2005

REPUTATION MANAGEMENT: A Holistic Business Tool

Presented by:

John Dalton
Director of LSPR Worldwide
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Financial performance and capital

Customer benefits Tangible assets Business processes

Intangible assets Stakeholder engagement Culture values

Adapted from: Intangible Assets: J. Daum; Wiley, 1999

Human/Structural capital

REPUTATION:


If we picture a company as a living organism, say a tree, then half of the mass or more of that tree is underground in the root system. And whereas the flavour of the fruit and the colour of the leaves provides evidence of how healthy that tree is right now, understanding what is going on in the roots is a far more effective way to learn how healthy that tree will be in years to come
Leif Edvinsson and Michael S. Malone; Intellectual Capital
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REPUTATION: An overview


What does reputation mean to you? How much is your company s reputation worth? Can you measure and manage your reputation? How much of your organisation is made up of intangible assets?
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REPUTATION: An Overview


What one mistake do businesses keep making? Answer: Asking the wrong questions Issues facing business change little, but the answers do Ask not what I should be doing, but WHAT NEEDS TO BE DONE: source P. Drucker

We must become the change we want to see - Ghandi

REPUTATION: An overview


Corporate image can be created, but corporate reputation must be earned What exactly does reputation mean? Various perspectives and meaning, both in a business and cultural sense
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REPUTATION: An Overview


Hill and Knowlton s Corporate Reputation Watch 2004 Survey: Some key findings www.hillandknowlton.com 93% of senior executives believe that customers consider corporate reputation important or extremely important 79% of senior executives believe that investors and lenders consider CR either important or very important The impact of corporate governance has increased dramatically since 5 years ago: now 40% of senior executives believe that strong corporate governance is a critical factor that potential investors consider before committing, whereas 5 years only 19% thought the same.

REPUTATION: An Overview


In 2001, the insurance firm A o n po l l e d 2 0 0 0 t op U K s private companies and showed that loss of reputation was viewed as the greatest risk, followed by failure to change www.aon.co.uk
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WHO IS AT RISK?
You are at particular risk if you:  Offer life-saving or life threatening products pharmaceuticals or arms  Enjoy high, global brand awareness luxury brands  Are based on new technology GM, mobiles  Confront changing social mores fashion, alcohol, tobacco  Produce significant spill-over effects mining, waste, oil
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GLOBAL BUSINESS CONTEXT

Pluralism: over time markets are inherently entropic This leads to CREATIVE DESTRUCTION Sustaining a competitive brand now relies more on reputation than it did a decade ago: reputation is one of the key sustaining factors
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TRUST: the engineering of consent

Trust vs. Trustworthiness 1. Increased fraud reward based incentives 2. Loss of authority from key institutions 3. Media distortion and anti-campaigning 4. Growth of urban decay and ant-social behaviour 5. Poor corporate governance and corporate behaviour The Precautionary Principle
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CHANGE IN ATTITUDES


In the Industrial age, the marketing model was driven by advertising For knowledge-intensive products, inherent value cannot be as easily communicated in 5-10 sec commercial Therefore, products and services rely more on reputation the key vehicle for which is the BARND and its ability to create value
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CHANGING ATTITUDES


Corporate value can no longer be determined by short-term profit and sales Long-term, sustainability is the key Mobile phone industry is a classic example Old systems deemed employees as cost factors, not as value creating elements and stakeholders
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CHANGING ATTITUDES
Transition from the neo-classical economic theory to socio-economic theory stakeholders Triple bottom line and sustainability: Economic Social Environmental

  

Differentiate by behaviour
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REPUTATION ICE BERG

       

Union Carbide (USA Bhopal, India) Enron (USA) WorldCom (MCI) (USA) Shell (UK) Nike (USA) Arthur Anderson (USA) Parmalat (Italy) Yukos (Russia)
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REPUTATION: An Overview
Reputation is the sum values that stakeholders attribute to a company, based on their perception and interpretation of the image that the company communicates over time
John Dalton Managing Corporate Reputation
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REPUTATION: An Overview
Reputation is the principal means through which a market economy deals with consumer ignorance
Professor John Kay

Reputation exists because of asymmetric information

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REPUTATION: An Overview
Reputation is a collective term referring to all stakeholders views of corporate reputation, including identity and image
Professor Gary Davies Manchester Business School

Reputation = experience - expectations

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IT ALL ABOUT ISSUE MANAGEMENT

Good reputation management is based on issue management
    

Issue identification Issue Analysis Issue Change Strategy Options Issue Action Programme Evaluation of Results
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Monitoring Weblogs and user groups online

SOME HOT ISSUES

           

Obesity, salt and food labelling GM technology Mobile phone radiation Stem cell and embryo technology Nanotechnology Biodiversity loss and pollution Compliance, governance & CSR Off-shoring Innovation and value creation IP theft & counterfeiting Customer retention and equity Development of an amateur media online

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BRANDS AND REPUTATION

Phase I Phase II Phase III

Corporat e Identity

Corporat e Image

Reputatio n

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CORPORATE IDENTITY
        

Logo TM Name typeface Slogan or tagline Packaging and uniforms Colour and semiology Brochure and advertising Annual Report Websites Photography

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IMAGE FORMATION
Communications Quality of goods & services Organisation Structure & Culture Financial Performance Communities Attitude & behaviour of employees

Corporate Image

Experience Corporate Social Responsibility

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Physical Environment

ROYAL DUTCH SHELL:

Image problems
    

Nigeria and the Ogoni People Greenpeace and Brent Spar 1995 Profits before principles Pollution and biodiversity loss Reserves crisis 2004 over estimate

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ROYAL DUTCH SHELL: corporate communications

      

Shell s Society Report Shell Foundation Profits and Principles campaign Environmental Reports Local Reports and external assurance Reporting GRI and UN Global Compact Adaptation of International Financial Reporting Standards: Dow Jones Sustainability Index:
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ROYAL DUTCH SHELL: Corporate Communications



  

 

Developed and pioneered scenario planning for crisis management Highly developed CSR and Branding Corporate communications centralized Significant alteration to organizational structure Strategy of stakeholder engagement Listing on the Dow Jones Sustainability Index
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TELECOMS: Orange - rags to riches

Classic example of corporate brand-building success


 

1994 equity worth little by 2000, Market Cap - $50 billion Strategy brand focused Good use of corporate identity name and slogan: use of semiotics 1996 IPO youngest company ever to enter FTSE-100 Integrated marketing communications campaign: strong positioning against competitors
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TELECOMS: Vodafone


Vodafone is the world s largest mobile telecommunications community, employing over 65,000 staff and over 130 million customers

Success and reputation because of its brand: brand driven

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TELECOMS: Vodafone
Brand strategy
   

key to its success

 

Operates over 300 of its own stores Sells through independent retailers Extensive sponsorship Advertising - high profile-celebrity endorsement Extensive below the line promotion High profile involvement in CSR: award winning
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TELECOMS: Vodafone
  

Extensive market research and focus groups Innovation Vodafone live! Increased penetration of new data services Sponsorship of: Ferrari and Formula 1 Manchester United English cricket Epsom Derby
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GUINNESS: A REPUTABLE DRINK

          

250 year-old beer brand Well know and identifiable Irish provenance Made from nature ingredients Owned by Diageo- UK Sold in 150 countries & brewed in 49 Brewed for local tastes In UK, Europe, USA Guinness Draught In Africa, Asia and Caribbean Foreign Extra Stout Nigeria largest overseas market A pint of Guinness has less calories than equivalent Semiskinned milk In Muslim countries sold as Malta Guinness non-alcoholic
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GUINNESS: A Brilliant Brand

 

 

 

Brilliant marketing communications: advertising Highly innovative and adaptive: -introduced larger Harp -introduced Guinness Draft Extra Cold -in Nigeria it is seen as a Nigerian brand Large degree of passion involved with the brand Single global brand vision: Power; Goodness; Communion Brand experience; perfect pint campaign Good congruence in sponsorship
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INTANGIBLES


The last two decades have witnessed a revolution - transfer from industrial capitalism to a new knowledge-based economy Industrial capital based mainly on physical assets New economy based on intangible assets and value creation
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I N T A N G I B L E S
Market Capitalisation Brand Reputation IP Customers Employees Innovation Organisational structure Book value ___________ $ * The above would also be affected by other variables including macroeconomic factors, shareholder sentiment and market speculation
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INTANGIBLES


A company s market value is driven by its anticipated earning potential the net present value of its future economic profit Intangibles are systematically underreported within existing accounting practice
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INTANGIBLES


The Brookings Institute found that in 1962 - 62% of an average company s value was represented by physical or hard capital - by 1992 this had decreased to 38% and in 2000 was as low as 20% The market to book value ratio
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INTELLECTUAL CAPITAL
MARKET VALUE
Market Value Financial Capital Human Capital Intellectual Capital Structural Capital Organisational Capital
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Customer Capital

INTANGIBLES
Welcome to the world of intellectual capital
 

Human capital Structural and organisational capital

Customer or stakeholder capital

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INTANGIBLES
Market to book ratio:
Dell 17.5 Pfizer 18.2


Capital is now not just financial it is anything that adds wealth and value Back in 1999, only 6.6% of Cocacola s market capitalization was reported as book value
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INTANGIBLES

Brand capital
Sales push focus Customer pull focus

NEW ECONOMY

Human capital
Production focus Customer focus

Working capital
High Low

OLD ECONOMY

(WIP, finished goods)

(direct delivery to customers)

Physical capital

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INTANGIBLES
I n t a n g ib le a s s e t s T a n g ib le a s s e t s

1 8
Market value

2 84 2 8

1982

1992

1999

Development of the value of intangible assets as a percentage of total market value of S & P 500 companies between 1982 and 1999. Intangible Assets; J. Daum (1999); Wiley, p4

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INTANGIBLES
Utility Transportation Technology Services Retail Pharmaceuticals M edia Financial services Food and drink Engineering Engergy Construction Chemicals Auto Other
0 5 10 15 20 25 30 35

Market value as a multiple of net book value: Taken from eCFO, Wiley 2001, p95

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INTANGIBLES AND ACCOUTNING

 

Off the balance sheet Problems with global accounting do not properly allow the inclusion of internally generated assets, except those obtained by acquisition The issue of goodwill REPUTATION IS AN INTANGIBLE ASSET IN ITS OWN RIGHT
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REPUTATION AND METRICS

The FT World s Most Respected Companies 2004 Financial Times November
1. 2. 3. 4.

GE Microsoft Toyota IBM

5. 6. 7.

Coca-Cola Dell Wall-Mart

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REPUTATION INDEXES
 The Harris Fombrun Reputation Quotient (RQ) www.thereputationinstitute.com  Fortune Magazine Global Most Admired www.fortune.com Companies  Management Today Britains Most Admired Companies  FTSE4 Good Index: www.ftse4good.com  The Dow Jones Sustainability Index  Financial Times Worlds Most Respected www.ft.com Companies
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REPUTATION AND METRICS

Vital Attributes:  Corporate Governance  Shareholder value  Innovation  Corporate responsibility (CSR)  Role and leadership of CEO  Satisfied employees! Value creation that is sustainable

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DRIVERS OF CHANGE


  

Increased specialisation outsourcing and disintermediation Relationship marketing one-to-one customer relationship Business is increasingly customer-led rather than production driven Alliances and partnerships Vulnerability of brand equity Decline in trust especially institutional
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DRIVERS OF REPUTATION
  

   

 

Financial performance and shareholder value Corporate responsibility Corporate governance: compliance and regulation Technology Internet and wireless Weblogs (blogs) over 5 m web journals Investor engagement (SRI) and NGOs Stakeholder convergence and managing stakeholders expectations Employee expectations Brand and operational risk

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DRIVERS OF REPUTATION
Indicators Indicators
Cash flow Earnings Costs Capital expenditure Market growth Shareholders Number of shareholder resolutions Results of shareholder satisfaction survey Customers Satisfaction survey Customer complaints Third-party ratings and awards Employees Employee turnover Employee profiles (ability, gender, race) Employee satisfaction Society Boycotts, marches, incidents License to operate Direct action Media reports Partners Quantity of partnerships accepted, sanctioned or rejected on basis of stewardship criteria 49 Health and safety records of partners

Financial performance Sustainability

Indicators of reputational value taken adapted from: eCFO; C. Read et al, p115, Wiley, 2001

DRIVERS OF REPUTATION
A more intrusive and sensational media media amplification Need for transparency (disclosure) and accountability Companies as social institutions Globalization and the rise of corporate brands Notion that ethics counts Historical Enron and WorldCom Reputation as an asset in its own right - $ Victim culture insurance claims
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CORPORATE GOVERNANCE


   

Good corporate governance and compliance are seen by many as the primary force behind reputation management FSA in (UK) Basel II Sarbanes Oxley (USA) Role of compliance officers
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REPUTATION: an enabler?
      

Gain control and anticipate events Avoid long-term brand equity damage Avoid boycotts or sale losses Ensure compliance and shareholder value Better stakeholder relations NGOs Better media relations and issue management Understand your risk exposure and allow easier entry into new markets and brand extensions Improved investor relations and profile
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REPUTATION: an enabler?


  

 

Better employee output, retention and internal communications Better understanding of issues Preparation for crisis situation Alignment of strategy with key stakeholders expectations Sustainable wealth and value creation Development of alert systems and a radar
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REPUTATION: an enabler?


Positive influence on regulators when issuing licenses Local authorities may take it into account when considering planning applications In the financial markets more likely to raise capital Reduce the cost of entry into new markets, thereby securing a price advantage
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MEDIA MANAGEMENT
Good and diligent management of the media is central to reputation management: media profile


 

Learn which media are the most influential within your target group Supply the press with information that is accurate and useful Build relationship with journalists Look for triggers within issues monitor the media and other users groups Use media intelligence agencies
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MEIDA INTELLIGENCE
   

Romeike: Metrica: Echo:

www.romeike.com www.metrica.com www.echoResearch.com

Prnewswire: www.prenewswire.com Prweb: www.prweb.com

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PR AND REPUTATION
World of confusing terms
    

Public relations: a discipline in transition Public affairs and lobbying Corporate affairs Corporate communications Reputation management

What s the difference?

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PR AND REPUTATION

PR

BRAND REPUTATION

Desired image

Vehicle of promise

Delivery of promise
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CORPORATE COMMUNICATIONS
Marketing Management Communications Communications

Organisation Communications
- Van Riel (1995) 59

REPUTAION: An Overview
Brand Reputation Organisational Reputation

Stakeholder Reputation

Reputational Radar

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Relationship between PR and Reputation



Public relations and reputation are intricately linked: PR more specific issues: media relations, public affairs, crisis management, event management and branding Reputation management is more holistic in its approach and involves all employees.
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Traditional PR
     

Reputational Management
Strategic in nature Integrated Holistic - long-term Involves all employees Aims to deliver an image and brand promise Uses all forms and opportunities to communicate policy and values Greater emphasis on multiple stakeholder relationships
2010

Less strategic Non-integrated Focus - short-term Key people involved Aims to give the best possible image Media relations focused Focus on transactional stakeholders

   

1980, 1990s, 2000

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Some Traditional PR functions

Crisis Management

Assessing stakeholders opinions

Stakeholder conflict

Events & Exhibitions

CSR

Change Management

PR

Media profile, monitoring

Sponsorship

Internal Communications

Corporate Affairs & Lobbying

Investor Relations

Corporate Publications: Annual reports 63

Some Key Tools For PR Practitioners

Viral

Photography Stunts E-mail Press Release

Features

Launch Events

Hospitality Events

Webcasting

PR

Corporate Structure

Interviews

Websites & Portals Case Studies Editorial Coverage VNRs 64

Advertorials

Direct marketing Advertising Packaging

Sponsorships

PR
FILTER

Exhibitions

Point of sale Internet/ wireless

Word-ofmouth

Events

Integrated marketing communications

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BRAND AND REPUTATION

What is the difference between brand and reputation are they the same? Brand = promise
Reputation = delivery on the promise
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THE BUSINESS CASE FOR REPUTATION?



Links between reputation and financial performance are not easy to generalize about evidence to-date unclear and inconsistent Question how do you measure and what? Mathematical co-relations do not necessarily demonstrate causality The question is complicated and multidimensional
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BUSINESS CASE FOR REPUTATION



Does a good financial performance develop a perception of a good reputation? Good links do exist between corporate image and customer satisfaction Satisfied customers are not always loyal
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REPUTATION AND FINANCIAL PERFORMANCE

  

Risk and reputation are linked Traditional methods of assessing risk: Value at risk VaR a measure of the riskiness of a portfolio, based on assessing the maximum amount that would be lost 19 out of 20 days, given typical levels in market prices
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BUSINESS CASE FOR REPUTATION MANAGEMENT

How do FTSE 100 companies currently measure performance?  Growth in earnings per share (EPS)  Total Shareholder Return (TSR)  Earnings before Interest and Tax (EBIT)  EBITA  Economic Value Added (EVA)  Return on Capital Employed (ROCE)  Net Operating Profit After Tax (NOPAT)
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BUSINESS CASE FOR REPUTATION MANAGEMENT

How do FTSE 100 companies currently measure performance?
   

Cash flow Cost of capital management Market share Strategic targets

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BUSINESS CASE FOR REPUTATION

Measuring Shareholder Value EVA = (rate of return - cost of capital) x capital employed Other ways of measuring shareholder value include:
    

Net Present Value (NPV) Price/earnings ratio (P/E) Capital asset pricing model (CAPM) The Du Pont Equation The Wealth Added Index (WAI) www.sternstewart.co.uk
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REPUTATION AND CREDIBILITY FOR FOREIGN FIRMS

   

IPO London Stock Exchange Alternative investment market (AIM) OFEX Share price is now an indicator of a company s reputational capital
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FOREIGN FIRMS AND REPUTATION DEVELOPMENT



  

  

Develop investor relations and financial communications Produce detailed Annual Reports Develop media profile Work towards best practice and compliance with corporate governance Establish a strong and transparent working board Integrate risk analysis in all areas of the business Develop strong and clear corporate responsibility polices Appoint risk and reputation officers
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INVESTOR RELATIONS
       

Educate key stakeholders: NGO Help shape and modify legislation Correct misconceptions Lobby on behalf of a trade body Lobby at the Diplomatic level Highlight unfair or restrictive practice Grassroots campaign development Develop high profile media campaigns
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THE STAKEHOLDER I M P E R A T I V E


Classic discussion based on whether a company is solely responsible to just its shareholders or a wider range of interests Pure economic argument focuses on optimising or maximising shareholder return BUT: modern business operates in a volatile, hostel environment a more pluralistic approach is required
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STAKEHOLDERS
CONTRACTUAL  Customers  Employees  Distributors  Suppliers  Shareholders  Lenders  Alliances COMMUNITY  Consumers  Regulators  Government  Local community  Media  NGOs  Trade groups
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STRATEGIC APPROACH TO REPUTATION

Since 1980s Three big ideas
1. 2. 3.

TQM - Xerox and Motorola Reengineering Intellectual Capital (KM) GE It is not the strategy itself sometimes, just the way it is executed.
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STRATEGY AND REPUTATION



An organisation s strategy describes how it intents to create value for its shareholders and stakeholders What is the link between reputation and intangibles? Intangibles are hard for competitors to imitate, therefore they are a source of competitive advantage Co-creation of value
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STRATEGY AND REPUTATION



Intangibles per se do not directly affect financial performance; instead they work more indirectly via a complex chain of cause and effect The impact of a new tangible asset tends to be more immediate Intangibles need to be generally combined with other assets HR and IT
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BALANCED SCORECARD
Kaplan s and Norton s Balanced Scorecard approach and strategic maps Four perspectives:  Financial  Customer  Process  Developmental

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CASE STUDY: Coca-Cola: problems

        

Poor executive reshuffle Anti-Americanism: Mecca and Zam Zam Cola Problems in Belgium 1999 Faltering financial performance Crisis with Dasani drinking water UK 2004 Obesity issues Problems with NGOs in India Trying to grow faster than the market Deaths in Colombia
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Coca-Cola:


Solutions

Continuous brand equity building within communities Citizenship initiatives Work with Greenpeace on reducing carbon dioxide emissions Open acknowledgement of the obesity issue within the US Sustaining brand identity and Image Re-evaluation of strategic growth
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HOW TO DEVELOP A REPUTATION

       

   

Quality of products and services Passion for brand Customer relationship marketing Strong corporate governance and compliance Integrated risk and issue management Crisis planning Corporate responsibility (CR) Strong brand values, experience and communications Organisational culture and structure Contract fulfilment Business presentation and conferences Customer facing staff

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HOW TO DEVELOP A REPUTATION

           

Innovation Vision and leadership by CEO Investor relations and public affairs Intelligence gathering Developing media profile Adaptive and ability to reinvent Community relations CEO s reputation Core competencies Establishing networks and alliances Understand the market Develop brand experience: moments of truth

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HOW TO DEVELOP A REPUTATION

      

 

Clear strategies and resources Learning from other s mistakes Listening to customers opinions Audit and assurance Measuring and evalutation IP protection Stakeholder analysis, mapping and engagement Deliver on customer promise Think global, act local
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HOW TO DEVELOP A REPUTATION: Organisational Structure

   

Who talks to who? Final gatekeeper responsibilities Question of internal communications Vertical to global matrix to e-business network structures The Case of ABB Asea Brown Boveri
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A REPUTATION PLAN
CEO leadership and senior management commitment

Communication audit

Frame your corporate communicational structure

Implementing programme and resources

Maintaining and evaluating

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HOW TO CONDUCT A COMMUNICATION AUDIT

Based on GCI group Corporate Brand study  Internal management survey - employee survey  External Stakeholders survey  Assessment
   

Gap analysis Structural equation modelling Sensitivity analysis Competitor analysis

  

Strategic communication planning Communication programme implementation Evaluation, measuring and monitoring
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CONCLUSION


 

The early part of the 21st Century is the era of reputation management and the management of intangibles The ruthless organisation cannot succeed Companies must adopt pluralistic approaches to managing risk and reputation- must adopt a socio-economic approach Emphasis must go on pro-active approaches, risk and issue management not just crisis management
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CONCLUSION


Reputation management must be strategic in nature, but must incorporate emergent properties and reporting: involve everyone, not just managers Getting organisational structure right and managing structural capital is critical
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CONCLUSION
 

Corporations must be innovative, passionate, and adaptive Reputation must be viewed as a strategic weapon, emergent and monitored Stakeholders views must be measured and evaluated: what is stakeholder reputation? Reputation management should not stop at senior management and customer facing staff: all employees should be involved

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CONCLUSION
 

Brands are the glue of reputation Develop brand equity internally and externally Ensure your employees understand your intangible assets Be proactive with the media

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CONCLUSION


 

Ensure your brand is not too easily copied or imitable: differentiate by behaviour View CSR as a way forward, not a defence mechanism Develop first rate corporate governance Ask the right questions, then integrate, integrate, and integrate
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