In mid-1999, after a huge outcry of negative public opinion and the adverse decision of the health minister of Belgium, Coca-Cola was forced to recall about 30 million cans and bottles of its products (Coke, Fanta, etc.). It was not only the largest product recall in the company's 113-year history, but, for the first time ever, the entire inventory of Coca-Cola products was banned from sale throughout the country of Belgium.
The ways in which Coca-Cola mishandled the Belgian crisis was not only one of the worst public relations disasters in the company's history, but it is also one of the biggest textbook examples of how not to do crisis management. The crisis not only resulted in the loss of millions of dollars for the company, but in the eventual firing of Coke's CEO, Ken Ivester.
The crisis began when children at six schools in Belgium complained that the Coke products they had consumed tasted and smelled funny. Soon afterwards, they suffered serious headaches, nausea, vomiting and shivering. The symptoms ultimately led to their being hospitalized.
The same week, the governments of France, the Netherlands, and Luxembourg also banned Coca-Cola's products. The company's Dutch arm recalled all products from its Belgium plant. And, 240 Belgians and French citizens, mostly school children, were left ill after drinking Coke products produced at the Antwerp and Dunkirk facilities.
How Coke responded to the crisis not only revealed how deeply flawed Coke's understanding of crisis management was, but it also revealed how easily and quickly Coke became trapped into solving the wrong problem precisely.
Coca-Cola's top executives responded by having their quality control engineers run extensive tests on the products in question. The engineers quickly ascertained that there was nothing toxic in the beverages. Therefore, from a health standpoint, there was nothing wrong with the products. The products tasted and smelled funny only because of sub-standard carbon dioxide that was used to carbonate them.
As far as it went, this part of Coke's strategy was OK. Coke had not yet committed an error of solving the wrong problem precisely.
However, with this explanation in hand, Coke's executives thought, naively, that the crisis was over, and hence, that it would quickly go away. Given a "rational explanation" for the funny smell and taste of the beverages, the children, their families, and the Belgium health minister would see the products as basically OK; hence, the ban against them would be lifted. The trouble with this "solution" is that it made things worse, not better. It not only exacerbated the initial crisis, but it set off a chain reaction of new crises as well.
The particular Coke executives that were involved in handling the crisis not only said that from a health standpoint there was nothing wrong with their beverages, but in addition that the reactions of the children, their families, and the Belgium health minister were due to mass hysteria. The reactions were "merely psychological," and therefore should be dismissed out of hand.
In this way, Coke's executives not only attempted to explain the problem away, but they did something far worse. They basically insulted their consumers, their families, and the senior health minister of Belgium. As a result, Coke's sales not only plummeted throughout all of Europe, but MacDonald's, one of Coke's largest and most important customers, stopped selling Cokes throughout all of its European fast food outlets.
In accepting the definition of the "problem" as primarily technical, i.e., as a problem of "quality control and quality assurance," Coke executives were not only "solving the wrong problem precisely," but they were violating one of the cardinal rules of crisis management: Never, never insult your customers or key stakeholders, especially children and their parents. Instead, always go out of your way to demonstrate empathy and to convey honest compassion and sincere concern for your customers and other key stakeholders.
Without knowing it, Coke's executives were trapped by a number of forces, many of their own making: a strong corporate culture which reinforced a group mentality (groupthink), the narrowness and the similarity of their professional backgrounds and education, their overwhelming concern with profits, and the intense fears associated with the fact that Coke sales had been steadily declining worldwide. All of these predisposed them to think alike and hence to define the problem-the crisis-as primarily and inherently "technical." Ironically, even though when it came to advertising, marketing, and sales, outside psychologists and marketing consultants as well as in-house staff played a big role-Coke's ads and marketing campaigns were regularly touted as among the best in the industry-psychologists or other social scientists were not part of the team when it came to handling major crises.
There are other ways of looking at how Coke defined the problem that bring out additional features of the crisis. In responding to the Belgium crisis, Coke's top executives considered their quality control engineers to be the "primary and relevant experts." Indeed, from their perspective, they were the only relevant experts. In contrast, the Belgium health minister and the families of the children considered the children themselves to be the "primary and relevant experts." The experts were different in each case because each "side" defined-literally felt and experienced-the problem differently.
In effect, the top executives of Coke assumed implicitly that everyone was a quality control engineer. In contrast, the Belgium Health Minister assumed implicitly that everyone was a government appointed official who was concerned primarily with keeping his or her job. How wrong they both were! Nonetheless, Coke's executives were "more wrong."
What's sad is that, in a fundamental sense, both definitions of the crisis or problem are "correct." As a matter of fact, each is fundamentally incomplete without the other. Like essentially all problems in a complex world, the crisis/problem was not an either/or but a both/and. The "complete" or "true" definition of the problem was both psychological and technical. In this sense, Coke's executives were only solving part of the total problem. They were solving the wrong problem because they were not solving the complete or the total problem.
But then, the Belgium Health Minister was not solving the full problem as well. The crucial point however is that in this particular case, he didn't need to solve the complete problem because he was responding to and representing the "offended parties" against an "uncaring and unfeeling corporate bully."
Like most executives, Coke's top executives were making a number of unstated and faulty assumptions. One, if the problem was literally not in the Coke, then there was not a "real" problem. Conversely, two, the problem with or in the children was not "real." Three, the reactions of the children could be explained away as mass hysteria. Thus, four, and most basic of all, psychological problems are not as important, or as real, as physical ones.
In the end, we rise and we fall by the basic assumptions we make about others, the world, and ourselves in general. As we shall see, in every case, solving the wrong problem precisely can be traced to a set of faulty, largely unstated and unconscious, assumptions.
The Source and the Nature of Coke's Error
One of the most common and the most prevalent sources of an individual, an organization, and even a whole society committing the error of solving the wrong problem is a narrow belief system. In turn, a narrow belief system is often the product or the reflection of a narrow political ideology, a limited philosophical worldview, education, family background, etc. Whatever the source, a narrow belief system generally leads to a single definition of a problem that is accepted beyond question and hence staunchly defended.
But this is not the only source or cause of committing the error of solving the wrong problem(s). Fear, one's psychological frame of mind, and underlying personality also play important roles. In addition, the inability to exhibit genuine empathy for others is also a very important factor.
The narrowness and the strong similarities in educational and professional backgrounds are sufficient in most cases to account for why most people and most groups very quickly zero in on a single, preferred, and "natural" definition of a problem. In short, groupthink is a very important mechanism for producing the error of solving the wrong problem precisely.
But what accounts for the lack of empathy and remorse for others? Unfortunately, there is growing evidence that those who rise to high positions of authority and power are in far too many cases what are termed "avoidant personalities."6 Avoidants typically do not consider the feelings of others because they have little need for other people. As a result, they are extremely comfortable with ignoring the feelings of others.7 In slightly different words, they exhibit little or no visible feelings of anxiety in ignoring others. And, they exhibit little remorse or guilt in using others to their advantage. (The executives and the energy traders of Enron are a classic example.)
Now of course we have no way of knowing for sure whether these factors were operating in the case of Coke's executives, but we do know from all of our consulting opportunities over the years in both the so-called "public" and "private" sectors that they are present in far too many situations we have observed first hand. We are therefore strongly inclined to bet that they were major operating factors in the Belgium Coke crisis as well. Furthermore, the psychological literature says that in times of extreme stress, something that is present in essentially all crisis situations, one's underlying way of coping with stress comes to the fore.8 The psychological literature also says that a person's characteristic way of responding to and coping with stress is learned from the very moment of birth from one's primary caretakers.9 How one's parents respond to stress is one of the strongest factors in how a person responds to stress. But this means that unless one is aware of this, and seeks active intervention through counseling and psychotherapy, one cannot break and change the pattern. Little wonder why the error of solving the wrong problem precisely is committed so often. Indeed, the thing requiring explanation is why we don't have more such errors, not so few of them.
Actually, like very small, mini earthquakes, such errors do occur all of the time. However, most of them occur beneath the threshold of the public's and the media's attention. But this has the effect of lulling us into complacency so that when a really big one hits, we are generally unprepared to deal with it effectively.
If Coke clearly committed the error of solving the wrong problem in Belgium, and more widely throughout Europe, it is not clear that they were guilty of getting others to intentionally solve the wrong problem(s) as well. True, they tried to get the parents and the Belgium Health Minister to accept their definition of the crisis/problem, but they were spectacularly unsuccessful. If serious long-term illnesses had resulted, then they certainly would have been guilty as charged. Nonetheless, despite their being unsuccessful, we can still say that they attempted to commit a Type Four Error in the sense of getting others to accept their flawed definition of the problem. In other words, Coke was not completely off the hook.
One of the many websites devoted to an analysis of the Coke crisis summed up the financial consequences as follows: "Coca-Cola's financial performance suffered a major setback due to the Belgian crisis. The recall had a negative impact on Coca-Cola's overall second-quarter net income in the fiscal year 1999, coming down by 21% to $942 million. Moreover, the entire operation of removing and destroying recalled products cost Coca-Cola Enterprises $103 million (£66 million). The recall led to a 5% decline in the bottler's revenues and a fall in cash operating profit by 6%. Coca-Cola's brand image was hit among Belgian consumers; a market that had been one of Europe's most successful for the company."10
Crises have the potential to "cost big." But how we respond to them, have the potential to "cost even more."