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Corporate Reputation Analysis

Short Description

Corporate reputation analysis (CRA) identifies a firm's or industry's perceptual image among key stakeholders based on a given set of factors. The CRA process sets out to give strategic managers a solid understanding of the firm's current image with their stakeholders to enable it to improve its relations with them in the future, ultimately increasing the firm's performance. The results of CRA provide a solid foundation to plan effective reputation management.

Background

In 1983, Fortune Magazine published their first edition, featuring its list of America's Most Admired Companies. In many regards, this was the first real introduction of CRA to the general public.

Since then, many variations and modifications have been made to the general idea of what is "admired" in firms, and CRA has emerged as a process to be used for analysis over various different specific criteria. Corporate reputation became recognized as a valuable asset.

Popular media organizations used CRA to create "most admired" or "top ten" lists of firms that reflected the interests of their target audiences, whether these are gender-specific or based on broader concerns such as diversity, the environment, etc. These lists were, and still are, usually constructed using opinion sought from CEOs and industry analysts.

Over time, CRA moved beyond media organizations and was adopted by many consulting firms, communications agencies, as well as internal marketing departments who conducted the analysis and used the results for reputation management.

It was not until 1999 that a systematic attempt was made to standardize CRA and make the process less subjective. Charles Fombrun, who founded The Reputation Institute, developed, with Naomi Gardberg and Joy Sever, a standardized formula for CRA, which they called the Reputation Quotient. The article they published about it in 2000 notes that their aim was to broaden CRA, taking it beyond the narrow range of opinion traditionally sought by the media and open the process to encompass the perceptions of multiple stakeholder groups. Their plan was to develop CRA into a robust analytical instrument that was both statistically valid and reliable.

While this standardized process was a great advancement for the analytical technique, many firms continue to construct their own CRA processes to meet their own specific purposes. Reputation management can be shown diagrammatically as follows in Figure 17.1.

Figure 17.1 Reputation management

In recent times, a number of firms throughout the world sadly have damaged their corporate reputations through the behavior of their senior executives. Increasingly reputation risk management is becoming an agenda item for directors and in boardrooms.

So whatever method they employ, individual firms that actively monitor their reputation among stakeholders can use the information they obtain to strategically manage their reputation on a continuous basis.

Charles Fombrun and Christopher Foss quote Alan Greenspan's commencement speech as Chairman of the U.S. Federal Reserve—"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. Manufactured goods often can be evaluated before the completion of a transaction. Service providers, on the other hand, usually can offer only their reputations."

Strategic Rationale and Implications

According to Grahame Dowling: "When strategy involves either growth or innovation, a company puts its corporate reputation into play. Growth involves stretching the company's operations, sometimes to the breaking point. Innovation involves doing something new."¹

CRA seeks to identify and possibly enhance a firm's, or group of firms', image(s) among their stakeholders. The process may be undertaken by an individual firm to obtain information about its current reputation and help it design strategies to improve its reputation. The process may also be applied across an industry to accurately gauge how a firm's reputation compares to those of its competitors. Comparative information can then be used to differentiate the firm from its competitors.

While the particular reputation factors examined in a given analysis may vary, they all relate to the reputation of the firm in the eyes of stakeholders and should give an indication of the success or otherwise of the firm's reputation management strategies.

Dowling suggests that the major sources of corporate reputation risk fall into six broad areas:

1. The industry in which a firm operates.
2. Identifying strategies.
3. The culture and daily operations of the firm.
4. The comments and behavior of senior executives.
5. Managing stakeholder relationships.
6. Response to a crisis.

Firms that can effectively monitor their reputation among selected stakeholders across the six board areas mentioned previously will have a useful view of what type of strategic initiatives might be required to enhance their image. It will give the firm direct feedback of its reputation as perceived by stakeholders after the affects of public relations and advertising (both by the firm and by its competitors), media exposure, and any other external influences (for example, market speculation) are taken into account.

Successfully managing a company's reputation on a continuous basis is referred to as reputation management and is becoming increasingly important to senior management. Reputation management is usually a function of the public relations department and requires every aspect of a firm's operation to be consciously communicated with an overall strategy of improving or maintaining reputation. It may entail differently constructed messages tailored for specific groups of stakeholders—for example, more technical information being made available to industry analysts than is provided in press releases to general media outlets.

The image a firm communicates can heavily influence the actions of key stakeholders of the firm, including customers, employees, investors, and so on. The result of this is that the firm's reputation also has an impact on the overall value of the business, in dollar terms and also in terms of its value as a potential business partner in strategic alliances. The management of corporate reputation, then, can be seen to be an important part of the successful management of a firm overall.

Strengths and Advantages

Universal

The main advantage of CRA is that the process can be applied to any firm, no matter what type of industry it operates in or what size it is. The need to be aware of the image portrayed to key stakeholders is universal to all business. Small businesses may earn a good reputation in the eyes of the general public in a variety of ways—for example, by sponsoring local events, through the build up of customer loyalty and resulting word-of-mouth recommendations, or a network of friendships linking many people within the community directly to those participating in the business. Similarly, large firms earn their reputation in many ways (for example, sponsoring events or supporting charity), but quite often the image of the top executive has a very strong affect on the firm's overall reputation. For example, firms such as Apple, Ford, and GE have very prominent CEOs.

Although small and large firms can both use the CRA very effectively, the analysis process would generally be quite different for each of them. The inherent flexibility of CRA makes it easy to customize it to any specific situation based on the firm in question or industry in which it operates. Unlike many other analytical techniques, there is no given set of attributes or factors that must be included. In practice, there are many factors that reappear continuously in CRA throughout the world, and its ability to transform a firm is a major strength. The technique may be scaled up or down in complexity to allow it to be easily administered and managed by any type of strategic manager. Many small business planners might balk at the notion of using (and funding) complex analysis techniques or paying for market research that could investigate various reputation factors. However, they might engage in simpler versions of CRA.

The simplicity of the concept also gives it a universal appeal. Very few other strategic competitive analysis techniques are as widely recognized within non-business institutions or the general public as CRA. This makes CRA a useful tool for reaching stakeholders outside an industry itself—for example, shareholders.

Bottom Line

A firm that can effectively use CRA will see the results impact its bottom line. A great product is a good starting point for making a sale, but a firm's reputation is becoming increasingly important as it directly affects purchasing decisions. Consumers shop on more than just the product at hand. A firm's reputation is increasingly directly affecting the purchase decision. Customers, usually one of the most important of a firm's stakeholders, are crucial to the success of any firm and must be monitored and managed continuously. A firm that can consistently maintain a positive reputation with its customers reap positive financial rewards, not only by avoiding client attrition, but also with positive word-of-mouth publicity that can result in loyal customers.

The perceptions of other stakeholders of a firm can also have major implications on the bottom line. A firm's financial reputation will affect investment in that firm. If returns are significant and well distributed, more investors will be attracted, and the share price and the markets will look favorably on the firm as well.

Another important factor in relation to a firm's bottom line is whether or not the employees of that company are working diligently and effectively in order to generate profits. CRA can be used to gain insight into employees' perceptions of their employer. Employees who have a positive perception of their employer are more likely to work productively and to the best of their ability in an effort to move the firm forward, whether in an administrative or sales-oriented role.

Competitive Differentiation

Depending on which factors or attributes are used for conducting CRA, a firm can use the results to effectively plan strategies to differentiate itself from its competitors in the marketplace. CRA can easily generate rankings on various attributes for any given set of firms. A firm requiring this information could also use independent industry reputation analysis. Industry reputation analysis usually analyzes only a given set of firms on a given group of attributes. It could be the case that one firm is viewed as very community minded, while its direct competitors might be viewed as being more environmentally friendly. Either image has its advantages and could be used as part of a detailed differentiation strategy.

Using CRA for differentiation purposes involves the adoption of reputation management as a strategic function within the firm. The information generated by CRA can be used by a firm to analyze its existing strategies and create specific new strategies to maintain or develop a desired reputation position. There is no right way to manage reputation, nor is there any specific reputation that is perfect for every firm.

Healthy competitive differentiation could reach beyond the firms themselves and strengthen the industry in a 1 + 1 = 3 type of growth pattern. The total industry-wide effect of all firms' actively managing their reputations may be greater than the sum of individual firm efforts alone.

Qualitative

Although CRA uses statistical methods to interpret data and sometimes includes financial performance as an evaluation factor, the information given by CRA is frequently qualitative rather than quantitative, even when the Reputation Quotient is used. Where quantitative methods can provide insightful ratios and numeric analysis, qualitative analysis can usually provide more practical information in terms of future strategic planning so far as reputation is concerned.

Firms in various industries all over the world actively communicate certain information to their key stakeholders. These messages may become distorted by unusual circumstances or events and end up being heard by their audience as something entirely different from what was originally intended. CRA taps into the perceptual image formed by the final message recipient, giving the firm a clear grasp and understanding of its reputation.

Weaknesses and Limitations

Practical Uses

Simple CRA on its own, aside from enabling reputation management, provides little actionable information for the strategic analyst. The qualitative information so useful to reputation management does not provide the hard figures needed for wider strategic planning. This limits the technique as far as its usefulness to strategic planning is concerned. Many other qualitative analysis techniques, such as scenario analysis, issue analysis, and so on, can provide direct input into the strategic planning process. CRA, however, simply identifies a firm's image and can only provide analysis of current perceptions from their key stakeholders.

More complex versions of CRA can deliver a wide variety of reputation feedback based on a great number evaluation factors. However, where a large quantity of the factors are utilized, the set of results may be far too large to clearly convey any actionable recommendations.

At the board level, where reputation management responsibility should reside, there are two major weaknesses with CRA. The first one is that the board may be the last to receive early warning signals about factors affecting the firm's reputation. Second, the information they receive is filtered through managers and/or external service providers. This then impacts the practicality of the CRA output for the board.

Reliability of Results

Generally CRA begins with the use of focus groups to select the appropriate factors for analysis. The inherent weakness in using focus groups is that the research analysis can never be replicated. The results of CRA must be taken for what they are—that is, a record of the perceptions of the stakeholders questioned at the particular time of the analysis.

The second step of the CRA process frequently involves the use of private information to evaluate the firm on the selected factors. This private information usually comes from internal research done by private institutions, for example through personal interviews, Internet or telephone surveys. These methods not only provide information, which may be subject to privacy regulation by law, but they are not necessarily verifiable information sources either.

Because CRA results in information that cannot be verified or replicated, any changes in any given factor over repeated application of CRA cannot be proven to be significant. Statistically, the only way to show that a change is significant is to show that the research can be verified and repeated.

Return on Investment

After conducting CRA, executives within a firm must use the information obtained in some form or another. Usually the public relations department of any given firm will be directly responsible for the management of a firm's reputation. Any action taken on the basis of information obtained by CRA may, however, be limited by funding. Generally, then, it is difficult to guarantee specific returns from spending funds on public relations activities.

As a general rule, investing more equates to realizing more value; however, any public relations exercise is subject to extraneous information interfering with its message, and so spending on public relations cannot guarantee positive results for corporate reputation.

Process for Applying the Technique

Unlike many forms of strategic competitive analytical techniques, CRA can be very simple or quite complex. Simple CRA can be done virtually by anyone interested in a firm's image among its stakeholders. However, more complex forms of CRA—ones that evaluate an extended number of factors—require knowledge of and experience in descriptive research methods. Expertise is needed in all areas of the process, including data collection, coding, and interpretation. Mistakes in any one part of the process may compromise the integrity of the entire exercise.

Because the method is so simple as a concept, there are many different processes that can be used to effectively conduct CRA. These processes include the following:

• Reputation Quotient
• Focused CRA
• Media ranking and monitoring
• Reputation management

A single firm looking to gain insight into its reputation may use one form, while the popular media rankings, which rank several firms in various industries, use another. These media rankings require the CRA to be much more standardized because of its application over a wide selection of firms and the need to communicate results to a wider audience.

Reputation Quotient

The Reputation Quotient was developed in 1999 to try to standardize CRA. The need for the Reputation Quotient arose from the wide range of non-standard methods that existed prior to its formation and the narrow bases used in some corporate reputation research. Marketing research firm, Harris Interactive, worked with Charles Fombrun to create a standardized process that would overcome the inherent biases of different rating systems in use at the time.

The first step in developing the Reputation Quotient was to ask focus groups from a variety of industries to nominate the firms that they either had very positive or very negative perceptions of. The results were analyzed, and it was discovered that these selections were based mainly on 20 attributes from six given dimensions.

These six core dimensions can be described as follows:

• Emotional appeal—Evaluators tend to rate a given firm very well if they have gained some sort of emotional attachment with the firm. The results are based on how much the firm is liked, admired, and respected by each given stakeholder.
• Products and services—Better-regarded firms appear to earn reputation by offering better quality and more innovative products and services. Their reputations may suffer when they produce controversial products (for example, tobacco, alcohol, nuclear energy, weapons, or unhealthy foods).
• Vision and leadership—Better-regarded firms are those demonstrating clear vision and strong leadership and are also expected to establish an organizational infrastructure that supports not only equality of opportunity and diversity, but also one that stimulates improved ethical behavior.
• Workplace environment—Evaluators favor firms that offer greater job security, better relative pay and conditions, have good labor relations, employee stock ownership, and profit sharing. Employees demonstrate pride in their work and have regular and close contact with top management.
• Social responsibility—Firms with a good reputation for their community involvement appear to make more charitable contributions, are more philanthropic, encourage more employee volunteer programs, and have greater local economic impact (tax revenues, jobs, and investments).
• Financial performance—Evaluators attempting to judge a firm's social responsibility generally recognize the importance of the firm's financial health. Specific criteria used to judge financial health include profitability, earnings growth, earnings per share, and return on investment data.

Table 17.1 illustrates the six dimensions with the 20 attributes.

Table 17.1
The Reputation Quotient

Source: Adapted from Charles J. Fombrun, Naomi A. Gardberg, and Joy M. Sever (2000). "The Reputation Quotient^SM: A multi-stakeholder measure of corporate reputation," The Journal of Brand Management, Vol. 7, No. 4, pp. 241–255.

This process can also be visually represented as in Figure 17.2.

Figure 17.2 The CRA process using Reputation Quotient

The type of CRA that utilizes the Reputation Quotient is directed more toward competitive evaluation of an industry or to compare the reputations of a nation's largest firms (across a variety of industries). The Reputation Quotient was not developed for individual firms undertaking simple reputation research. The aim of the Reputation Quotient was to allow for multiple evaluation criteria and introduce statistically valid and reliable analysis.

Since its introduction in 1999, the Reputation Quotient has been used all over the world and has been used to survey hundreds of thousands of people.

Focused CRA

A firm wishing to use CRA for its own strategic planning or competitive research will not require such detailed evaluation as the Reputation Quotient. As a general rule, the first step in conducting this type of CRA would be to identify which specific attributes to base the CRA upon. To do this, the consultant or team responsible for running the CRA would select a focus group to nominate key attributes or factors for the research.

A starting point for this process might be the list of 26 items that are consistently used in CRA, compiled by Craig Carroll and Maxwell McCombs. The items are basically derived from the core dimensions in the Reputation Quotient and could be used as a guideline for the focus group. Table 17.2 displays these popular factors, ranking them from most popular to least.

Table 17.2
Consistently Used Attributes in CRA

Source: Adapted from Craig E. Carroll and Maxwell McCombs (2003). "Agenda-setting effects of business news on the public's images and opinions about major corporations," Corporate Reputation Review, Vol. 6, No. 1, pp. 36–46.

The selection of the specific attributes by the focus group is the most critical step in the CRA process because it determines the grounds on which the firm is evaluated. If the wrong factors are selected, the end result, while not actually wrong, may not provide the type of strategic information the firm is looking for.

After a list of particular attributes has been finalized, the next step is to conduct a survey among the firm's key stakeholders. The individuals approached would be asked to rank each factor according to their own perceptions. Often statistical software will be used to interpret the data after a sufficient quantity of surveys have been carried out. This sort of statistical analysis allows the researcher or analyst to both filter and weigh the attributes and identify the key drivers of the firm's reputation.

Media Ranking and Monitoring

Media rankings of top-performing firms are still published every year. While these may not have a direct impact on the reputations of other firms, the information made available about leading firms may reflect on the general reputation of an industry and by extension on all participants in it. These media rankings are compiled using feedback from heads of industry and influential analysts.

Another form of reputation analysis available to firms is via subscription to a media monitoring service. Media monitoring sits somewhere between CRA and reputation management with the services it provides. These services provide information to firms about their reputation by monitoring mentions of the subscribing firm in the media and inferring the effect these will have on stakeholders. The service may also provide information comparing the subscribing firm's profile with that of its competitors. Usually the service will provide feedback on the effectiveness of particular public relations campaigns.

This sort of media monitoring role may also be undertaken within a firm. It will usually be undertaken by a firm's own public relations or communications department and often in conjunction with ongoing reputation management.

Increasingly, this style of monitoring extends beyond the traditional media and encompasses monitoring of the Internet, including blogs.

The information obtained from media monitoring is used to help focus future communication and public relations strategies on areas requiring reputation improvement and/or on differentiation strategies.

Reputation Management

Once reputation analysis has been carried out, the next step is to translate the findings into action by developing a longer-term strategic management plan to maintain/improve corporate reputation based upon the results. Ongoing reputation management is usually the responsibility of the company's public relations or communications department and will include both management and monitoring functions. Other strategic competitive analytical techniques may also contribute valuable information to the reputation management process.

There are five principles that have arisen in the conduct of CRA, noted by Fombrun and Foss, which may be used as a guide to implementing effective reputation management. These guiding factors are as follows:

1. The principle of distinctiveness.
   This is also called differentiation. A firm that owns a distinctive position in the minds of stakeholders will have a strong reputation.
2. The principle of focus.
   A firm that concentrates its communication with stakeholders around one central theme will have a stronger reputation. The firm may choose to emphasize its national loyalty, its financial strength, or perhaps its trustworthiness.
3. The principle of consistency.
   A firm that is consistent in its actions and communications to all stakeholders will have a strong reputation. This means a holistic approach should be taken to the image of the firm communicated by each internal department to all different groups of stakeholders.
4. The principle of identity.
   A firm that wants a strong reputation must ensure that it always acts in ways consistent with the identity it communicates. Spin is anathema to reputation building, and in time all efforts to manipulate external images that rely purely on advertising and public relations fail when they are disconnected from the company's identity.
5. The principle of transparency.
   A firm with a strong reputation tends to be visible across all media, communicating in ways that show they are transparent in the way they conduct their affairs. Transparency requires a lot of communication, and firms must be willing to disclose more information about themselves and be more willing to engage stakeholders in a dialog.

These five principles give scope for the management of a firm's reputation. While each of the principles relates to reputation, principle 1 contemplates traditional competitive positioning in the marketplace; principles 2 and 3 focus on the unity of a firm's communications; and principles 4 and 5 look to ethics.

The scale of the reputation management undertaken by a firm will depend on a variety of factors—for example, how big is the firm and how many resources can be devoted to the reputation management function? The internal complexity of the firm's organization will also have an impact on how reputation management will work in practice. For example, where a large firm has separate public relations, marketing, sales, customer service, human resources, and purchasing departments, each of these will have a direct role in and impact on reputation management (see Principle 3).

It should be noted that not only will internal staff be responsible for managing the corporate reputation of their employer firm, but that the firm also needs to be managing its reputation with its internal staff.

In summary, reputation management is an ongoing process and includes

1. Measuring the reputation of the firm across key stakeholder groups
2. Prioritizing the reputation risks and developing protocols to handle these risks
3. Equipping and empowering line managers to deal with these risks
4. Creating ways to listen and communicate with stakeholders on an ongoing basis

Case Study

In 1995, Royal Dutch/Shell found its reputation in tatters after two publicity disasters.

Shell had planned to get rid of the Brent Spar, a disused oil storage platform, by sinking it in the North Sea. In 1995, Greenpeace protested the decision. Shell found itself the center of worldwide protests and boycotts, which cost the firm millions.

Also in 1995, nine environmentalists were hanged by the government of Nigeria because they had spoken out against the government and Shell for the exploitation of the Ogoni people in the Niger Delta as a result of oil extraction there. Initially Shell publicly refused to intervene for clemency on behalf of the environmentalists. It eventually did make an appeal to the government, but this was ineffective. Again Shell was the subject of costly international product boycotts.

The affects of these disasters not only cost the firm money, but also reputation.

In 1996, Shell started a process of consultation involving 7500 members of the public in 10 countries and 1300 opinion leaders in 25 countries. The review was to explore two issues:

• Shell wanted a better understanding of what the public expects from transnational companies (like itself).
• Shell wanted to understand what people thought of them. What was the standing and reputation of the firm?

The focus groups showed that a small but significant group of people thought that Shell was "wanting in its care for the environment and human rights . . . We had looked in the mirror and we neither recognized nor liked what we saw," Shell concluded in its 1998 report from the review: Profits or principles—does there have to be a choice?

As a result of the review, Shell took several steps to improve its reputation.

Shell redefined its corporate mission, strengthened management and reporting to prioritize social performance. Another strategy was to improve its communications with the public. Shell acknowledged it had misjudged public sentiment in the past and sought to avoid repeating its mistakes.

In 1997, Shell initiated a 12-member Social Accountability Committee, which put together a human rights "primer" for Shell managers to refer to.

The 1998 Profits or principles report put forward a plan by Shell to incorporate social responsibility into its corporate strategy. A follow-up report in 1999 reiterated this plan. It began to publish an annual People, Planet, & Profit report to communicate its social responsibility agenda and actions.

Shell's investigation into and management of its reputation has resulted in its rehabilitation in the public view and an improvement in its profitability. It has also positioned the firm as socially responsible, differentiating it within the oil market as a firm that is authentic and transparent in its communication.²

FAROUT Summary

Figure 17.3 Corporate reputation analysis FAROUT summary

Future orientation—Present to medium term. CRA only represents current views among stakeholders.

Accuracy—Medium to high. The statistical methods used in CRA can usually form a fairly precise depiction of the perceptions and images.

Resource efficiency—Low. CRA frequently requires the use of private panels, focus groups, and private information that cannot be verified or replicated.

Objectivity—Medium to high. Emphasis is placed on systematizing research methods.

Usefulness—Medium. The information that is generated is useful; however, only in terms of strategic plans to manage corporate reputation.

Timeliness—Low to medium. Basic CRA can be done in a very short period of time; however, reputation management is an ongoing process.

Related Tools and Techniques

• Competitive positioning
• Competitor analysis
• Critical success factor analysis
• Driving force analysis
• Industry analysis
• Issue analysis
• SERVO analysis
• Stakeholder analysis
• SWOT analysis

References

Carroll, C.E., and M. McCombs (2003). "Agenda-setting effects of business news on the public's images and opinions about major corporations," Corporate Reputation Review, Vol. 6, No. 1, pp. 36–46.

Coupland, C. and A.D. Brown (2004). "Constructing organizational identities on the Web: A case study of Royal Dutch/Shell," Journal of Management Studies 41(8), pp. 1325-1347

Dowling, G. (2006). "Corporate reputation risk," Company Director, April, Vol. 22, No. 3, pp. 42–43.

Fombrun, C.J., and C.B. Foss (2001). "The Reputation Quotient," The Gauge, Vol. 14, No. 3.

Fombrun, C.J., Gardberg, N.A., and J.M. Sever (2000). "The Reputation Quotient^SM: A multi-stakeholder measure of corporate reputation," The Journal of Brand Management, Vol. 7, No. 4, pp. 241–255.

Henderson, T. and J. Williams (2002). "Shell: Managing a corporate reputation globally," in Public Relations Cases: International Perspective, eds. D. Moss and B. DeSanto, London, UK: Routledge, pp. 10-26

Skinner, P. (2003). "Shell's bid to rebuild its reputation: Group Director Paul Skinner discusses the need for trust," Strategic Direction, 19(7), pp. 9-11.

Yearly, S. and J. Forrester (2000). "Shell: A sure target for global environmental campaigning?", in R. Cohen & S. Rai (eds), Global Social Movements, London, UK: The Athlone Press.

www.reputationinstitute.com

www.fni.no/pdf/FNI-R0103.pdf

Endnotes

¹ Dowling, 2006.

² Sources used for case study: Coupland & Brown, 2004; Henderson & Wlliams, 2002; Skinner, 2003; Yearly & Forrester, 2000.