ING: Crisis Management

“ING is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services to over 85 million private, corporate and institutional clients in more than 40 countries”. (ING, 2008) “ING was created in 1991” (Kan, 2004) under the name of Internationale Nederland Groep that later changed into ING Group. ING was created as a result of a merger between Nationale-Nederlanden and NMB Post bank Group.

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Its first international appearance was in Czech Republic. ING specializes in selling insurance products and banking services mainly to corporate clients both domestic and international. Over the last decades ING has demonstrated clear and strategic industry positioning having been ranked 9th in the category of world’s best performing insurers by Forbes. In the late 1990s ING management were involved in major financial scandals that appeared to threaten its public image.

This followed a series of endless minor and major dirty scandals in the United States including the Enron’s. ING has been able to achieve profitable growth both in the short term as well as in the long run through out its period of trade until last year when it came under the attack of financial crisis. Its performance has been attributed to solid customers all over the world. (Kan, 2004)

Currently ING is under the leadership of Jan Horn men as the chairman of the Executive Board and Cornelius Herkstroter as the chairman of the supervisory Board. ING’s competitors include Allianz SE, AIG, AXA and etc. The insurance industry is so competitive characterized by a large number of players. Competition seems to have taken a different direction with most insurance firms now diversifying their products to include banking services. This is notable with ING the Dutch company. However, due to current global economic recession, ING was one of the organizations that benefited from the Dutch Government’s capital injection as bailout ever in the Dutch’s history. (Kan, 2004)

This has strengthened its adverse liquidity ratios and cash short falls. Following the huge losses suffered during the financial year 2008, ING is now technically prepared to face any crisis situation. Through its independent member ING Consultants, Inc, the group has developed strong risk management tools. These tools are believed to be among the strongest risk management and disaster recovery tools in the world. (Ferry-Pasani & Indhira, 2009).

These tools include the PATROL(SM) and TVRA. These techniques are expected to offer insured access to a global network of top providers of sustainable business and safety measures related services. (Kan, 2004) These mechanisms work as follows;

They categorize the crisis, segregate it, Manage the risk, liaise with the media, communicate the risk to the entire organization, train the staff on media, control significant damage so far caused, bring together the crisis management team and coordinate important activities by organizing platforms on which crisis management plan is created. They predict the crisis and then seek for local and international interventions. (ING Management, 2009)

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The framework for crisis identification

The main framework for identifying risk and consequently managing it in ING is to ensure that in the event of occurrence adequate measures and procedures would be in place. The reason behind this is to ensure that no impact is felt on the core business functions. Many a time, crises have always reduced both small and medium organizations to scratch. It comes at a time when managers are inadequately or not prepared at all. The repercussions may be so tremendous that the organization in question would need to get reinforcement from a third party. (Yoichiro, 2005)

Crisis is looked at in terms of its financial implications in the entity’s books of account from the management perspective. Whether it is a natural disaster i.e. earthquake, floods, disease out breaks, political risk, and etc. the resultant implications would be so conspicuous in financial terms than anything. To ensure that major operations and activities of the organization are not affected, organization must have a crisis management plan that is not only short term but also covers the entire organizations life cycle by evaluating both external and internal factors as well. (Dougall, 2008)

ING is an insurance firm and therefore the likely possible crisis in this industry include, increased cases of major accidents for example it may be the underwriter of presidential choppers, the executive limousines of highly ranked personalities both in the private and public sector. Since these are property of high value and that whenever a risk occurs billions of money will be used, it may therefore cause adverse financial impacts on the company’s financial records. “It may also provide in sight in to how we are managing money in these volatile times” (ING Management, 2009)

Another risk could be scandals. ING has gone on record as having been a victim of frauds and other financial scandals. Scandals are in most cases perpetrated by staffs. Though it may be easy to measure any financial impact on the financial statements, it is not easy to detect if there is a conspiracy by the management to defraud shareholders. In the organization there would be some who would be driven by their personal ambitions and interests. Whenever such dirty and narrow plans materialize, the consequent impact is felt by shareholders and any other stakeholders. Scandals are classified as part of crises that are the byproducts of ineffective management. (Tocklin, 1993).

Security issues may prove to be another part of management crisis. The digital world has made sure that all organizations have become paperless. Software has become an important management tool. Due to rapid technological advancement, tricksters have also advanced their techniques. The introduction of electronic business in this era has posed lots of security threats. Hackers have taken advantage to access other organizations databases and caused serious and potential damages to data.

ING relies on online business to reach its clients in the Diaspora more quickly and efficiently. Where an intruder gets into its system and changes sensitive information, the resultant implication can be so risky especially to its clients and staff. Robust security systems will ensure that integrity, reliability, relevance and availability of data are achieved. (Hancock. 2002) if this is not done then that organization may not able to achieve and maintain a competitive advantage.

Financial crisis

Currently, ING is facing liquidity and profitability problems. In fact this is the biggest crisis that has ever faced this organization. Even though it may be argued that it is a global crisis, for ING the impact has far reaching implications on its major operations. However it regained momentum when it received a government bailout. Also the company has sold some of its branches and assets in and out of the United States. This is seen as a strategy to ease cash flow and restore profitability now and in the long term. Financial crisis has also affected the client relationship with the Company as rival firms continue to spread malicious information via the net and other electronic materials. (Financial Crisis, 2009)

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The belief that ING was in cash flow problems was also strongly shared by other stakeholders including institutional shareholders, the government, employees, creditors and suppliers. This caused serious damages to the reputation that has hitherto been identified with ING. The ensuing effect was that risk unenthusiastic shareholders had to sell their shares. With spreading rumors that the company would soon close down coupled with shareholders sudden move to liquidate their wealth led to a drastic reduction in share prices. (Zyglidopoulos, 2001)

(Possibility of Crisis occurrence and subsequent impacts on the activities of the firm and whether the firm can control the risk or not)

Risk type (Crisis) Probability of occurrence Damage on (Financial statements) Accountable
Financial risk High adverse Not easily managed
Management High low Controllable
Security Relatively high low Controllable
Accidents against Property. Very high Adverse uncontrollable
Employees high turnover high Relatively adverse controllable

Relationship with stakeholders

Whenever a crisis faces an organization in most cases shareholders will become suspicious and would always cast the darkest doubt on the management. This will lead to a conflict of interest, and hence spoil the shareholder management relationship. Shareholders always believe that risks are caused by the management and therefore any loss that may be subjected to them will always be attributed to inefficient management policies. (Zyglidopoulos, 2001)

On the other hand creditors and lenders will be reluctant to lend the organizations. Risk is always uncertain and at times its probability may be difficult to predict. However where lenders have reasonable assurance to believe that the organizations activities are subjected to potentially high risks, they will withdraw their support i.e. terminate the contract forthright. This can adversely affect the lenders relationship with the organization. (Hancock. 2002)

Preliminary crisis communication plan

In a crisis situation the managers would do the following; this is a typical design of how an organization can manage any crisis situation. The model represents a scenario where an organization can develop a crisis and risk management strategy right from scratch up to an acceptable level. Remember that crisis can never be prevented but the probability can largely be reduced by putting necessary risk evaluation and assessment techniques. categorize the crisis, segregate it, Manage the risk, liaise with the media, communicate the risk to the entire organization, train the staff on media, control significant damage so far caused, bring together the crisis management team and coordinate important activities by organizing platforms on which crisis management plan is created. They predict the crisis and then seek for local and international interventions. (Sandra, 2009).This is explained as follows;

Categorizing crisis

In order to deal with crisis it is important to categorize risks into similar groups since different risks require different approaches to handle. When certain risks bearing the same characteristics are grouped together, management will definitely find a leeway into the solution. Alternatively, managers can design a one off model that forms general risks and crisis management. Although this is considered cumbersome it can be a breakthrough where it is the only choice. Categorizing risks will also give the management an opportunity to select suitable tools and strategy to thoroughly solve the problem. (Fernandes, 2006)

Isolating the Risk

Before an organization begins to deal with crisis, it is advisable to isolate the risk so that specific features are studied. Isolating risk means that the management devotes considerable time to look at the crisis in totality. This provides a better guideline into handling the crisis. Crises that can be better solved in this way include a major natural calamity including the flu pandemic, geographical depressions, cyclones and anticyclones, e.g. the Rita and Katrina. (Dezenhall, 2009)

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Managing the Crisis

Managing the risk implies arranging the necessary activities that can help reduce the impact of risks spreading in to other organizational activities. Consultations, carrying out experiments, coordination and weighing out the possible options will characterize this phase. “A crisis is the incident that causes a business interruption” and therefore it is always unique within specific organizations and therefore cross border consultations at times may be inappropriate. But based on the industry experience it may be less involving. There are some risks that are common i.e. financial risks. (Fernandes, 2006)

Liaising with the Media

Where the magnitude of a crisis is so high and that it can never be sustained internally, the organization has to liaise with the media so that people become aware. The role of media is to inform the public about the crisis, advice the public to be on high alert. In most cases the media has been so instrumental in reducing possible risks that may be associated with certain crises. For instance, whenever there is an out break of an infectious disease, the World Health Organization and related agencies would respond through the media by issuing instructions to other nations. (ING Management, 2009)

This has always been witnessed in several countries. The latest was in Mexico where there was an out break of Swine Flu. It is highly believed that the media will eliminate the possibility of crisis adversely impacting on other core activities of the business by thoroughly addressing potential risks. This will increase awareness among the people and therefore make appropriate strategies that can mitigate the anticipated impacts. (Browning, 2009)

Communicating the Crisis

“A crisis communication is any situation that threatens the integrity or reputation of your company, usually brought on by adverse or negative media attention”. (Sandra, 2009) In any event communication remains significantly important management practice in an organization. Effective communication channel within an organization will ensure that there is adequate flow of strategic information in and out of the organization.

Communicating crisis to the entire organization would allow each and every staff member to be aware of the existence of such situations. High performance organizations rely on effective and efficient communications strategies. It is through this technique that organizations can be assured that its growing concern is okay and any issues considered material in the light of performance are dealt with accordingly. (Sandra, 2009)

Better communication will also reduce possibility of a conflict of interests arising between the organization and its stakeholders. As has been discussed earlier in this topic, there is an agency contract that binds shareholders and the management. A conventional knowledge is that shareholders remain the owners of the company, but due to inadequate experience and little professionalism, they appoint directors to manage the company on their behalf. When the management effectively communicates crisis to the organization including its stakeholders a possible conflict is reduced in the event that there is a major impact on core organizational activities. (Sandra, 2009)

Controlling the Significant Damage

The damages of a crisis are always significant on the activities of the organization. If the organization fails to respond promptly, the resulting implication could lead to cessation. Controlling damages involves undertaking activities that will restore the organization back to its original position. Following up insurance claims and compensations, financing working capital, reconstruction and restructuring are some of the activities that can be carried out to restore a company back to its normal operations. When ING went into serious financial problems it was lucky enough to have sought the government support.

This was secured through capital injection. Alternatively working capital could also be financed by borrowings from other financial institutions. Since ING also offers insurance products it was also necessary to reinsure big risks with other Reinsurance organizations. (Dezenhall, 2009)

Forming a crisis management team

A team is defined as a group of people who work together to achieve a common purpose. Teams are highly characterized by their professional and technical nature. “The formation of a crisis management team ensures that decision making and planning is given a clear focus”. (Joseph, 2009)The crisis management team will be responsible for setting the objectives of crisis management, strategic plans, tools and necessary equipments, the framework, adequate and relevant personnel, and finally provide a detailed report to organization about techniques and mechanism of managing a crisis.

Forming a crisis management team will ensure that only staffs with technical requisite crisis management skills are dedicated. This may reduce the backload of work on other staff members of the organization. (Joseph, 2009)

Crisis prediction

The ability of an organization to prepare adequately for the uncertainties is determined by its perception to risky situations. The more it is likely that a crisis will occur, the more prepared the organization should be. High performance organizations remain distinct from other organizations simply because of their overwhelming crisis and risk assessment and recovery strategies. This involves risk prediction and forecasting procedures which eventually ensures that whenever a risk occurs, only dismal impact is experienced.

Proper risk assessment and control systems will provide the organization with opportunity to predict risk in the long term and therefore prepare adequately for it. “This study indicates that the prediction model considering both financial and non-financial information outperforms those models based on only one type of information”. (Fengyi, Deron & Shih-Jung, 2008).

Intervention

Intervention refers to a situation where the impact of a crisis is so damaging that it can never be managed alone and therefore the organization is forced to seek for internal and external assistance from well wishing corporations. “It has several purposes like helping individuals return to their level of functioning before the crisis”. (Dezenhall, 2009) In the recent past many financial organizations have been forced to look for international assistance in the name of bailout. In the United states where so many companies were forced to close down owing to the current financial and economic recession, the government responded by bailing out those who sought their intervention. This included a number of large corporations in the United States like AIG, Apple Corporation, Citibank and etc. Intervention is important because the organization alone may not solve its own crisis. (Dezenhall, 2009)

Conclusion

Due to the volatility and the Unpredictability of the economic environment, Crisis management has become a very important area of study. The current global credit crunch has forced many organizations to take their executives on risk management and recovery procedures and strategies. This is because every company is fighting to achieve robust competitive advantage and maintains a sustainable competitive performance. At a time when sales are rapidly declining, products are losing demand and employees seek better wage negotiations, the resulting pressure is squarely felt by the organizations.

Any crisis occurrence is likely to plunge an organization into serious economic problems. Good management practice is key to crisis management since it will ensure that adequate recovery plans and assessment criteria is adopted. The advancement in information technology has presented many business organizations with numerous valuable options of risk management and assessment procedures. This includes the use of certain online programs to detect and manage risks within an organization. These techniques are not only effective but also efficient and reliable to use. Organizations should take advantage of the changing technological world to design new methods as well s better mechanisms that can be used to manage and control crisis if an effective future performance is to be achieved.

List of references

Yoichiro, I. (2005). Quantitative analysis ofcrisis: crisis identification and causality. Web.

Dougall, E. (2008). Issues Management. Web.

Tocklin, A. (1993).Focus on Insurance Fraud. Web.

Hancock. (2002).Security crisis management, Computer & security, 21(5), 397-401.

Financial Crisis. (2009). Dutch government invests Euro 10 billion in ING Groep. Web.

Zyglidopoulos, C.S. (2001). The Impact of Accidents on Firms’ Reputation for Social Performance, SAGE JOURNALS, 40(4), 416-441.

Sandra, K.C. (2009).Crisis Communication. Web.

Fernandes, A. (2006). Crisis management: how to plan for the unknown. Web.

Browning, D. L. (2009). How to End a media Crisis in Your Business or Organization. Web.

Dezenhall, E. (2009). Damage Control: Why Everything You Know About Crisis Management Is Wrong. Web.

Joseph. (2009). Introduction to Crisis Management. Web.

Fengyi, L. Deron L & Shih-Jung, C. (2008). The Study of a Financial Crisis Prediction Model based on XBRL, 147-153.

ING Management. (2009).ING IM Update: Navigating the Global Financial Crisis. Web.

Ferry-Pasani, J & Indhira, S. (2009). Reshaping the Global Economy.46 (1).

Kan, R. (2004). IT Governance and Corporate Governance at ING. Web.

ING. (2008). Banking –Investments – Life insurances –Retirements benefits. Web.

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