REPUTATION MANAGEMENT

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).

http://www.ashgate.com/pdf/samplepages/corporate-reputation-ch1.pdf

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