Reputation Management – Beyond Walking The Talk Part II
Beyond walking the talk
Our previous newsletter focused on the importance of consistency for an authentic reputation. It emphasized the role of balancing short- and long-term interests for a virtuous cycle of trust dynamics. Part I thus offered advice on authentically building and maintaining a sustainable relationship over the long run. Although the consistency and integrity implied in this approach is broadly considered as the most effective way to approach reputation management, companies also need to make more direct decisions on how to employ their reputation in their overall market strategy and on how much to invest in it. In part II, we deal with these questions, thereby touching on some puzzling but intriguing challenges.
For instance, we consider how consistency is hard to achieve for B2B firms, yet they still need to manage their stakeholders. Moreover, as consistency is hard to attain, reputation investments can become quite costly. So we briefly review three approaches to estimate to what extent these investments are needed.
1 When is consistency not enough and what approaches to take then?
1.1 The influence of visibility and transparency on reputation management
The way reputation matters to any company differs according to its own visibility and the transparency of the industry . In markets with limited transparency, such as e.g. the steel industry, it is hard to distinguish good from bad suppliers and reputation therefore becomes an important signal of quality. Low transparency can also occur when a product or its market are not yet known to stakeholders. Then, reputation is key to legitimizing the new offering. This partly explains, for instance, Pfizer’s success in making Bob Dole the widely recognized and trustworthy face for Viagra as they established the ED market. High transparency is more common to for instance B2C markets or select high-profile industrial markets (e.g. life sciences, aerospace and chemicals).
Within both transparent and more obscured markets there can still be a substantial difference in visibility, for instance, between ‘big industry’ and less famous counterparts. Even though they might be of similar size (e.g. German ThyssenKrupp vs Italian Riva group in steel or Baxter vs Fresenius medical care group in life sciences), visible companies require different strategies to reputation management. More visibility generally implies more of an example function, low visibility implies less vulnerability.
The more common situation to big industry is one of high visibility and high transparency, at least toward some stakeholders (e.g. shareholders, regulators and payers). Being in the spotlights all the time as such, calls for a high degree of internal transparency as well. However, in terms of consistency and transparency of communications, industrial (B2B) firms usually lag behind. As B2B firms absorb most upstream turbulence from e.g. volatile commodity markets or geopolitical instabilities, and because they generally have less access to end-markets, they have to work harder for a consistent reputation among the general public. B2B firms that are not-listed should even question whether it is actually relevant for them to be consistently in the picture among the larger public.
|Figure 1: Reputation strategies based on visibility-related contingencies|
|Industry transparency||High||‘Surfing the wave’ & maximizing exposure||Managing exposure & maximizing dialogue|
|Low||Signaling and face-to-face interaction||Standard-setting & maximizing reliability|
The recent socialization of the internet, however, is increasing B2B firms’ exposure to calls for compliance, sustainability and social responsibility in financial and consumer markets. In this networked world, the information they share online is likely their most important communication tool towards the crowd outside their direct networks. This emphasizes the need for transparency and (online) reputation. In such level playing fields, reputation is a powerful tool for positioning and stakeholder management . As people are more likely to score others’ reputation more highly when they share identity characteristics , firms can seek to get up close with and become more alike the stakeholders they wish to influence.
Another highly effective way to find common ground with stakeholders, is by focusing Corporate Social Responsibility (CSR) activities on the issues directly relevant to stakeholders, rather than on broad cover stories which might appeal to a larger crowd, and which hardly affect stakeholders’ perceptions . Successful reputation management toward stakeholders furthermore starts from the realization that stakeholders cannot be pushed or commanded to go a certain way. It is gained by shared, informal leadership, by paving the way and gently educating and gently pulling them towards your direction through ideas, dialogue and commitment in the hope they will follow. For an authentic reputation which attracts prosocial behavior from stakeholders in a flat world, a moral perspective and relational transparency are crucial .
1.2 To what extent should your company invest in reputation?
The above approaches allow an organization to influence its stakeholders in a positive way by investing in an approach tailored to the needs and values of specific stakeholder categories and built on a sophisticated understanding of their precise challenges . Yet, one should also wonder to what extent it is useful to invest in managing one’s reputation among stakeholders, especially as the efforts and investment needs increase severely under higher complexity. The need for such investments is driven by the amount of stakeholders which are relevant to the organization and by the nature of the firm’s activities in that stakeholder environment.
1.2.1 How many stakeholders should we manage?
To have an idea of how many stakeholders one should manage, one could simply ask: “to what extent are different people demanding different, even conflicting things from me?”. Such a measure of role conflict offers a quick assessment of the stakeholder complexity one has to deal with. What could remain unanswered, however, especially in contexts where there are many different and complexly interrelated stakeholders to deal with, is exactly how important each stakeholder category is.
One way to approach this, is following stakeholder literature, which looks at the urgency of stakeholders’ claim (the time-sensitivity and importance for that stakeholder), their legitimacy (i.e. the appropriateness or even the esteem in the eyes of large groups of society), or their power over the organization . Stakeholders that do not meet the thresholds on one or any of these criteria can be excluded from stakeholder management efforts.
A second approach follows social movement principles and look at specific characteristics of the stakeholder groups (e.g. how well they are organized, the closeness of stakeholder communities), or of the environment (e.g. the competitiveness of the industry or the presence of mass media interested in the issue).
So what seems to be a simple question in fact turns out to be a rather complex exercise. Because getting it right can save your company substantial amounts of time and resources or saves it from losing face to stakeholders who after all appear to be important – specialized advice might prove useful.
1.2.2 How much investment does the nature of our business demand?
It is well-known that reputation contributes to performance by increasing potential price mark-ups and by fostering customer retention and thus repeat purchases.
So on one hand, reputation investments could be matched to the ‘ambition’ in your strategy. This ambition could refer to the striving for market leadership and high market shares, high brand value, product leadership or profound customer intimacy, so typically any strategy that would require serious investments to enable premium prices or customer loyalty. Even when attempting new market entry or repositioning moves , having built up sufficient reputation will help your company’s credibility in the market.
However, there is more than ambition alone driving the need for investment needs specific to your company’s strategy or activities. As discussed in previous newsletter, a large portion of reputation’s value to a business comes from buffering against risks. If your company bears a high reputation risk due to the nature of its activities (e.g. tobacco) or the potential impact of quality crises on human lives (e.g. pharmaceuticals) or the environment (e.g. petrochemicals), it will need a solid reputational buffer in the event of a crisis. It will also need the right skills to deal with such crises, as they are by definition unpredictable events. So, it’s when risk is high that consistency is no longer enough and that the ability to talk your walk becomes crucial. Below, we first briefly present 4 different approaches to invest in reputation based on the risk and ambition in your business.
|Ambition of your strategy|
|Risk||High||Risk Control||Reputation excellence|
We also describe the goals, the role and the approach that reputation investments imply for each of these strategies:
Risk control: when reputational risk is high, yet ambitions are not significantly higher than those of the industry, reputation investments might be approached as a pre-emptive defence against calamities. These investments are thus of a continuous nature as they prepare against unpredictable events. They are also higher than those in the efficiency strategy, as they are aimed at creating a reputation buffer, which does not come cheap.
Efficiency: when both drivers of reputation investments are low, so is the need to invest in reputation. As such, an organization can strive primarily for efficiency by investing only in targeted investments in specific stakeholder communication projects. These investments thus beget an ad-hoc nature as they are aimed to support specific projects or to counter emerging resistance.
Reputation excellence: The need for reputation investments is highest when rating high on both dimensions. Due to the high risk inherent to your business, errors can be catastrophic and should be heavily buffered against. The high ambition for market leadership in this case also requires continuous investments for commercial goodwill. Reputation as such becomes a core market strategy asset and an end in itself.
Reputation marketing: when the risk inherent to your business is rather low due to a low chance of errors and a low impact if they do occur for instance, reputation basically becomes a marketing tool. The goal of reputation investments in such a case becomes to maximize exposure of your brand(s) and to support other strategic market assets. Because they do not need to support a long-term buffer, these investments are somewhat less continuous in nature, but they can be high when supporting really ambitious strategic moves.
- Walking your talk is a good principle in the long run, but it does not offer much advice on the more direct reputation management and investment decisions.
- Reputation management strategies are different for organizations depending on the transparency in their industry. More transparency makes it easier to turn your reputation into business value. Less transparency makes your reputation your most valuable marketing and business development asset.
- Companies that are visible within their industries also require a different approach; they have to take on more of an example role. This puts more accountability on ‘big industry’ companies, while their less known colleagues can put their reputation to work to achieve more focused objectives.
- Low transparency no longer goes two ways; Web2.0 has made even B2B firms that used to be protected by their anonymity accessible to public opinion and stakeholders at large.
- Investments in reputation cannot be detached from your company’s ambitions. If you reach for the moon, your reputation should lead the way.
- Perhaps the most important driver of reputation investments is your company’s risk of being attacked by stakeholders. This tends to be overlooked when reputation is treated as a profit generator.
- Depending on available time and resources and on the perceived importance of managing your reputation, more complex approaches might be more or less desirable. We offer three approaches to assessing your company’s need to invest in reputation management, one moderately complex, one really accurate and a last one rather straightforward, but nonetheless effective.
In part III, we will discuss in more depth how companies can build a long-term capability to address these more direct and context-specific reputation management issues.
Auteur: Wouter Van Bockhaven
PhD researcher Strategy, Management & Innovation
University of Antwerp – Management Department.
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