Putting a price on reputation - If reputation is so closely linked to a company’s financial performance, is there now a case for introducing a ’reputation’ manager or department to manage it? Kate Nicholas reports

The position of public relations in the corporate hierarchy has been one of the key issues driving the professional standing of the industry.

The position of public relations in the corporate hierarchy has

been one of the key issues driving the professional standing of the

industry.



All signs are that corporate communications advisers increasingly have

the ear of the chief executive and are actively helping to shape company

policy. But last week saw the publication of a new Management Today

report ’What Price Reputation?’ that challenges PR’s right to be the

future custodian of a company’s reputation.



The report, jointly written by marketing journalist Louella Miles and

Professor Gary Davies of the Manchester Business School and sponsored by

Fleishman-Hillard International, claims that the various elements that

build a company’s reputation are so wide-ranging that they extend beyond

the domain of the corporate communications director. According to a

special survey conducted among Management Today’s list of Britain’s Most

Admired Companies for the report, most corporations believe that the CEO

should ultimately be responsible for reputation management. But in

reality, the vastly complicated task of monitoring, pre-empting,

measuring and communicating all aspects of reputation cannot be left to

the CEO alone.



Judging by the survey, it is the corporate communications director that

is currently responsible for the day-to-day management of reputation,

but Davies believes this situation is no longer viable. He argues that

given the complexity of today’s commercial environment, ’PR’ is now an

inadequate term for the activities which now fall within the scope of

reputation management, and that there is now the potential and the need

for a ’reputation manager’ or a separate ’reputation’ department within

a business. Davies envisages such a department or function having an

input to issues as wide-ranging as monitoring the share price, customer

satisfaction and perceptions, as well as monitoring and managing company

culture, implementing changes to that culture, overseeing recruitment

strategy, environmental management and design.



Aimed at general management, the report provides a valuable overview of

the reputation management debate. The authors talked to a range of

international companies including Marks and Spencer, Monsanto,

Anheuser-Busch, Pret a Manger, Safeway and Italian retail chain Standa

in an attempt to define the factors that make up a company’s reputation.

They addressed issues such as how reputation can be managed by large

organisations operating in more than one country, whether there is a

correlation between a company’s reputation and financial performance

through to the crucial question of putting a value on that

reputation.



In the poll, 66.8 per cent of business managers agreed that corporate

reputation and financial results are correlated, while a further 51 per

cent agreed that ’improving reputation improves corporate profits.’

Service businesses were more likely to see reputation and profitability

as issues of equal weighting in the measurement of business success,

while those in manufacturing were more likely to believe that

profitability enhances reputation. Of those companies profiled, the

Co-operative Bank was one of the few to have gone one step further and

consciously focused on its reputation in the belief that it would

increase its long-term profitability.



In general there was an ambivalence among companies questioned as to

whether the finance department should even be kept abreast of

communication issues. While a large number of companies believe that

there is a link between reputation and profitability, Miles and Davies

found it hard to unearth scientific proof.



It is precisely the range of factors impacting on a company’s reputation

that makes it so difficult to measure. A majority of companies

questioned for the report scrutinise the media, but so far few attempts

have been made to effectively link media analysis to other elements of

the company’s reputation.



Some companies are moving in the right direction. Barclays Bank has been

measuring consumer attitudes towards its ’brand’ for the past

two-and-a-half years and next year plans to introduce changes to the

tracking mechanism which will reflect Barclays’ reputation, covering

areas such as trust, worldwide presence, accessibility and

approachability. Over the past year the Post Office has also embarked on

an attempt to define its multi-faceted reputation which encompasses the

Royal Mail, Parcelforce, Post Office Counters and Subscription Services.

Italian retail chain Standa even claims to have come up with a formula

for isolating the various strands that go to make up its reputation

encompassing advertising, direct marketing and staff training (see

panel).



The various case studies in the report, point to staff - their

recruitment, training, performance and retention - as the key factor

shaping most companies’ reputation. Other key factors quoted include

quality of products and services and innovation, followed by issues such

as management quality, financial soundness, long term value, quality of

marketing, interaction with community/environment and the use of

corporate assets.



In the report Davies divides these elements down into personality (the

characteristics that make a company what it is), image (the way the

company packages itself) and identity (the impression perceived by

others). He argues that the ideal for any company should be to close as

many of the gaps as possible between these three elements, ensuring that

a consistent set of messages goes out to each of the separate

stakeholders.



’A business can have the best PR team in the world but all their efforts

will be for nothing if stakeholders start to believe the image being

promoted is a mirage, that the true personality is not what it should

be,’ writes Davies - a message close the heart of most corporate

communications directors.



Many believe that the key to encouraging this closer relationship

between a company’s image, identity and personality is the ability to

quantify in some respect the influence of all these aspects on the

bottom line - to put a price on reputation. But the problem with trying

to calculate a value for reputation is that there is neither a foolproof

method that can be used by every business nor a method that is

acceptable to the accounting profession for inclusion in any statutory

reports. Miles writes: ’One of the most frustrating elements of writing

this report has been the lack of a generally acknowledged measurement

tool kit for senior managers on all aspects of reputation management.

Companies want to know that if they press this button, there will be

this effect. Unfortunately, reputation is too complex a subject to

oblige.’



The question also remains, as to what infrastructure is best suited to

manage a company’s reputation and what will be the links with those who

formulate business strategy. Davies agrees that any solution will need

input from communications specialists, as well as from marketing, human

resources, finance and market research operatives to name but a few.



But while this call for a wider-ranging function would be welcomed by

most PR professionals, the concept fails to take into account the

current scope of much corporate communications activity. The report it

could be argued takes a rather limited view of PR, not fully taking into

account the considerable involvement that PR practitioners already have

in investor relations, internal communications and change management. It

is possible that the problem comes down to that old semantic question of

PR versus corporate communications or now reputation management.

However, it is now up to PR practitioners to ensure that the full scope

of their expertise is recognised and to thereby claim ownership of a

function that is rightly theirs.



The Management Today report What Price Reputation? (priced at pounds

450) is available from Morice Snell-Mendoza on 0171 413 4412



CASE STUDY: Standa finds a standard



In the report ’What Price Reputation?’ Professor Gary Davies of

Manchester Business School proposes a model that values a company’s

reputation as worth approximately one year of its turnover. His theory

is based upon the calculations involved in the issue of licensing a name

to third parties, plus a comparison between the market value of a

company (if it is quoted) on the stock exchange with the net book value

in its annual report and accounts.



As Davies points out, to claim that the report has established an

unchallengeable formula for the calculation of the value of reputation

would be an exaggeration, but his analysis provides a useful benchmark

against which companies can develop and test their own formula. Of those

companies profiled by the report, many refused to comment on their own

theories on the basis that the information was too competitively

sensitive. Both Anheuser-Busch and Barclays for example have dedicated

substantial resources to measuring aspects of their reputation, but

Stefano Ferro, CEO of Italian retail chain Standa, was one of the few

respondents to claim some attempt at measuring the monetary value of his

company’s reputation.



Ferro estimates that the value of Standa’s reputation will be one,

possibly two years’ turnover, and that its spend in this area will

represent 15 per cent of its marketing budget. This estimate is based

upon a continuing tracking of sales and awareness, plus attitudes to

various changes, such as its 500 billion lire refurbishment

programme.



According to Ferro, this research has shown that, store by store, when

the impact of Standa’s reputation was greater the profitability of the

store increased. He believes he can prove that the combination of the

contrast between the old and new image, and the effect that positive

expectations have had on reputation has boosted profitability.



’Twelve months into the refurbishment programme, we will be able to say

that this relationship exists and will be able to multiply and reproduce

this type of approach,’ says Ferro. ’We are using a mathematical

evaluation process and trying to avoid any compromise with the past in

order to identify exactly what level of change is generating more

profitability and which type of change is adding credibility, value - in

a word, reputation - to the brand.’



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