview of crisis management perceptions of Guatemalan retail businesses and empirically investigating three issues: (1) the perceptions of Guatemalan business people regarding the concept and practices of crisis management, (2) explanations for differences in perceptions and practices that exist in these businesses and (3) alternatives or recommendations that can strengthen the preparedness of Guatemalan businesses.

24 Crisis Management Crisis management seeks to mitigate the impact of a crisis. Gorski s (1998) research states that a crisis can run the gamut from a natural disaster, such as a flood or hurricane, to a form of human tragedy. A crisis can cause an operational production failure or lead to a public relations fiasco. Crisis events can also lead to legal problems that can disrupt the normal functioning of business activity. Gorski (1998) further asserts that a crisis can test the capability of an organization s staff and its leaders. Thus the demands of daily operations and crisis management are so important that organizations need to have crisis management plans and teams in place in order to achieve continuity in business operations (Barton 1993; Caponigro 1998; Hickman & Crandall 1997). Crisis Identification According to Simbo (1993), one of the major reasons for businesses not having effective crisis management plans is that they have not identified the major crisis events that could impact their organizations. Consequently, they have not developed the critical tools for developing comprehensive plans for dealing with crisis situations. Warwick s (1993) research indicates that one of the major characteristics important to preparation of a crisis management plan is the risk assessment of potential problems. Hence, the probabilities of a crisis in a particular area of a business activity vary among types of businesses. Many organizations identify worst-case scenarios, or crisis events that could occur at that organization. For example, chemical companies prepare for potential chemical spills, while airlines prepare for a possible air disaster. Simply stated, organizations must anticipate events unique to their industry.

Volume 5 (2001) Crisis Planning in Guatemala 25 A number of classifications of crisis events exist in the literature. Researchers have classified crises by 2 x 2 matrices (Marcus & Goodman 1991; Meyers & Holusha 1986), by cluster analysis (Pearson & Mitroff 1993) and by categories (Coombs 1995; Irvine & Miller 1997; Richardson 1995). One point seems certain: there is no agreement on exactly how to classify crisis events in a universal manner. Fortunately, a universal system is not necessary, because ultimately such a system is of more use to researchers than to the practicing manager. What is important to the manager is to identify the worst-case scenarios or vulnerabilities (Caponigro 1998) that are unique to the organization. Consequently, this study asked practicing managers what they considered to be the important concerns in their respective organizations. Types of Crisis Events Warwick s (1993) research indicates that one of the important aspects to a crisis-management plan is an assessment of risks. The crises analyzed in this study are based on the framework developed by Crandall, McCartney & Ziemonowicz (1999). That framework classifies crisis events in five categories: operational crises, publicity problems, fraudulent activities, natural disasters and legal crises. A summary of each of these categories follows in Exhibit 1. Exhibit 1 summarizes the types of crises that potentially confront every organization. Their definitions and descriptions provide an understanding of what crises are and how they could affect an organization s performance. Crisis Vulnerability At some time in a small business s life, it may be confronted with a crisis of some type. The ability to manage the crisis successfully can mean the difference between survival and

26 Exhibit 1: Crisis classification framework summary Categories Definitions Crisis Events 1. Operational These types of events have the potential to disrupt an organization s day-to-day operations. Loss of records permanently due to fire. Computer system breakdown. Loss of records permanently due to computer system breakdown. Computer system invaded by hacker. Major industrial accident. Major product/service malfunction. Death of key executive. Breakdown of a major piece of 2. Publicity These events often originate from operational crises and can result in negative public perceptions. 3. Fraudulent These events refer to wrongful acts committed by an individual or organization. 4. Natural Disasters These events are caused by an act of nature. 5. Legal These events have potential for litigation. production/service equipment. Boycott of by consumers or the public. Product sabotage. Negative media coverage. Asset misappropriation for employee s benefit. Theft or disappearance of records. Embezzlement by employee(s). Corruption by management. Corporate espionage. Theft of company property. Employee violence in the workplace. Flood. Tornado. Snowstorm. Hurricane. Earthquake. Consumer lawsuit. Employee lawsuit. Government investigation. Product recall. Adapted from W. Crandall, M. McCartney & C. Ziemnowicz (1999), Internal Auditors and Their Perceptions of Crisis Events, Internal Auditing, 14(1):11-17.

Volume 5 (2001) Crisis Planning in Guatemala 27 disaster. One assessment of crisis readiness found that 50% of all business hit by a crisis will not survive if they do not have an adequate business recovery plan in place (Offer 1998). An even more pessimistic study found that 90% of businesses without a disaster recovery plan would fail within two years of a disaster (Pedone 1997). Therefore, the operative question in crisis management and crisis readiness planning isn t whether a crisis will occur, but what type and when it will occur (Caponigro 1998; Kruse 1993). Insurance Coverage and Crisis Management While the argument that insurance will resolve crisisinduced problems has some merit, its value in a crisis situation is far from complete. Simbo s (1993) analysis of the insurance argument points out that insurance can provide a cushion for extensive cost implications, but by itself is not adequate to assure the survival and recovery of a firm. One major reason the insurance argument is weak is that it does not protect against the loss of goodwill a business interruption can have on customers, suppliers, distributors and firm employees. Additionally, insurance does not provide a solution to the public relations and social responsibility problems that may be related to the crisis. For example, insurance is available and used by companies that experience oil spills, but it does not protect them from the public relations problems that occur. The Exxon Valdez oil disaster illustrates this point vividly (Hartley 1993): the lost wildlife and long-term pollution caused by the oil spill could never be replaced by any level of insurance payment. In some cases, business owners or executives may believe that insurance is the panacea for their crisis management problems. A discussion with one Guatemalan businessman in this study revealed that he was not concerned about a crisis in his business, because he had insurance. The insurance was his safeguard and thus he believed that if any unfortunate

28 event occurred, his insurance would prevail and salvage his business. Worst Case Scenario Planning At some point, the question should be asked, what types of crises are of most concern to your business and have such events actually occurred to your business? This study seeks to address these questions by asking small business owners/managers what crisis events they are most concerned about and whether a crisis event has occurred in their business. Why is it important to know this information? At least three reasons can be offered. First, identifying potential crisis events enables managers to plan for worst-case scenarios. Unless one knows what is being planning for, it is difficult to muster enthusiasm for a crisis management plan. For example, a worstcase scenario for almost any organization would involve the death of an employee. Therefore, any crisis management plan should include how properly to notify next of kin (Wnek 2000). Second, identification of potential events can enable management to enact measures to prevent the occurrence of that crisis. A contemporary example to illustrate this point would be the recent Y2K crisis. Because of careful planning and the implementation of crisis management procedures, the Y2K transition appeared with minimal difficulties, because upper levels of management began to see the importance of disaster recovery in their organizations (Salerno 2000). Finally, identifying the most likely crisis concerns allows researchers, writers and consultants to alert the general business population of the key hot buttons that organizations should address. Once again, the Y2K crisis was greatly diminished, in part by the mass publicity generated by business researchers and the popular press.

Volume 5 (2001) Crisis Planning in Guatemala 29 BACKGROUND ON GUATEMALA Demographics Guatemala is the largest and most densely populated country in Central America. Of its almost 13 million people, 62 percent live in rural areas (Mahler 1999). More than half of all Guatemalans are indigenous and descendants of Mayan Indians. Guatemala s economy is built on two major economic sectors, agriculture and retail, which provide the engine for economic development. While the agricultural sector is significant because of its export capabilities, the retail sector is broad and deep in the Guatemalan economy. Additionally, the nation enjoys significant factors of endowment and is rich in mineral, oil and other natural resources. This, together with low labor cost, means Guatemala now has a fast growing light industry sector. It has the largest industrial base in Central America, being an important manufacturer of pharmaceuticals, chemicals, clothing, wood and food products (Mahler 1999). Retailing Business Environment In Guatemala Guatemala is primarily an agricultural country, where the North American style of business crisis management is a relatively new concept. Most businesses outside of Guatemala City are small and underdeveloped. Even though Guatemala is very poor, the small businesses, especially in retailing, provide a major source of employment and income for many citizens around the country. Historically, Guatemala has preserved the Latin American tradition of the open street market, the Mercado, where bargaining is the major method of transacting business. Equally important is the large number of individual entrepreneurs offering services to consumers beyond those available in the traditional outlets (Ortiz- Buonofina 1992). For example, in Guatemala City and other urban areas, traditional retail arrangements, such as small shops, trading

30 markets, peddlers and itinerant vendors, continue to prosper sideby-side with the more modern retail units, such as mass-market department stores and supermarkets. These business arrangements distribute a wide assortment of food products, consumer staples and homogeneous shopping goods to all income groups. Ortiz- Buonofina (1992) reports that this sector has shown surprising flexibility, despite the government s attempts to modernize and to initiate other mechanisms of economic development in the consumer goods area. Crisis in Guatemala One major barrier to economic development has been the constant and pervasive civil strife that has afflicted this country. Over the last forty years, Guatemala has frequently suffered from civil war, corruption in government and violence in the streets (Kincaid 2000). Businesses have suffered, because of the uncertainty and lack of continuity in business climate. Simply stated, Guatemala has been in a crisis mode for a very long time. Rampant distrust in government is a perpetual problem that filters down in to the general business activities. One of the major crisis management issues that has had a long history, not only in government but also in business, is corruption (Miller 2001). Because wages are so low and jobs are so scarce, survival is a perpetual thought on the minds of many Guatemalan citizens. Corruption can be an opportunity to escape the problems of poverty. It also may be perceived as a means of wealth accumulation otherwise not available through the job retention process. Another problem that has emerged as a major crisis for Guatemalans is gang activity, which perpetuates threats of violence on individual citizens and businesses. The gangs are a result of political problems as well as unequal distribution of income (Saltz 1995). Political problems have led to sporadic guerilla attacks,

Volume 5 (2001) Crisis Planning in Guatemala 31 kidnappings and high profile murders (Rarick 2000). The unequal distribution of income has exposed small businesses to internal theft, robbery, murder and extortion. Private citizens walking in the street can be confronted with this terrible misfortune. The tourism industry, which for a long time flourished and is a major economic opportunity for Guatemala, has now been confronted with gang violence, causing it to experience a major business crisis (Seabrook 2001). The gangs do not spare any sector of the society. Robberies and kidnappings are on the rise, affecting not only on the individual Guatemalan citizen, but also the business sector (Seabrook 2001). These problems of corruption, gangs and violence, along with other business crisis problems such as Internet hacking, industrial accidents and computer malfunctioning, have made Guatemala vulnerable and crisis management a major concern of society and business. The discussion to this point brings us to the question, what are the crisis events that are of most concern to small businesses in Guatemala? Investigating this question will provide useful insights in determining the worst-case scenarios that should be planned for in the crisis management process. Figure 1 presents a format for assessing worst-case scenarios. Three considerations can be evaluated: has the crisis event occurred in the recent past, what is the current level of concern for that particular crisis, and are there any unique characteristics of the country that would increase the likelihood of a certain type of crisis? A crisis that has occurred in the recent past can become a candidate for future worst-case scenario planning. Crisis management maintains that a potential crisis must be mitigated and, if possible, prevented from occurring in the future. For example, computer system breakdowns occur frequently and can cause a major disruption in the running of a business. Management

32 will want to take steps to prevent their re-occurrence if possible. Consequently, some pre-planning must take place. A common practice in larger organizations is to have back-up computer facilities in place (hot sites) before a major disruption occurs. To summarize, past experience with a specific crisis can be a catalyst to plan for future occurrence of the same type of crisis. Figure 1 Assessing Worst Case Scenarios Crisis event occurring in the past Concern towards a crisis event Potential Worst Case Scenarios Country characteristics

Volume 5 (2001) Crisis Planning in Guatemala 33 The actual concern for a crisis is important to worst-case scenario planning. While it is expected that concern will increase if a crisis has already occurred, it is also possible that concern may be elevated even if the specific crisis has not occurred at the organization. Two examples illustrate this point. First, the Y2K crisis actually occurred at only a small number of organizations. However, concern for this potential was extremely high. Second, the September 11th terrorist incidents have elevated organizational concerns about similar attacks, even though no previous attacks have occurred at these organizations. Elevated concern for a specific type of crisis can make that event a candidate for worstcase scenario planning. The particular characteristics of a country may dictate what types of crises should be included in worst-case scenario planning. For example, in parts of the United States such as Florida, weather concerns such as hurricanes are included in worst-case scenario planning (Kruse 1993). The previous discussion on Guatemala has indicated that crime and corruption are prevalent in parts of the country. Therefore, businesses may be wise to plan for some of these events. THE STUDY Questionnaire A survey instrument was adapted from the instrument used by Crandall, McCartney & Ziemnowicz (1999). The questionnaire was developed on the basis of the crisis events listed in Exhibit 1. Respondents were asked to rate their degree of concern for each crisis event, using a scale with one indicating a low degree of concern and five indicating a high degree of concern. In addition, the survey asked whether the crisis in question had actually occurred at the respondent s organization within the last three years. Respondents were asked whether their organization had a

34 crisis management team. The questionnaire was first developed in English, then translated into Spanish. To check consistency of the translation, back translation was also performed. Data collection The study s participants were business owner and managers from 212 enterprises located in 6 major cities in Guatemala (Guatemala City, Coatepeque, San Marcos, Quezaltenango, Mazaltenango and Retalhuleu). All of the participants were recruited on the basis of accessibility and participated voluntarily. Individual samples were collected by, first, contacting the organization and seeking permission to collect data. Second, the researchers and an official of the organization determined the most effective method of data collection, i.e., during business operations, while the business was closed or at another time that met the business owner s convenience. In addition, a letter was attached to the first page of the survey. This letter described the study and provided specific instructions concerning the completion of each survey (see, for example, Fritz 1997). Results The size of the organization by number of employees is reported in Table 1. One hundred eighty-nine organizations had from 2 to 49 employees for a total of 93.6% of the respondents. Eleven organizations (5.4%) were composed of 50 to 499 employees. One organization had over 500 employees and one did not respond to this question. The first phase of the analysis was to examine the business s perception of crises and crisis management. To determine the degree of concern for a crisis, all 27 items on the questionnaire were measured. The results are displayed in Table 2. The means of each potential crisis item revealed a range of scores

Volume 5 (2001) Crisis Planning in Guatemala 35 from 2.97 for embezzlement by employees to 1.35 for a snowstorm, a natural disaster event. Table 1: Size of organizations in survey Size of organization Frequency Percent Cumulative Percent Between 2 and 49 employees 189 93.6 93.6 Between 50 and 499 employees 11 5.4 99.0 More than 499 employees 1.5 99.5 Non- response 1.5 100.0 Total 212 100.0 The second phase of the analysis examined the actual occurrence of a crisis event in the last three years. The results appear in Table 3. The most frequent type of crisis was theft or disappearance of records and employee embezzlement. Each of these crises occurred at 52 of the organizations, or 25.7% of the total organizations in the study. The least frequent occurring crisis was tornados, which occurred at two of the organizations. Snowstorms did not occur at any of the organizations. The next phase analyzed the relationship between the concern for a type of crisis and the occurrence of a crisis of that type. The purpose of this part of the study was to determine which types of crisis events showed higher degrees of frequencies and concern from the respondents. While it may appear logical that frequent occurrence of a type of crisis will generate higher concern, that is not always the case. For example, computer system breakdowns may have occurred previously in an establishment; however, if management is not particularly alarmed or concerned about such breakdowns, then that sort of crisis may not be perceived as severe. But when a type of crisis shows some degree of frequency and a higher degree of concern, then that type may be a candidate for worst-case scenario planning.

36 Table 2: Degree of concern for each crisis event Type of Crisis Event Mean Standard Deviation N= Embezzlement by employee(s) 2.97 2.01 142 Theft or disappearance of records 2.90 2.00 154 Major industrial accident 2.73 1.99 139 Death of a key executive 2.54 1.95 138 Theft of company property 2.48 1.87 141 Asset misappropriation directly or indirectly for employee s benefit 2.44 1.93 139 Computer systems breakdown 2.29 1.88 127 Corruption by management 2.28 1.87 141 Boycott by consumers or the public 2.18 1.87 138 Employee violence at the workplace 2.08 1.78 144 Product recall 2.05 1.76 130 Earthquake 2.01 1.74 127 Product Sabotage 2.00 1.74 128 Major product/service malfunction 2.00 1.74 128 Lost records permanently due to fire 2.00 1.74 136 Computer system invaded by hacker 1.97 1.56 129 Corporate espionage 1.94 1.70 136 Employee lawsuit 1.93 1.70 133 Flood 1.87 1.66 133 Negative media coverage 1.50 1.61 125 Hurricane 1.79 1.00 127 Government investigation 1.75 1.57 133 Lost records permanently due to computer breakdown 1.74 1.56 129 Breakdown of a major piece of prod/serv. equipment 1.65 1.48 129 Consumer lawsuit 1.62 1.45 130 Tornado 1.48 1.31 125 Snowstorm 1.35 1.13 126 1 = low degree of concern 5 = high degree of concern

Volume 5 (2001) Crisis Planning in Guatemala 37 Table 3: Actual occurrence of crisis event in last three years Type of Event Frequency % N = Theft or disappearance of records 52 25.7 126 Embezzlement by employee(s) 52 25.7 122 Death of a key executive 50 24.8 121 Major industrial accident 50 24.8 119 Asset misappropriation directly or indirectly for benefit of employee(s) 39 19.3 137 Corruption by management 37 18.3 135 Employee violence at the workplace 31 15.3 140 Computer system breakdown 29 14.4 139 Government investigation 28 13.9 147 Employee lawsuit 26 12.9 149 Boycott by consumer or public 24 11.9 149 Product recall 22 10.9 149 Corporate espionage 22 10.9 150 Theft of company property 22 10.9 155 Product sabotage 19 9.4 156 Flood 14 6.9 161 Negative media coverage 14 6.9 155 Computer system invaded by hacker 13 6.4 164 Major product/service malfunction 11 5.4 163 Lost records permanently due to computer breakdown 10 5.0 166 Hurricane 10 5.0 166 Earthquake 9 4.5 160 Lost records permanently due to fire 8 4.0 170 Breakdown of a major piece of production/service equipment 7 3.5 168 Computer lawsuit 3 1.5 175 Tornados 2 1.0 167 Snowstorms 0 0 119 Overall, a Pearson correlation analysis found a strong relationship between the concern for a crisis and the occurrence of that same crisis, with a coefficient of 0.847 (significance level

38 p<.01). To help visually depict this relationship, Z-scores were calculated to standardize the relationship between these two variables. The results are shown in Table 4. The table illustrates how occurrence and concern move together for each crisis event. Not every crisis event follows this pattern on a smooth curve. For example, theft of company property (item 5) and government investigation (item 22) deviate to a greater extent from the concern curve. Table 4 Z-scores for Degree of Concern and Occurrence of an Actual Crisis Pearson correlation =.847 (p<.01) Z score for degree of concern for the crisis Z score for occurrence of the crisis Number key to type of crisis event 1 Embezzlement by employee(s) 2.188 1.865 Theft or disappearance of records 2.020 1.865 3 Major industrial accident 1.613 1.750 4 Death of a key executive 1.158 1.750 5 Theft of company property 1.014-0.023

Volume 5 (2001) Crisis Planning in Guatemala 39 6 Asset misappropriation for employee s benefit 0.919 1.049 7 Computer systems breakdown 0.558 0.423 8 Corruption by management 0.534 0.921 9 Boycott by consumers or the public 0.295 0.104 10 Employee violence at the workplace 0.055 0.538 11 Product recall -0.169-0.232 12 Earthquake -0.113-0.840 13 Product Sabotage -0.138-0.215 14 Major product/service malfunction -0.138-0.725 15 Lost records permanently due to fire -0.138-0.903 16 Computer system invaded by hacker -0.209-0.597 17 Corporate espionage -0.281-0.023 18 Employee lawsuit -0.305 0.232 19 Flood -0.448-0.533 20 Negative media coverage -1.335-0.535 21 Hurricane -0.640-0.776 22 Government investigation -0.736 0.360 23 Lost records permanently due to computer breakdown -0.760-0.776 24 Breakdown of a major piece of prod/serv. equipment -0.976-0.967 25 Consumer lawsuit -1.048-1.222 26 Tornado -1.383-1.286 27 Snowstorm -1.695-1.414 Existence of a Crisis Management Team Table 5 indicates the number of organizations that had a crisis management team. Nineteen respondents (9.4%) indicated that their organization had a crisis management team. One hundred eighty-three respondents indicated their organizations did not have such a team, while 10 respondents did not answer the question. DISCUSSION Reflecting on the data reveals two broad areas of analysis for this study. First are the unique crises that Guatemalan small businesses should be addressing. Second are the obvious findings

40 that few Guatemalan small businesses actually have crisis management teams in place. Table 5: Frequency of Crisis Management Team Does your organization have a crisis management team? Frequency Percent Yes 19 9.4 No 183 90.6 Total 202 100.0 10 respondents did not answer the question What are the worst-case scenarios? Determining the worst-case scenarios that should be planned for is part art and part science. Ultimately, the specific scenarios will be a function of the individual organization, with consideration to its size and industry. This study looked at the scenarios in an aggregate approach, i.e., the sample was not further sub-divided into segments, such as by industry or organization size. One method of determining potential worst-case scenarios is simply to ask which crisis events the respondents are most concerned about. These results were revealed in Table 2. An alternative method is to ask the respondents what events have actually occurred to the organization in a recent time period, such as the last three years (Table 3). Still, it would be useful to combine the data from both tables and make a more comprehensive determination of potential worst-case scenarios. The calculation of Z-scores (Table 4) was used in this approach. Z-scores standardize the variables according to the number of standard deviations they deviate from the mean of the sample. Consequently, the higher the Z-score, the farther away from the mean is the variable. Z-scores of 0 equal the mean for the sample; therefore scores over 0 were of particular interest to us in this

Volume 5 (2001) Crisis Planning in Guatemala 41 study, because they indicated higher degrees of concern or occurrence than the average of the sample. An examination of Table 4 reveals nine potential crisis events where both Z-scores for concern and occurrence are over 0. Using the Z-score greater than 0 criterion, we propose that these events are good candidates for worst-case scenario planning. The events that meet this criterion are: embezzlement by employees (Zconcern=2.188, Zoccur=1.865) theft or disappearance of records (Zconcern=2.020, Zoccur=1.865) major industrial accident (Zconcern=1.613, Zoccur=1.750) death of key executive (Zconcern=1.158, Zoccur=1.750) asset misappropriation for employee s benefit (Zconcern=0.919, Zoccur=1.049) computer systems breakdown (Zconcern=0.558, Zoccur=0.423) corruption by management (Zconcern=0.534, Zoccur=0.921) boycott by consumers or the public (Zconcern=0.295, Zoccur=0.104) employee violence (Zconcern=0.055, Zoccur=0.538) One observation from this list is that five of the nine potential crisis events involve an ethical breach. In addition, all five of these events (embezzlement, theft, asset misappropriation, corruption by management and employee violence) originate from within the organization. While this finding may seem a bit pessimistic, it should be noted that these potential events can be controlled to some degree by the organization itself. Ethics training, careful selection of employees and standard accounting controls are all within reach of capable management. These management practices need not be unique to developed nations, but can be implemented in developing nations as well. Computer systems breakdown represents a potential crisis that also seems to cross international boundaries. A developing

42 area of crisis management is recovery of management information systems. In the United States, such practices as data backup, data recovery, alternate site locations and systems testing fall under the growing area of Business Continuity Planning (BCP) (Rosenthal 2000). Such practices have not yet established a strong presence in developing countries such as Guatemala. However, as BCP professionals expand their influence, they will need to re-consider their role in assisting developing nations as well. Employee violence and death of a key executive are areas addressed in human resource management. Small organizations, regardless of the country in which they are located, are at a disadvantage in their human resource practices, because their size limits their access to the resources available at larger organizations. Large organizations have administered numerous interventions in preventing violent episodes on the part of employees. This practice is good, but it needs to be tempered with the idea that culture, and specifically the country in which the organization is located, may itself breed violence. Some countries, such as Japan, seem to be almost immune to employee violence, while other countries, such as the United States, have certainly witnessed a large number of employee deaths. Guatemala also seems to fall into the category of experiencing large amounts of crime, and consequently violence in the workplace. As to deaths of key executives, succession planning is the standard practice in human resource management to mitigate such an event. However, in small organizations, succession planning may be limited or not even a viable topic, if the management structure is small. The sample in this study focused on smaller businesses, in which the death of an executive may have a larger impact on the organization. Finally, boycott of a company s products can be a devastating crisis. The respondents in this study showed higher level of concern and experience with this type of crisis. The

Volume 5 (2001) Crisis Planning in Guatemala 43 political situation in Guatemala may be a factor in this finding. Usually, before a boycott, the business has some forewarning that public outcry may occur. As a result, planning efforts can be made before such an event actually occurs. In many cases, boycotts can be prevented altogether, if management works proactively with the consumer stakeholder groups. Why are there so few crisis management teams? One of the most obvious outcomes of this study was that few Guatemalan small businesses are really concerned about crisis management. Most organizations that take crisis planning seriously have, at a minimum, installed crisis management teams. Yet only 9.4% of the organizations in this study (99% of which had fewer than 500 employees) indicated that they had such a team. Other studies among larger organizations have found higher percentages of crisis management teams in place. In one of the first studies that asked whether organizations had such a team, Mitroff, Pauchant, & Shrivastava (1989) found that 38% of their sample had a crisis management team. However, their sample consisted only of Fortune 1000 firms and would not be considered representative of the small businesses used in this study. Among very large firms, crisis management teams were prevalent, even back in the late 1980s, when crisis management was still in its infancy. For example, Wisenbilt (1989) found that, of the firms surveyed with sales revenue over $10 billion, 92% had crisis management plans in place. In a more recent study of internal auditors representing organizations both large and small, Crandall, McCartney & Ziemnowicz (1999) found that 50.7% of the responding organizations had teams in place. Clearly then, smaller businesses do not appear to be as concerned about putting together crisis management teams. But why is this the case? The impact of any crisis is its potential to devastate an organization and, in this arena, it is ironic that smaller

44 businesses appear to be especially vulnerable. Even Table 3 indicated that there is genuine concern about potential crisis events, such as embezzlement by employees, theft or disappearance of records, major industrial accident, death of a key executive and theft of company property. Yet crisis management teams are rare in this sample. Three reasons may explain why managers do not give crisis management a priority status: culture, socio-economic conditions and the business environment. Culture shapes a person s perspective and is a determinant of how managers address different business issues (Ball & McCulloch 1999). As such, business culture values will affect the intensity or magnitude of a manager s reaction to crisis events. In the Guatemalan culture, the business is often conducted using the same principles and infrastructures that were prevalent fifty years ago (Mahler 1999). Change is slow. Recognition that new methods are important for business growth and development are not always quickly evident to managers. While business activity is important to the economic well being of each Guatemalan, it may not be a priority in his or her life. The nuclear family and involvement in family activities are very important in the Guatemalan culture. Many businesses are family business and, as such, family takes precedence over business activities. The Latin way of dealing with issues tomorrow is in practice a very true statement (Roman & Cordova 1998). Hence, a crisis may not be thought to need immediate attention, because of these cultural issues. Socio-economic conditions in a country where the day-today survival is a high priority can influence whether planning and organizing for a crisis take precedence over earning daily sales necessary to sustain the business. Little extra time may be available to plan and to organize for a crisis, particularly in a small business, because each moment is devoted to generating a sale. Economic survival is a critical goal for each Guatemalan business.

Volume 5 (2001) Crisis Planning in Guatemala 45 This leaves little time to manage long-term issues other than the day-to-day operations of the business. The business environment does not always socialize or train a businessperson in Guatemala to allocate very much time thinking about crisis management. While the businesses are valuable to the individual for generating income for sustaining his or her family, the long-term focus is not a major issue and therefore the concerns about crisis management are secondary or tertiary in many businesses. As stated previously, many businesses are family owned and have been handed down from generation to generation. Some have very limited understanding of modern management principles. Many business people are using business methods that are antiquated. Concepts of crisis management and operations management are foreign ideas that are not part of their day-to-day business vocabulary or standard operating procedures. This dearth of knowledge and lack of competencies or resources in some management areas influences their desire and ability to recognize crisis situation. It diminishes their intervention capabilities and thus forces them to react to crisis issues rather than anticipating and planning for them. These findings reveal a fundamental challenge in crisis planning if a threat is not perceived to be forthcoming, then planning for it is not considered a priority. Yet business textbooks and the popular press are full of case studies of businesses of all sizes that have failed because of their inability to manage a crisis event. The challenge, then, is to convince all owner/managers Guatemalan businesses, and particularly those of small businesses, of the importance of proper crisis management.

46 MANAGERIAL IMPLICATIONS The findings of this research have important managerial implications. When developing strategies for achieving business goals, managers need to think about the obstacles that will obstruct or constrain the achievement of the goals. Crises that are not planned for or poorly managed become major obstructions and constraints to achieving business goals. Many small business owners do not plan for crisis events, because they believe that the probability of such an event is minimal. Unfortunately, when a crisis does occur, it can devastate the business, perhaps even causing it to close down. Chastang (2000) notes that many businesses do not begin serious crisis planning until after the catastrophe has occurred, and by then it may be too late. Human resource management has long acknowledged the importance of succession planning or the need to place top managers into positions when needed. The death of a key executive can throw a company into an emotional and strategic crisis. For example, Cascom Coffee experienced this crisis when two of its executives were killed in a plane crash in northeastern Guatemala (Tea & Coffee Trade Journal 1999). The crisis management literature tends to be consistent in recommendations, regardless of the industry or country in question. To prepare for the eventuality of any one of the crises occurring, managers need to think about four major areas: 1) assemble a crisis management team, 2) plan for worst case scenarios, 3) formulate a crisis management plan and 4) upgrade and change as necessary. Assemble a crisis management team. The purpose of the crisis management team is to plan for potential crisis events and to manage those events should they occur. Whether the team consists of key representatives of the

Volume 5 (2001) Crisis Planning in Guatemala 47 company, such as operations, marketing and accounting, or just the owner and an employee or family member, it is imperative that some type of team think about the possible crises that could confront the business. If the team is new, it is advisable to bring in an outside representative or someone who is knowledgeable in crisis management issues to help think through the planning process. The size of the team depends on the particular organization; however, one suggestion is to keep the team under ten members (Barton 1993). Numerous books, articles and consultants are now available to assist small businesses in the formation and training of their crisis management team. At a minimum, the team should meet at least twice a year and work on developing a crisis management plan. This plan outlines how the organization will respond to crisis events and who will be in charge of managing various aspects of the crisis. Plan for worst-case scenarios. An important step in developing the crisis management plan is to identify worst-case scenarios, or possible disasters that could strike an organization s particular establishment. For example, an airline would plan for an air disaster, while a cruise ship line would prepare for an emergency at sea. A periodic vulnerability analysis or audit is a critical part of this planning activity. By planning for industry unique disasters, the company becomes better prepared to manage the crisis should it occur. In Guatemala, certain natural forces are present that should cause businesses to plan for a worst-case scenario. The Pacaya volcano, located 25 miles south of Guatemala City, poses a natural threat to this area. In fact, during a recent eruption, the airport was forced to shut down. In this case, the worst-case scenario involved the threat of aircraft and surrounding towns being damaged by volcanic ash (Airline Industry Information 2000).

48 Formulate a crisis management plan. The crisis management plan is a written document that outlines how the organization will respond to crisis events. The plan s comprehensiveness will vary depending on the business and industry s size. However, it should include at least the current crisis management team members and their phone numbers, other important and emergency phone numbers, team member responsibilities, the location of the command center and strategies for managing worst-case scenarios. Practice mock disasters, manage an actual crisis or both. At some point, the crisis management team and plan should be tested. Simulated disasters are a common method of testing and include the simulation of an actual crisis, the activation of the crisis management team and the planning of how to manage the crisis. An occurrence of an actual crisis will also enable the plan to be tested, but at this point, the stakes will be higher. Therefore, it is recommended that mock disasters be held as soon as possible after the crisis management plan is in place, so that modifications in the plan can be made before a real crisis hits. Upgrade and change as necessary. Whether by practicing a mock disaster or by managing a real one, lessons will be learned that should necessitate changing aspects of the crisis management plan. For example, an oil spill in Guatemala s Izabel province was caused by unidentified saboteurs (The Oil Daily 2000). The resulting 150-barrel leak will no doubt cause some re-thinking on security measures for protecting that line. Figure 2 provides an overview of the crisis management and planning process for Guatemalan businesses.

Volume 5 (2001) Crisis Planning in Guatemala 49 Figure 2: A proposed model of crisis management for Guatemalan small businesses While this challenge may seem to be an enormous task for Guatemalan managers, it can be done. New management methods

50 are being implemented in many Guatemalan businesses, allowing them to possess state of the art information and response capabilities. The Guatemalan businesses are capable of achieving however there needs to be various seminars, training sessions and consultations to familiarize the business people with the concept of crisis management and how to implement them. Clearly this challenge is a large one, which only the individual businessperson or the business community can address. LIMITATIONS AND CONTRIBUTION TO CRISIS MANAGEMENT THEORY Study s Limitations There are some limitations of the study and therefore the findings must be viewed as preliminary. One limitation is that our conclusions are restricted to association rather than causation. In other words, we can see that concern for a crisis and the occurrence of a crisis go hand in hand. As concern increases, there is usually an increase of frequency for that crisis event. However, we have not made a determination as to which variable impacts the other. Another limitation is that, because of the multiorganizational nature of the sample used in this study, differences among the small businesses were not accounted for. In this context, a worthy area of investigation may be to test for differences performance between the different industry types of small business in Guatemala. Finally, while the data set used in this study was sizable, it was a convenience sample and a larger and more representative sample is needed for more conclusive results.

Volume 5 (2001) Crisis Planning in Guatemala 51 Study s contribution to crisis management theory While the study is exploratory, it does make a contribution to the building of crisis management theory. First, it provides insight into the types of crises and crisis concerns that Guatemalan managers consider important in their business operations. These insights build the basis for worst-case scenario planning. A second contribution addresses the association between concern for an actual crisis event and the occurrence of a crisis event. The study reveals that concern and frequency move in the same general direction, i.e., high concern events have occurred more frequently, while low concern events have occurred less frequently. However, one obvious caveat should be noted. The September 11th terrorist attack was statistically a rare event. Yet concern for terrorism has increased dramatically in the United States, even though the frequency of terrorism is still low. In crisis management, it is understood that some events have a low likelihood of occurring, yet still generate high concern among managers. CONCLUSION This study has looked at the perceptions and experiences of Guatemalan small businesses in relation to crisis events and crisis management. The results indicate that, in general, small businesses are not very concerned about crisis issues and consequently few have crisis management teams. One reason this is the case may be that smaller businesses experience fewer crisis events relative to larger organizations. As a result, the perceived need to plan for a crisis is not as strong. However, there is a paradox. Small businesses are also very likely not to recover fully if they do experience a crisis event. In fact, small businesses often have fewer resources and less expertise