Four business strategies for protecting corporate reputation

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Stakeholders encourage companies to be more and more transparent. Those organisations, which cannot build trust relationships with its stakeholders, become more prone to reputational risks.

Those organisations that cannot build full trust are vulnerable to criticism and pressure of stakeholders. The choice between the strategy based on negligence or the one based on trust is essential and can become vital for gaining competitive advantage in the world that needs institutions it can rely on in the long run.

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Four business strategies for protecting corporate reputation

  1. 1. InsightsStrategy DocumentsI08 / 2011ReputationFour business strategiesfor protecting corporatereputation Stakeholders increasingly expect companies to deliver greater transparency. Those organizations that cannot reinforce the trust of their stakeholders will be ever more vulnerable to reputational risks. Public relations no longer suffice to protect a and honesty about the quality of companies’ products company’s reputation. Large and small companies and services or their financial performance. alike lay their reputation on the line on a daily basis. It matters not how their income is performing or whether the launch of a new product has Reputation Strategies Bearing in mind this approach, what can companies been a resounding success. Their reputation can do to protect their reputation? How can they nose-dive at any moment at the drop of a hat and subsequently falter for many years due to several manage their brands to enhance their strategic operational risks: improper conduct by executives, value? Professor Paul Argenti from the Tuck School financial irregularities or social networking attacks, of Business and the consultants James Lytton- to name just a few examples. Hitchins and Richard Verity suggest that we should begin by identifying the type of reputation strategy our company pursues, and so in their article “The The recent setbacks affecting certain corporations good, the bad and the trustworthy” they present a such as BP, Toyota or Goldman Sachs have classification that considers four types of reputation highlighted the fact that addressing reputational strategy. These range from reckless negligence risks requires more than just investing or increasing to deceptive virtue, benign competence and expenditure in crisis management (investing in trustworthiness as a competitive advantage. The pressure groups, advertising, public relations), as way companies have developed these strategies in stakeholders’ current expectations have raised the level of criticism on business performance. recent years is detailed forthwith. According to the Trust Barometer 2010 survey, Reckless negligence conducted by the PR firm Edelman, when reaching The companies that opt for this strategy do little or their decisions consumers are increasingly taking nothing to enhance their management capabilities, into account the practices of corporate transparency under the assumption that this leads to a reductionDocument drawn up by Corporate Excellence - Centre for Reputation Leadership citing, among other sources, the speeches by Paul A.Argenti, James Lytton-Hitchins and Richard Verity at the 15th International Conference on Corporate Reputation, Brand, Identity andCompetitiveness held in New Orleans, May 2011.
  2. 2. Four business in expenditure and cost-saving. This means that Types of reputation strategystrategies for any action undertaken is valid as long as prices areprotecting corporatereputation kept low, customers are satisfied and shareholder 1. Reckless negligence expectations for the quarter are met. According to the authors, we might find that between 25% 2. Deceptive virtue and 30% of the companies in the industrialised nations and in emerging markets have opted for this 3. Benign competence strategy, with some food companies that ignore the growing concerns about obesity and health falling 4. Trustworthiness as competitive advantage within this category, without realising that they are one misfortune away from irreversible damage to Source: The good, the Bad and the Trustworthy; 2011. their reputation. multiple stakeholders. Being a reputation-driven Deceptive virtue company is a painstaking endeavour, in which This strategy involves a company putting its best the company needs to pay as much attention to face forward through public relations, rebranding, maintaining transparency while at the same time corporate philanthropy, sustainability programmes living up to its public promises at all times. and the espousal of high-quality business practices, building itself a reputation for being farsighted and responsible, even when it is not. As long as the “Stakeholders are ever company is well managed, competent, and reasonably lucky, this strategy works. But if its actual core values more critical of corporate and business practices do not match the image it presents to the world, it is taking a huge gamble. performance” The US supermarket chain Wal-Mart is a good Few companies have adopted this narcissistic example of a company that has made significant strategy, such as tobacco companies in the 1960s, pharmaceutical companies in the 1990s, and large progress toward trustworthiness. Based on corporations in 2000, including Enron and, more environmental sustainability, the company is recently, some of the world’s biggest banks. managing to change consumers’ buying habits. Furthermore, it is transforming its operations According to the authors, the changing environment through supply chain transparency, increased in recent years has shown that these two strategies fuel efficiency in its vehicles, greater energy are untenable over time, as they leave companies efficiency in its stores and waste minimization. too exposed to competitors and litigation and may As a result, Wal-Mart is achieving its three lead to the loss of their operating license. sustainability objectives: operating solely with renewable energy, creating zero waste and, finally, selling environmentally sustainable products. Benign competence Accordingly, it has sold more than 350 million Following this strategy, a company sets out to energy efficient compact fluorescent light bulbs in be efficient and effective, placing emphasis on the United States. the responsible management of its reputation. It complies with regulations and makes adequate investments in building its capabilities for health, The five strategic pillars safety and environmental management, as well as of trustworthiness in corporate communications. For Argenti, the quest for trustworthiness is not an altruistic practice, but rather yet another option for Under this strategy, reputation is not the centre of those companies that need to find their place in the the business, nor should it be, although investment market guided by the management of their corporate may be made in systems that monitor this risk. reputation. This does not mean that a company has to The focus is on delivering quality products and be flawless to be worthy of trust. Instead, companies services and fulfilling the company’s obligations to must gain the commitment of all employees to fix customers and shareholders. Perhaps 50% percent broken business practices that no longer reinforce of companies fall into this category. the business strategy, and offer a realistic plan to deliver on its promises in the future. Trustworthiness as a competitive advantage A strategy of benign competence is an easier and more This strategy provides reputation management suitable path for many companies, whereas a strategy with a critical capability within an organization. based on trust is harder to implement; as companies This capability distinguishes a company from the choosing this course will probably need to change competition, attracts both employees and customers, deeply embedded habits and instil new capabilities. and earns it an enviable reputation among its If companies manage to make these changes, Insights 2
  3. 3. Four business Strategic pillars of trustworthinessstrategies for advantage, distinguishing the company’sprotecting corporate practices and overall capabilities from those ofreputation its competitors. Facilitate dynamic strategy development Foster 4. Harness social media to strengthen relationships. Integrate the key Companies must empower their employees rigorous crisis behaviours management for a one- with the tools that facilitate dialogues with policies Trust company culture stakeholders to better understand their interests and pre-empt any problems that Harness might arise. During the 2008–09 recession, social media Nurture to strengthen reputational Ford Motor Company took advantage of its relationships capital website and social media platforms to launch live conversations among suppliers, dealers and customers. These actions helped the company Source: Paul A. Argenti, James Lytton-Hitchins & Richard Verity, 2011 to more readily overcome the problems caused by the crisis when compared to its rivals General Motors and Chrysler. they will have the chance to create a sustainable 5. Integrate rigorous crisis management policies. strategy for growth that could beat the competition Rapid response capabilities at local, regional and regardless of industry conditions. According to these global levels are critical. There are four rules for authors, there are five strategic pillars for becoming a protecting reputation: trustworthy, reputation-driven company. Companies should consider the following: – Frame the problem. – Execute a practical plan that offers 1. Facilitate dynamic strategy development concrete steps to rebuild confidence and execution. Trustworthy companies must among those directly affected. develop strategies based on deep insight into – Tell the truth. the needs and perceptions of their stakeholders. – Transform the crisis into strategic They should develop nimble systems to enable opportunities to build reputational capital. employees to participate in dialogue to resolve and pre-empt potential threats or problems. One example of this is Avon Products, which has created a so-called 360-degree communications “Organizations that cannot programme that has placed the company closer reinforce trust within to its customers throughout the world. their internal management 2. Foster the key behaviours for a one-company are increasingly more culture. Implementing a market-driven strategy requires companies to build a globally integrated vulnerable to risks” culture that benefits their employees. The transformation of Philips over the last decade Conclusions from an electronics firm into a much more diverse Organizations that fail to develop trustworthiness healthcare, lighting and lifestyle company is completely are vulnerable to significant criticism a good example of this management. Having from their environment and stakeholders. The established a coherent business portfolio, the choice between a strategy based on neglect and company launched two major communication one built on trustworthiness is essential and may campaigns called “One Philips” (to revitalize the well become vital for the competitive advantage of company’s identity internally) and “Sense and organizations in a world looking for institutions it Simplicity” (to reposition its brand). can count on for the long haul. 3. Nurture reputational capital. Internal business practices must institutionalize the alignment of the company’s reputation with its actual behaviour. This typically involves closing any gaps that may exist between corporate identity and image. To recognize these gaps, companies must maintain early-warning systems to keep them continually informed of reputational risks. Nurturing reputational capital requires rethinking corporate social responsibility programmes as vehicles for competitive Insights 3
  4. 4. ©2011, Corporate Excellence - Centre for Reputation LeadershipBusiness foundation created by large companies to professionalize the management of intangible assets and contribute to the developmentof strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidatesthe professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.Legal NoticeThis document is property of the Corporate Excellence - Centre for Reputation Leadership and has as its objective to share businessknowledge about Brand, Reputation, Communication and Public Affairs Management.This document is directed exclusively towards its addressee and contains confidential information, subject to professional secrecy, whosedisclosure, copy or non-authorized use is against the Law. If you receive this document by mistake, let us know immediately and erase itwithout keeping a copy.Corporate Excellence - Centre for Reputation Leadership is the owner of all the intellectual property rights of the images, texts, designsand any other content or elements of this product and has the necessary permission for its use, and therefore, its copy, distribution, publicrelease or transformation is prohibited, without express authorization from the owner.

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