It’s the reputation, stupid!
8 reasons why companies can no longer do without Reputation Management
Against the Background of faster and more diverse information availability in a globally operating media society, largely saturated markets with mostly equivalent products and a global scarcity of qualified experts, companies are in fierce competition to retain employees and suppliers over the long term, to maintain the loyalty of customers and to convince investors to hold on to their shares for long periods of time.
The importance of reputation as an intangible corporate asset and a social orientation factor increases dramatically. This is due to the tension between the emancipation of customers and employees, on the one hand, and their lack of orientation due to a deluge of information and goods, on the other hand. This is because, for a long time now, product and price strategies have no longer been the only decisive factors in competition. Instead, the struggle to win the confidence of groups of stakeholders regarding a company’s competence, integrity, and attractiveness has increasingly taken centre stage. Already in 2001, Alan Greenspan had realised that: “Over time, and particularly during the last decade or two, reputation has become the most important corporate value”.
A well-managed reputation will:
- strengthen the trust of your clients in the company's products and statements
- increase costumer loyalty
- ease recruiting and keeping of qualified workers
- allow you easier access to foreign capital to a lower cost
- act as a magnet for investors
- have a positive influence on how much your company is worth
- give you a trust capital that you can refer to in case of a crisis
- guarantee you a favourable position in negotiation processes
But what is corporate Reputation?
According to the ECRS, the term “reputation” can best be understood as the sum of the expectations that the public—based on its direct or indirect experiences—places on the future behaviour of a company. Expectations that are fulfilled create trust, and trust, in turn, creates a positive reputation. The stakeholders’ expectations can be differentiated: a company must fulfil the expectations regarding not only its functional competence (economic reputation), but also its integrity (social reputation). In addition, a positive reputation means that the company must maintain a distinctive and emotionally appealing identity (expressive reputation). Consequently, reputation management is about adaptation (expectation management) and delimitation (identity management).
Can it be measured?
Studies have shown that intangible assets play an increasing role in the real value of a company. The New York University’s Stern School of Business recently published its conclusion on the comparison between the book value and the market value of US companies. The results are astonishing: from only 5 % twenty years ago, intangible assets came to represent 72 % of companie’s market value. It was the rise of what would soon be known as “soft finance”: financial departments all over the globe realised that the company’s intellectual capital, brand-recognition or reputation were value-generating assets that could not be ignored. Ever since, several measurement instruments have been developed to transform corporate reputation into a measurable indicator within the context of corporate management.
One possibility is testing how a company’s performance interacts with its reputation: recent studies by the ECRS and the Ludwig Maximilians University of Munich compared the portfolio of the top 25 % reputation leaders in Germany (according to a survey of the general public) with that of the DAX 30 companies, the stock exchange index in Germany. Every company had the same weight and the portfolio was adjusted for every new ranking when needed. The results show that investments in the portfolio of the reputation leaders outperformed the stock index by up to 45 %—at a lower risk.
Mark Eisenegger, Co-Head of he Research Institute of the Public Sphere and Society, University of Zurich
