By Professor Paul A Argenti
Untangling the complexities related to brand, identity, image and risk
Written by Professor Paul A Argenti
Because reputation is the most valuable asset that any organization has, we focus on that topic in the first term of the MBA program in my required general management class at the Tuck School; we get back to it again as part of my Corporate Communication elective for second-year students. We also run an executive program on Brand and Reputation and teach about reputation in several other public and custom programs for companies.
My teaching is based on both decades of research in this area as well as hands-on consulting with clients. Perhaps the most important contribution that we make for students is to define terms that are often confusing in a way that makes sense in a business environment. The first bit of confusion that exists around reputation is how it differs from brand. Very simply, I see reputation as an outcome and brand as an input. You create a brand and earn a reputation.
I also see so many companies wrestling with how to “manage” their reputation, but how can you manage something over which you have no direct control? Sophocles answered this question over 2000 years ago when he said, “Endeavor to be what you desire to appear.” It really is that simple.
The only elements over which an organization has control are what it does and what it says; yet many managers seem to believe that communications can mask the underlying problems that exist in their business. Corporations, just like people, have a real identity with names, locations, uniforms, products, brands, etc., which they can communicate about to a variety of constituencies. Each of those constituencies then reacts to that identity, reflects on it, and sees an image of the organization’s reality. The collective images of all constituencies thus determine an organization’s reputation. If the identity lacks coherence, or if the communication to constituencies is not aligned, corporations will have a hard time convincing employees, customers, shareholders, and communities, among others, that they are worthy of their trust.
Finally, very few companies understand the power of assessing reputational risk as a way to both enhance reputation and avoid crisis. Most companies have fairly sophisticated systems in place for assessing organizational and financial risk, but few are as good at assessing the key reputational risks for the firm. I, therefore, teach that every organization should ask two simple questions that would help minimize reputational risk and avoid crisis: First, what is the organization doing that they should not be doing, and second, what aren’t they doing that they should be doing? In answering these questions, the firm should come to the conclusion that it is not worth cutting corners for short-term gains, but better to do the right thing to succeed in the longer term.
The way I teach and consult with clients about reputation first involves getting them to understand the underlying framework related to identity, image, and reputation.
Once they see how important the actions of the organization are in shaping reputation, I usually ask them to think about three key questions related to their organizations:
- What are the key reputational issues for your organization?
- What are the potential reputational risks for the organization?
- What are the opportunities for the organization from a reputation perspective?
We then move on to a discussion of what makes for a good reputation and why it matters so much today. In terms of the former question, the research I have done confirms what others (including The Reputation Institute and Edelman, through its Trust Barometer) have discovered, which is that the key factors in building a strong identity that will ultimately lead to a strong reputation include:
- Communicating frequently and honestly on the state of the business;
- Producing high-quality goods and services;
- Treating employees well;
- Committing resources to the greater public good;
- Admitting mistakes;
- Facing critics head on; and
- Clarifying in a crisis how the future will be different.
Our research also shows that companies with better reputations have a price advantage, a competitive advantage, and greater stability than firms with a weaker reputation. Ultimately, reputation is a source of value to a firm and its most valuable asset. As Warren Buffett has said, it takes 20 years to build a reputation and 10 minutes to lose it. If you think about that every day, you might do things differently.
The key to my teaching is using examples from both my research and consulting to drive home how the theory applies in practice. Two positive examples that I have both written about and teach in my class are Coca-Cola around its use of water and CVS and its sale of tobacco. Both companies got out in front of a problem before anyone had an opportunity to criticize them. In Coca-Cola’s case, they use a significant amount of water to make Coke. This is unsustainable in a world where the water supply is likely to become an issue globally. As a result, they teamed up with the World Wildlife Fund to work on a way to put all of the water back into the system that they take out. Similarly, CVS decided to get rid of tobacco in its stores before laws changed that would have forced them to do so anyway. Both of these cases show how you can create an opportunity platform out of what could be a huge reputational risk.
In terms of negative examples, there is an endless supply from which to choose every year. Recently, I have been talking about General Motors and its issue related to recalls. Rather than getting ahead of the reputational risk, as Coca-Cola and CVS did, GM hid its problems with ignition switches for over a decade. As a result, at least 13 people died, and the company has recalled millions of cars—in fact, more than it has made in the last seven years. In using this example, I try to get students to think about what it would be like to be Mary Barra, GM’s CEO, who is struggling with this issue right now. Wouldn’t you rather be out ahead of the problem rather than trying to defend your company and protect its reputation?
I also use current news examples to get students to think about the ramifications of their actions on the firm’s overall reputation. Recently, for example, I have asked students to think about the two problems that Malaysia Airways has had to deal with. In the past, I have also written cases about Carnival’s Costa Concordia accident and Toyota’s instant acceleration issues as ways to think about reputation.
Ultimately, I teach students about reputation because I strongly believe that organizations need to stop neglecting the risks or, worse, being deceptive, and at least provide a safety net for their organizations in terms of reputation. But the best companies in the world, like IBM, Coca-Cola, and CVS, are now realizing that becoming a trusted reputational player offers a competitive advantage in a world looking for institutions it can count on for the long term.