Pergamon

European Management Journal Vol. 21, No. 3, pp. 398407, 2003

2003 Elsevier Science Ltd. All rights reserved.
Printed in Great Britain
doi:10.1016/S0263-2373(03)00046-X
0263-2373/03 $30.00 + 0.00

Crisis Planning in Small

Businesses:
Importance, Impetus and
Indifference
JOHN SPILLAN, Penn State University DuBois
MICHELLE HOUGH, Penn State University McKeesport
This study examines crisis planning in a survey of
small businesses. It specifically focuses on the perceived importance of crisis planning by small business managers. In particular, we investigate
whether the experience of an actual crisis event by
a business generates concern for future crises, if
concern is generated more from the occurrence of a
crisis event or from the presence of a crisis management team. Results of the study indicate that crisis
planning receives little attention in the small businesses surveyed, and for most small business managers, an actual crisis event must occur before crisis
planning becomes a concern. Concern for crises is
generated by experiencing crisis events, rather than
by the presence of crisis management teams. It was
found that even those businesses that had previously experienced crises did not have crisis management teams.
2003 Elsevier Science Ltd. All rights reserved.
Keywords: Crisis planning, Crisis management,
Small businesses, Disasters

Introduction
As individuals, we understand that we probably will
encounter some type of adversity in our lives.
Whether by foresight or regulation, we plan for crises
and seek ways to minimize their impact. Our automobiles are equipped with airbags and our homes
with carbon monoxide detectors and smoke alarms,
and our children receive a plethora of annual vaccinations. We pay into unemployment compensation
and purchase health, vehicle, life, and homeowners
398

insurance in an attempt to mitigate some of the financial implications of adversity. As individuals associated with businesses, we are not immune to
adversity; instead, it comes perhaps on a larger scale.
In recent years, business adversity has been spotlighted in the aftermath of September 11, corporate
ethics scandals, and a faltering economy. In business,
the stakes become higher. Not only can a crisis
adversely impact the individuals directly associated
with the business, it can destroy the business entity
and wreak havoc on suppliers, customers, partners,
competitors, and the community in which the business is based. With such widespread potential
impact, few would argue that businesses have a
responsibility to plan for and protect against crises
wherever possible.
The old adage states, if you fail to plan, you plan to
fail (Fitzhenry, 1993, p. 67). Clearly, planning is a key
to success both for individuals and businesses. Not
only should businesses plan for positive events, such
as new products or factory expansions, they must
also plan for adversity. Every business should have
a crisis management plan in order to cope with unexpected and unwelcome events. Anticipating a crisis
may make it less traumatic and costly. Unfortunately,
many businesses mistakenly assume that crises will
not blight their doorsteps. Not only is this assumption overly optimistic, it is certainly a formula for an
ineffective response when a crisis does occur. The US
Small Business Administration (SBA) Disaster Office
estimates that every State in the US will suffer a
national disaster in the next two years. The SBA notes
that the communitys survival depends on the ability
of businesses to minimize risk and damage by anticipating the worst (US Small Business Administration,
European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

CRISIS PLANNING IN SMALL BUSINESSES

2003). With an effective plan, businesses may even

be able to turn adversity into advantage. The late
President John F. Kennedy noted, When written in
Chinese, the word crisis is composed of two characters. One represents danger and the other represents
opportunity (Fitzhenry, 1993, p. 12). There are many
examples where implementation and execution of a
well-developed crisis plan both controlled the crisis
and turned it into an advantage for the business
(Wilderoter, 1987). There are at least as many horror
stories where the lack of a plan caused severe and
sometimes irreparable damage to both businesses
and communities. Whether the crisis is like the one
that occurred at the Union Carbide Corporation plant
in Bhopal, India, or the hurricane Andrew in 1992,
which swept across South Florida with unparalleled
devastation and destruction (Kruse, 1993), a business
needs a plan of action to address potential incidents.
While the chance of a crisis completely destroying a
business might seem slim, the odds are higher that
some type of traumatic crisis event could seriously
disrupt its operation.

are so difficult and time consuming that there is no

time to plan for tomorrows uncertainties
(Caponigro, 2000). While the challenges of running
a small business make these justifications somewhat
understandable, a lack of crisis planning can be
harmful to the success of the small business operation. Long-planned business strategies, alliances,
and deals often are sacrificed to the immediacy of
managing a crisis. It may be prudent to establish a
crisis management plan to save the company today
and then focus on the strategies and deals that will
come tomorrow. Managers have to weigh the difference between the investments in planning for a crisis
versus the potential costs that result from failure to
plan. This choice is integrally linked to an understanding of the types of crisis that exist. To quote
John F. Kennedy again, There are risks and costs to
a program of action. But they are far less than the
long-range risks and costs of comfortable inaction
(Fitzhenry, 1993, p. 13).

Crisis management entails minimizing the impact of

an unexpected event in the life of an organization.
Many large organizations have highly developed
crisis management plans and teams that are ready
and rehearsed for crises. Small businesses, generally
defined as those having fewer than 500 employees,
may believe that crisis planning is less important.
Many small organizations have the mentality that
crises dont happen in our industry/field or we
have a well-managed business and could manage our
way through a crisis without a plan (Caponigro,
2000). They assume that crisis events only happen to
other organizations or that they are somehow protected from a crisis (Mitroff, 1989). Other small businesses may believe that they need not plan for crises
because they carry insurance. Unfortunately,
insurance does not cover intangible items such as
company reputation, customer goodwill, and professional rapport. After September 11, civil litigation
attorney Jeffrey Lang found his office across the
street from 5 World Trade Center indefinitely closed.
He chose to work from his apartment, but now
regrets his choice.

Research Question
Not all small businesses lack foresight regarding
adversity. As small businesses become more
immersed in technology, many implement at least
minimal disaster recovery procedures such as regular
data backups. Others have basic business insurance
coverage to cushion the effects of adverse events. A
few might indicate that the events of September 11
made management start to think what if? Many
small businesses, though, fail to engage in any preparedness planning activities. This discontinuity
leads to some interesting questions regarding crisis
planning. Why are some small businesses more concerned about crises than others? Is the experience of
a crisis the catalyst for concern, or is concern generated as a consequence of having a management team
that considers crisis planning an integral part of business strategy?
To attempt to answer these questions, one research
question and three related hypotheses regarding
small businesses are proposed. They are as follows.

Because I no longer have an office, I dont have the give

and take that I had with other lawyers. The whole network
that I had established emanating from my office was obviously terribly impacted.

Research question. What differentiates small businesses concerned about crisis events from those lacking concern?

Although Lang sent a mass mail to his clients, he is

still struggling to develop a plan to resurrect his practice (Chanen, 2002, p. 57).

Hypothesis a. There is a higher degree of concern among

businesses with crisis management teams than in those
businesses with no such teams.

Another argument that smaller businesses cite for not

adequately preparing for crises is that they lack the
resources to meet the readiness requirements (Barton,
1993). Finally, some business managers claim that
they do not have enough time to be preoccupied with
crisis planning. They indicate that todays problems
European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

Hypothesis b. Small businesses that have experienced

crises are more concerned about those crises than those
businesses that have not experienced crises.
Hypothesis c. The degree of concern for a crisis event is
dependent more on the actual occurrence of the crisis event
than on the formation of a crisis management team.
399

CRISIS PLANNING IN SMALL BUSINESSES

These hypotheses were tested using a survey mailed

to small businesses in the northeastern part of the US.
It is hoped that the results of this study may provide
insight on the subject of crisis planning in small businesses.

Literature Review
Historically, crisis management scholars have
focused on larger organizations with little written
relating this discipline to smaller businesses. The
existing literature can be grouped into the topics
detailed here.

businesses. Some businesses identify the vulnerabilities, or crisis events that could occur in their
organization. Often though, businesses have tunnel
vision regarding crises that could potentially strike.
The losses of September 11 were greatly magnified
by the inability of the airline industry, the Pentagon,
and the businesses occupying the World Trade
Center to truly imagine the full implications of worstcase scenarios. The use of box-cutters as weapons, the
ability to turn aircraft into missiles, and the melting
point and stress-resistance of structural steel were
certainly not perceived to be even far-fetched factors
to be addressed in the crisis management plans
developed in the pre-September 11 world. It is critically important that businesses anticipate not only
the crisis events unique to their industry, but also
those inherent in the world in which they operate.

Crisis Identification
A crisis can be defined as a turning point where
events or activities run the risk of escalating in intensity, interfering with the normal operations of the
business, endangering the business public image,
and damaging its bottom line in any way (Fink,
1986). Gorski (1998) reports that a crisis can
encompass events from a natural disaster such as a
flood or hurricane to a form of human tragedy. A
crisis can cause an operational production failure
and/or it can lead to a public relations fiasco. Crisis
events can also lead to legal problems that can disrupt the normal functioning of business activity.
Crises not only encompass natural disasters, terrorism, fraud, and intentional destruction of resources,
but also can include such seemingly minor events as
the illness of a key employee, a brief power surge, a
product recall, or a less-than-flattering news story.
One integral task of the manager undertaking crisis
management planning is simply to recognize the full
range of events that can be classified as crises.

Crisis Aftermath

According to Simbo (1993), one of the reasons businesses lack effective crisis management plans is that
they have failed to identify the types of adverse
events that could impact their organization. Consequently, they lack the ability to develop comprehensive plans for dealing with crises. Fink (1986) asserts
that crisis identification is important for two major
reasons. First, when the crisis is properly defined, it
can be managed. Second, once the crisis is defined,
management can determine the degree of influence
they have over the desired outcome. Because crises
are generally followed by a variety of diversionary
problems, it is important that the manager identify
the real problem and focus interventions on the core
issues rather than being distracted by the diversionary problems.

Although a comprehensive insurance policy certainly

can provide assistance in resolving a crisis-provoked
problem, insurances value in a crisis situation is far
from complete. Simbo (1993) notes that insurance can
provide protection for extensive cost implications,
but is, by itself, inadequate in terms of assuring the
survival and recovery of a firm. Even a comprehensive insurance policy has a major weakness. It does
not protect against the loss of soft dollar items such
as goodwill, decreased productivity, low employee
morale, increased absenteeism, stress, worker unrest,
and increased workers compensation claims (Fink,
1986). Additionally, the business interruption caused
by the crisis can have an impact on the customers,
suppliers, and distributors who are major stakeholders in the business. Moreover, 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 as a result of the crisis. This point is

Warwicks (1993) research shows that one of the

major elements important to the 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
400

With crisis so broadly defined, it is highly probable

that all small businesses eventually will be confronted with some type of crisis. The businesss
ability to manage the crisis successfully can mean the
difference between survival and disaster. Finks
(1986) and Offers (1998) review of crisis preparedness indicate that 50% of all businesses stricken by a
crisis will not survive if they do not have an adequate
business recovery plan in place. Pedone (1997) offers
an especially pessimistic observation indicating that
90% of businesses without a disaster recovery plan
would fail within two years of a disaster. Thus, the
relevant question in crisis management planning is
not whether a crisis will occur, but what kind and
when it will occur (Caponigro, 2000; Kruse, 1993).

Insurance as a Crisis Plan

European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

CRISIS PLANNING IN SMALL BUSINESSES

vividly exemplified in the Exxon Valdez oil disaster

(Hartley, 1993). Managers and business owners who
believe that insurance is the comprehensive solution
for their crisis management problems may eventually
find themselves out of business.

Crisis Management
Gorski (1998) states that a crisis can test the capabilities of an organizations staff and its leaders. According to Caponigro (2000), crisis management is the
function that works to minimize the impact of a crisis
and helps an organization gain control of the situation. It also operates to take advantage of any benefits that a crisis may present. As such, the demands
of daily operations and crisis management are so
important that organizations need to implement
crisis management plans and teams in order to achieve continuity in business operations (Barton, 1993;
Caponigro, 1998; Hickman and Crandall, 1997).
Whitman and Mattord (2003) define crisis management as the actions taken during and after a disaster.
To them, crisis management focuses foremost on the
people involved, and secondarily on the viability of
the business. They categorize crisis management as a
subfunction of contingency planning, which is
defined as the entire planning conducted by an
organization to prepare for, react to, and recover
from events that threaten the security of information
and information assets in an organization, and the
subsequent restoration to normal modes of business.
Regardless of where the line is drawn between crisis
management and contingency planning, the literature strongly points to the need first to control a crisis
situation, and second to use it to gain competitive
advantage where possible.

Crisis Management Teams

There are convincing arguments supporting the formation of crisis management teams (Barton, 1993;
Caponigro, 1998; Hickman and Crandall, 1997; Pearson and Clair, 1998). These teams are responsible for
planning for crises before they occur, as well as managing the unanticipated problems that often emerge
during crisis events. Fink (1986) states that it is necessary to establish a crisis management team before a
crisis plan can be developed. As such, Pearson and
Clair (1998) report that those organizations with crisis
management teams show a greater concern for and
attention to potential crises than organizations without crisis management teams. Moreover, Fink (1986)
states that those organizations with no plans reported
that their crises lasted two-and-a-half times longer
than those organizations with plans in place. The
presence of at least one of the two following conditions seems to lead to the formation of crisis management teams. First, a top management culture
exists which stresses the importance of crisis manageEuropean Management Journal Vol. 21, No. 3, pp. 398407, June 2003

ment practices (Pauchant et al., 1992; Pearson and

Clair, 1998). Caponigro (2000) states that the best way
to help insulate a business from the damaging effects
of a crisis is to establish a crisis management culture
in the organization. The awareness in the organization that crises may happen typically leads to planning for those events; such preparations often involve
the formation of a crisis management team. Second,
Penrose (2000) notes that experience gained from
actions or activities that pre-dated the creation of the
crisis management team may have taught important
lessons regarding the need for such a team.
Similarly, McCartney et al. (1999) note that the rationale for developing a crisis management team may
come from two directions. (a) A crisis or crises may
occur, causing the organization to react to the
event(s) and implement damage control and corrective action. The event(s) will create a process of
organizational learning causing management to
develop contingency plans that set forth actions that
can either prevent or provide a response to a crisis
event. (b) An organizational development process
that focuses on continual improvement might recognize an organizational vulnerability stemming from
lack of crisis planning; this leads to the cultivation of
a culture that focuses on crisis planning, which in
turn leads to the establishment of a crisis management team.
This study focuses on discerning what crisis events
concern small businesses, and the relation between
concern for crisis events and the existence of crisis
management teams.

Methodology
To conduct this study, a survey was sent to small
businesses in Pennsylvania and New York. The
methods used regarding data collection, determination of survey reliability, and data analysis are
described in the following sections.

Data Collection
Data were collected using a survey adapted from an
instrument developed by Crandall et al. (1999). The
instrument was centered on the crisis events listed
in Exhibit 1, and comprised four sections. Section I
requested demographic information such as the type
of business, the number of employees, and the number of years in business. Section II listed crisis events
such as operational and legal crises, publicity problems, fraudulent activity, and natural disasters. For
each crisis event, the respondent was requested to
rate the organizations degree of concern regarding
that event using a five-point Likert scale (low to
high), and to indicate whether the organization had
experienced that event in the last three years. Section
401

CRISIS PLANNING IN SMALL BUSINESSES

Exhibit 1

Categories of Crisis Events

Operational Crises
Loss of records permanently due to fire
Computer systems 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 production/service equipment
Fraudulent Activities
Publicity Problems
Theft or disappearence of records
Boycott by consumers or the public
Embezzlement by employee(s)
Product sabotage
Corruption by management
Negative media coverage
Corporate espionage
Theft of company property
Employee violence in the workplace
Natural Disasters
Legal Crises
Flood
Consumer lawsuit
Tornado
Employee lawsuit
Snowstorm
Government investigation
Hurricane
Product recall
Earthquake
Adapted from Crandall et al., (1999).

III asked if the organization had a crisis management

team, and Section IV consisted of open-ended questions regarding organizational reporting of crises to
management, and a prompt for respondents to list
any other crises they may have encountered, but
were not listed on the survey. A cover letter with
brief instructions and a self-addressed stamped
envelope were also included in each survey packet.
The survey packets were addressed to the human
resources or executive offices of each company, and
each company was requested to return one survey,
completed in its entirety. Packets were mailed to 1000
small businesses in Pennsylvania and New York. One
hundred and sixty-two useable surveys were
returned, providing a response rate of 16.2%.

Reliability Analysis
Cronbachs alpha measurement was used to estimate
the reliability of questions related to crisis concern
and crisis occurrence. The analysis indicated that
reliability ranged from 0.78 to 0.89. Specifically, the
alpha coefficients are: concern for crisis event =
0.89; and occurrence of the crisis event = 0.78. The
summed scale revealed a 0.90 alpha coefficient. When
presented with the scale, small business managers
had little difficulty relating to them and the reliability
coefficient for the overall scale was 0.90, which was
considered sufficient based on criteria used in the
literature (Nunnally, 1994).

Data Analysis
Since a goal of this study was to remain methodologically consistent with the McCartney et al. (1999)
402

research, the primary analyses employed were t-tests

and analyses of variance (ANOVAs) to evaluate the
three different hypotheses. The first analysis examined the mean differences in degree of concern for
those businesses that had crisis management teams
and those that did not. The second analysis measured
the mean differences in degree of concern for those
businesses that had experienced a crisis event, and
those that did not. The final analysis using ANOVA
looked at degree of concern as the dependent variable and the occurrence of an event and the existence
of a crisis management team as the independent variables. After testing for mean differences with t-tests,
ANOVAs and descriptive statistics were conducted
for the entire data set. Each of the analyses was followed up with a Scheffe post-hoc analysis to test for
significant differences between levels of the independent variable.

Results
As illustrated in Table 1, the majority of organizations responding to the survey can be categorized as
very small, based on the measurement criterion number of employees. Of the respondent companies,
58.0% indicated they had fewer than 25 employees
while 16.7% of respondents had between 25 and 99
employees. Only 15.4% of responding companies had
more than 100 employees, of which 3.7% indicated
they employed 500 or more, exceeding the normally
accepted definition of small. Sixteen organizations
(9.9%) did not respond to this question on the survey.
Overwhelmingly, the organizations responding to
European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

CRISIS PLANNING IN SMALL BUSINESSES

Table 1

Size of Organizations in Survey

Size of organization Number of Percentage Cumulative

responses
percentage
Less than 25
employees
Between 25 and 99
employees
Between 100 and 499
employees
Over 499 employees
Did not respond
Total

94

58.0

58.0

27

16.7

74.7

19

11.7

86.4

6
16
162

3.7
9.9

90.1
100.0

the survey lacked crisis management teams. Table 2

shows that only 10.5% of respondents acknowledged
the existence of a crisis management team, while
85.2% indicated they had no such team. Seven
organizations, or 4.3%, did not provide a response to
the question.
Results of analysis show that, for the most part, small
businesses with crisis management teams had no
greater concern for potential crises than the businesses without crisis management teams. Table 3
ranks in descending order by t value the mean concern scores for businesses with crisis management
teams to the mean scores for businesses lacking these
teams for the crises detailed on the survey. Of the 27
events listed, only product recall (t = 2.345, p =
0.031) shows a significant difference in means at the
0.05 level. Businesses with crisis management teams
show greater mean concern regarding product recall
(M = 2.77) compared to businesses without teams
(M = l.54), and the difference in concern cannot be
attributed to chance. Because only one of the 27
events displayed a significant difference in mean concern scores, Hypothesis a is not supported.
Table 4 illustrates the results of a comparison of mean
concern values for small businesses that had experienced a given crisis event to the mean concern values
for those businesses that had not experienced the
event. The 27 crisis events are ranked in descending
order by t value. The results show significantly
higher concern for a given crisis by small businesses
that had experienced the crisis within the past three
years as compared to concern for the event by businesses that had not experienced it in that timeframe.
Businesses that experienced 19 of the 27 crisis events
Table 2
Teams

Organizations with Crisis Management

Existence of team

Number of responses Percentage

Yes
No
Did not respond
Total

17
138
7
162

10.5
85.2
4.3
100.0

European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

listed in the survey (70.3%) were significantly more

concerned about those events at the 0.05 level than
businesses that had not experienced those events. Of
the 19 events where significant differences occurred,
15 events showed differences in concern levels even
at the p = 0.01 level. These findings confirm Hypothesis b, that small businesses that have experienced
crises are more concerned for those crises than small
businesses that have not experienced crises.
Finally, to investigate the concern relationship
between the existence of a crisis management team
and the occurrence of a crisis, an ANOVA was performed. The test was conducted using the occurrence
of a crisis event and the existence of a crisis management team as independent variables and the degree
of concern regarding a potential event as the dependent variable. This procedure was performed to
determine which factor is more critical regarding
concern in small businesses: the existence of a crisis
management team or the occurrence of a given crisis
event. Table 5 illustrates the results of the ANOVA.
For 16 of the 27 crisis events (59%), the occurrence of
the event significantly affected the level of concern
for the event at the 0.05 level. Of the 16 events where
concern was significantly impacted, eight events
were significant at the 0.01 level. The presence of a
crisis management team did not significantly affect
concern for any of the 27 crisis events. Further, no
significant interaction was found among the independent and dependent variables. As a consequence,
these findings strongly support Hypothesis c, that the
degree of concern for a crisis event is dependent
more on the actual occurrence of the crisis event than
on the formation of a crisis management team.

Discussion
The findings in this study reveal that small businesses place little emphasis on crisis planning. The
only impetus for concern regarding crises appears to
be the actual occurrence of a crisis, and the few businesses surveyed with crisis management teams in
place had no greater concern for potential crises than
those with no teams. This indifference is puzzling in
light of the volume of literature stressing the importance of crisis planning and the strong probability
that small businesses, unprepared for crises, will
likely experience significant hardship and possible
dissolution when faced with significant adversity.
The first hypothesis states that there is a higher
degree of concern for crisis events in businesses with
crisis management teams compared to those businesses with no teams. This hypothesis was not
strongly supported by the findings of the study.
From the 27 crisis events listed on the survey, only
product recall generated significantly more concern
among businesses with crisis management teams.
This result might be attributed to increasing empha403

CRISIS PLANNING IN SMALL BUSINESSES

Table 3

Comparison of Mean Concern Scores: Organizations With and Without Crisis Management Teams

Concern for

Product recall
Consumer lawsuit
Earthquake
Loss of records fire
Flood
Computer system breakdown
Employee lawsuit
Corporate espionage
Major product/service malfunction
Asset misappropriation
Death of key executive
Negative media coverage
Hurricane
Tornado
Employee violence at workplace
Snowstorm
Breakdown of production/service equipment
Loss of records computer
Employee embezzlement
Major industrial accident
Product sabotage
Computer system invaded by hacker
Theft of company property
Management corruption
Boycott consumers or public
Government investigation
Theft/disappearance of records

Crises management team?

(mean)
Yes (n = 17)

No (n = 138)

2.77
3.35
1.35
2.47
1.94
3.77
2.88
1.82
2.88
1.35
2.65
2.12
1.35
1.47
1.59
2.18
3.18
3.06
1.59
2.65
1.65
2.06
2.29
1.59
1.14
2.18
1.78

1.54
2.34
1.03
1.88
1.54
3.35
2.41
1.46
2.42
1.70
2.23
1.80
1.17
1.27
1.85
1.94
2.91
2.80
1.75
2.46
1.52
1.91
2.43
1.49
1.33
2.29
1.15

sis on continuous improvement in recent years. Even

small businesses, especially those supplying products
used by very large manufacturers, utilize continuous
improvement teams to ensure that their products
meet the high quality standards required of their customers. If their customers are large manufacturers,
the small businesses often must meet stringent ISO
criteria to become authorized suppliers. If substandard products are recalled or rejected, the small business may lose authorized supplier status, creating for
them a true crisis. Thus, the relationship between
crisis management teams and product recall might be
that for product recall, the continuous improvement
team actually is perceived as a crisis management
team.
The second hypothesis states that small businesses
that have experienced crises are more concerned for
those crises than those businesses that have not
experienced the crises. This hypothesis was supported by the study results. Concern regarding 19 of
the 27 crisis events (70%) studied was significantly
higher for businesses that had experienced that event
as compared to businesses that had not experienced
the event. Conversely, small businesses have little
concern for potential crises that they have not actually experienced. It follows that if businesses have no
concern regarding a potential crisis, they will do little
404

2.345
1.872
1.313
1.261
1.004
0.947
0.937
0.913
0.889
0.852
0.824
0.722
0.629
0.625
0.581
0.504
0.492
0.490
0.393
0.361
0.341
0.313
0.263
0.258
0.253
0.229
0.184

0.031
0.076
0.191
0.209
0.317
0.331
0.350
0.362
0.375
0.396
0.411
0.471
0.530
0.533
0.562
0.615
0.623
0.625
0.695
0.719
0.734
0.755
0.793
0.797
0.801
0.819
0.855

to plan for potential occurrences of that event. This

lack of planning, as previously shown, can have disastrous implications on the future viability of businesses faced with crisis events. Chastang (2000) notes
that many businesses do not begin serious crisis planning until after the occurrence of a catastrophe; by
that point, it may be too late. Chastangs (2000)
examples of the Los Angeles riots of 1992, the Oklahoma City bombing of 1994, and the New York brownout in 1999 vividly illustrate the consequences of ill
preparedness. These crises cost small businesses
millions of dollars in lost revenue and for some, the
impact was so devastating that the businesses were
unable to reopen. Obviously, generating concern
regarding potential crises is a critical prerequisite to
crisis planning.
The final hypothesis states that the degree of concern
for a crisis event is dependent more on the actual
occurrence of the crisis event than on the formation
of a crisis management team. The results of this study
support this hypothesis. For 16 of the 27 crisis events
(59%), the prior occurrence of the event significantly
affected the level of concern; however, the presence
of a crisis management team did not impact concern
for any of the 27 crisis events. These results suggest
that the formation of a crisis management team does
European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

CRISIS PLANNING IN SMALL BUSINESSES

Table 4

Comparison of Mean Concern Scores: Organizations That Have Had and Have Not Had a Crisis

Concern for

Breakdown of production/service equipment

Major industrial accident
Computer system breakdown
Flood
Corporate espionage
Loss of records computer
Theft of company property
Product recall
Major product/service malfunction
Snowstorm
Computer system invaded by hacker
Management corruption
Theft/disappearance of records
Consumer lawsuit
Government investigation
Employee violence at workplace
Negative media coverage
Employee lawsuit
Product sabotage
Employee embezzlement
Hurricane
Asset misappropriation
Death of key executive
Earthquake
Boycott by consumers or public
Loss of records fire
Tornado

Has crisis occurred?

Yes
n
Mean

No
n

Mean

82
23
94
24
7
37
50
22
45
83
9
4
20
26
30
13
15
32
10
14
9
13
10
3
3
5
6

71
127
63
118
137
119
94
122
104
65
144
143
124
114
112
129
133
114
141
134
137
134
134
1.06
153
149
136

1.62
2.06
2.22
1.09
1.30
2.40
1.70
1.33
2.01
1.29
1.78
1.38
1.65
2.18
2.03
1.57
1.63
2.18
1.36
1.57
1.11
1.54
2.09
1.06
1.33
2.00
1.29

little to generate concern, and that a crisis must occur

before concern is generated.
With the many challenges facing small businesses, it
seems unlikely that managers would focus scarce
resources toward addressing potential events for
which they have no concern. Much management
literature indicates that organizations are naturally
reactive concerning potential future crisis, perhaps
because they believe crises are unlikely to happen to
them (Mitroff et al., 1989; Pearson and Mitroff, 1993;
Penrose, 2000; Shrivastava, 1993). However, crises do
occur, despite small businesses belief that they are
somehow immune. All 27 crisis events from Exhibit
1 actually occurred to some of the small businesses
surveyed. Although only three businesses each (2%)
indicated they had experienced earthquakes or boycotts by consumers, 94 businesses surveyed (58%)
had experienced computer system breakdowns.
Clearly, all businesses are susceptible to crises, and
clearly, adverse consequences of crises can be minimized with proper planning. However, planning
efforts will not commence unless concern is present,
and concern generated by experiencing a crisis might
come too late, or at too high a cost.
Ideally, mechanisms other than actual crises could
generate concern among small businesses without
inflicting the emotional, financial, or physical turmoil
European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

4.13
4.43
4.22
3.50
4.29
4.27
3.44
3.54
3.64
2.54
4.33
4.00
3.30
3.65
3.30
3.15
3.13
3.16
2.90
2.64
2.22
2.46
3.00
2.33
0.67
1.60
1.33

9.390
6.640
6.297
6.149
5.940
5.940
5.429
5.313
4.915
4.600
4.330
3.587
3.475
3.470
3.260
2.840
2.645
2.340
2.251
2.004
1.924
1.603
1.436
0.957
0.889
0.483
0.087

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.001
0.001
0.013
0.018
0.024
0.049
0.064
0.089
0.132
0.153
0.439
0.367
0.030
0.931

that typically accompany crises. Education often is

considered one such mechanism to instill knowledge
while protecting from the accompanying hard
knocks of actual experience. Hough (2002) notes that
as far back as World War II, social scientists have
attempted to use educational interventions to
increase awareness and to persuade. Although Hovland et al. (1965), and other communication experts
in the years since, found that education is effective
in increasing factual knowledge or awareness, it is
ineffective in attempts to change orientation, or to
persuade. So, while it is likely that educating small
business owners regarding crises could raise their
awareness, it is not reasonable to expect that an educational intervention would be effective in persuading small businesses to initiate crisis-planning activities.
Although education cannot be viewed as a vehicle to
generate concern for crisis events not yet experienced
by businesses, one area warranting further investigation is the effect by proxy of September 11, 2001,
on attitudes toward potential crises. While it may be
theorized that the businesses involved in this study,
none of which are located in major metropolitan centers, might continue the denial tactic of it cant happen here, there is some indication that the horrific
losses of September 11 may have far-reaching consequences for crisis planning. The Disaster Recovery
405

CRISIS PLANNING IN SMALL BUSINESSES

Table 5 Analysis of Variance. Independent Variables: (1) Existence of Crisis Management Team, (2)
Occurrence of Crisis Event; Dependent Variable: Mean Concern Score Regarding a Crisis Event
Concern for

Crisis occurrence (A)

F
p

Crisis team (B)

F
p

A B interaction
F
p

Management corruption
Major industrial accident
Theft of company property
Employee violence at workplace
Major product/service malfunction
Computer system invaded by hacker
Theft/disappearance of records
Product recall
Asset misappropriation
Flood
Death of key executive
Corporate espionage
Tornado
Negative media coverage
Breakdown of production/service equipment
Loss of records fire
Government investigation
Product sabotage
Consumer lawsuit
Loss of records computer
Hurricane
Employee embezzlement
Snowstorm
Employee lawsuit
Computer system breakdown
Earthquake

2.109
6.179
9.000
1.507
6.101
6.445
3.347
13.42
0.398
12.21
0.201
11.56
0.563
3.663
12.78
0.637
1.956
5.394
3.056
0.618
4.084
1.496
3.392
1.113
2.945
4.077

1.931
1.672
1.193
1.266
2.125
1.083
0.491
0.362
1.327
1.448
1.370
2.070
0.403
0.545
1.138
0.004
0.398
0.258
0.490
3.508
0.915
0.497
0.146
0.828
1.384
1.252

2.425
2.279
2.434
1.684
1.607
1.538
1.587
1.471
1.377
1.150
1.082
0.904
0.750
0.741
0.786
0.307
0.577
0.210
0.619
0.493
0.296
0.236
0.422
0.274
0.209
0.073

Journal conducts weekly on-line surveys regarding

current disaster recovery issues. The on-line survey
ending September 30, 2001, found that 1650 participants (75%) responded yes to the question, Have
the September 11 events made you alter any parts of
your current DR (disaster recovery) plans? Further,
2996 participants (90%) responded positively to the
follow-up question ending October 21, 2001, Have
the events of 9/11 increased the exposure DR/BC
(disaster recovery/business continuity) are now
receiving? (Disaster Recovery Journal, 2002). These
results point to evidence that the events of September
11 may have generated concern regarding crisis
events even in businesses not directly impacted by
the tragedy.

Conclusion
No business is immune to the potential devastation
of crises, and small businesses with their limited
resources are especially vulnerable to the catastrophic consequences of crisis events. This study
examined the perceived importance of crisis planning
in small businesses, whether the experience of an
actual crisis event by a business generates concern
for future crises, and if concern is generated from
experienced crisis events, or from the existence of
crisis management teams. The results of this study
406

0.13
0.00
0.00
0.23
0.00
0.00
0.04
0.00
0.67
0.00
0.90
0.00
0.56
0.03
0.00
0.59
0.15
0.01
0.05
0.03
0.02
0.23
0.04
0.33
0.06
0.02

0.15
0.19
0.31
0.29
0.12
0.34
0.61
0.70
0.27
0.24
0.26
0.13
0.67
0.58
0.32
1.00
0.67
0.77
0.61
0.54
0.40
0.61
0.87
0.44
0.25
0.29

0.07
0.08
0.09
0.16
0.19
0.21
0.21
0.23
0.25
0.33
0.34
0.44
0.47
0.48
0.50
0.58
0.63
0.65
0.65
0.69
0.74
0.79
0.79
0.84
0.89
0.93

indicate that small businesses have little concern for

crises they have not previously experienced, and
those businesses with crisis management teams had
no greater concern for crises than businesses without
teams. Concern for crises was generated from the
past experience of those crises, not from the existence
of a crisis management team. Future research in this
area might concentrate on determining ways to generate concern for crises in small businesses before
businesses actually experience the crisis events.
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John Spillan, Penn State

University - Du Bois, College Place, Du Bois,
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E-mail: jes40@psu.edu
John Spillan is Assistant
Professor
of
Business
Administration, Penn State
University DuBois campus. His research interests
center on crisis management, marketing, entrepreneurship and international
business, specifically in Latin America and Eastern
Europe.

European Management Journal Vol. 21, No. 3, pp. 398407, June 2003

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Michelle Hough, Penn

State University - McKeesport, 4000 University Drive,
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Morris University, Pittsburgh.

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