New research shows that corporate reputation has never been more important as a health indicator for your organisation. Author Daniel Diermeier explains why.
Engineering managers should think again if they reckon a decent, healthy corporate reputation is a byproduct of good business practice, or a natural consequence of common sense and the willingness to do the right thing.
Anyone who thinks reputational crises that occur as a result of indifference or mismanagement can be passed along the responsibility chain to PR or legal departments can think again, too. According to Daniel Diermeier, author of 'Reputation Rules', this is a classic case of outdated thinking.
Diermeier believes that most companies have shockingly underdeveloped capabilities to manage their reputation effectively in a world where that reputation can be destroyed in seconds. Remember what happened with BP's approach to the Deepwater Horizon oil spill? Remember Toyota's recent product recall crisis? Admittedly some organisations handle such crises better than others, but according to Diermeier the dramatic rise in reputational risk is no accident. 'It is,' he says, 'driven by 24-hour media coverage, higher expectations of business conduct and the ever increasing power of the customer.'
And so Diermeier – IBM professor of regulation and competitive practice at the Kellogg School of Management and the director of the Ford Motor Company Center for Global Citizenship – set out to put the record straight in a new book that puts reputation back at the centre, where he strongly feels it belongs. 'It is based on a decade of teaching, research and consulting. It was stimulated by many conversations with CEOs that consistently mention reputation as one of their major concerns.'
Of course, this concern for the condition of our corporate reputation is nothing new. Where Diermeier's book differs from previous publications on the subject is that it focuses on the role of the manager. 'Most other books view reputation management through the lens of corporate communication,' he says. 'But mine examines the role of the business leader that has responsibility for a product, business segment, or business.'
From this perspective, he adds, it becomes clear that reputation management needs to be treated like any other major business challenge: based on principled leadership and supported by sophisticated processes and capabilities that are integrated with the company's business strategy and culture.
The problem with this approach for many managers will be that reputation as a barometric reading of your company's long-range forecast might seem somewhat nebulous. After all, we're in the middle of a global economic crisis that's showing few signs of sustained recovery.
As we obsess about the bottom line, quarterly figures and trying to deliver something to our shareholders, it's tempting to think of something so abstract as 'reputation' as marketing veneer. It's not the real substance of your business and delivers nothing tangible. Diermeier disagrees: 'reputation management is frequently viewed as a sub-function of corporate communication. According to this view, reputation management is all about talking and spin. Real reputation management goes beyond talking and is deeply integrated into a company's strategy, processes, and culture.'
To prove his point Diermeier uses a wide range of real life business case studies to demonstrate methods that have already proved effective. He offers the frameworks, strategies and processes for changing focus quickly. He discusses the reputational issues that need to be implemented as part of a broader strategy, describing how to: overcome direct challenges from influential activist and political forces; manage corporate scandals, including executive compensation; use external, seemingly unrelated events to boost reputation; build a reputation management process into everyday operations.
One of the most fascinating case studies presented is that of RC2, the company that manufactures Thomas the Tank Engine toys. Finding that their subcontractor in China had used paint that might have been lead-based, RC2 was forced to recall 1.5 million units. When angry parents demanded refunds, they were told to send the products back for a replacement Thomas and a free gift. The problem was that the replacement Thomas was also a recalled product that may have contained lead-based paint and the media had a field day.
Diermeier explains that it was only after a class action lawsuit for $30m was settled that RC2 was required to offer a cash refund, but by this time the damage was done. Not only had RC2 handled the crisis badly in PR terms, but it had also committed a cardinal error in reputational management: it blamed someone else rather than simply correcting the error.
The parents really didn't care that it was the fault of a sub-contractor in China. What they were worried about was whether little Johnny had been poisoned. 'The customers felt a sense of betrayal, even if the actions causing the breach were strictly-speaking beyond the control of RC2.' The company failed to recover from the Thomas crisis and its stock price languished at around a third of its pre-crisis value. Understandably, the author's verdict on how RC2 managed its reputation is 'negative'.
A much more positive case study shows how Calgene carefully stage-managed reputational considerations to create success for a product that, if handled badly, might have caused controversy. Calgene is the producer of the 'Flavr Savr' tomato, that won't soften as it ripens. The organisation went beyond the call of duty in getting the FDA (US Food and Drug Administration) to rule on the safety of the technology it was using – a step it wasn't legally required to take – before sharing the results with the Department of Agriculture. It then spent months educating the public about the product prior to release, and when the tomato hit the market it was a success.
This Diermeier attributes to proper planning, as well as 'the decision to emphasise the public benefit of their product – better flavour, longer shelf-life – as opposed to the cutting edge nature of their technology.'
What's interesting about these two case studies is that both could have so easily gone the other way. RC2 could have rescued the situation by anticipating the inevitable outcome of the lawsuit, while Calgene could have caused concern over what might have been seen as a 'Frankenfood'.
The essential difference is in approach. While readers may be tempted to think that this is simply the application of good business practice and common sense (which is where we started), it is actually much more fundamental than that. It is the result of having (or not having) a strategic approach to centralising reputational management in your corporate ethos, rather than passing it along like the proverbial hot potato. Diermeier's research has confirmed this, and his excellent new book should be required reading for all engineering managers, whatever the size of their company, whatever products or services they supply. *
'Reputation Rules', by Daniel Diermeier is published by McGraw-Hill, £23.99