Applegate: Early Warning & Crisis Management in the Web 2.0 Era

What some in Silicon Valley are now calling ‘Applegate’ – a serious Apple Inc, stock price fluctuation caused by an inaccurate blog announcement – is a perfect sample of crisis management (CM) challenges for public companies in the Web economy. For those who missed it, here is the short version of the May 16 events:

• At 11:49 AM EST, famed tech blog Engadget announces that, according to an internal Apple source, the highly anticipated iPhone and Leopard (Apple’s next OS version) will not meet the target release dates.
• Between 11:56 AM and 12:02 AM, Apple stock faces a brutal selloff, with prices going from $107.89 to $103.42 – equivalent to a 3% or about $4 billion loss in market capitalization.
• Within less than two hours, Apple PR responds stating that the email suggesting the delay was a fake and that products are on schedule. (The full sequence of events and the Engadget version of the facts is available here.)
• Apples stock bounces back within the day but not without a good number of angry investors calling for an SEC investigation.

The 1982 Johnson & Johnson’s Tylenol crisis remains one of the great examples of effective management in the CM field. . . Rapid response, openness with the public, top management involvement and responsible behavior are among the key lessons learned and some of the core values preached today by all CM textbooks and consultants worldwide (including us!) Yet ‘rapid response’ or ‘responsible behavior’ can take a whole new meaning in the context of an instant-news world and a web-based economy, and old lessons need to placed in a new context to have any value.

First, the traditional crisis lifecycle – from prodromal to resolution – could now shrink to the space of a few hours. How much time did the J&J team have to identify, assess and device a strategy for the problem before a significant portion of the public and its shareholders became aware of it? The meter was certainly not that of minutes. Second, who will have the last word on the ethics or effectiveness of management’s response includes today a much larger and unorthodox arena. A PR/Communications department in the 1980’s had days to prepare, revise, approve and issue statements, and concentrate on a few, major outlets. The question is, has your company ever even heard of Engadget? More could be said but these two considerations alone carry enormous consequences in terms of the applicability of these principles and the planning efforts that public and multinational organizations need to adopt. Some of the issues to consider include:

• Early Warning (yes, we are patting ourselves on the back): anyone can sign up on a news clipping service or get free Google News Alerts – but is your organization realistically monitoring, detecting and processing the signal in an ever-growing amount of noise, and is it doing so within minutes? Is the spectrum of your sources and ‘awareness field’ sufficiently diverse and unorthodox or are you still adopting 20th century lenses?
• Communication: Is your PR team prepared to deal with the blogger community, or cyberspace activism? Are you truly operating on a 24/7 basis and how realistic are your scenarios? The ‘rapid response’ your shareholders will be looking for is unlikely to be carried out on a fax after a meeting – nobody cares that “it was still only 6:30 AM on the West Coast.”
• Taking the Responsible Steps: Your CEO may no longer have the opportunity to roll up the shirt’s sleeves and help clean up the mess with a hard hat, or walk to the local store to pull the product off the shelves. Interestingly, after Apple’s ‘correction’ statement, the first public comments concerned the company’s ability to control its networks and email system since the initial false statement appeared to have been authentically generated on Apple’s systems.

Again, the lessons to be learned from this event are many more, yet the underlying message remains that of the dangers of underestimating the changes in the operating environment. Could it be time to update the ‘chemical fire in building 32‘ scenario at the next CM training session?