Posted tagged ‘dimensions’

Reputation – why it matters and how you can manage it

09/11/2010

“…Reputation, reputation, reputation! Oh, I have lost my reputation! I have lost the immortal part of myself, and what remains is bestial…”

William Shakespeare Othello. ACT II Scene 3.

Later this month, the Chartered Institute of Management Accountants (CIMA) will publish a report by Leslie Kossoff entitled: “Reputation – why it matters and how you can manage it.”

In the weeks leading up to publication, Bodyproject will be debating the role of reputation in relation to high performance and growth.  Bodyproject’s Advanced Stakeholder Management (ASM) methodology supports organisations in protecting and promoting reputation.  In this first article we look at the importance of reputation and its critical role within successful organisations.

CIMA President, George Glass, recently drew a parallel to a famous beer commercial when he said: “Management accountants add value to the corporate parts other accountants cannot reach.”  It’s an interesting thought and not before time that a key business profession realises that they have further to go in adding value than their role suggests by also considering the value attributed to reputation.

In our opinion there are three dimensions to business success: performance, growth and reputation.  The first two dimensions are tangible, measurable and therefore manageable.  They are the bastions of traditional accounting defined by the elements that make up book value and can be measured by the strength of the balance sheet.  The third dimension, reputation, is different.  It is almost wholly intangible, difficult to measure and therefore very difficult to manage.

And yet, reputation’s value and consequent potential liability is great, almost infinite in some respects.  Whilst book value and traditional accounting is one way of valuing a business, it misses the true value that makes up a business’s intellectual capital – the goodwill that creates the absolute value that is often only realised during a sale but may be severely damaged or enhanced at almost anytime.

Mario Simon, the Managing Director of American market research company Millward Brown Optimor illustrates this when he says: “In 1980 almost 100 per cent of the value of an average Standard & Poor’s 500 company consisted of tangible assets such as chairs, factories and inventory.

“That figure is now more like 30 or 40 per cent – the rest comes from intangible value, about half of which is attributed to brand.

“It is not a stretch to say that for many companies brand is their single biggest asset.”

So, it is hardly surprising that reputation is now being recognised as increasingly the most critical dimension of success.  High growth and performance are vitally important but equally so is the protection and promotion of reputation.

So what exactly is reputation and how does it differ to brand?

Brand is often defined as the ‘corporate promise’ that it is assumed that the organisation has some control over, whilst reputation is more a way stakeholders perceive the organisation.

Chris Fill, co-author of Managing Corporate Reputation, describes brand as: “how a company wants to be seen and is all about the corporate promise. Reputation is entirely a stakeholder perception over time.

“Stakeholders will make an assessment of how well the organisation has performed against the brand’s promise.”

In our view reputation is not that simple to define and its lack of tangibility makes it a difficult proposition for people to understand.  Reputation is made up of three component parts:  identity, image and personality.

Identity is similar to the corporate promise in that it is almost wholly controlled by the organisation and is ostensibly what it says about itself through its brand, advertising, products and services etc.   Image is the reverse opposite – the perceptions of its stakeholders.  The third aspect is that of personality – often this can be viewed of how well the identity and image match up but actually is more like the state of reality in which the organisation exists.  It is actually the organisation’s true self as opposed to the rather different realities created through identity and perceived through image.

This is hugely complex and is deeply swathed in all sorts of philosophy and psychology.  But if organisation leaders do not intellectually grasp its importance then they risk their performance and growth.

When Kraft Food Inc bought Cadburys they were buying a company with a book value of £4bn.  They actually paid more like $11.9bn.  The element of ‘goodwill’ or intellectual capital was a huge proportion of the value of that acquisition.  The battle for the sale was hard fought and included a massive aspect of reputation with over 94% of the British population reporting through a YouGov poll that they were aware of the sale.  For the harsh corporate Kraft it all came as a shock.  When they went on to sell a factory, against promises made during the sales process, their reputation was badly hit and ended with them apologising to the British Parliament.

In fact the Kraft Foods Chief Executive Irene B Rosenfeld in the lead up to the sale recognised the importance of reputation and its link to the intrinsic value of intellectual capital when she wrote to the UK Government’s business secretary stating: “(she understood) the concerns of the UK government and I can again assure you of our intentions to proceed with sincere respect for Cadbury’s heritage, people and identity.”

On her recent visit to the UK she jokingly said that she had been surprised at the role of the Crème Egg in British culture.  No joke really when that product alone has estimated brand value of £45m.

David Haigh, CEO of brand valuation consultancy Brand Finance, explains the value of reputation in relation to brand when he says: “Brands affect all audiences or all stakeholder groups – from customers to staff and financiers.

“If the brand is highly regarded then they behave in a more favourable way towards the organisation, which then drives up its value.

“For each of the audiences of an organisation there is the same broad set of criteria – functional delivery, image and conduct – by which they judge whether it’s a good brand or not.”

At Bodyproject, we try to look at the entire role played by performance, growth in concert with reputation.  We no longer think that book value is an adequate judgement of value and that competitive advantage is derived solely from the tangible aspects of doing business.  It is the management of stakeholders and the integration of marketing communications as a ‘hard’ discipline alongside accounting and legal that the true difference is seen.

The Kossoff report will make vital reading and what is most important is that it is being published by CIMA.  Reputation has long been associated with the ‘softer’ professions such as public relations and marketing but it is time that its role is recognised at every boardroom table.  Because, no matter how good your performance, no matter what your growth aspirations are you will only be as good as your reputation.

In our next article to be published week commencing 15th November we will consider in more detail one of the components of reputation – identity.

For more information about Bodyproject and our Advanced Stakeholder Management methodology that helps organisations promote and protect reputation call 0151 709 2288 or e-mail nicktaylor@bodyproject.co.uk

Advertisements