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Friday, 28 October 2011

Measuring what matters

By Kerstin Liehr-Gobbers, Director, ReputationInc.

A column for www.research-live.co.uk.

Sitting in a board meeting recently, I was delighted to hear the CEO of a global FMCG brand say that he’s started measuring the performance of his managers based on the businesses’ reputation strength: the more positive the reputation, the better their bonuses, and vice-versa. As a reputation consultant, I know that reputation has not always achieved such revered status among the C-suite.

However, delight turned to doubt as I looked closer at the company’s approach to its annual reputation measurement. What struck me first was the lack of a target variable. There was no endgame, to borrow a sporting analogy.

Corporate reputation is a strong measure of a business’s perceived competitiveness and future ability and should be related to behavioural outcomes, since it actually motivates stakeholders to invest in, apply for, recommend or endorse a company.

But without a set of clear behavioural objectives to measure reputation against, the FMCG company in question was left with a generic reputation measurement model that simply reflected the mean score of stakeholder perceptions of each reputation dimension – be it innovation, customer service, corporate responsibility, governance, leadership and so on.

In this approach, the weightings of each dimension of reputation are assumed to be equal and the impact on behavioural outcomes goes unmeasured. So high scores might be enthusiastically received by the CEO but it may be a case of false optimism. The simple mean score approach fails to account for how important stakeholders think each dimension is and how reputation impacts their future behaviour.

Even more worrying is that such results can lead managers – who are motivated to maximise their bonuses – to focus their efforts on driving reputation scores up in areas that are not necessarily beneficial to the overall goals of a business.

For instance, the initial reaction of the FMCG company I mentioned was to focus on improving the poor perception of its community work. But there was no way of knowing whether this investment would make a difference to reputation or whether key stakeholders would give the firm credit for its efforts.

Measuring reputation should be about understanding which stakeholder groups a business needs to build equity with and which messages or perceptions will drive the company’s bottom line. The question all companies should be asking is: How does reputation influence practical decision-making among key stakeholders that will ultimately help or hinder business growth?

Friday, 21 October 2011

Olympus – Blind to Basic Reputational Truths

By Mark Hutcheon, Associate Partner, ReputationInc

The unusual sight of ‘CEO as whistleblower’ – was in full view this week as Michael Woodford blew the lid on a bizarre internal cover up at camera company Olympus.

While the story doesn’t have the corporate villainy or bad taste of News International’s Phone Hacking scandal, it once again reveals how cavalier companies are with their money, values and their reputation (arguably their most valuable asset).

Mr Woodford came out of the Olympus dark-room and revealed a very different picture of the Japanese firm after stumbling across a bewildering series of payments and decisions. Holding the company up to the light (and scrutiny) the CEO was shocked at a “catalogue of calamitous errors and exceptionally poor judgement…result[ing] in the shocking destruction of shareholder value of USD 1.3 billion.”

The scandal has turned attention on Japanese business - once heralded for its model corporations built on loyalty, technology and obedience.   Their consensus-driven corporate culture in this case breeds a fatal absence of challenge. Workers worshipped the chairman, knew their place and everything flowed from those reference points.

Until CEO Mr Woodford picked up his pen of truth to write the script for change. Culturally, he broke sacred laws of Japanese business – challenging your leader – in his case by insisting on transparency and honesty. Reputationally he got it right, just none of the company’s other directors could see the bigger picture.

Independent voices should be seen as a healthy feature of a modern corporation not least as they continually test whether the brand lives up to internal and external expectations.

Olympus wanted an outsider to shake up the company in the way a Japanese executive would not, but he clearly underestimated what this meant. Scrutiny of global business, mistrust of the markets and public expectations of transparency are normal operating conditions for businesses and Mr Woodford reflected this. In Japan, not so.  While the CEO learned the hard way you don’t challenge your leader in Japan, Olympus and possible Japanese industry has learnt that it cannot control the truth and therefore your reputation.

The bare facts are these: Olympus has destroyed $1.3bn – or about a quarter of its fast-dwindling market value – on a series of ill-explained and frankly incomprehensible deals and fee payments. Olympus ended up paying Axes and Axam, a related Caymans-incorporated entity a fee of $687m – 36 per cent of the value of the deal. These appear to have been overlooked or ignored in deference to the authority of its leaders.

The values of a corporation are the signposts and promises of how consumers can expect it to behave. Act in line with those values and you earn trust – a valuable commercial commodity. Go further and voluntarily reveal your genetic code if you want stakeholders to understand what the business stands for and believes in.
What is clear is management detached themselves from the values - the DNA of the business – encountering no challenge or oversight because no one dared question.   Rather than see the British CEO as a threat…Ironically he was their wake up call and the reality test Olympus needed as he represented the view of external stakeholders.

The Olympus affair appears to highlight the reputation risk in decision-making conducted solely through the internal lens of a company. If leadership and management cannot connect to a bigger picture, it will suffer reputationally and commercially.

Potentially, Japan’s country brand will emerge tarnished too.  As the FT put it “its manufacturing prowess is considerable, but the value created is often poorly husbanded by the practices of corporate Japan. Without better governance, these will continue both to stifle the dynamism of Japanese industry and to drag on growth.”

There are lessons for all companies in this story.  Companies have to accept change to their historical beliefs to stay relevant and reputable. The discreet, private corporation doesn’t exist anymore. Scrutiny is inevitable – in fact opening up the business to share its values, ideas and heritage are pathways to trust and enhanced reputation – not risk.

Olympus had its time for change and missed it. When the problem was revealed, it should have been managed in a discreet manner to minimise the reputational damage. Yet the board put personal loyalty above the interests of the company and its reputation, like its shares, are suffering (Olympus’s shares have fallen by 41 per cent since Friday’s board meeting).  On top of that trust in the governance or integrity of the brand is damaged all over the world.

A concluding thought for companies and comms directors: if you have a legacy issue – alleged or real surrounding your business – confront it early and seriously if you want to contain and close it.

Friday, 14 October 2011

Blackberry’s (reputation) crumble

By Maita Soukup, Account Manager, ReputationInc.

Despite the ill will on Twitter, the demands for compensation, and the business media’s early epitaphs to Research in Motion, this week’s Blackberry crisis was fundamentally a case of bad timing.  Had the business not already been facing serious doubts about its leadership and innovation capability, the global service interruption would have made one day of front page headlines – not three.

While the loss of service was an annoyance to customers, what makes this technology disruption so different from the lacklustre broadband service we’ve come to expect, or the multitude of glitches consumers found immediately after laying out hundreds of pounds for a shiny new iPhone?

In other words, what transformed a technical failure into a global reputation crisis?

First, when the spotty service began on Tuesday, RIM was already operating against a backdrop of falling sales, and diminishing faith in its ability to compete against the other smart phone makers on the block.  The global technical failure was a conveniently placed nail for disaffected investors to hammer into the company’s coffin.

Secondly, the server meltdown coinciding exactly when enthusiasm about Blackberry’s main competitor, Apple, took on a quasi-religious dimension following Steve Job’s death earlier this month.  Never as sexy as the iPhone, until this week Blackberry at least had reliability on its side.  At the first sign of weakness, Apple evangelists and technophiles took to social media with a distinct hint of schadenfreude in their criticism of RIM.

However, none of these forces would have had quite such a devastating effect on RIM’s reputation had the business managed its response to the crisis faster, and more proactively. 

The apology video from BB’s founder Mike Lazaridis was faultless in content: he showed true remorse; admitted failings; and provided new information. However, it was too late.  There was simply no way to reverse the tidal wave of negative sentiment that took a life of its own during the first 48 hours of the crisis.

Essentially, RIM lost control of the story during the critical first 12 hours of disruption.  The floodgates were left wide open for both traditional and social media channels to speculate, voice frustration, and begin demanding rebates for the service failure.

Responding to a crisis successfully is all about preparation and anticipation.  Had RIM been more proactive in managing its investors’ eroding confidence over the past six months, the negative sentiment picked up by media would not have been nearly as deep.  Similarly, had the company responded earlier and more definitively to the initial service disruption, it would have retained more control over the emerging story – rather than being on the back foot as new updates and criticism ran rampant throughout social media.

I may be in the minority, but I am confident that RIM can recover its reputation as a reliable innovator over time.  However, it will require the company’s leaders to share a clear vision for the businesses’ future (sharpish!) and then re-align its approach to innovation and operations to deliver on that ambition.

Friday, 7 October 2011

“Even the champagne was flat”: why the party conference has changed.

By Charles Pitt, Account Manager, ReputationInc

A regular criticism of party conferences is that they are now dominated by corporate guests (and their public affairs advisers) eager for valuable face-time with government ministers and senior opposition spokesmen in the amenable setting of a hotel bar. So the argument goes that having abandoned the affordable jollity of seaside resorts the “real activists” are priced out of the event and their voice is no longer heard. But this thumb sketch misses a critically important change that has affected the art of lobbying – a change that is directly responsible for the growing corporate presence at political conferences.

Consumers are now more politically aware than ever - 24 hour news, blogging and social media have transformed how we engage with the issues that matter to us. And as a consequence traditional routes for the politically-minded are less and less relevant. Activism in local government or local political parties has been supplanted by focused campaigns that target narrower interests. The collation of mass email lists has enabled special interest groups to develop a ruthless streak that would have been thought out of character even a decade ago. And the politically-aware consumer is now confident that such activism is working – unpopular government policies can be killed off when the right message is fired at the right target.

Politically-aware consumers are bringing pressure to bear on businesses as well as politicians. Where corporate and social responsibility might have in the past been a neat marketing tool it is now a serious business function – one that has been relatively-well insulated from cuts despite the recession. And where businesses were historically likely to exploit contact with government ministers to resist legislation that ran counter to their interests they are now looking to work with government in their customers’ interests. Note the way businesses position themselves as thought leaders who are setting their own agenda rather than following the regulators. Instead of arguing that carbon emissions targets set by the EU are unachievable many businesses are actively working to meet tougher targets to tighter deadlines – and telling their customers all about it.

The activism that presents at party conferences reflects this change. Some journalists have complained that in packed-out fringe meetings every question seemed to be coming from a chief executive or NGO founder. Chief executives have not chosen to invest their time and money in cross-examining junior ministers, or shadow ministers, for light amusement but because they are under increasing pressure to prove their social purpose to their customers and shareholders, and one way in which they can do this is to be seen to be actively engaged in the political process. As for the NGOs, their glossy brochures and slick heads of communications show that they went corporate some time ago.

The glory days of party leaders taking on a heckler in the conference hall or a speech from an unknown activist that upstaged the prime minister may be a thing of the past. But activism aimed at shaping the policy agenda is as lively as ever – it just looks very different. Consumers are expressing their concerns on the high street as much as at the ballot box or the public meeting. Businesses are responding to this by raising the standard of their political engagement and delivering it in a more transparent way. And one of the many consequences of this is that there are more chief executives (and their public affairs advisers) attending party conferences. But perhaps next year they could try to be a little more sparkling, for the journalists' sake – if Trade Unionists, Liberal Democrat Borough Councillors and Conservative Peers can party surely the NGOs and chief executives can too (with their public affairs advisers)?