Anatomy of a Crisis

Abstract

Crises a b o u n d in and around our lives. One spouse discovers the other's infidelity and threatens a divorce unless the illicit liaison is b r o k e n off immediately. A union is on the verge of declaring a strike. Congress, about to adjourn, has failed to agree on a budget, preventing the g o v e r n m e n t from paying its bills. A Third World country, unable to meet its debt payments to foreign banks, is about to be declared in default. The Soviet Union sends nuclear missiles to Cuba and the president of the United States goes on television to d e m a n d their immediate withdrawal and to announce a naval blockade of the island.In each of these cases, a negotiation may take place to try to avert an impending major loss. Times of crisis call for a special kind of negotiation. There is no time for drawn-out discussion or the usual diplomatic dance, and typically the negotiators are under considerable stress. Nowhere is the critical role of negotiation so clear as in crisis, for here it can make the difference b e t w e e n peace and war, metaphorically and sometimes literally.Richard Lebow points out that if the Cuban Missile Crisis of 1962 had d e v e l o p e d into a cataclysmic war, historians would have had little trouble explaining w h y this war was inevitable, arising as it did from the deepseated geopolitical and ideological conflict b e t w e e n the superpowers, the spiraling arms race, and the heightened tension of the Cold War.1 Yet this crisis did not turn into a war. Decision-makers on each side s o m e h o w succeeded jointly in preserving the peace.This paper seeks to understand the dynamics of the decision-making process in crises. What makes a crisis a crisis? What are key variables which, if manipulated in one direction, intensify the crisis, or if manipulated the other way, tend to defuse it? Where can the decision-making process fail? We do not offer here a s u m m a r y of the valuable and extensive literature which analyzes crises, but rather attempt to distill a simple conceptual f r a m e w o r k for understanding a crisis that a practitioner could use. Our immediate concern is not the question of h o w to control a crisis, but h o w one might usefully think about a crisis as a first step toward controlling it.

Crisis and Competition in Expert Organizational Decision Making: Credit-Rating Agencies and Their Response to Turbulence in Emerging Economies

“…Where experts play the middle-man role, their decisions can materially affect the efficiency of markets where multiple stakeholding organizations interact. By crisis we mean a generally short period of unexpected and notably unfavorable shift in the external environment organizations face (Janis andMann 1977, Ury andSmoke 1991). By industry turbulence we mean a more protracted state of environmental volatility and generally unfavorable drift in key factors critical to the success and survival of firms in the industry (IOSCO 1999, Kindleberger 2001.…”

“…Various researchers studying the social psychology of decision making provide relevant guidance in the development of this prediction. When faced with crisis or surprise situations, decision makers tend to perceive increased urgency to act, narrowing options and the need for dramatic response (Janis and Mann 1977, Quarantelli 1988, Ury and Smoke 1991, Kindleberger 2001, Watkins and Bazerman 2003. This shift in decision behavior reduces the value of expertise in complex decisions (Neale andNorthcraft 1986, Spence andBrucks 1997) and heightened concern regarding the status of their legitimacy, resulting in increased pessimism (Keats and Hitt 1988).…”

“…Decision-making processes designed for generally stable conditions give way occasionally to different processes, prompted by unplanned environmental discontinuities related to the arrival of "disruptive" technologies (Christensen 1997), hypercompetitive rivals (D'Aveni 1994), industrywide shocks (Meyer 1982), or broader national and even global "surprises" (Watkins and Bazerman 2003). As analyses by Janis and Mann (1977), Quarantelli (1988), Ury and Smoke (1991), and Kindleberger (2001) suggest, such discontinuities can prompt "emergency" or "crisis" decision making that is shaped by higher perceived levels of uncertainty, urgency to act, narrowing options, and high-stakes implications for organizational survival.…”

Crisis Negotiations Between Unequals: Lessons from a Classic Dialogue

“…While the Athenians may have wished to create this atmosphere to gain the attention of the Melians, crisis negotiations come with a cost. The Melians realized the stakes were high, time was short, and their options were limited, all of which are elements in escalating a crisis into war (see Ury and Smoke 1985). The Athenians, though setting this crisis into play, were not able to maintain control of the situation.…”

A Comparison of Consensus and Voting in Public Decision Making

“…Two Decision-Making Approaches Ury and Smoke (1985) identify four factors that can bring on a public crisis: a tight time frame, a high degree of uncertainty, few realistic options, and high stakes. The story that follows had all the characteristics of a community crisis, and the way community leaders chose to address it offers a superb opportunity to examine two radically different modes of community decision making.…”