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Hospitality Management 26 (2007) 807–823 www.elsevier.com/locate/ijhosman
Crisis-management practices in the restaurant industry Aviad A. Israeli Department of Hotel and Tourism Management, Ben-Gurion University of the Negev, Beer Sheva 84105, Israel
Abstract This study examines crisis-management practices in the Israeli restaurant industry. The study uses a questionnaire for evaluating the importance and usage of different practices for crisis management. The findings show that managers are generally consistent in crisis management and that they generally use the most important practices. The findings illustrate the significance of government support in external crises and suggest that improved competitiveness and cost-cutting activities are significant for combating business hardships. The paper concludes with recommendations for future research and management of crises. r 2006 Elsevier Ltd. All rights reserved. Keywords: Restaurant management; Crisis management; Multi-attribute decision-making
1. Introduction One of the most significant characteristics of modern times is the existence of crises. For example, the Israeli service industry has historically been subjected to cycles of various war- and terror-related crises (for a review of the conflicts from a hospitality and tourism industry perspective, see Mansfeld, 1999). The most recent crisis in the Israeli economy originates primarily from the instability of the peace process with the Palestinians and from the intensification of terror activities and it was coupled with a severe economic downturn. The present study aims at enhancing the understanding of restaurantmanagement crisis practices and their effectiveness. Tel.: +972 8 6461254; fax: +972 8 6472920.
E-mail address:
[email protected]. 0278-4319/$ - see front matter r 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.ijhm.2006.07.005
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According to data published by the Israeli Central Bureau of Statistics, the industry consists of about 15,000 food establishments, of which approximately 33% are restaurants and cafe´s, 15% are fast food restaurants and the rest are food establishments in different organizations and other food-serving facilities. According to recent estimates, the direct economic activity of this sector (without the economic multipliers) is evaluated at close to NIS 3.5 billion (about $0.8 billion) annually. The most apparent outcome of the crisis was a sharp decline in domestic consumption and also an extreme reduction in the number of tourists. Recent data suggests that about 1000 restaurants were closed in 2003 alone. Furthermore, business analysts assume that approximately 58% of the dinning businesses in Israel are currently under the risk of bankruptcy. Generally speaking, the Israeli restaurant industry has the highest business risk of all the sectors in the Israeli economy. The current literature on crisis management focuses on general prescriptive models which provide general guidelines for coping with crisis situations (Stafford et al., 2002). There are also descriptive models which categorize business crises. For example, Lerbinger (1997) categorizes crises according to the distinction between external and internal factors, lists different crisis types and offers the main methods for coping with the relevant crisis. Another stream of research focuses on a historical perspective. These studies present recent events and try to gain insights from the conduct of the government and the business sector (Mansfeld, 1999). However, except for Israeli and Reichel (2003), there is almost no research that measures and evaluates the micro-level practices that managers employ in a distinct sector of the service industry. This paper offers a methodology for studying micro-level crisis-management practices in the restaurant industry. In the next section, we present a tool for studying crisismanagement practices. Then, in the following section, we illustrate how this procedure is employed to study crisis management in the Israeli restaurant industry. In the conclusion, we interpret the findings and offer suggestions for future research.
2. A tool for evaluating crisis-management practices The method for studying the tactics restaurant managers use for coping with a crisis focuses on two related factors: first, recognition of the importance of measures that assist the organization in times of crisis and second, the level of usage for each of these measures. In the context of crisis management, this model can aid in evaluating crisis-management practices. While critics may argue that the selection of practices in a given industry is crucial, it should be noted that there are established criteria for the identification and selection of practices in general problems (Keeney and Raiffa, 1976; Yoon and Hwang, 1995). For example, Pardee (1969) suggested that the list of practices should be complete, exhaustive, mutually exclusive and restricted to the performance degree of the highest degree of importance. Additionally in this paper, we illustrate that a list of practices with general guidelines can also be assembled for specific problems. Israeli and Reichel (2003) demonstrated how to create a consistent list of practices for evaluating crisis-management practices in the Israeli hospitality industry, and Okumus and Karamustafa (2005) used a similar list of commonly known, macro-level, hospitality industry practices. The aim of this analysis is to evaluate the importance and usage of crisis management practices for the restaurant industry.
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Identifying the crisis-management attributes (or practices) can be achieved by compiling a list of practices based on interviews with practitioners and a review of the relevant literature. There is almost no literature on the specific, micro-level practices in the restaurant industry. The majority of studies present crisis management from a descriptive or historical perspective. For example, Ulmer and Sellnow (2000) provide a case-based historical and ethical analysis in presenting the crisis of the Jack in the Box restaurant chain. More general studies by Stafford et al. (2002) and by Blake and Sinclair (2003) detail the reaction of the USA hospitality industry to the events of September 11, 2001. Studies by Aziz (1995), Pizam and Mansfeld (1996) and Leslie (1996) describe different occurrences of terror in the hospitality and tourism contexts. One comprehensive studies of crisis management was conducted by Mansfeld (1999), who reviewed the cycles of war and terror in Israel and provided some macro-level determinants of crisis management. Other research efforts were directed to the classification of violence activities relevant to the tourism industry (Pizam, 1999), the potential involved with the cessation of terror activities (Anson, 1999; Butler and Baum, 1999), and general recommendations of preparations for times of terror (Sommez et al., 1999). Finally, there are some studies which provide a general outline for crisis management in the lodging industry, including the restaurant sector. For example, Brewton (1987) provides a general outline for forming crisis management groups, and Barton (1994) presents general guidelines for managerial preparations required in times of crisis. Nevertheless, to date the only studies which have addressed the specific activities managers take to manage a crisis and evaluate the importance of these activities as well as their usage are the studies conducted by Israeli and Reichel (2003) on the Israeli hospitality industry and by Okumus and Karamustafa (2005) on the Turkish hospitality industry. Most of the literature review does not provide significant assistance in creating a detailed list of operational crisis management practices. However, it does provide some insights that assist as guidelines in constructing such a list. For example, Mansfeld’s (1999) historical review suggests that one method for coping with a crisis is by using extensive marketing, especially to local markets. Another category of possible actions includes decisions concerning infrastructure. Specifically, in times of crisis, the infrastructure should not be expanded and may even need to be limited. A final observation focuses on the supporting role government should play in times of crisis. This study uses the abovementioned insights to develop three main categories of crisis management. These categories are marketing, maintenance and government. Since the restaurant industry is traditionally labor-intensive, experience has shown that human resource practices (and primarily downsizing) are often used in times of crisis. Therefore, the category human resources was added, generating a list of four main categories (human resources, marketing, maintenance and government assistance). The second step in the current study involved in-depth interviews conducted with managers in the restaurant industry in order to gain their perspectives of crisis management. The interviews reinforced the structure of the four main categories. The information from the interviews, coupled with the literature review, generated a list of crisis-management practices consistent with observations made by Mansfeld (1999), the review presented by Okumus and Karamustafa (2005) and the framework presented by Israeli and Reichel (2003) (Table 1). The human resources category consisted of traditional practices businesses generally employ in times of crisis such as practices aimed at reducing the employee headcount or employee working hours. Other practices were added according to the interviews,
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Table 1 Practices of crisis management for the restaurant industry, by category Category
Practice description
Human resources
Reducing the labor force by laying off employees or by unpaid vacation Reducing the number of working days per week Freezing or reducing pay rate Replacing high-tenure employees with new employees Increased reliance on outsourced human resources
Marketing
Practice number 1 2 3 4 5
Joint marketing campaigns with other merchants (such as Visa or MasterCard) Advertising in the media (television, radio, newspapers) Price drops on special offers Reducing menu prices Marketing and promoting new services (such as catering, events, etc.) Marketing to new segments Adding a business menu or changing the business menu offerings Extending hours or days of business menu
6 7 8 9 10 11 12 13
Maintenance
Cost cuts by limiting restaurant services Cost cuts by postponing cosmetic maintenance to the restaurant Cost cuts by postponing systems maintenance Cost cuts by using less expensive substitutes in the kitchen Extending credit or postponing scheduled payments
14 15 16 17 18
Government assistance
Organized protest against lack of government support Industry-wide demand for government assistance with current expenses Industry-wide demand for a grace period on national tax payments Industry-wide demand for a grace period on municipal tax payments Increasing the sector’s power by joining the Israel restaurant association Communicating ‘‘business as usual’’
19 20 21 22 25 24
including practice 1 of using unpaid vacation. Eight practices were included in the marketing category. These practices included traditional measures such as promotion. The interviews also revealed that many restaurants see the business menu as an important element of their marketing competitiveness. The business menu was originally designed to offer businesspeople meal at business meetings that are conducted over lunch or dinner. Customers usually think that the business menu is a perk reserved for businesspeople or is a significant value-for-money item. Therefore, removing the barriers and offering the business menu to all at flexible hours was mentioned by managers as a crisis-management practice. The maintenance category included traditional cost-cutting practices. In this category, managers made the specific distinction between practices that may be visible to customers (such as practices 14 and 15) and those that may not be visible (practices 16 and 18). Finally, the government assistance category included practices which are quite traditional in cases of severe crisis such as demand for assistance with expenses and taxes. In addition, managers had some additions to the category and some of them suggested the organized
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protest against the government as a possible crisis management practice. Some managers suggested that since do not receive or expect any government (or regulatory) intervention, they would prefer to communicate ‘‘business as usual’’. The abovementioned practices were used to evaluate managers’ crisis-management strategies. This evaluation was constructed around two main propositions. First, Proposition 1 assumes that there will be a strong positive correlation between the importance assigned to a certain practice and the practice’s level of usage. This is a necessary condition for rational and coherent crisis management, assuming that managers, through their actions, pursue the practices they perceive to be important. This normative assumption also forms the basis of the Performance-Importance Model (Martilla and James, 1977). Second, in Proposition 2 we aim to identify the practices that can be grouped together for both importance and usage. As a reference point, we use the categories found in the literature which were mentioned earlier (i.e. human resources, marketing, maintenance, and government assistance). The findings are compared and contrasted against this reference. Specifically, we assume that both importance and usage practices will follow the constructs of human resources, marketing, maintenance and government assistance—i.e. construct validity (see Table 1). 3. The restaurant crisis-management questionnaire 3.1. Data collection In order to test the importance and usage of the practices, a crisis-management questionnaire was constructed using the logic and structure of the PerformanceImportance Model (Martilla and James, 1977). The main argument of the PerformanceImportance Model is that matching importance and usage (or performance) is the basis of effective management. Therefore, the practices were used in a questionnaire made up of two parts. The first part examined the level of importance managers assigned to each of the 24 practices using a Likert scale of 1–least important to 7–most important. The second part included questions about the level of actual usage for each of the 24 practices also using a Likert scale ranging from 1–rarely used to 7–extensively used. The questionnaire was pre-tested by four experienced executives and then it was distributed to restaurants selected according to a random sample of restaurants in Tel Aviv, Jerusalem and Eilat. The total number of restaurants was 465 and from this population, the sample included 228 restaurants. A surveyor was sent to each restaurant, asked to meet the manager, and gave him (or her) a questionnaire. The manager could (1) complete the questionnaire on the spot and return it to the surveyor, or (2) ask the surveyor to return at a later time to pick the questionnaire. Some managers refused to participate, and some responded that they do not experience any crisis. From the original sample of 228, 112 useable questionnaires were returned (a response rate of 49%. About 46% refused to participate for a variety of reasons (such as being busy), and 5% claimed that they do not experience a crisis. From the respondents, 27% were the owners, 42% were the restaurant managers and 31% were shift managers. Their average tenure in the restaurant industry was 7.6 years (s.d. 6.1). When asked about the crisis they experience, about 70% reported that they experience an economic crisis, a security crisis or a combination of the two. The rest could not exactly identify what type of crisis they are
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facing. The majority of respondents (77%) also mentioned that although the crisis had reached its peak, it was not over yet. 3.2. Results In order to test Proposition 1, Pearson correlation analyses were employed to measure the correlations between the importance and usage of each practice (Table 2). In general, all the correlations were positive and statistically significant (at po0:05), suggesting that there is a certain level of consistency in the crisis-management behavior of managers. The highest correlation (0.76) was for practice 17. For this practice, average usage (3.28) was higher than importance (3.07). For the two following practices with the highest correlation, average importance was higher than average usage. These practices were practice 7 (correlation 0.76, average importance 5.06, average usage 4.93) and practice 12 (correlation 0.73, average importance 5.59, average usage 5.45). The lowest correlation was for practice 16. With respect to this practice, average usage was higher than average importance (correlation 0.47, average importance 2.16, average usage 2.46). Next was practice 15, for which importance was higher than average usage (correlation 0.44, average importance 3.00, average usage 2.91). Finally the lowest correlation was measured for practice 5, for which average usage was higher than average importance (correlation 0.41, average importance 1.95, average usage 2.20). In an effort to ascertain if Proposition 2 could be supported, the questionnaire was evaluated in terms of construct validity using an Orthogonal Varimax Rotated Factor Analysis which was employed to detect which practices are clustered to factors of crisis management. 3.2.1. Dimensions of practice importance The analysis was first applied to the importance of the various crisis-management practices, and later to the usage of these practices. The Factor Analysis of the importance of practices (Table 3) reveals that when they were grouped into four factors according to Principle Component Analysis (Varimax Rotation Method), they accounted for 83% of the variance. The minimum loading for each practice in a factor was 0.50. The first factor included practices 20, 9, 22, 19, 8, 21 and 14. This factor accounted for 60% of the variance and was titled ‘competitive cost, competitive prices and government support’. The second factor included practices 6, 11, 10, 7 and 18. This factor accounted for 8% of the explained variance and was titled ‘intensive marketing’. The third factor consisted of practices 15, 3, 13, 24, 12 and 16. This factor accounted for 4% of the explained variance and was titled ‘increasing restaurant competitiveness’. Finally, the fourth factor of importance included practices 17, 23, 1 and 4. The fourth factor explained 9% of the variance and was titled ‘cost cuts in human resources’. 3.2.2. Dimensions of practice usage Principal Factor Analysis was employed again to analyze the reported usage of practices. Table 4 reveals that the 24 practices, grouped into 4 factors for usage according to Principal Component Analysis (Varimax Rotation method), accounted for 79% of the variance. The first factor included practices 21, 19, 20, 22, 11, 18, 13, 6 and 12. This factor explained 63% of the variance and was titled ‘government assistance and marketing
Table 2 Practices’ mean and standard deviation for importance and usage and Pearson correlations for importance and usage (all correlations are significant at .05) Practice
Pearson correlation
Rank
Mean
Std. dev
Rank
Mean
Std. dev
12 23 20 21 24 4 5 8 14 9 6 2 11 19 18 22 17 15 16 13 10 3 7 1
3.83 2.02 2.8I 2.42 1.95 5.08 5.06 4.44 3.22 4.35 4.57 5.59 4.04 2.95 3.00 2.16 3.07 3.17 3.10 3.43 4.29 5.14 4.48 5.83
2.32 1.74 2.05 1.81 1.75 2.10 2.16 2.13 2.17 2.29 2.26 1.84 2.40 2.13 2.17 1.82 2.14 2.05 2.44 2.49 2.46 2.22 2.2S 1.85
12 24 17 20 23 4 3 9 15 6 5 2 10 16 19 22 14 13 21 18 11 7 8 1
3.76 1.84 3.02 2.80 2.20 4.90 4.93 4.31 3.12 4.47 4.72 5.45 3.S8 3.04 2.91 2.46 3.28 3.41 2.53 2.9S 3.84 4.42 4.38 6.20
2.39 1.65 2.23 2.12 1.85 2.34 2.33 2.28 2.29 2.45 2.36 1.91 2.51 2.24 2.31 2.04 2.41 2.16 2.32 2.36 2.51 2.56 2.45 1.62
0.53 0.72 0.69 0.69 0.41 0.72 0.76 0.57 0.62 0.64 0.60 0.73 0.68 0.56 0.44 0.47 0.76 0.72 0.5S 0.65 0.64 0.55 0.63 0.60
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Reducing the labor force by laying off employees or by unpaid vacation Reducing the number of working days per week Freezing or reducing pay rate Replacing high-tenure employees with new employees Increased reliance on outsourced human resources Joint marketing campaigns with other merchants (such as Visa or MasterCard) Advertising in the media (television, radio, newspapers) Price drops on special offers Reducing menu prices Marketing and promoting new services (such as catering, events, etc.) Marketing to new segments Adding a business menu or changing the business menu offerings Extending hours or days of business menu Cost cuts by limiting restaurant services Cost cuts by postponing cosmetic maintenance to the restaurant Cost cuts by postponing systems maintenance Cost cuts by using less expensive substitutes in the kitchen Extending credit or postponing scheduled payments Organized protest against lack of government support Industry-wide demand for government assistance with current expenses Industry-wide demand for a grace period on national tax payments Industry-wide demand for a grace period on municipal tax payments Increasing the sector’s power by joining the Israel restaurant association Communicating ‘‘business as usual’’
Usage
A.A. Israeli / Hospitality Management 26 (2007) 807–823
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Importance
813
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Table 3 Factor analysis, practices’ importance Practice
Component 1
20 9 22 19 8 21 14 2 6 11 10 7 18 15 3 13 24 12 16 17 23 1 4 5
Industry-wide demand for government assistance with current expenses Reducing menu prices Industry-wide demand for a grace period on municipal tax payments Organized protest against lack of government support Price drops on special offers Industry-wide demand for a grace period on national tax payments Cost cuts by limiting restaurant services Reducing the number of working days per week Joint marketing campaigns with other merchants (such as Visa or MasterCard) Marketing to new segments Marketing and promoting new services (such as catering, events, etc.) Advertising in the media (television. radio, newspapers) Extending credit or postponing scheduled maintenance Cost cuts by postponing cosmetic maintenance to the restaurant Freezing or reducing pay rate Extending hours or days of business menu Communicating ‘‘business as usual’’ Adding a business menu or changing the business menu offerings Cost cuts by postponing systems maintenance Cost cuts by using less expensive substitutes in the kitchen Increasing the sector’s power by joining the Israel restaurant association Reducing the labor force by laying off employees or by unpaid vacation Replacing high-tenure employees with new employees Increased reliance on outsourced human resources Percent of variation explained by factor
2
3
4
0.80
0.25
0.00
0.02
0.76 0.75
0.41 0.15
0.07 0.19
0.11 0.04
0.74 0.68 0.63
0.29 0.22 0.50
0.27 0.31 0.12
0.32 0.17 0.25
0.57 0.35 0.05
0.05 0.25 0.81
0.38 0.14 0.10
0.39 0.27 0.33
0.26 0.10
0.77 0.76
0.24 0.19
0.37 0.12
0.09 0.32 0.31
0.51 0.50 0.15
0.09 0.04 0.69
0.03 0.08 0.04
0.15 0.04 0.42 0.27
0.31 0.44 0.14 0.50
0.68 0.68 0.64 0.56
0.17 0.08 0.33 0.16
0.38 0.30 0.38
0.17 0.20 0.17
0.54 0.01 0.22
0.45 0.75 0.70
0.01
0.01
0.16
0.57
0.14 0.35
0.09 0.21
0.04 0.33
0.51 0.42
60%
68%
74%
83%
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 8 iterations.
efforts’. Factor 2 consisted of practices 17, 8, 15, 16, 9 and 14. Factor 2 accounted for 7% of the variance and was titled ‘reducing maintenance costs and improving competitive pricing’. Factor 3 was comprised of practices 6 (which also appeared in Factor 1), two practices which appeared in Factor 2, practice 16 and 14. Also included were practices 5, 10 and 23. Factor 3 explained 5% of the variance and was titled ‘mixed tactics of cost cuts and marketing’. Finally, Factor 4 included practices 24 and 1. This factor accounted for 4% of the variance and was titled ‘conflicting tactics’.
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Table 4 Factor analysis, practice’ usage Practice
Component 1
21 19 20 22 11 18 13 6 12 17 8 15 16 9 14 3 4 5 10 23 7 2 24 1
Industry-wide demand for a grace period on national tax payments Organized protest against lack of government support Industry-wide demand for government assistance with current expenses Industry-wide demand for a grace period on municipal tax payments Marketing to new segments Extending credit or postponing scheduled payments Extending hours or days of business menu Joint marketing campaigns with other merchants (such as Visa or MasterCard) Adding a business menu or changing the business menu offerings Cost cuts by using less-expensive substitutes in the kitchen Price drops on special offers Cost cuts by postponing cosmetic maintenance to the restaurant Cost cuts by postponing systems maintenance Reducing menu prices Cost cuts by limiting restaurant set vices Freezing or reducing pay rate Replacing high-tenure employees with new employees Increased reliance on outsourced human resources Marketing and promoting new services (such as catering, events, etc.) Increasing the sector’s power by joining the Israel restaurant association Advertising in the media (television, radio, newspapers) Reducing the number of working days per week Communicating ‘‘business as usual’’ Reducing the labor force by laying off employees or by unpaid vacation Percent of variation explained by factor
2
3
4
0.92
0.02
0.25
0.05
0.88 0.87
0.14 0.04
0.18 0.07
0.03 0.21
0.74
0.08
0.01
0.35
0.62 0.59 0.55 0.54
0.48 0.20 0.38 0.17
0.22 0.01 0.15 0.50
0.03 0.11 0.25 0.15
0.54
0.43
0.13
0.12
0.21
0.78
0.18
0.19
0.02 0.19
0.77 0.71
0.14 0.28
0.01 0.06
0.27 0.09 0.18 0.24 0.14 0.21 0.34
0.69 0.66 0.55 0.48 0.47 0.08 0.21
0.53 0.34 0.52 0.21 0.18 0.70 0.68
0.02 0.47 0.21 0.42 0.28 0.05 0.03
0.44
0.05
0.67
0.32
0.26 0.22 0.15 0.15
0.15 0.40 0.00 0.39
0.50 0.50 0.31 0.24
0.01 0.21 0.78 0.72
63%
70%
75%
79%
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 8 iterations.
3.2.3. Dimensions of combined importance and usage practice A third factor analysis was utilized to assess the dimensions of crisis-management practices when the importance assigned to each practice was multiplied by its corresponding level of importance to evaluate the overall effectiveness of the crisismanagement practice. Again, a principle component analysis (Varimax Rotation Method) was carried out, yielding four components that accounted for 86% of the variance.
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Table 5 presents the loading of each practice. The first factor included the following weighted practices: 20, 21, 11, 22, 19, 12, 23, 6, 10 and 24. This factor explained 67% of the variance and was titled ‘government assistance and marketing efforts’. Factor 2 was comprised of the following weighted practices: 10 (which was also included in Factor 1), 16, 5, 14, 15, 13, 8 and 4. The factor accounts for about 9% of the variance. The factor was titled ‘reducing costs’. The third factor included the following weighted practices: 17, 3 and 1. The factor was titled ‘reducing human resources costs’ and accounted for 6% of the Table 5 Factor analysis, product of practices’ importance and usage Practice
Component 1
20 21 11 22 19 12 23 6 10 24 18 16 5 14 15 13 8 4 17 3 1
9 2
Industry-wide demand for government assistance with current expenses Industry-wide demand for a grace period on national tax payments Marketing to new segments Industry-wide demand for a grace period on municipal tax payments Organized protest against lack of government support Adding a business menu or changing the business menu offerings Increasing the sector’s power by joining the Israel restaurant association Joint marketing campaigns with other merchants (such as Visa or MasterCard) Marketing and promoting new services (such as catering, events, etc.) Communicating ‘‘business as usual’’ Extending credit or postponing scheduled payments Cost cuts by postponing systems maintenance Increased reliance on outsourced human resources Cost cuts by limiting restaurant services Cost cuts by postponing cosmetic maintenance to the restaurant Extending hours or days of business menu Price drops on special offers Replacing high-tenure employees with new employees Cost cuts by using less expensive substitutes in the kitchen Freezing or reducing pay rate Reducing the labor force by laying off employees or by unpaid vacation Advertising in the media (television, radio, newspapers) Reducing menu prices Reducing the number of working days per week Percent of variation explained by factor
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation conversed in 8 iterations.
2
3
4
0.82
0.17
0.17
0.29
0.80
0.14
0.40
0.11
0.75 0.74
0.19 0.12
0.27 0.12
0.37 0.15
0.69 0.67
0.23 0.20
0.48 0.31
0.28 0.27
0.60
0.36
0.41
0.19
0.56
0.38
0.27
0.35
0.55
0.53
0.30
0.33
0.51 0.44 0.06 0.15 0.02 0.18
0.38 0.16 0.94 0.90 0.73 0.61
0.14 0.31 0.12 0.04 0.14 0.50
0.24 0.19 0.00 0.05 0.28 0.18
0.48 0.19 0.43 0.08
0.57 0.56 0.52 0.14
0.33 0.16 0.01 0.84
0.29 0.47 0.22 0.19
0.15 0.02
0.37 0.17
0.72 0.70
0.36 0.15
0.08 0.18 0.07
0.13 0.49 0.11
0.05 0.10 0.03
0.81 0.50 0.48
67%
76%
82%
86%
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variance. The fourth and last factor was comprised of two weighted practices: 7 and 9. It was titled ‘marketing efforts’ and accounted for 4% of the variance. 4. Analysis of the crisis-management questionnaire findings 4.1. Interpretations of Proposition 1 Proposition 1 stated that there would be a strong positive correlation between the importance executives assign to a certain crisis-management practice and the level of usage of this practice. Clearly, the Pearson correlations in Table 2 are all significant, positive and range from 0.40 (the lowest) to 0.76 (the highest), a fact that supports Proposition 1. When we look at the most important practices according to importance and usage (Tables 2 and 6), it is surprising to find that the most important practice was practice 24. The second most important practice was practice 12. In third place was practice 3 and in fourth place was practice 6. The ranking for the usage category also identifies practice 24 as the one most widely used. The second most used practice was also identical to the second most important practice—practice 12. The third most used practice was practice 7. The fourth most used practice was, again, identical to the fourth practice in the importance ranking—practice 6. Ranking the practices according to the highest correlation between importance and usage reveals a somewhat different set of practices. The highest correlation was between the importance and usage of practice 17, followed by practice 7. In third place was practice 12 and the fourth was practice 2. When we look at the least important practices according to importance and usage, the least important was practice 5. The next least important was practice 2. In 22nd place was practice 16, and in 21st place was practice 4. The lowest ranking for the usage category was for practice 2. The next least important practice was practice 5. Identical to the ranking in the importance category, in 22nd place was practice 16 and in 21st place was practice 19. Ranking the practices according to the lowest correlation between importance and usage reveals that the lowest correlation was between the importance and usage of practice 5. In 23rd place was practice 15. In 22nd place was practice 16 and in 21st place was practice 1. The reason for focusing on a small number of high- and low-ranking practices is primarily for practical purposes. In real-life events, managers often ask for a short list of ‘‘dos’’ and ‘‘don’ts’’ in managerial actions. Therefore, the intention is to see if something can be learned by limiting the list to the four highest- and lowest-ranking practices for importance, usage and correlations. Table 6 Highest ranking and lowest ranking practices according to importance, usage and correlation Highest-ranking practices
Lowest ranking practices
Importance
Usage
Correlation
Importance
Usage
Correlation
24 12 3 6
24 12 7 6
17 7 12 2
5 2 16 4
2 5 16 19
5 15 16 1
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First, using the summary presented in Table 6, if we analyze the highest-ranking practices (according to importance, usage and correlation) practice 12 is one of the most important, most used and also demonstrates a high correlation between importance and usage. This consistent behavior suggests that the competitiveness provided by the business menu is a central practice for crisis management. Practice 7 also demonstrated a high level of usage and correlation between importance and usage. The importance was not included in the top four practices, but it was the fifth practice ranked by importance. This finding means that advertising is also an important crisis-management practice. Practice 6 also ranked high on both importance and usage, and its correlations ranking was also high (although it was not in the top five). This third marketing practice was also identified as significant for crisis management. Finally, practice 24 was considered important and was also used quite frequently. Nevertheless, there does not appear to be agreement about its significance for crisis management, as can be seen from the relatively lower correlation score (compared with the abovementioned practices) and therefore, it is questionable if this is a practice all managers should consider in crisis management. To summarize, the consistent ‘‘do’’ list for restaurant crisis management included an assortment of marketing practices. Turning to the lowest-ranking practices reveals some important insights as well. Practice 5 was consistent with low ranking on importance, usage and correlation. This fact suggests that this practice is probably a ‘‘don’t’’ for managers, because there is an agreement that it is not important, managers do not use it, and the low correlation suggests that there is inconsistency about the practice potential. A similar observation can be made for practice 16. An interesting behavior was demonstrated by practice 2. This practice scored very low on importance and usage. However, the correlation of this practice was among the highest. This fact makes this practice as a definite ‘‘don’t’’ because there is consistency (correlation) between its low importance and low usage. 4.2. Interpretations of Proposition 2 Proposition 2 stipulated that both importance and usage practices would follow four main categories (human resources, marketing, maintenance, and government assistance), which were generated from the literature and from the in-depth interviews with managers. An evaluation of the factor analysis findings is provided in the following paragraphs. 4.2.1. Interpretations of dimensions of practice importance The analysis of the importance of crisis management formed four factors that were somewhat different than the original four categories and thus provided only partial support for Proposition 2. Importance Factor 1, ‘competitive cost, competitive prices and government support’, included four practices of the category government assistance, but it also included two practices form the marketing category which address pricing decisions. One practice from the maintenance category was also included. The combination of marketing practices with practices of turning to central and local governments for support can be explained by the common perception of many businesses in Israel that this prolonged crisis is not their fault and it is under the government’s responsibility. There it is also the government’s responsibility to rescue them from the impact of this prolonged crisis. Moreover, they believe that with this government support, they will be able to reduce their costs and thus offer more competitive prices.
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The second factor, titled ‘intensive marketing’, corresponded quite nicely with the marketing category. This factor included the promotion-related practices available for crisis management. The third factor of importance—‘increasing restaurant competitiveness’— included a mix of practices all sharing the motivation to generate competitiveness either by cost reduction and/or by price reduction. The grouping of these practices seems logical. Factor four—‘cost cuts in human resources’—included practices from the human resources category, coupled with a practice from maintenance and a practice from government assistance. It is difficult to explain the inclusion of practice 23 to the government assistance category, but it is possible to explain that some cost cuts will eventually have to focus on human resources and, therefore, this factor is quite consistent with the human resources category. 4.2.2. Interpretations of dimensions of practice usage The results of the factor analysis of usage only partially support Proposition 2. Factor 1, titled ‘government assistance and marketing efforts’, included practices of government assistance which also appeared in Factor 1 in the factor importance analysis. In addition, there were also practices from the marketing category which deal with promotion and the product. Similar to the interpretations offered for Factor 1 in the practices’ importance, the combination of marketing practices and practices of turning to the government for support can be explained by the common perception that this crisis is not the fault of the business, but the result of external forces. Managers action include turning to the government and asking for help in reducing the crisis impact. Furthermore, since this time managers are asked about what they do (usage) and not on what they think is important, marketing efforts have an operational perspective which focuses on operative measures of promotion. Factor 2 of usage, titled ‘reducing maintenance costs and improving competitive pricing’, included a mix of practices. The majority of these practices come from the maintenance category and included all the practices of cost cuts. Two additional practices were from the marketing category, which include the pricing aspect of marketing. The general logic in this factor is clear, suggesting that cost cuts are translated into more competitive pricing. Factor 3 of usage, titled ‘mixed tactics of cost cuts and marketing’, is constructed from a variety of practices from all the categories. The main motivation behind this factor is to use the different practices to improve restaurant competitiveness. The final factor, titled ‘conflicting tactics’ is probably the hardest to interpret, because it is difficult to explain how businesses can reduce the labor force and still communicate ‘business as usual’. The mixed patterns of usage seem to be more difficult to interpret than the patterns of importance. One possible explanation is that importance domains are more ‘‘ideal’’ than actual use, thus rendering more coherent patterns. When practices reach the implementation stage, managers find that in some cases the application is difficult or even impossible. In order to combine the importance and usage, a factor analysis was employed on the product of each factor importance and usage. The interpretations of this analysis are presented next. 4.2.3. Interpretations of dimensions of combined importance and usage of practices The results of factor analysis conducted on weighted usage reflect relatively higher construct validity then the analyses of importance and usage. The inclusion of practices in
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each factor is much more easily understood and gives much more credence to Proposition 2. Factor 1 of weighted practices, titled ‘government assistance and marketing efforts’ depicted the same logic that was discovered in Factor 1 of importance and also in usage. The factor combined the government assistance practices aimed at increasing the sector’s power and demand for a reduction of taxes, coupled with practices from the marketing category which focus on the aspect of promotion and product offerings. Factor 2 of weighted practices, titled ‘reducing costs’, included a variety of practices from all the categories except for government assistance. The common theme behind all these practices is that they are aimed at cost reduction that is under the immediate control of management. Government assistance is something managers can ask for (or even demand), but it is not certain that the government will provide what was demanded. In contrast to the practices of government assistance, the practices included in Factor 2 are all under the immediate control of management, and it can control how these practices are applied in the business. While Factors 3 and 4 of factor usage were somewhat inconsistent with the original categories Factors 3 and 4 of weighted practices demonstrate more consistency with the original categories. Factor 3, titled ‘reducing human resources costs’, included two practices for the human resource category which deal with lowering the cost of employees. Similarly, Factor 4, titled ‘marketing efforts’ also focused on one category (marketing) and addressed the practices of lowering prices and advertising this fact to the public. Examining the four factors of weighted usage indicates that in essence, the study’s initial crisis-management categories are partially supported in this case as well. 4.3. Final comments Proposition 1 was supported by the findings but Proposition 2 received only partial support because the initial categories could be fully identified in most (but not all) of the factors. Three observations are worth special attention. First, there were cases in which the factors very closely resembled the original categories and thus generated the largest support for Proposition 2. Second, there were factors that demonstrated a logically consistent mix of practices from different categories and, therefore, generated additional partial support for Proposition 2. For example, Factor 1 of importance included a number of practices from the government assistance category coupled with practices from the marketing and maintenance categories. The categories were still present, and this mix merged different internal practices (marketing and maintenance) with the demand that the government assist businesses in reducing costs in times of crisis. The same was observed in Factor 1 of usage—‘government assistance and marketing efforts’. The common theme is that businesses want to take a crisis-management initiative, but ask for government consideration and assistance (when they make this move). Thirdly, there were factors that generated a new reasoning or possibly new categories. For example, Factor 3 in the importance category, titled ‘increasing restaurant competitiveness’. This factor assembled practice from different categories, without focusing on one or two specific categories. At first glance, the practices may appear unrelated, but a closer look reveals that they are all practices that can enhance the restaurant’s competitiveness. These practices allow management to run a restaurant that communicates ‘‘business as usual’’, serves a competitive business menu, and manages to
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keep costs competitive as well. Therefore, competitiveness becomes a distinct factor in this case which was not initially defined in the categories. Another example is Factor 2 of combined importance and usage titled ‘reducing costs’. This factor included a variety of cost-cutting practices coupled with practices aimed at increasing the business activity. The goal of all these practices is to reduce the per-unit cost by offering more units at a lower overall cost. Here again, the original categories of the study were not maintained, but a new category of cost reduction appears. In summary, there were enough factors that preserved the original categories or combined two main categories and, therefore, provide partial support for Proposition 2. The more interesting finding comes from the factors that did not support Proposition 2, because these factors drew specific practices from the different categories and suggested that these practices form categories of increased competitiveness and cost/price reduction that can be significant in crisis management. 5. Conclusions, recommendations and suggestions for future research In conclusion, the findings focus on several important observations. The first observation was that most of the crisis-management practices which were identified in this study were reactive. This finding was already identified by Mansfeld (1999) which suggested that almost no knowledge is gained from crisis to crisis. Proactive crisis management is undoubtedly necessary but seldom occurs. Therefore, the findings of this study coupled with findings of others (Okumus and Karamustafa, 2005; Israeli and Reichel, 2003) should be carefully considered by policy makers in an effort to craft effective proactive crisis-management strategies. Second, the crisis-management scenario tested revolved around external factors that forced the industry into hardships. External crises are different from internal crises, which are generally based on a management failure (Lerbinger, 1997). Therefore, in external crisis, managers will ask for support from those who are perceived as responsible for the crisis situation. In this case, the entity that is perceived as responsible for the crisis is the government. Therefore, the most important factor, the most used factor and the first factor of combined importance and usage all included practices of government support. Observing the need for government support as a part of crisis management is not new, as reported by Stafford et al. (2002). However, crisis management in the Israeli restaurant industry includes an element of protest against lack of government support (practice 19). In line with Mansfeld’s (1999) findings about lack of governmental preparations for crises (particularly when they repeat themselves), the findings of this study are valuable for practitioners and reiterate the fact that crisis management is not the sole responsibility of the business sector, but it is also the responsibility of the government (which created, or could not eliminate the crisis). Another conclusion that may serve as a practical recommendation to managers is that crisis management is often performed through a combination of practices. Some of these combinations generate an industry-specific logic that goes beyond the logic of the original generic categories. In the context of the restaurant industry, the practical implication for managers is to focus on practices of increased competitiveness and cost/price reduction. Therefore, managers should focus their effort on achieving competitiveness and cost reduction at part as their daily routine but also as a significant way for preparing for the next crisis.
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Another important issue relates to human resources. In labor-intensive industries such as hospitality and tourism, the immediate crisis management practice includes major cutbacks in the labor force. Israeli and Reichel (2003) found that human resource practices in the hospitality industry are among the most common practices in crisis management and that the Israeli hospitality labor force has been downsized from approximately 40,000 employees to about 28,000. In the current study, human resource practices were used relatively less often. The managerial implication is that people are a crucial component in the success of the restaurant industry (Israeli and Barkan, 2004) and managers should combat crises with practices other than labor cutbacks. There were two important themes that managers should consider in crisis management. One theme can be titled competitiveness, and it incorporates practices that improve the ability of the business to perform. While competitiveness is a fundamental component in business strategy, the findings here imply that it is even more important in times of crisis. Moreover, there are practices that provide a chance for competitiveness, such as marketing practices and government assistance. The second theme can be titled cost reduction. Again, this is a basic motivation of all firms. However, in prosperous times, firms do not always strive to achieve this goal. In times of crisis, cost reduction is a central element in the business activity. This point leads to suggestions for future research. The first suggestion is to extend the analysis to different industries and different countries that face crises. Unfortunately, there will always be a location under crisis and therefore, while this suggestion is doable, it also carries potential for more effective crisis management in the future. Another interesting and significant question that has yet to be answered is do crisis management practices improve position and performance of the firm in the long run? At this time, we lack the long-term perspective needed to test the method proposed in this paper and to comment on the above question. Thus, this question remains unanswered as a challenge for future research. References Anson, C., 1999. Planning for peace: the role of tourism in the aftermath of violence. Journal of Travel Research 38 (August), 57–61. Aziz, H., 1995. Understanding terrorist attacks on tourists in Egypt. Tourism Management 16, 91–95. Barton, L., 1994. Crisis management: preparing for and managing disasters. Cornell Hotel and Restaurant Administration Quarterly 35 (2), 59–65. Blake, A., Sinclair, M., 2003. Tourism crisis management: US response to September 11. Annals of Tourism Research 30, 813–832. Brewton, C., 1987. Managing a crisis: a model for the lodging industry. Cornell Hotel and Restaurant Administration Quarterly 28 (3), 10–14. Butler, R.W., Baum, T., 1999. The tourism potential of the peace dividend. Journal of Travel Research 38 (August), 24–29. Israeli, A., Barkan, R., 2004. Developing a framework for rewards in combined production/service businesses: the case of tipping in the restaurant industry. International Journal of Service Industry Management 15 (5), 444–459. Israeli, A., Reichel, A., 2003. Hospitality crisis management practices: the Israeli case. International Journal of Hospitality Management 22 (4), 353–372. Keeney, R.L., Raiffa, H., 1976. Decisions with Multiple Objectives. Wiley, New York. Lerbinger, O., 1997. The Crisis Manager: Facing Risk and Responsibility. Lawrence Eribaum Associates, Mahwah, New Jersey. Leslie, D., 1996. Northern Ireland, tourism and peace. Tourism Management 17 (1), 51–55.
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