Creating Economic Value through Reputation Management Dr. Charles Fombrun Founder & CEO Reputation Institute When quality is not enough, lead by reputation Pontifica Universidad Católica de Chile August 20, 2008
Reputation Institute Office Network 7 offices, 15 associates Member Network.. 75 corporate members Knowledge Network 150 academic members RI Knowledge Center Corporate Reputation Review Research, Insights & Cases Conferences & Seminars RI Advice Group Proprietary analytics & models RepTrak - reputation measurement EcQ - employee alignment WorkRep - employee ambassadorship RepTrak Risk reputation risk assessment Media RepTrak 2
Agenda 1 Valuing Intangible Assets connecting the dots of reputation 2 How do Companies Build Reputation? learning from winners and losers 3 Professionalizing Reputation Management creating economic value 4 Beyond Companies understanding countries and their reputations 3
1. Valuing Intangible Assets Connecting the dots..to the bottom line 4
Physical Forces: The Four Forces of Nature 5
Social Forces: Attraction & Repulsion or -Halos & Networks Action at a Distance 6
Companies are More or Less Attractive 7
Business Schools Compete for Reputation 8
Countries also Compete for Reputation 9 9
Connecting the Dots Stakeholder Support Reputation Leadership Employee Engagement Ethical Behavior Media Coverage Analyst Ratings Advertising Public Relations Philanthropy Economic Value Market Value Financial Performance Price & Quality Service Orientation Innovation 10
Is Google a great place to work because its stock is at $483, or is its stock at $483 because it's a great place to work? --Business Week, January 22, 2007
Market Value Results because Reputation Generates Public Support Public Support Corporate Reputation Source: Reputation Institute, 2008 12
4 0.00 % 2 0.00 % 0.00 % -2 0.0 0% -4 0.0 0% -6 0.0 0% 13 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Reputation & Market Value are Linked Example: Data from 2000-2006 Cumulative Returns HIGH REPUTATION PORTFOLIO Source: Reputation Institute, 2007 S&P 500 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04
In Simplistic Terms, Reputation puts $$ in the Bank Market/Book Ratio Top 30 in Reputation Bottom 30 in Reputation 3.79 1.42 A simple equation links reputation to market value: So, on average: % Change in Market Value = 1.3 * % Change in Reputation 10% Improvemen t in Reputation 13% Improvemen t in Market Value
How Do the Dots Connect? Personal Experiences Products Customer Service Investments Employment Supportive Behaviors Company s Reputing Branding Marketing & PR Philanthropy Corporate Reputation How company is is perceived Employees Investors Customers Others Financial Results Profitability Market Value 3rd Party Opinions Media (Traditional, Social) Topic Experts/Leaders Personal Networks Future Prospects Attractiveness Ratings Cost of Capital Source: Reputation Institute 15
2. How Do Companies Build Reputation? 16
Are there Key Pillars of Corporate Reputation? 17
Who is Most Respected? -how are they winning hearts & minds? Global Pulse measures consumer perceptions of: 1,000 largest companies 60,000 consumers 27 countries 18
The World s Most Respected Companies Global Pulse 2008 19
How Toyota Reputes - through Products & Citizenship Products/Services - Cutting edge design Citizenship - Environmental friendly 20
How Does Google Build Reputation? --through Products & Workplace
Reputation in the Global Airlines and Aerospace Industry -Global Pulse 2008 Deutsche Lufthansa AG (Germany) Boeing (US) Lan (C hile) Qantas Airways (Australia) Bombardier Inc. (Canada) British Airways (UK) BAE Systems (UK) Lockheed Martin (US) Airbus (France) TAP (Portugal) Air C hina (China) Northrop Grumman (US) C hina Southern Air (China) Raytheon (US) Air France-KLM (France) Continental Airlines (US) American Airlines (AMR) (US) Delta Air Lines (US) United Airlines (UAL) (US) Northwest Airlines (US) China Eastern Air (C hina) Air Canada (Canada) Air India Ltd. (India) Japan Airlines Corp. (Japan) Alitalia (Italy) 46.95 44.76 75.19 74.37 73.61 71.82 71.58 68.88 68.84 68.65 68.15 66.66 66.57 66.34 65.36 64.90 64.88 61.98 60.67 59.52 58.35 58.20 57.95 54.49 53.91 Global Mean 64.20 22
Which Dimension of Reputation has the Strongest Effect on Consumers in Airline/Aerospace? 12.1% 18.1% 11.4% 13.0% 14.7% 15.6% 15.0% Factor Adjusted Regression Adjusted R-squared = 0.786 n = 4,310 23
The Reputation Toolbox Strategy Systems Insights & Analysis Execution Evaluation 26
1. Establish a Shared Model Example: Measuring a Pharmaceutical Company Goals 27
2. Consolidate Research Identify the Drivers of Your Company s Reputation 11.6% 17.6% 11.8% 13.6% 16.3% 14.6% 14.5% Factor Adjusted Regression Adjusted R-squared = 0.774 n = 27,000 28
3. Align Activities Identify What Matters to Different People Consumers Financial Analysts Opinion Elites Policy Elites Physicians Employees 29 29
4. Align Employees Adopt a Common Reputation Platform The Platform s Big Idea Stakeholder Outcomes People Profits Planet Initiatives & Actions Initiatives that make the company relevant to its stakeholders Vision & Mission We promise to 30
5. Express Yourself to build Reputation Visible Visible company communicates often and widely Distinctive the way the company communicates makes it stand out from its competitors Responsive Distinctive Consistent company conveys a consistent message across its communications Expressive Transparent company provides an appropriate amount of information about what it does and how it operates Sincere Consistent Sincere company appears genuine about what it says and does Responsive company invites and welcomes feedback about its activities about what it says and does Transparent
6. Integrate across Functions Implement the Reputation Platform governance policies environmental policies financial reporting workplace policies advertising Cross-Functional Integration corporate branding philanthropy communications campaigns media coverage sponsorships CSR activities customer service product packaging 32
7. Build Monitoring Systems Facilitates Integration 33 33
Example: Telefónica CUSTOMERS Put customers needs at the heart of everything we do, so that they get the maximum satisfaction from our services and solutions OUR VISION EMPLOYEES SHAREHOLDERS Offer our employees the best place to work, attracting and retaining the best talent and providing the best career development opportunities Provide our shareholders with the best combination of growth and returns in the industry We aim at enhancing people s lives, businesses performance and the progress of the communities in which we operate, by delivering innovative services based on information and communication technologies SOCIETY Act as an important driver of technological, economic and social development in the communities in which we operate, combining our ambition of being a global and efficient company with the aim of satisfying every local market s requirements 34
Telefonica s Execution Social Investments in Education EDUCATION EXCELLENCE IN EDUCATION Program to include ICT use in basic education INCLUSION Program to school working children in LATAM (25,000 children) KNOWLEDGE CENTER Investigate, debate and create knowledge on sustainable use of ICT VOLUNTEERING Involve employees and retirees 35
The Continuous Cycle of Corporate Alignment Strategic Vision Who do we want to be? What are the values we want to defend for the future? Our Core Values 36 Stakeholder Images Who are our key stakeholders? Which values do they associate with us? Organization Culture What do we stand for? How do we realize our values & ideas?
4. Beyond Companies 37
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What Drives a Country s Reputation? Drives Support: Investment Tourism 39
Country Reputation How Others see You 40
Country Self-Image How You See Yourself 41
Reputation and Support 0.78 Visit Country Reputation 0.74 0.70 0.73 Live or work Invest 42 Purchase 42
In Sum: Reputation Management is a 7-Step Process 1. Establish a Shared Model 2. Consolidate Research 3. Align Activities 4. Align Employees 5. Express Themselves 6. Integrate Cross-Functionally 7. Set Stakeholder Goals & Track Progress 43