What is company reputation?
A company's reputation exists in the minds of its stakeholders. It is the feelings they have about a company based on their perception of its actions, interactions and performance in the dimensions that matter to them.
Stakeholder perceptions can change with time, social context, and in response to significant events. This can lead to the belief that reputation must be approached reactively as it is too variable to manage proactively.
"While it's true that reputation can't be 'managed' in the same way as a brand, it can be built and leveraged proactively over time. This requires understanding different stakeholder needs, perceptions, and likely actions, and assessing whether and how to respond to those perceptions based on the social and financial value to the business."
A company's stakeholders are typically categorised into types (internal or external, direct or indirect, active or passive) and groups with similar needs and interests (employees, customers, government, community, and others). Not all stakeholder groups are created equal and some will have a greater impact on an individual company's reputation than others.
Understanding who the key stakeholders are for each company - what matters to them and their degree of influence on reputation - is essential to building a positive reputation proactively.
What does it mean to have a positive company reputation?
People often refer to a company having a strong or positive reputation, or a weak or negative one. When they do, they are talking about a company's overall reputation.
A company's overall reputation is based on stakeholders' feelings and perceptions about a brand accumulated over time. It can be formed through direct experience, or indirect encounters, and range from strongly positive, through neutral, to strongly negative. The more direct interactions a stakeholder has with a company, the more their perceptions are likely to skew towards either end of the spectrum.
A strongly positive overall reputation is founded on congruence. It's when stakeholders consistently experience a company doing what it promises to do. This leads to trust and credibility.
While having a strong reputation can contribute to a company's financial value , it not sufficient in itself to maximise financial value.
It is our experience that a strong overall reputation must be proactively leveraged to 'unlock' its full potential for value creation.
Amplifying and leveraging the value in a company's positive reputation is at the heart of proactive reputation strategy. The first step is to identify the reputation drivers that matter most to a company's key stakeholder groups. Then, these are matched with the reputational strengths of the company and the particular activities the company undertakes that provide the most value. The right specific reputation to amplify and strengthen is found at the intersection of these data points.
Crucially, a company's specific reputation must be authentic. The practice of 'reputation washing' to artificially gain favour among a particular stakeholder group is a significant reputation risk for brands.
How do you build reputational value?
An Australian study from 2006 found no causal link between a strong reputation and financial performance for Australian companies at that time. The author acknowledged that several other studies had shown a different result. He posited that understanding how to leverage a strong reputation could be the missing link.
"Leverage management is a missing intermediary factor between reputation and financial performance." (p10) "The resource that is reputation needs to be exploited if it is to yield financial results. Having the resource is not enough; it needs to be managed well" (p14)
A 2020 study by Senate SNJ and the Governance Institute of Australia found that the vast majority of Australian companies surveyed now understand that reputation is a 'primary asset' (95%). It also suggests there is still a missing link between having the asset and maximising its value.
"The dissonance between understanding the importance of reputation and the actions needed to actively invest in building and protecting reputation identified in previous Reputation Reality studies still exists" (p1).
There is growing evidence that other countries are ahead of Australia in this regard. Studies from Europe, the UK and the US suggest that 'forward-thinking' companies have moved from understanding the need to build reputation proactively, to understanding the method of doing so. Research conducted in 2016 with 200+ companies across the UK and Europe noted:
"Some forward thinking companies had grasped this reality and are focused on reputation [as an] opportunity to create business value...The results of our study suggest that the most forward-thinking organizations are positioning their entire organization to build reputation proactively." (p1).
It appears that Australia lags behind some other countries in acknowledging the need to build and leverage company reputation proactively, and even further behind in determining the method of doing so.
This means Australian companies are missing valuable opportunites to unlock existing reputational value and build on it further. For Australian companies to compete in an increasingly global market, this needs to change. Doing so requires a deeper understanding of reputation and its ability to create business value.
Reputation Sherpa is focused on helping Australian companies to elevate and leverage their reputation through the power of Proactive Reputation Building (PRB™).