The crisis spiral

Dr Peter Wells

Centre for Automotive Industry Research

ContentsThe crisis spiral concept

Interconnectedness Time

Automotive examples MG Rover & Mitsubishi

Wider considerations

Sources of crisis Economic / business

Internal e.g. Failed new model, labour unrest, major supplier fails

External e.g. general demand slump, material supply crisis

Environmental / social Not including ‘disaster recovery’ External source (usually) Unpredictable…major role for corporate

communications

The Crisis Spiral

Demand Falls

Revenue Falls /

Costs Rise

Output / Sales Fall

Brand Status Falls

The Crisis Spiral

FINANCE

SUPPLIERSDEALERS

STAFF

Revenues Fall / Costs Rise

Shares Sold

Secondary Sales

Value Falls

£ Shortage

Assets Sold

Debt Rating Falls

Interest Rates Up

Plant Investment

Falls

R&D Investment

Falls

Vulnerable

FINANCE LOOP

Revenues Fall / Costs

Rise

SUPPLIER LOOP

Supplier Volumes

Fall

No Supplier Parks

No Component

R&D

Advance Payment

Time To Market

Increases

Product Uncompetitive

Quality Falls

Need Alliances

Less To Contribute

Weak Partners

Benefits of Alliances Reduced

DEALER LOOP

Revenues Fall / Costs

Rise

Sales / Dealer

Fall

Confidence Falls

Multi Franchises

Dealers Leave

Adopt Other

Brands

Territory Lost

Dealer Investment

Falls

Property Declines

Training Declines

Customer Service

Falls

PERSONNEL LOOP

Revenues Fall / Costs

Rise

People Laid Off

Plants Closed Down

Pay Limited

Morale Falls

Absenteeism Rises

Productivity Falls

Best People Leave

Recruitment Difficult

Competencies Decline

Contract Staff Hired

Some Brief ExamplesMG Rover

The forty year crisis From the impossible to the inevitable Losing control over destiny

Car design integration ability lost Key decision moments e.g. move to BMW Key intervention moments?

Some Brief Examples Mitsubishi

Initial problem with detaching wheel Main problem came with cover ups and denials Been through successive rescue plans Now trying CSR-lead revival Major reengineering of corporate culture Additional problems in the US Still spiralling downward

Crisis and TimeDifferent elements of entire value

system respond at different rates: Finance…immediate Link between reputation risk and finance

risk Run on the bank problem…drawing the line

in the sand Other elements work through more slowly Government (non) intervention critical

Crisis and declineCan the spiral be reversed or even pre-

empted?Does the crisis accelerate the rate of

decline?Are corporations more vulnerable now

than they used to be?

Conclusions

More research needed!