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Book: Corporate Reputation. Chapter 1
 

Book: Corporate Reputation. Chapter 1

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Reputation has become an essential strategic asset for companies. Those businesses that enjoy a good reputation are able to differentiate themselves, thus attracting investments and retaining ...

Reputation has become an essential strategic asset for companies. Those businesses that enjoy a good reputation are able to differentiate themselves, thus attracting investments and retaining customers and employees, while at the same time, stakeholders of such companies demonstrate higher levels of satisfaction and loyalty towards the companies’ products and brands.

Currently, corporate reputation is one of the most popular non-financial indicators used by organizations, both in the public and private sectors. is book is an in-depth investigation of the psychosocial nature of corporate reputation, and we invite the reader to join us on a journey of discovery.

When reputation first appeared as a concept, it brought about promises and hopes. It was viewed as a solution capable of reconciling the interests of different stakeholders and making the whole organization stronger. However, this giant soon turned out to have feet of clay, as it was lacking in sufficient theoretical and methodological foundation. Nonetheless, when we step into the terra incognita of corporate intangible assets, we will understand that the vague idea of reputation is gradually acquiring a scientific form thanks to the development of measurement tools and models that lay a foundation for the long sought-after means of managing reputation.

Carreras, Alloza and Carreras explore the scientific evidence behind corporate reputation management. Foreword by Charles Fombrun.

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    Book: Corporate Reputation. Chapter 1 Book: Corporate Reputation. Chapter 1 Document Transcript

    • Corporate reputation.indd 1 29/05/13 18:06
    • Corporate reputation.indd 2 29/05/13 18:06
    • ENRIQUE CARRERAS, ÁNGEL ALLOZAand ANA CARRERASForeword by Charles Fombrun LONDON NUEVA YORK MADRID BARCELONA MEXICO CITY MONTERREY BOGOTÁ BUENOS AIRES Corporate reputation.indd 3 29/05/13 18:06
    • Published byLID Publishing Ltd.6-8 Underwood Street,London N1 7JQUnited Kingdominfo@lidpublishing.comLIDPUBLISHING.COMA member of:BusinessPublishersRoundtable.comAll rights reserved. Without limiting the rights under copyright reserved, no part of thispublication may be reproduced, stored or introduced into a retrieval system, or transmitted,in any form or by any means (electronic, mechanical, photocopying, recording or otherwise)without the prior written permission of both the copyright owners and the publisher of this book.© Enrique Carreras, Ángel Alloza and Ana Carreras 2013© Charles Fombrun 2013, for the foreword© LID Publishing Ltd. 2013Printed in Great Britain by T J International Ltd.EAN-ISBN13: 9788483567975Collection editor: Jeanne BrackenEditing: Laurie PriceTranslation: Anna RamzinaTypesetting: produccioneditorial.comCover design: Corporate ExcellenceFirst edition: June 2013Corporate reputation.indd 4 29/05/13 18:06
    • To all those companies, institutions, organizations andprofessionals who are convinced that the key to futuresuccess and becoming real leaders in their sector lies not inthe company size nor financial variables but in reputationleadership.Corporate reputation.indd 5 29/05/13 18:06
    • Corporate reputation.indd 6 29/05/13 18:06
    • ContentsForeword by Charles J. Fombrun .................................. 11Acknowledgements ....................................................... 13Introduction ..................................................................... 15The Economy of Intangibles and Reputation ...... 191. Reputation in Organizations .................................... 212. Managing Intangibles: Challenges for anOrganization ............................................................... 28The Origin and Promise of Corporate Reputation. 331. The Origin of the Concept ...................................... 342. The Value of Reputation .......................................... 39 2.1. The Impact on Market Value ............................ 40 2.2. Impact on Stakeholders’ Behaviour.................. 58 2.3. The Value of Corporate Reputation ............... 643. The Need for Clear Terminology ............................ 66What do we Understand by CorporateReputation Today? ......................................................... 711. Reputation is a Value-Generating Attitude............. 732. The Need for Grand Reputation ............................. 87 2.1. Definition and Classification of Stakeholder . 88 2.2. Various Reputations Versus Grand Reputation ........................................................... 913. Reputation can be Managed ..................................... 113 3.1. Signalling by an Organization ........................... 115 3.2. Perspectives: Who We are, What We Say, What We do and How We are Seen ................. 119010203Corporate reputation.indd 7 29/05/13 18:06
    • 3.3. What we do not Know about Reputation: Further Research ................................................ 1424. Strategic Character of Reputation ........................... 144 4.1. Determining the Value of Corporate Reputation ........................................................... 147 4.2. Reputation as a Resource. The RBV Theory . 149The Theoretical Foundations of Reputation ........ 1531. Social Legitimisation of an Organisation ............... 157 1.1. The Sources of Legitimacy ............................... 162 1.2. The Role of Legitimisation in Corporate Reputation ........................................................... 171 1.3. The Distance between Legitimacy and Reputation ........................................................... 1822. The Theory of Planned Behaviour ......................... 187 2.1. From Attitude to Behaviour ............................. 188 2.2. The Model of Planned Behaviour ................... 195 2.3. New Ideas: Identity, Emotion and Desire....... 211Modelling and Managing Corporate Reputation . 2371. The Customer Loyalty Model .................................. 238 1.1. A Brief Historical Overview ............................ 239 1.2. Components of the Customer Loyalty Model. 2452. Development of the Intentional CustomerLoyalty Model ............................................................. 274 2.1. Loyalty Based on the Perceived Value of the Service ........................................................... 275 2.2. Satisfaction-Based Loyalty ................................. 279 2.3. Trust-Based Loyalty ........................................... 281 2.4. Loyalty Based on Calculative Commitment ... 2853. Reputation-Based Loyalty of Stakeholders ............ 288 3.1. Rational Reputation vs. General Reputation ... 290 3.2. The Model of Stakeholder Loyalty .................. 2974. Overall Reputation as Management’sStrategic Focus ........................................................... 321 4.1. Automatic Attitude Activation ......................... 3235. Eventual Reputation Status ...................................... 3270405Corporate reputation.indd 8 29/05/13 18:06
    • 06 Measuring Corporate Reputation ............................. 3311. Objective Reputation Measurement Tools ............ 337 1.1. Corporate Reputation Rankings ....................... 337 1.2. The Cravens Reputation Index ........................ 345 1.3. The MERCO Index ........................................... 347 1.4. An Overview of Auditing Tools Used by Experts ............................................................ 3522. Reputation Measurement Tools byStakeholder Groups ................................................... 353 2.1. Rational Reputation Scales ................................ 355 2.2. Global Reputation Measurement Tools .......... 394Conclusion........................................................................ 4131. Reputation is an Attitude .......................................... 4142. What are the Rational and Emotional Processesthat Translate Reputation into Favourable orUnfavourable Behaviours? ........................................ 4153. How does Reputation Generate Loyalty andValue? Our Model ...................................................... 4164. What is an Appropriate Organizational Modelfor Reputation Management? ................................... 4175. How does Reputation Help to Establish aBalance between Legitimacy and Differentiation?. 4186. Are there Multiple Reputations or can weSpeak about an Overall Reputation? ....................... 4197. Is it Possible to Develop a Balanced Scorecardwith Indicators for Each Dimension ofReputation and an Indicator of overallReputation? ................................................................. 4208. What is the Future of Reputation? ......................... 422Notes ................................................................................ 425Bibliography ................................................................... 465Corporate reputation.indd 9 29/05/13 18:06
    • Corporate reputation.indd 10 29/05/13 18:06
    • 11Foreword“You cannot open a book without learning something.”—ConfuciusOpening a new book is always a joy: there’s the anticipation createdby the book’s title, the expectation of benefiting from its authors’experiences, the very real possibility of being challenged by new ideas,and the learning it will create.And so it is with this book whose title Corporate Reputation compelsme from the start. After all, I am pretty sure that my own 1996 bookon that topic must have inspired and influenced it! Hard as it is tobelieve, it’s been 18 years since my own book was written and helpedto launch a concerted effort to understand and stimulate research andanalysis of corporate reputations. I had set out to examine the academicunderpinnings of the reputation construct, and I concluded with ahopeful message that we could learn much better and faster by forgingan alliance between academics and practitioners.Time has proven me somewhat visionary, I suppose. I’ve organizedconferences, built a company, served clients, developed ideas, andwritten a lot. But nothing thrills me more than to see a new bookbeing published that promises to invigorate us thanks to a rich dialogueacross the stakeholder ecosystem of thinkers and doers with which weare all involved.The authors of Corporate Reputation are a judicious mix of academiaand practice. Together they seek to create learning from that mix. TheCarreras duo bring their academic credentials to bear by examiningCorporate reputation.indd 11 29/05/13 18:06
    • 12the large body of research and writing carried out on intangible assetsand corporate reputations over the last two decades. This they juxtaposeagainst the experiences of some of the prestigious Spanish companiesthat have joined forces via Corporate Excellence – Centre for ReputationLeadership (established in 2011), itself the result of a re-combinationof two prior Spanish associations, The Corporate Reputation Forumand The Institute for Analysis of Intangibles. The guiding force behindall three is the book’s co-author Ángel Alloza, formerly Global Directorof Corporate Communications Strategy, Reputation, Brand and non-financial metrics at BBVA Group.With those credentials, there can beno doubt that this book is a happy marriage of theory and practice.It fuses current thinking about corporate reputations and their rolein creating intangible value with best practices from some of Spain’sleading companies and practitioners. In this sense the authors fulfillmy basic requirements for any new book: that it have a good topic andgreat experiences to cull from.My third requirement for a good book is that it challenges us with newideas. I don’t expect the authors of Corporate Reputation will disappointus on that count either! Just as Spain itself was at the vanguard ofglobal exploration in the 1400’s, so too are its largest companies todaycommitted to exploring the world of ideas, familiar names such asBBVA, CaixaBank, Iberdrola, Repsol, Santander, Telefónica, Adif,Agbar, Bankinter, Correos, Danone, El Corte Inglés, Gas NaturalFenosa, Mapfre, Meliá Hotels International and Renfe. They are thefounding members and associated companies of Corporate Excellence– Centre for Reputation Leadership, and together represent 65% ofthe IBEX-35 and more than 750,000 employees in 80 countries. Asa seasoned observer and occasional contributor to many of theirmeasurement programs, strategic thinking, and stakeholder initiatives,I know that Spain’s practitioners have a visionary view of the role thatintangible assets can play in creating value for companies.And so, like you, I look forward to reading this book. And cannot waitto learn from its pages!Dr. Charles J. FombrunChairman, Reputation Institutewww.reputationinstitute.comCorporate reputation.indd 12 29/05/13 18:06
    • 13AcknowledgementsAt first glance, co-authorship seems to be a more difficult task thanwriting a book on one’s own, but in our case we were lucky enough towork as a close-knit team of friends that complemented each other.Our shared vision and critical evaluation of each other’s work duringinnumerable discussion sessions helped us to take advantage of theacademic knowledge, business experience and creativity demonstratedby a sociologist, a psychologist and an economist with a wide range ofinterests in research, teaching and corporate reputation management.The three authors appreciate all the support, cooperation, patience anddetermination of other people who were passionate about this projectand generously contributed their knowledge and expertise.We offer our gratitude to Macarena Estévez, one of the most brilliantand creative mathematicians who helped many companies andinstitutions transform vast volumes of data provided by our complexeveryday reality into models that allow us to understand and predictattitudes and behaviours. Macarena joined this project from its firstworking session and has been a source of inspiration ever since.We are thankful to the great team of professionals of CorporateExcellence – Centre for Reputation Leadership, without whosepatience, enthusiasm and good judgement we would have been unableto realize this project, namely to Augusto Leiva, Juan Cardona, SaidaGarcía, Beatriz Magro, and especially to two team members — ClaraCorporate reputation.indd 13 29/05/13 18:06
    • 14Fontán for guiding text development and improving it immensely, andAnna Ramzina for the excellent job of translating the text into English.We would also like to thank Antonio Franco, Professor of Statistics andDirector of the Applied Mathematics and Statistics Department at theCEU San Pablo University for his vision and unconditional support ofthe project from its very start.Corporate reputation.indd 14 29/05/13 18:06
    • 15IntroductionReputation has become a strategic asset for organizations. Businesseswith a good reputation are able to differentiate themselves and thus lureinvestments and retain customers and employees, and at the same timeachieve higher levels of satisfaction and loyalty towards their productsand brands.Currently, corporate reputation is one of the two most popular non-financial indicators in the business world, including both private andpublic organizations.1This book presents an in-depth analysis of thepsychosocial phenomenon of corporate reputation.We invite the reader to join us on the adventurous path towards a goodreputation. Here, adventure should be understood in the broader senseof the word –– our journey has quite a few surprises in store. Theappearance of reputation as a concept brought about promises andhopes; it was viewed as the corner-stone capable of reconciling thedifferent interests of stakeholders to make the whole organizationstronger. However, the giant turned out to have feet of clay, lackingsufficient theoretical and methodological foundations. We will seehow the initial excitement was followed by disenchantment withwhat appeared to be the Tower of Babel built on numerous conceptsand perspectives that conflicted with each other –– a disturbingpicture for our traveller. However, once we step on the terra incognitaof corporate intangibles, we will understand that the vague idea ofreputation is gradually acquiring scientific weight via the developmentof measurement tools and models that lay the foundation for the longsought-for technology to manage reputation. The order of the book’schapters follows the footsteps of the concept’s evolution.Corporate reputation.indd 15 29/05/13 18:06
    • 16In the first chapter, The Economy of Intangibles and Reputation, weattempt to explain what the management of intangible assets means toorganizations. We are entering a new economic cycle that we can callthe economy of intangible assets and corporate reputation. In this newcontext, the roles of companies and the traditional balance of powerare changing. This means that power is shifting over to stakeholders’hands (public opinion, customers, employees, regulators, shareholders,suppliers, etc.), and the new role of companies and institutions is to beat the service of the stakeholders. Thus, business success shouldbe defined as the capacity to understand the social context better thanone’s competitors, achieve sustainable differentiation over time andstrengthen one’s relationship with key stakeholders.The company’s ability to develop this new model depends on thedegree of trust society has about its companies and institutions. Brandand reputation are management tools that can be used to recover trust.The basis of trust is commitment to the issues relevant for citizens(as a response to stakeholders’ expectations of the organization) andthe ability to meet these commitments. The first chapter discusses keycharacteristics of this new economic cycle based on generating trustand fulfilling promises.The second chapter, The Origin and Promise of Corporate Reputation, isan overview of the concept of corporate reputation and its evolutionuntil the present day. Over the last three decades we have observed agrowing interest in the concept that gave rise to many academic andbusiness publications in the field. One of the recent scientific reviewsrealized in 2010 by Kent Walker found 1,559 publications related tocorporate reputation and associated concepts such as organizationalidentity, corporate image, brand equity or corporate branding.2In fact, corporate reputation is not a new field of study in the areaof corporate management. On the contrary, its origins go back to the1950s, and more specifically, to the article penned by Pierre Martineau3in 1958 on the benefits of extending the concept of brand imageto corporate image. This creates a broader concept that integratesthe perspectives of all stakeholders whose behaviour is critical forCorporate reputation.indd 16 29/05/13 18:06
    • 17the company’s continuity, such as shareholders, consumers, potentialconsumers and employees.The third chapter, What Do We Understand by Corporate Reputation Today?is an in-depth discussion of the nature of the concept. We examine thecharacteristics that came to be associated with the term and concludeby suggesting a scientific definition that brings together all the desirableproperties: reputation as a shared social evaluation and having the abilityto lead to value-generating behaviours. We will then be prepared tounderstand the possibilities associated with Charles Fombrun’s famousthesis presented in 1996 on the existence of a grand reputation –– aunique measurement tool able to integrate all perceptions of reputationheld by all stakeholders.The fourth chapter, The Theoretical Foundations of Reputation exploresthis aspect further. Once we are familiar with reputation’s potential forcreating value, we face its dilemmas: Is there one or are there severalreputations? Is their nature rational or emotional? Is it an intangibleasset or an invisible resource? Is it an objective reality or a sociallydeveloped construct? What is the role of the numerous availablemeasurement tools? How do we choose among them? and, moreimportantly, How should they be used? It seems that the concept,instead of offering solutions, raises more questions. That is whythis chapter attempts to understand the theoretical frameworks thatexplain the phenomenon of corporate reputation and its implications.Two major theories attempt to explain the origins of reputation andapproach the concept via different dimensions. The first theory, thetheory of legitimisation, looks at the general level and explains the basicmechanisms that sustain stakeholders’ value-generating behavioursand for that reason, is strategic in nature. The second theory, that ofplanned behaviour or action, targets a more tactical and specific leveland explains specific behaviours. Thus it is useful for making moreeffective diagnoses for reputation policy management. The chapterconcludes by suggesting a new concept of global emotional reputationand describes the theoretical foundations and advantages it has in storefor reputation managers.Corporate reputation.indd 17 29/05/13 18:06
    • 18The fifth chapter, Modelling and Managing Corporate Reputation,steps away from general theory and enters the terrain of practicalapplication of explanatory models that translate reputation intovalue-generating behaviours. Previous chapters defined corporatereputation as stakeholders’ general attitude towards a company ableto result in stakeholders’ support for the company. We investigatedthe theoretical foundations of this premise. This area of study isrelatively new and researchers have been more preoccupied with thetheoretical structure and development of reputation measurementtools than with developing causal models that might shed light on thedrivers of stakeholders’ value-generating behaviours –– an issue thathas special importance for companies and organizations.The last chapter, Measuring Corporate Reputation presents differentmeasurement tools developed over the last two decades. The greatvariety of indices and scales that have recently appeared are evidenceof the scientific and professional communities’ interest in reputation.However, the proliferation of tools may also lead to uncertainty andconfusion. That is why the last chapter offers a detailed guide forreputation measurement that can be used for managing reputation andcreating value for companies and institutions.Corporate reputation.indd 18 29/05/13 18:06
    • 1901The Economy of Intangiblesand ReputationWe are entering a new economic cycle that can be labelled “the economyof intangibles and corporate reputation”. Over the past 30 years, asteady increase in the value of intangible assets has been observed (thevalue of intangible assets held by S&P 500 companies tripled over thisperiod, with 62 per cent of the total value of all listed companies in theworld now reported to be intangible1). This trend intensified furtherwith the crisis that began in 2008.2Intangible assets are more important than ever before. They accountfor an increasingly greater share of companies’ business value, so muchso that financial results and profitability are more deeply affected bythe exchange and management of ideas, information, knowledge andservices rather than by control of physical and tangible assets.Intangible assets include patents, strategic alliances, client databases,employee profiles and other non-physical assets. However, for manycompanies their most valuable asset is their brand, which may accountfor as much as 70 per cent of their total market capitalization.Although intangible assets and resources are key factors that drive themodern economy, the competence of senior executives and investorsin this area leaves much to be desired. This lack of awareness leads tomanagement failure and a significant bias in risk evaluation and theidentification of opportunities and adequate evaluation by investors.Given that management tends to limit itself to what can be measured,traditional accounting focuses almost exclusively on tangible assets. AtCorporate reputation.indd 19 29/05/13 18:06
    • 20the same time, measurements are applicable only to concepts that arewell understood.Reputation is the best example of an intangible asset characterised bygreat strategic value as well as by insufficient awareness, measurementand management techniques. The term reputation economy wascoined during the 15th International Conference on Corporate Reputation,Brand, Identity and Competitiveness held by the Reputation Institute in2011 in New Orleans, LA, USA. It attempts to reflect the new contextwhere the role of companies and the traditional balance of powers arechanging; it implies that today, power has shifted to stakeholders (publicopinion, clients, employees, regulators, shareholders, suppliers, etc.).3The new role of companies and institutions is to be at the service oftheir stakeholders. Today, success in business must be defined as thecapacity to initiate and reinforce the relationship with these groupsbefore it is done by one’s competitors — and in a more efficientmanner. The success of this new business model depends on the levelof trust that society places with its companies and institutions.However, today’s business reality is characterised by a loss of trust thathas affected businesses and governments. Recovering this trust is aprerequisite for overcoming the economic crisis. Good managementof brands and one’s reputation is a tool for recovering this trust, andbusinesses find themselves in a better position for promoting themanagement of these strategic intangible assets.4An important step towards the effective management of these resourcesand intangible assets is to develop a rigorous definition of the conceptof reputation and to design reputation measurement tools that enableone to gauge improvements and provide a tangible economic return.The goal is to persuade top managers to include these reputationmeasurement tools in their balanced scorecards, in addition to usingtraditional financial indicators.InthelasttenyearsinSpain,variousprojectswereinitiatedtoassistprivatecompanies and the public sector to advance their search for corporateCorporate reputation.indd 20 29/05/13 18:06
    • 21reputation measurement tools and to improve their managementof intangible assets (reputation, brand and communication). Theseinclude The Corporate Reputation Forum (2002) and The Institutefor Analysis of Intangibles (2004), which recently merged to formCorporate Excellence – Centre for Reputation Leadership, a thinktank. Driven by the current context, all of these initiatives originatedfrom the business sector.1. Reputation in OrganizationsBrand and reputation are instrumental for managing the recovery oftrust. “The foundation of trust lies in commitment to the topics andtasks that are relevant for citizens (as a response to the expectationsof stakeholders) and to living up to this commitment.”5Corporate brand is the balance that a company, an institution ora country manages to establish between the perceptions that itcommunicates, ie. the expectations that it creates, and the reality orexperiences that it delivers to its stakeholders, both internal and external(Alloza, 2010). That’s why an organization must live up to the messagethat it communicates. And this can be applied to persons, professionals,companies, institutions or countries.6Corporate brand is an action platform for expressing and communicatingthe commitments and promises that the organization has then tofulfil.7A brand is strong, credible, characterised by good reputationand capable of gaining trust for the company that owns it as long asthere is no mismatch between the perceptions or expectations that itgenerates and the experience and reality that it delivers. In other words,the brand “says what it does, and does what it says”.Reputation is the ultimate result of this process when maintained overtime. Good reputation enables one to gain and maintain the trust ofthe stakeholders. In this sense, reputation is a management tool forstrengthening trust.8Reputation is a positive sentiment towards a person or an institutionthat integrates three vectors: admiration, esteem and trust. ReputationCorporate reputation.indd 21 29/05/13 18:06
    • 22is the heart of trust. “It is a sentiment of great importance as it drivesattitudes and favourable behaviours towards a company, an institutionor a country”.9A good reputation is rooted in good deeds and is the fulfilment of thepromise made by an organization in response to the expectations ofits stakeholders.10In the last decade, reputation has been gradually admitted onto thebusiness agenda:a) The first argument for including it was in recognizing the danger thatreputational risks pose for the continuity of companies.Businesses started to take interest in corporate reputation at thebeginning of this century in the wake of reputational crisis casessuch as Enron, Tyco, Ahold, Parmalat and Arthur Andersen, whichdemonstrated the scale of devastation that can be brought about by saidreputational risk. These cases made companies around the world realizethat a poorly managed reputation could threaten the very continuity ofthe entire business.11b) The second argument that propelled reputation to corporateagendas was the internationalization process. Companies from differentcountries compete in an increasingly globalised market. Even thosecompanies whose strategies focus on local markets will have to facecompetition on the part of international companies and brands.c) Reputation is becoming a key element in the search for sustainabledifferentiation. In the context of accelerating globalisation, companiescan no longer compete solely on price, and, in the long run, not evenon the quality of their products.12Products and services have becomeincreasingly more similar while their quality, although necessary, isinsufficient. True differentiation leading to competitive advantageis achieved through branding (Oroval, 2012; Alloza, 2001).d) The process of economic internationalization and globalisation alsoemphasises the link between companies and brands and their countriesCorporate reputation.indd 22 29/05/13 18:06
    • 23of origin. A product or service’s country of origin represents animportant part of its strength or weakness in the global marketplace.The country brand acts as a pillar that supports trust in the productor service originating from this country. Attributes associated with thecountry are projected onto its product brands and companies.13This projection may have both positive and negative implications.A brand or a company originating from a country perceived assophisticated is likely to be perceived as sophisticated too. However,for the same reason, a brand originating from a country perceivedas irresponsible will have many obstacles to overcome in order to beperceived as being serious.14Similarly, successful brands and companieswith good reputations contribute to the improved perceptions andreputations of their country’s brand. This is especially true of largecorporations characterised by greater visibility. The effect that largecompanies have helps to improve the reputation of less visible brandsand companies originating from the same country.e) From management’s point of view, reputation helps companies andorganizations adopt a long-term action plan and a multi-stakeholdervision.Managing a country’s brand and reputation means creating value forthe long run. Companies assume this new role by serving the interestsof stakeholders, where creating shared and balanced values enablessustainable growth and generates the possibility of social cohesion.15We have summarized the interest in reputation in these points to clarifythe concept of reputation and inspire the development of rigorousmeasurement tools for reputation to be incorporated into the strategicmanagement of organizations.Over the last two decades, communications departments performedreputation management functions. These management areas developedfrom press departments. Now, as they develop and redefine the role ofcommunication and strategic intangible assets, their activity becomesincreasingly important for companies (The Arthur Page W. Society,2012).Corporate reputation.indd 23 29/05/13 18:06
    • 24Communications departments assume new functions as they develop.In the future, their success will depend on six key areas: reputation,corporate brand, communication, public affairs, social responsibilityand measurement tools (Zerfass et al., 2012). These functions maybecome the drivers of transformation that organizations will need toimplement to become successful in the new competitive environmentof intangibles and reputation.16However, the prevailing approach in most companies today is that topmanagement defines business strategy, which then trickles down toinspire strategies for business areas that may include communication.This position is common business practice. Only a few large companieshave communications directors who participate in managementcommittees.The conceptual framework that this text suggests is an attemptto overcome this linear one-way relationship between businessand communication strategies and look at communication systems andstrategic intangibles management (reputation and brand) as key toolsfor developing and executing corporate strategy.17A communications director in charge of all stakeholders’18communications is aware of their aspirations, demands and expectationsand may contribute to corporate strategy development, implementationand communication.The role of communication director needs strengthening throughaccess to information, management tools and functions necessaryfor participating in the decision-making process at the top level. Theyneed to have the power to inform the board about implications thatdecisions may have for the stakeholders. This limitation also existswithin the academic community. In many universities and businessschools, courses on communication strategy or corporate reputation aredelivered by marketing departments and, in some cases, by specializeddepartments, and rarely related to the area of business management.Much needs to be done to consolidate these functions and establishmeasurement tools and management models that will be accepted by theCorporate reputation.indd 24 29/05/13 18:06
    • 25academic and business worlds. In this context, reputation measurementtools become indispensable for demonstrating economic and financialreturns on good management performed by the communicationsdirector.As follows from this statement, reputation metrics should be includedin balanced scorecards at the top management level. These balancedscorecards should combine conventional financial indicators withnew non-financial indicators — such as reputation, brand, customersatisfaction, commitment of employees and level of recommendations.These non-financial indicators will allow companies and institutionsto go beyond the short-term vision offered by financial indicators andintroduce long-term perspectives and multi-stakeholder focus that leadto in-depth changes in strategy. These changes aim at consolidating anew sustainable business model or source of sustained differentiationthat will enable business strategy to align with internal and externalstakeholders.Clarifications of definitions are as important as the development ofmeasurement tools that will follow rigorous conceptualization. This isthe only way to respond to the growing demand expressed by companiesand institutions wanting access to better techniques of managing theirintangible assets.In the last few years, much work was done to meet these challengesand unleash the potentials contained in the concept of reputation. Themost important developments thus far are:• Action lines based on academic research.• Empirical action lines based on business practice and applied research.The first group did research and made advances in defining theconcepts of communication and corporate reputation as well as in theirmeasurement and organizational implications.The second group led to the forming of associations, foundations,think tanks and other institutions that brought together differentCorporate reputation.indd 25 29/05/13 18:06
    • 26enterprises willing to join forces. The contribution that large companiesmade to innovation in reputation management, corporate brand,communication and measurements has been extremely importantbecause of their pragmatic and empirical approach.Some very innovative initiatives emerged in Spain ten years ago withthe creation of groups of companies that worked together to applythe models of coopetition (cooperation among direct competitors),involving cooperation between public and private companies andalliances with prominent scholars and scientists.19Some of themost important examples involve large companies that form partof the stock market index as well as some public companies. InSpain, the three following business initiatives had a major impact ondevelopment:• The Corporate Reputation Forum (2002-2011).• The Institute for Analysis of Intangibles (2004-2011).• Corporate Excellence – Centre for Reputation Leadership (2011-present).Since its inception in 2011, Corporate Excellence – Centre forReputation Leadership has been integrating these activities andbringing together companies that founded The Corporate ReputationForum and The Institute for Analysis of Intangibles, with their ownnetworks and alliances including experts and academic institutions —the Corporate Reputation Forum and the Institute for Analysis ofIntangibles have merged to form Corporate Excellence.Corporate Excellence – Centre for Reputation Leadership is a think tankand a non-profit organization. It was established by BBVA, CaixaBank,Iberdrola, Repsol, Santander and Telefónica (who act as foundingtrustees) and brings together some of the largest Spanish private andpublic companies, such as Adif, Agbar, Bankinter, Correos, Danone, ElCorte Inglés, Gas Natural Fenosa, Mapfre, Meliá Hotels Internationaland Renfe. Together, these companies employ more than 750,000 people,are present in 80 countries and their aggregate capitalization amounts tomore than 50 per cent of the stock market index.Corporate reputation.indd 26 29/05/13 18:06
    • 27The think tank’s name expresses the idea of innovation implied byreputation management. This centre for reputation leadership attemptsto transform companies into excellent organizations through reputationmanagement. In line with this vision, companies that belong to thisorganization state their position by using the corporate tagline Leadingby Reputation, which reflects the competitive challenges of the neweconomy of intangibles and reputation.Reaching this objective requires a preliminary step: clarifying theconcept of reputation and revising its key definitions suggested byacademics and professionals. Without a clear definition, it is impossibleto develop rigorous measurement tools accepted by all involved socialactors: academics, managers of intangibles in organizations, regulatorsand investors.Reaching consensus on reputation measurement is especially importantbecause the goal is to create reputation indicators based on the metricsapproved by the market. This would enable them to be integrated intoorganizations’ balanced scorecards. Traditional financial indicatorswould be complemented by non-financial indicators that measure anorganization’s reputation. Reputation would become a non-financialindicator, potentially the most important indicator in the world oforganizations, both private and public, to have an impact on strategyand contribute to a long-term view and a cohesive multi-stakeholdervision.In order to be managed, reputation has to be measured. Thismeasurement must be focused on decision-making processes that enablemanagement and ensure protection of or improve an organization’sreputation.The underlying idea of this hypothesis is that an organization’sgood reputation depends on its capacity to respond adequately to itsstakeholders’ expectations. This assumption leads to the first step: theability to quantify in order to find out what these expectations are.This means that reputation metrics must measure expectations held byall stakeholders of different organizations and be flexible enough tochange over time.Corporate reputation.indd 27 29/05/13 18:06
    • 28To improve or protect reputation, measurement techniques must beoperational in the process. This means measurement must help identifywhich management tools will be useful and which dimensions or blocksreinforce or erode reputation.Therefore, metrics must deliver the following:a) A global indicator of the reputation.b) A set of indicators that point to dimensions or pillars that, whenmanaged effectively, boost the reputation’s global indicator. Metricsshould enable one to identify each dimension that has a positive ornegative impact on the overall reputation indicator.Identification of different dimensions and pillars allows an organizationto commission tasks to different departments responsible for functionsthat can strengthen or weaken these indicators and thus affect theorganization’s general reputation.Finally, in order to be useful for management purposes, measurementtools must monitor the development of global reputation as well as itsdimensions — into the future.Measurement techniques may be used in the process of reputationmanagement if they are accepted internally (inside the company,by other departments and functions) and externally (by majorstakeholders). However, in order to ensure their acceptance, theconcept of reputation as well as the indicators and metrics developedto measure it, must be recognized among large companies at thenational and international levels.2. Managing Intangibles: Challenges foran OrganizationFinancial and informational globalisation makes it increasinglycomplicated for companies to construct and maintain relations withmarkets and strategic groups: clients, investors, employees, regulatorsand the public opinion.Corporate reputation.indd 28 29/05/13 18:06
    • 29Because of this, companies and institutions must aim to becomeflexible and innovative in managing their corporate affairs (reputation,communication, brand, public affairs, investor relations, etc.) and inhow they act and communicate, so they can coherently and consistentlypresent themselves to their stakeholders. This is how they gain credibilityand trust for achieving strategic business objectives.20In this new environment, the concept of reputation is highly innovative.First, because it is a milestone in the history of business management, asnoted before, and therefore for it to be included in a company’s agendais quite recent. Second, the application of reputation as a psychosocialconcept to business and institutional practice is novel and can becomea source of continual transformation in organizations that use it.In this sense, reputation management sets the dynamic that furnishesan organization with research tools and the ability to listen in order tolearn the perceptions, opinions and evaluations held by its stakeholders.This mechanism allows the organization to identify the gaps betweenthe organization’s reality, the communicated reality and the reality thatwill be perceived eventually by its stakeholders.Continuous reputation management means that the company’s “todo” and “to say” are complemented by this analysis, essentially amechanism that generates innovation and drives ongoing company-wide transformation in response to its stakeholders’ ever-increasingexpectations and demands.Reputation is a source of innovation that generates value in the sensethat, as suggested by Joan Costa (2009), only social innovation createsvalue21since it strengthens the trust relationship and affinities amongorganizations and stakeholders, therefore allowing any organization toobtain and maintain operating licenses.Reputation may be perceived as a coin with two sides: it allows thestrengthening of the trust relationship and engenders affinity withstakeholders. However, we should not forget that the risks of reputationerosion could lead to the destruction of value.22This occurs whenCorporate reputation.indd 29 29/05/13 18:06
    • 30the balance of adequate responses to the demands of stakeholders isbroken, despite the fact that they are currently the ones who possesspower (Abril, 2011; Montañés, 2011).An organization that manages its reputation can respond swiftlyand effectively to protect its value by identifying and mitigating itsreputational risk. It can even increase its value thanks to strengtheningits reputation.By strengthening its reputation, an organization achieves differentiationthat sustains over time and unleashes the power of favourable behaviouron the part of its stakeholders, thus creating wealth. Companies thatquickly adapt to changes and can listen and respond will lure majorfuture cash flows.In order to achieve sustainable creation and protection of value forcompanies and organizations in the long run, the same degree ofimportance, excellence and rigour must come from the managementof these intangible assets and resources as is attributed by companiesand organizations to their economic assets and resources. It is especiallyimportant when designing and implementing business strategy —where the true weight of intangible assets and resources is so frequentlynot taken into account (Alloza, 2012).The strategic importance of reputation and other intangible assets(brand and communication) contrasts with management limitations thatproceed from a scarcity of theoretical foundation and methodologydeveloped by academics and professionals early on in their investigationsof this concept.With time, we see how some of the currently abundant definitionsof reputation become scientifically accepted and give rise to thedevelopment of measurement tools and management models.It is important to further clarify the concept and development of metricsthat will be derived from the concept. This will enable organizationsto respond to increased demands for better technology concerningreputation management.Corporate reputation.indd 30 29/05/13 18:06
    • 31Reputation is a multidisciplinary concept that in the last twenty yearsgave rise to multiple working and academic research lines. Some of themost important ones are:• Economic perspective defines reputation as a set of featuresand signals of a company: what it is, what it does or represents andwhether it is capable of driving the conduct of economic agentswhose behaviour is based on limited information.23• Strategic perspective views reputation as a source of long-termdifferentiation, difficult to imitate because it comes from a company’sidentity.24This differentiation gives rise to competitive advantagesthanks to favourable stakeholder behaviour and that is increasinglyrelevant for value creation in the current competitive context, whereproducts and services become more homogeneous while theirquality is a necessity, but insufficient. True differentiation leadingto competitive advantage is achieved through brand and reputation(Oroval, 2012; Alloza, 2000).• Multi-stakeholder perspectives and long-term vision. Companiesand organizations need to avoid the short-term vision imposedby financial indicators. A long-term action framework and multi-stakeholder vision25need to be adopted.• Marketing perspective. This is an attempt to construct brand equityidentifiable by name and logos and capable of evoking positiveassociations in customers to facilitate marketing activities and sales.26• Globalisation perspective. Companies can no longer compete solelyon price, and, in the long run, not even on quality.27The positionof a company and its brand may be largely explained by its link tothe image and reputation of its country of origin. Country brandingbegets an additional source of trust for brands and services comingfrom this country.• Organizational perspective. Corporate culture and identity are seen asfactors that determine the conduct of employees and managers. Thisconduct creates the basis for the identity of internal groups and forCorporate reputation.indd 31 29/05/13 18:06
    • 32achieving alignment between stakeholders and the strategic objectivesof organizations.28• Sociological perspective. Reputation is perceived as a source of sociallegitimization for companies. Reputation is a social construct sharedby involved groups and it drives social acceptance or rejection.29• An accounting perspective looks at measuring and managingintangible assets derived from collective perceptions and theirincorporation into the accounting statements of the company formaking recommendations with regard to cost and investmentdistribution in service of building reputation.30• An integrated perspective defines reputation as collective judgmentsabout a company’s credibility and reliability held by different butrelated groups. This perspective is still in its nascent stage and maygive rise to more specific research programmes in the future.31Significant work must be done in order to appreciate the entire potentialof reputation and ensure its excellent management. This implies treatingintangible assets and resources with the same degree of importance —and applying professional methods and rigour usually associated withfinancial assets and tangible assets (Alloza, 2012).The importance of reputation and other intangible assets contrastssharply with certain limitations and challenges that must still beaddressed. Subsequent chapters in this book discuss the historicaldevelopment of the concept of reputation.Corporate reputation.indd 32 29/05/13 18:06