Reputational prescience: seeing crises before they happen
Companies are increasingly aware of the fragility of their reputations. With large scale corporate disasters such as those that have befallen BP (criminal negligence), Toyota (product recall), Barclays (industry offer rate manipulation) and now G4S (high profile failure to deliver) this is no surprise. In response, of growing importance is a holistic and strategic approach to brand communication which takes account of two overlapping trends. Firstly, the walls between communication channels have eroded. The rise of social media has meant that messages can no longer be contained to specific audiences; stories can spread ‘virally’ across interest groups and geographies in minutes. This can cause problems in crisis situations because, as Mark Twain is once said to have stated, ‘A lie can travel halfway around the world while the truth is putting on its shoes’.
Secondly, technology has created a legion of budding journalists. News can be reported and transmitted by bystanders. An increasingly symbiotic relationship between social and traditional media means that many ‘user-generated’ stories go main stream; in the past they would have gone unreported. Guests at a UK pub industry awards ceremony in May 2012 found out that a representative of a drinks company had effectively vetoed a rival company’s award by threatening to cancel all future sponsorship. The news spread by social media and was widely reported in mainstream media, ultimately forcing a company apology.
Reputational problems can catastrophically come to a head when a crisis erupts. However, by this stage the opportunity to minimise reputational damage is significantly diminished. If management had made their decisions earlier with the corporate reputation in mind, then problems might have been reduced, or even never have arisen.
What stops reputations being a constant management priority?
Given the potential for harm, what prevents reputations being a constant management priority? A number of factors prevent organisations from fully applying the discipline of what has been called reputation management and integrating communications considerations within the umbrella of the brand. These include the following:
Internal factors dominate decisions
In many cases, key internal decision making criteria and behavioural practices do not explicitly recognise reputational considerations, especially stakeholder interests and their potential reaction. The management systems dealing with risk, safety, operational and investment decisions can frequently adopt an overly insular view and fail to consider stakeholder reaction to management action (or inaction). This can occur where managers are insufficiently aware of stakeholder relevance or influence. In such circumstances, decisions that appear to make perfect sense from the narrow perspective of a business plan, or of financial performance, can create unintended brand damage.
Lack of understanding of corporate brand image
Brand owners often have an incomplete understanding of their own brand image and the context in which it operates. Aside from considering the actual impact of actions on specific stakeholders, brand owners can fail to understand how their brand itself is perceived. This can be particularly problematic when trying to establish credibility on specific issues or project certain values. An idealised projection of a brand image that falls far from the audience’s actual perceptions creates a credibility gap that leads to the rejection of messages. In January 2012, McDonalds launched a Twitter campaign which promoted the quality of their raw ingredients; it was rejected by negative public sentiment and ultimately dominated by the animal rights group PETA. The campaign lacked credibility with its audience. By contrast, similar campaigns by brands such as M&S have achieved greater acceptance through building on the credibility and consistency of its brand.
Organisations often do not do enough to create robust and consistent foundations to develop a positive reputation. There is a contradiction between the growth in sustainable practices and the ongoing decline in institutional trust. While progress has been made, many organisations continue to be accused of ‘green wash’ i.e. presenting a biased view of their performance against organisational values, environmental and social practices. Organisations need to ensure that their actions are consistent with their values. Smoothie maker, Innocent, recognised that a big concern among its consumers was the waste created by packaging. It also knew that its brand success was strongly linked to the projection of its own ethical values. It focused heavily on developing packaging made of recycled material, with considerable reputational success.
Towards better reputation management
This all points towards more thought being given to the development of corporate reputations and companies need to take a much more considered and proactive approach to managing their reputation. Attention is required in three linked areas: Capabilities: has the organisation developed the appropriate practices and personal accountabilities to ensure that reputational factors are considered in management decision making?; Reputation: does the organisation understand its brand profile, how this differs by stakeholder group, and what pressure issues are relevant now and in future? Has the organisation decided how it wants to be perceived, and identified the ‘reality gap’ between this and its current status? Implementation: does the organisation understand the ‘proof’ that it must develop to meet desired perceptions, and ideally tested or gained endorsement of these positions among stakeholders to ensure maximum impact?
- Brands today are constantly under observation and review
- Proactive management, rather than reaction is called for
- Reputation management needs to be embedded across the organisation
A strategic approach is required to preserve and develop a company’s reputation. This is much more than narrow risk management or simple damage limitation. It is about ensuring the organisation’s messages are both credible and appropriately tested. The value of reputation is considerable, and is realised in terms of brand equity, share price, and even regulatory goodwill. The cost of failure to manage your reputation in a coherent way could threaten the existence of your company. This is a senior management decision, not one to be left to specialist marketing or public relations specialists.
Nick James is CEO of Westra Communications and a Cranfield MBA alumnus. Paul Baines is Reader in Marketing at Cranfield School of Management.