REPUTATION
MANAGEMENT
What
is reputation?
“A good reputation may take years to
develop, but a poor one can manifest itself virtually overnight, and have a
devastating effect on the organisation.”
Stewart Lewis, Head of Corporate
Communications Research, MORI (2006) defines reputation as:
Reputation “derives from the assumptions,
perceptions and beliefs about what an organisation is, how it is
run and what it stands for……..ultimately reputation underpins an organisation’s
licence to operate”
Reputation comprises a “value judgment about the company’s
identity and reflects the image that the organization presents to its various
stakeholders.
A company’s overall reputation is a
function of its reputation among its various stakeholders in specific
categories (Eccles et al, 2007: 107)
Corporate reputation is a ‘soft’ concept. It is the overall
estimation in which an organization is held by its internal and external
stakeholders based on its past actions and probability of its future behavior.
The organization may have a slightly different reputation with each stakeholder
according to their experiences in dealing with the organization or in what they
have heard about it from others.
Consequently, reputation can be ‘good’
or ‘bad’, depending on whether the organisation’s behaviour and performance
generates a mainly positive, or a mainly negative, response from these
interested parties.
Many organizations put the importance of a good reputation to
the back of their minds while they attend to more hard-edged, day-to-day
urgencies.
On the other hand, many organizations consider their greatest
asset to be their good name or reputation. This is especially true in
knowledge-based organizations such as professional services firms in the
consulting, legal, medical, and financial sectors and in universities. They
work actively to build their good reputation, to build the ‘bank of goodwill’
towards them.
Although reputation is an intangible concept, research
universally shows that a good reputation demonstrably increases corporate worth
and provides sustained competitive advantage. A business can achieve its
objectives more easily if it has a good reputation among its stakeholders,
especially key stakeholders such as its largest customers, opinion leaders in
the business community, suppliers and current and potential employees.
A
favorable corporate reputation rests on competing successfully in the
market place, achieving a familiar and
positive image, building an ethical and high performance work culture, and communicating widely with
various stakeholders (Deephouse, 2000;
Fombrun and Van Riel, 2004). And more companies are seeing the value of
company reputation in an increasingly
competitive global business environment.
A
positive organization reputation will increasingly influence purchase
decisions when there is little
difference in price, quality design and product. There is even more
competition, lack of differentiation, and pricing concerns in the service
sector. Thus building a highly regarded
corporate reputation or corporate brand had become even more important.
Interestingly,
most people have a low opinion of corporations in general. So being admired offers an even more substantial
benefit.
Five
elements of reputation:
• financial
performance;
• quality
of management;
• social
and environmental responsibility performance;
• employee
quality; and
• the
quality of the goods/services provided.
Reputation has a number of elements,
with the two most important linked to one another:
– Image:
how external stakeholders view the company
– Identity:
how the company sees itself
– Where
image and identity are viewed to be linked by causality, the external image of
the organisation can be managed by managing the internal identity
• Reputation is created
through multiple interactions
– Organisation contacts
are mixture of tangible, intangible, rational and emotional experiences.
– Image often depends on
a number of factors; how customers are treated by staff, preconceptions from
contacts with similar organisations, national origin of the organisation,
product type and communications (by the organisation and press)
• Reputation
and financial performance are linked
– Although
subject to controversy as it is difficult to determine a direct relationship,
– Good
reputation preconditions various stakeholders to expect positive interaction.
Such expectations can in turn lead to customer satisfaction and employee
motivation.
– Relative
reputation drives financial performance
Does corporate reputation matter? Studies of the Fortune 500
companies have shown that the most
“admired” companies have much higher price:earnings ratios (about 12 percent higher) than do the less “admired”
companies, a $5 billion increase in market
capitalization for the typical Fortune 500 company. Thus company reputation
is associated with a company’s financial performance
Sound Investment Theory – Bowman’s
neo-invisible hand
• Knight
and Pretty (2001:11) argue that a high reputation equity gives investors
confidence in the firm’s ability to generate cash flows. This creates a virtuous cycle in which high
reputation generates a higher share price which, in turn, reaffirms the reputation
equity of the firm.
• Investors
are more likely to place their capital in reputable firms; banks will be more
willing to supply loans, at more favourable rates; good employees will be
attracted to work there, and their services can be retained; while customers
will be attracted to the products, and their custom maintained.
• In
contrast, a poor reputation means that the company is vulnerable. It may find difficulty in attracting and
retaining staff.
• Limits
may be put on borrowing, with more stringent terms for repayment, and customers
will purchase their goods elsewhere.
• Shareholder
confidence may be affected, sometimes leading to dramatic decline in value of
shares.
• Can
lead to a vicious cycle in which poor organisational performance leads to poor
reputation; financial problems, loss of key employees and customers, which
pushes performance even lower. (Vergin
and Quoronfleh, 1998: 25)
The
construction of a company reputation includes both objective factors
(financial performance, financial stability,
growth) and emotional factors (trust, liking, faith in, firsthand experience
with its products and services). Reputations are also based on cognitive factors
(e.g., facts, data, information) and affective factors (emotions, reactions).
It takes quite a long time to build a company reputation. Strong brands would
include Coca-Cola, Microsoft, IBM and GE. Reputation building involves media
coverage, sponsorship of events, public relations, publicity, offering high
quality products and services, and most of all, “walking the talk”—behaving in
the market place in accordance with stated values and principles. Organizations
need to continually monitor their reputations in order to self-correct. Building
and maintaining a favorable corporate reputation require considerable
investment of resources.
Benefits
of corporate reputation:
The main benefits of a good corporate reputation can be found
in:
- Customer
preference in doing business with you when other companies’ products and
services are available at a similar cost and quality;
- Your
ability to charge a premium for products and services;
- Stakeholder
support for your organization in times of controversy;
- Your
organization’s value in the financial marketplace.
If your organization is well regarded by your main customers,
they will prefer to deal with you ahead of others. And these people will
influence other potential customers by word of mouth. Suppliers will be more
inclined to trust in your organization’s ability to pay and to provide fair
trading terms. If any problems occur in their trading relationship with you,
your suppliers will be more inclined to give you the benefit of the doubt when
you have a reputation for fair dealing. Likewise, government regulators will
trust you more if you have a good reputation, and they will be less inclined to
punish you if you trip up along the way. And clearly, a potential employee will
be more likely to sign up with you if you have a good reputation for your treatment
of staff compared with an employer who may have an equivocal reputation.
One thing is certain, there is a high cost to pay for losing
reputation, the good standing among stakeholders. Past experience has shown
that a badly handled crisis can strip big chunks off a company’s share price,
eg Exxon’s share price plunged 20% after the Exxon Valdez incident. A smaller
organization could be devastated by loss of reputation. Conversely, the skilful
handling of a major issue or crisis can maintain a good reputation and cushion
the organization’s share price against a drop in market share.
Threats to reputation
• Evidence
suggests that consumer power is increasing through greater use of
technology/social media
• Lots
of online protests and boycotts
• Greater
access to online “league tables” and chat rooms
• Changing
societal attitudes to CSR & Climate Change
The
survey captures the views of CEOs, CFOs, chief risk officers and other
executives responsible for managing risk: 84% executives believe the threat to
their companies' reputations has increased significantly over the past five
years.
Reasons
are: Tough competition for customers, the expansion of global media and
communications networks, and increased scrutiny from regulators.
Compliance
failures are the biggest source of reputational risk.
Threats
to reputation come from many sources. Companies worry particularly about
exposure of unethical practices, and about failing to deliver minimum standards
of service and product quality to customers. However, the biggest threat to
reputation arises from compliance failures, with 29% of companies citing
failures to meet regulatory or legal obligations as a major source of
reputational risk. CEOs are the top risk managers when it comes to reputation.
Everyone from the board down to ordinary employees has a role to play in
guarding the company's reputation. Ultimately, however, the CEO is regarded as
the individual with primary responsibility for managing reputational risk by
most executives in the survey. The chief executive is expected to set high
ethical standards, and to co-ordinate the organisation's response to
reputational threats. By contrast, the chief risk officer has a more technical
role, quantifying or prioritising potential threats to corporate image, and
policing risk policies to make sure they are properly enforced.
Communication
is the key to crisis management.
Crisis
management is the area where companies feel their capabilities are weakest when
it comes to managing reputational risk. Only 10% say they are excellent at
managing crises; 11% admit they are poor or worse, and 44% say they are
adequate. To improve their performance in these areas, organisations must learn
how to communicate with customers and the media when things go wrong. Companies
that have a communications strategy that enables them to respond quickly and
effectively to "bad news" events, and which address issues openly and
proactively, often emerge with their reputations in tact and even enhanced.
Those that don't may suffer heavy and, in some cases, irreparable damage.
"Reputational
threats represent the biggest risk to business according to this survey. But
because it is hard to categorise and measure, many companies lack a formal
strategy or management structure to manage reputational risk effectively,"
says Daniel Franklin, the editorial director of the Economist Intelligence
Unit.
You work
hard to build an honest business, but you can’t please everyone. Someone had a
negative experience with your company (an unreturned phone call, a rude salesperson,
a defective product, a lawsuit) and dragged your company through the mud on a
personal blog or discussion forum. You may have worked hard to resolve the
issue with the customer, but the pages still remain in the search engines –
ranking highly.
Or you could be
the victim of brand-jacking by spammers, made-for-Adsense websites or
trash-talk from competitors submitted as anonymous comments on blogs, forums
and review sites. You wish these pages didn’t exist, but you don’t control
search engines…what can you do?
Because of the
openness and anonymity of the Web, every business is vulnerable to reputation
management issues. Some appearances of negative feedback are easy to have
removed. Others can never be stricken from the record but you can work on
pushing these results off the first few pages of each search engine. But it
takes some strategy and time.
Corporate reputation also is important to the career of your
CEO. As part of the process of evaluating the performance of the chief
executive, there has been a growing trend for boards of directors to measure
changes in their organization’s reputation.
And international surveys show that more than half of an
organization’s reputation can be attributed to the CEO. Thus the CEO’s
reputation can potentially add millions of
REPUTATION MANAGEMENT
Reputation management is the practice of
monitoring the reputation of an individual or brand, addressing contents which
are damaging to it, and using customer feedback to get feedback or early
warning signals to reputation problems. Most of reputation management is
focused on pushing down negative search results.[7] Reputation management may attempt to bridge the
gap between how a company perceives itself and how others view it.
The reputation management definition can
be separated into three different categories. Obviously, it is managing the
reputation of a company, but it can be for a company of any size, whether it is
a larger company who wants to self-promote, or a just-established company which
wants to get its name out there. With the help of Brick Marketing, you can use
any of these types of reputation management:
·
Building – This type of reputation management has to do with building
the reputation for a business that is just getting started. It includes
building a good reputation to maintaining it for your business.
·
Maintenance – Reputation management meant to just keep a company’s good
image superior in the public eye is called maintenance. This is meant for
companies that are already established, and have a good reputation already.
·
Recovery – If your business has gotten a bad reputation for any
reason, then the recovery portion of reputation management is for you. Brick
Marketing works to hide the bad reputation with good marketing and
self-promotion.
- At every word a
reputation dies’
Alexander Pope
- ‘Many a man’s
reputation would not know his character if they met on the street.’
Elbert Hubbard,’
How you can build your
corporate reputation
Your organization can’t actually control its
own reputation – it can only operate in a sound and ethical way, and work to
communicate this to stakeholders. Thus the common term ‘reputation management’
is misleading because you can’t directly manage your own reputation; you can
only act to strengthen your standing in the areas that you consider important
to your reputation.
Stakeholders’ attitudes towards your organization and their
relationships with you (and hence your reputation in their eyes) can be
influenced by stakeholder relationship management activities, especially when
the activities are conducted on a two-way symmetric basis, which involves
treating them with respect.
Reputation is also affected by the actions and attitudes of
others, for example, a competitor launching breakthrough products or making
greater profits, and by comments from industry observers.
Steps to build
reputation
Corporate reputation is shaped more by operational practices
than by communication practices – actions speak louder than words.
Nevertheless, a corporate reputation can be influenced by communication
activities. Communication programs are valuable for creating awareness of good
operational practices and in enhancing the organization’s relationships with
stakeholders. Dialogue with stakeholders also can help shape organizational
practices.
These six steps can strengthen a corporate reputation through a
stakeholder relations program:
- Conduct
research to know key stakeholders better.
- Assess
stakeholder strengths and weaknesses, and focus on the gap between
internal realities and stakeholder perceptions.
- Research
the main factors comprising the reputation of your organization and align
them with policies, systems and programs in all functional areas. This
produces a powerful re-orientation of priorities and behaviors.
- Set
plans to exceed stakeholder expectations.
- Involve
the CEO as the greatest ally or champion of a reputation program.
- Measure
regularly against targets and act to improve the results.
.Correlation between PR
investment and reputation
US research relating to the annual Fortune 500 ‘Most
Admired Companies’ listing in 1999 found that companies which invested in
corporate communication experienced a better reputation than companies which didn’t.
The study analyzed spending in a broad array of corporate
communication functions: media relations, speechwriting, investor relations,
annual/quarterly reports, social responsibility and community affairs,
donations, corporate and issues advertising, employee communication, department
management and counseling and spending on public relations firms by 476
companies.
Spending on communication by the top 200 of the most admired
companies far exceeded the spending by companies that were ranked in the bottom
half of the table of most admired companies. This supports the view that
reputation, as measured by the ‘most admired ranking’, can be influenced
significantly by good communication practices.
Does
my company’s reputation really affect my business results? That’s a question I
often hear from corporate executives and public-relations managers. My answer:
“Of course! It’s your most valuable asset.” Given that reputation is an
intangible asset, however, it often is difficult to measure precisely its impact
on the bottom line. But a good, if indirect, gauge of reputation’s impact on
financial results and stock prices is its effect on the behavior of consumers
and investors.
Conclusions and Implications
Corporate
reputations matter. Tangible benefits accrue to organizations having favorable
reputations. It takes several years to develop a favorable corporate
reputation. While a favorable reputation relies on communication and marketing,
it is more than that. A favorable corporate reputation is built on sound HRM
practices and a viable business model and strategy. Organizations having
favorable reputations are credible, they “walk the talk.”
We
know a lot about building, maintaining and repairing reputations (Decotiis,
2008). Favorable corporate reputations result from effective leadership,
committed employees, superior service and products, high ethical standards and
high levels of socially responsible actions (Garcia, 2007; Greyser,
1999).Companies sometimes need to rebrand themselves to better adapt and fit
changing times. There are considerable threats to corporate reputations. These
include the behavior of executives,
dissatisfied employees, disgruntled customers and clients, low quality
products or services, rumors, innuendos,
and lies spread by dissatisfied employees, customers or competitors. Organizations can monitor
events, anticipate potential threats, quickly respond to real or phony threats,
take responsibility for real crises, and work to ensure they never happen again. Leadership,
communication and candor are vital here. While it takes several years to build
a favorable corporate reputation, it can be quickly damaged.
Examples:
Coca-Cola launched its new brand of so-called “pure” Dasani bottled water in
the UK in March 2004. But glitches
occurred. Dasani was reported in UK media to be
nothing more than London tap water taken from the city system. Then it
noted that what the organization termed
its “highly sophisticated purification process” based on NASA spacecraft technology was just the
same processes used in most domestic
water purifiers. The UA$13 million dollar launch was stopped when it was
noted that a cancer-causing chemical was
found in the samples.
It
is possible, however, to recover from a damaged reputation as shown by Johnson
&
Johnson (the Tylenol event) and McCain Foods (tainted meat products). Some
organizations
seem to be little affected from damaged reputations (e.g., the Catholic
Church,
Toyota) while other organizations fail (e.g., Enron, Arthur Andersen).
BY:
AVI PIPADA
+919619514014
