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Home > Business Strategy Best Practice > Smart Use of Reputation Capital: How to Benefit from Different Reputation Investment Strategies

Business Strategy Best Practice

Smart Use of Reputation Capital: How to Benefit from Different Reputation Investment Strategies

by Joachim Klewes and Robert Wreschniok

Executive Summary

  • The importance of building reputation as the “social capital” of an organization, including its key components trust and credibility under societal, market, and media conditions of the 21st century.

  • Four strategies for managing reputation capital used in business to increase valuable trust capital and to protect against losses, which should be mastered by every reputation manager.

  • Which strategy to choose according to the type of risk, company, and/or time.

  • The fact that today’s management essentially consists of (communicative) dealing with crisis and change, and how leadership can contribute to an organization and its employees becoming “crisis-proof” long before a crisis occurs.

Introduction

Today, those responsible for corporate communications are facing tremendous challenges. They are forced to take ever greater risks regarding reputation, and increasingly they are compelled to use more radical methods and messages in the traditional media—above all in advertising communication. This appears to be the only way to catch the attention of consumers and stakeholders.

On the other hand, the new social media, digital networks, and blogs seem to require the exact opposite—i.e. communicating a brand in a way that will allow the brand to be cherished for its own sake. This requires a radically new way of communicating: a dialog instead of the conventional one-way communication from sender to receiver. With this new approach, the core message counts less than the interactions between consumers and a company. The consumer is able to use social media to understand and experience a company and a brand, instead of having to simply believe promises. In this new world where consumer needs are met directly with customized offers, past recipes for success no longer count. Both creativity and wastage are eliminated. Andrew Robertson, the CEO of BBDO, one of the largest global advertising agencies, used strong words to emphasize this when, years ago, Google founders Sergey Brin and Larry Page presented their new advertising concept to him: “Guys, you killed the fucking magic.”

In the following article the authors highlight four different approaches—what we call “investment strategies for reputation capital”—that companies can use to boost awareness and trust at the same time.

Reputation and Strategy

Reputation management has experienced much unrest and undergone rapid changes in recent times. A few years ago Warren Buffet was able to say that a good reputation can take 20 years to develop, but that it can be ruined in as little as five minutes. This seems strangely remote now. It might still take five minutes to ruin a reputation, but the idea that anyone might steadily work on and build a corporate reputation over a period of 20 years is rather unrealistic nowadays.

Today, anyone with access to the Internet can form and voice their opinion without depending on classical media. As a consequence, published opinion no longer equates to public opinion. Scandals appear more often and proliferate more quickly than ever before—a development that harbors major risks for companies. But it is not just the channels of communication that have changed; market conditions themselves are also different. The shift in the perceived importance of hard and soft corporate factors—a shift that now increasingly favors intangible assets—has resulted in a heightened risk to reputation.

This took on especially drastic forms during the recent financial and economic crisis. During this time many public companies were hit by a “reputation penalty,” and the share prices of some of the leading global players fell as much as 50% below the company’s actual market value. Furthermore, the number of companies per industry that are capable of supplying comparable products of good quality and at reasonable prices is growing explosively. Increasingly keen competition in itself can result in an impasse, since these “hard” corporate and product factors of the competing companies have in many cases become only marginally distinguishable. So intangible assets need to be stressed to express the unique selling-point (customer-centricity and satisfaction, user-friendliness, loyalty programs, etc.) to clients and shareholders.

In other words, these are hard times for “relaxed” reputation strategies, since in this dynamic environment you can no longer be sure that the strongest reputation will win in the long run. As a result, more and more companies are turning to reputation strategies whose mechanisms are comparable to those of conventional corporate strategies. Such strategies “actively influence the effects of competition and the speed of change. This lends strategy an essential effect: it shortens time.” (von Oetinger, 2003).

Consequently, there are three central questions today for any strategy in the area of corporate communications. The first concerns the resources one needs to implement such a strategy, and how to use these in order to quickly achieve one’s goals. The second question is how best to balance effectiveness and efficiency in the process. And last but not least, a reputation manager should aim to find the adequate ratio of reputation risks versus chances in the light of his reputation goals.

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Further reading

Books:

  • Bourdieu, Pierre. “Ökonomisches kapital, kulturelles kapital, soziales kapital.” In Reinhard Kreckel (ed). Soziale Ungleichheiten. Göttingen, Germany: Otto Schartz & Co, 1983; pp. 183–198.
  • Eisenegger, Mark. Reputation in der Mediengesellschaft: Konstitution—Issues Monitoring—Issues Management. Wiesbaden, Germany: VS Verlag für Sozialwissenschaften, 2005.
  • Eisenegger, Mark, and Kurt Imhof. “The true, the good and the beautiful: Reputation management in the media society.” In Ansgar Zerfass, Betteke van Ruler, and Krishnamurthy Sriramesh (eds). Public Relations Research: European and International Perspectives and Innovations. Wiesbaden, Germany: VS Verlag für Sozialwissenschaften, 2008; pp. 125–146.
  • Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston, MA: Harvard Business School, 2005.
  • Klewes, Joachim, and Robert Wreschniok (eds). Reputation Capital: Building and Maintaining Trust in the 21st Century. Heidelberg, Germany: Springer, 2009.
  • Markowitz, Harry M. Portfolio Selection: Efficient Diversification of Investments. 2nd ed. Malden, MA: Blackwell, 1991.
  • von Oetinger, Bolko. “Das Wesen der Strategie.” In Das Boston Consulting Group Strategie-Buch: Die wichtigsten Managementkonzepte für die Praktiker. Berlin, Germany: Econ Verlag, 2003.
  • Washington, George. Rules of Civility and Decent Behaviour in Company and Conversation: A Book of Etiquette. Williamsburg, VA: Beaver Press, 1971. Online at: www.history.org/almanack/life/manners/rules2.cfm

Articles:

  • Plambeck, Erica. “The greening of Wal-Mart’s supply chain.” Supply Chain Management Review (July/August 2007).
  • Schütz, Tobias, and Manfred Schwaiger. “Der einfluss der unternehmensreputation auf entscheidungen privater anleger.” Kredit und Kapital 40:2 (2007): 189–223.

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