White Paper. Beyond Reputation Measurement: Using Reputation to Create Value. Kevin Money and Carola Hillenbrand

Transcription

1 White Paper Beyond Reputation Measurement: Using Reputation to Create Value Kevin Money and Carola Hillenbrand

2 Reputation is often defined as a perception of character. Indeed, our reputations attract people to us or are a key factor in driving them away. Put simply, our personal reputation is at the heart of understanding the success or failures of our relationships both at work and in our private lives. Just as personal reputation is key to the success of individuals so is corporate reputation seen as the foundation of business success. Corporate reputation can be defined as the perception of organisational character and is often seen as a key intangible asset of a firm. As Alan Greenspan, former Chair of the Federal Reserve said: In today s world, where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force, propelling our economy forward. For these reasons, practitioners and academics have become increasingly interested in corporate reputation. Much effort has been placed into the measurement of reputation and many models of reputation measurement have emerged. For practitioners the situation can be quite confusing and various valid questions come to mind. How can companies know what reputation measures they should use in which circumstances? What types of decisions can they make based upon these different measures? What is the aim and value of these different models and what can one model offer over another one? In short, there is a growing body of opinion that states that what is needed is not another set of reputation measures but rather an understanding of the utility of the current measures and how to use these in the pursuit of the strategic objectives of the organisation. How is reputation measured? A review of existing models of corporate reputation reveals a relatively small number of widely used models, the most prominent of which seem to be variations of Fortune s Most Admired Companies List (MAC), the Reputation Quotient (RQ) (Fombrun and Van Riel 2004, Fombrun 1996), the Corporate Personality Scale (Davies et al. 2003) and the Emotion, Feeling, Intention Model (SPIRIT, MacMillan et al. 2004). These models differ considerably in terms of their underlying approach, who they survey and what they measure. These models are now summarised in the table below with reference to their underlying approach, who they survey and what they measure: 4

3 Table 1: Summary of Reputation Models Measures of reputation MAC List (Fortune Magazine) Developed by Fortunes editorial panel in discussion with CEO and financial analysts. Reputation described in terms of characteristics that are admired by financial analysts, CEO and journalists Underlying approach Who is surveyed What is measured CEOs and financial analysts 8 characteristics of reputation (innovation, financial soundness, employee talent, use of corporate assets, long-term investment value, social responsibility, quality of management, quality of products and services) Statistical analysis suggest that all eight characteristics factor on one dimension Corporate Personality Scale (Davies et al. 2003) Developed from Aaker Brand Personality Scale and subsequent web and stakeholder based research. Reputation described in terms of a personality-metaphor Customers and employees 7 dimensions of corporate personality (agreeableness, enterprise, competence, chic, ruthlessness, machismo, informality) Distinct dimensions are supported by statistical analysis Reputation Quotient (RQ) (Fombrun 1996) Developed from a literature review and focus groups with the general public in 10 countries, followed by qualitative surveys. Reputation described in terms of stakeholder expectations of organisations Many stakeholder groups of a business including the general public, customers, employees, suppliers, investors etc. 6 pillars of reputation (emotional appeal, products and services, vision and leadership, workplace environment, financial performance, social responsibility) Statistical analysis suggests that the 6 pillars group into two dimensions of reputation: emotional appeal as one dimensions and the remaining pillars as second dimension Experience, Feeling, Intention Model (SPIRIT) (MacMillan 2004) Developed from a literature review and focus groups with stakeholders (including customers, employees, shareholders, suppliers and the general public), followed by qualitative surveys. Reputation described in terms of stakeholder expectations in business relationships Many stakeholder groups of a business including customers, employees, suppliers, investors etc. 3 dimensions: experiences (including for example sub-dimensions such as communication, material benefits, experience of outside influences), feelings (including sub-dimensions trust and positive emotions) and intentions (including sub-dimensions of supportive behaviours such as advocacy and retention of stakeholders towards a business) Distinct dimensions and sub-dimensions are supported by statistical analysis 5

4 So what is the value of these different reputation measures? How do they complement each other and when should they be used? To do this, Lewellyn & Patsy (2002) say we need to answer the following questions: 1. Reputation for what? 2. Reputation to whom? 3. Reputation for what purpose? Reputation for What? Companies can have reputations for many different things. For example, one may be seen as having a reputation for being innovative, another for being large and powerful, another for being financially successful, another for having high quality products. The often cited rankings in Fortune and Management Today emphasise criteria such as financial soundness, use of assets and investment value. Academic authors, such as Davies (2003) see reputation in personality-like attributes, such as whether businesses are sincere, exciting or competent. Fombrun (1996) highlight characteristics such as emotional appeal, leadership, and social responsibility. Essentially companies, like individuals can have reputations for almost anything. They can be seen as hard or fast, big or small, for being global or local. The value of these reputations can only be judged in terms of whether these perceptions make stakeholders feel good about a company and whether it leads them to support an organisation. Another important factor is that reputations will be different with different groups as many theorists argue: major companies have as many reputations as there are distinct social groups that take an interest in them. So, if reputations differ within and between stakeholders, then before managers decide on what reputations they would like to create it is important for them to consider whom they want to build their reputations with. They need to ask the question: Reputation with whom? Reputation to Whom? In principle, all people with perceptions of a business should be taken into account. But whose perceptions are the most critical? In practice authors focus most on one or two groups. Davies (2003) for example concentrates on the views of customers and employees; others focus primarily interested on employees, while others focus on the views of financial analysts but also adds senior executives from other companies. When deciding on the stakeholders that matter when it comes to building reputations. 6

5 Mitchel, Agle and Wood (1997) argue that it is important to ask how How powerful are the stakeholders? How urgent are their needs? How legitimate are the stakeholders? Power Urgent Legitimacy It is also important to consider how stakeholders could fit into the above boxes. Clearly, if stakeholders are powerful and have urgent and legitimate needs, it will be important to build reputations with these groups. But stakeholders who are powerful with urgent needs but lack legitimacy may also be important. They may pose a danger because they could influence an organisation to take a course of action that is not legitimate. Managers are encouraged to assess their stakeholders using the above questions and then decide on how best to manage the relationships with each of their stakeholders. For each organisation and each situation the answers will be different. This is the trick: best practice reputation management is not a one size fits all model, rather it is dynamic and changing depending on the situation. Once stakeholder groups have been assessed in terms of their needs, it is important to assess what the organisation would like to achieve in the stakeholder relationship. Put simply, it is important to as the question Reputation for What Purpose? 3. Reputation for What Purpose? In thinking through the purpose of reputation managers can begin to identify whose views are most critical. Good reputation command premium pricing, lower marketing costs, attracts better employees, brings endorsements or acts as a buffer to criticism (Fombrün and Gardberg, 2000). The underlying assumption is that these outcomes bring about better long-term financial performance and shareholder value, though the direct mechanism by which this is achieved may vary. To manage the value of reputation, it is important to understand the causes and consequences of reputation and consider what consequences are required in stakeholder relationship and then to understand what causes will bring this desired outcome about. 7

6 The table below, adapted from Money and Hillenbrand goes a long way to achieving this outcome: Reputation, its Causes and Consequences: Adapted from Money and Hillenbrand (2006) Fortune, 2008, Most Admired Company List Fombrun, 1996 The RQ Davies, 2003 The Corporate Personality Scale CAUSES REPUTATION CONSEQUENCES 8 characteristics of reputation (innovation, financial soundness, employee talent, use of corporate assets, longterm investment value, social responsibility, quality of management, quality of products and services) 6 pillars of reputation (emotional appeal, products and services, vision and leadership, workplace environment, financial performance, social responsibility) 7 dimensions of corporate personality (agreeableness, enterprise, competence, chic, ruthlessness, machismo, informality) MacMillan, 2004 The Experience, Feeling, Intention Model (SPIRIT) Experiences (including for example sub-dimensions such as communication, material benefits, experience of outside influences), Feelings (including subdimensions trust and positive emotions) Intentions (including subdimensions of supportive behaviours such as advocacy and retention of stakeholders towards a business) As can be seen from the table above, it is only the Experience, Feeling, Intention from MacMillan (2004) that includes reputation and its causes and consequences, while the other reputation models set out to measure reputation. The measures of reputation provided by Fombrun and Davies can be applied usefully as rallying points in an organisation. They are useful in terms of also proving managers with tools to paint a vision of the organisation. An organisation could set out to, for example, have a reputation for vision and leadership or for innovation. The framework provided above, allows managers to reflect on whether these attributes or other may most useful in bring about desired consequences as well as reflecting what may cause the desired reputation. The framework allows a business to choose measures and methodologies that can facilitate the measurement of corporate reputation, its causes, its consequences. The choice of approach will depend upon the strategic requirements of a business at any time. While much benefit can be achieved through looking at causes, corporate reputation and consequences in isolation, a key benefit of the integrated framework the 8

7 ability to link these concepts together. In this way predict how different reputation measures could fit within a causal framework and conduct studies to test these links. Researchers could, for example, identify a key antecedent of an aspect of Reputation that is in turn the key driver of a consequence linked to the performance of a firm. Practically, this can be achieved by linking causes to outcomes in the day to day thinking of reputation managers or more formally through the use of techniques such as regression analysis and equation modelling. A further implication is that the framework will allow organisations to understand the utility of different reputation measures and then choose and combine different measures to meet their requirements. In addition to linking variables, the framework also allows different reputation models to be used in conjunction with one another. This is because aspects of different models may fit as causes, corporate reputation or its consequences. This allows many sources of information to be integrated to maximise both the effectiveness of strategic decision making as well as for the development of strategies to develop reputation. The extent to which different models overlap or complement each other can be assessed and choices can be made on this basis to identify the use of existing measures and the development of new ones. An organisation with a bank of data referring to its reputation in terms of the RQ, for example, may express the need to have a better understanding of the antecedents and consequences of these stakeholder beliefs and attitudes. It could use the framework to identify models and measures that will allow it to complete this analysis. In this way it could make the most of existing measures and channel resources into research activities in a more informed way. The framework also provides a way for organisations to place their data collection activities in context. Are they collecting too much data? Are they collecting data that provides different types of information? And are they collecting data that can be integrated within a strategic framework? Data that provides information about the antecedents of reputation can be usefully understood as being connected the past performance of an organisation. Data about reputation itself can be usefully associated with the current performance of the organisation. While data about the consequences of reputation can be usefully be associated with the future performance of organisations. In this way the framework provides a way for managers and investors to assess organisations and their strategies in term of both historical and leading indicators. An implication at a more theoretical level is that existing models of reputation can be placed within a single conceptual framework. Two observations can be drawn from that. First, the measures within these models seem to be complementary and seem, to a certain extent, to be based upon similar conceptual assumptions. This is important because it will allow future researchers to integrate existing data and future studies to move the reputation field along as a more coherent and integrated discipline. Secondly, applying the integrated framework to existing literature highlights the fact that reputation research has in the main been devoted to developing models that measure corporate reputation, rather than its causes or consequences. The need for the development of measures of causes and consequences is thus highlighted as a key area for nagers and their development of the reputation discipline. 9

8 References Davies, Gary (2003) with Chun, Rosa, Da Silva, Rui Vinhas and Stuart Roper. Corporate Reputation and Competitiveness, London and New York: Routledge. Fombrun, Charles J. (1996). Reputation. Realizing Value from Corporate Image, Harvard Business School Press, Boston. Lewellyn, Patsy G. (2002). Corporate Reputation. Focusing the Zeitgeist, Business and Society, 41 (4), MacMillan, K., Money, K., Downing, S. and Hillenbrand, C. (2004). Giving your organisation SPIRIT: an overview and call to action for directors on issues of corporate governance, corporate reputation and corporate responsibility. Journal of General Management. Vol. 30, No. 2, p MacMillan, K., Money, K., Downing, S. and Hillenbrand, C. (2005). Reputation in Relationships: Measuring Experiences, Emotions and Behaviours. Corporate Reputation Review. Vol. 8, No.3, p Money, K and Hillenbrand, C (2006). Beyond Reputation Measurement: Placing Reputation within a model of value creation.. Journal of General Management. Vol. 30, No. 2, p This work draws heavily on the work of MacMillan, 2004, MacMillan, 2005 and Money and Hillenbrand, The right of Prof. Keith MacMillan to be identified as the author of the Experience, Feeling, Intention SPIRIT Model and questionnaire has been asserted in accordance with Copyright, Designs and Patents Act, 1988 Sections 77 and 78) 10

9 Kevin Money Associate Professor, Director, School of Reputation and Relationships and Director, The John Madejski Centre for Reputation Kevin teaches on the MBA programme and he is a mentor and tutor on Henley s Advanced Management Programme. He also supervises DBA and PhD Research Associates. Kevin is a Fellow of the Sunningdale Institute which is a think-tank and development centre which takes the complex organisational and governance problems faced by those in the public service and finds innovative but well-researched approaches to tackling them.. Kevin is a Chartered Psychologist, a member of the British Society of Clinical Hypnosis and a licensed NLP Practitioner. He is also a Trustee of the Safer South Africa Trust (UK) and has acted as a consultant to major companies and voluntary organisations in the UK, USA and South Africa. Dr Carola Hillenbrand Carola s key areas of professional expertise are corporate reputation and responsibility, the psychological foundations of successful relationships and multivariate statistics. She is the Subject Area Leader for Reputation and Relationships at Henley Business School and has contributed significantly to the development of materials and teaching on MBA and corporate programmes. Carola is also the Lead Researcher in the John Madejski Centre for Reputation, overseeing a variety of large-scale research projects in the profit and not-for profit sector. She teaches statistics and multivariate data analysis on both the MBA and the doctoral programme. She is a graduate of the Justus-Liebig Universitaet of Giessen (Germany) where she gained a First Class Master degree in Psychology and wrote her PhD at Brunel University, London. 11

10 White Paper For more information, please contact: Executive Education Henley Business School Greenlands Henley-on-Thames Oxfordshire, RG9 3AU Tel +44 (0) EFMD