john dalton

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John Dalton, Director of LSPR Worldwide

REPUTATION MANAGEMENT:The business context

May 20th, 2005

REPUTATION MANAGEMENT: The business context JOHN DALTON LSPR Worldwide

Financial performance and capital

Customer benefits

Tangible assets

Intangibleassets

Human/Structuralcapital

Stakeholderengagement

Culturevalues

Businessprocesses

Adapted from: Intangible Assets:

J. Daum; Wiley, 1999

REPUTATION: “If we picture a company as a living organism, say a

tree, then half of the mass or more of that tree is

underground in the root system. And whereas the

flavour of the fruit and the colour of the leaves provides

evidence of how healthy that tree is right now,

understanding what is going on in the roots is a far

more effective way to learn how healthy that tree will be

in years to come”

Leif Edvinsson and Michael S. Malone; Intellectual Capital


REPUTATION: An Overview• Hill and Knowlton’s Corporate Reputation Watch 2004 Survey: Some

key findings

www.hillandknowlton.com

• 93% of senior executives believe that customers consider corporate

reputation important or extremely important

• 79% of senior executives believe that investors and lenders consider

CR either important or very important

• The impact of corporate governance has increased dramatically

since 5 years ago: now 40% of senior executives believe that strong

corporate governance is a critical factor that potential investors

consider before committing, whereas 5 years only 19% thought the

same.REPUTATION MANAGEMENT: The business context JOHN DALTON LSPR Worldwide

http://www.hillandknowlton.com/



REPUTATION

• A firm is defined by its relationships and contracts: sustainability is the law

• Need to reaffirm the purpose of a firm – serve the customers’ needs and not just maximize shareholder returns

• Key ingredient is reputation – asset in its own right


The Blind Light of Success

• Most data available on reputation are about success – very little on failure

• Failure is endemic and pervasive• Yet we can learn more from failure than

success• Assumption of continuity – when we

should appreciate the notion of discontinuity “know your market”


Problem with Selection Bias

• Selection bias is inherent in most marketing and corporate strategic data

• The issue of reverse causality

• WWII Planes !


Reputation and the Market

• Of 500 companies originally making up the S & P 500 in 1957, only 74 remained on the list in 1997, and of these only 12 outperformed the S&P index

• Companies are too busy focussing on operations, not innovation

• Most corporations are absorbed, bought out or die


Gales of Creative Destruction

• Behaviour in markets is not fixed; control and prediction of the system is simply not possible

• Companies suffer both internal and external shocks

• Need to destroy and create:

Monsanto - chemical to biotech

Duracell - private venture capital

IBM - Mainframes to business solutions


The Market Place

Firms Capital Markets

Emotion No

Vision and leadership No

Assumption of continuity Discontinuity

Corporate culture No

Lock-in strategies No

“Visible hand” “Invisible hand”

Need to understand the market place


What is Needed?• Develop an adaptive brand

• Constant renewal: creative destruction

• Less reliance on lock-in, military-like strategies

• Innovation: incremental and transformative

• Adoption of enterprise risk management (ERM)

• Key people

• Understand and exploit the values of intangibles

• Control the Internet and technologies

• A real understanding of stakeholders’ needs


Who are the Survivors?• J & J*

• GE*

• L ‘Oreal

• Hewlett Packard

• Pfizer*

• UPS*

• Exxon Mobile*

* Triple AAA rating on Moody’s and S&P 10th May


INTANGIBLESMarket Capitalisation Brand

Reputation

IP

Customers

Employees

Innovation

Organisation structure

Book value ___________ $

* The above would also be affected by other variables including

macroeconomic factors, shareholder sentiment and market speculationREPUTATION MANAGEMENT: The business context JOHN DALTON LSPR Worldwide

INTELLECTUAL CAPITAL

Market Value

Financial Capital

Intellectual Capital

Human Capital

StructuralCapital

CustomerCapital

OrganisationalCapital

MARKET VALUE


INTANGIBLESMarket to book ratio:

Dell – 17.5

Pfizer – 18.2

• Capital is now not just financial – it is anything that adds wealth and value

• Back in 1999, only 6.6% of Coca-Cola’s market capitalization was reported as book value


PR AND REPUTATION

PR REPUTATION

Desired image Vehicle of promise

Delivery of promise

BRAND


Traditional PR

• Less strategic

• Non-integrated

• Focus - short-term

• Key people involved

• Aims to give the best possible image

• Media relations focused

• Focus on transactional stakeholders

• Strategic in nature

• More integrated

• Holistic - long-term

• Involves all employees

• Aims to deliver an image and brand promise

• Uses all forms and opportunities to communicate policy and values

• Greater emphasis on multiple stakeholder relationships

1980s, 1990s, 2000 2010

Reputational Management


The Business Case for Reputation

• Links between reputation and financial performance are not easy to generalize about – evidence to date unclear and inconsistent

• Question – how do you measure and what?• Mathematical co-relations do not necessarily

demonstrate causality • The question is complicated and

multidimensional


Ocean Strategies

• Use of disruptive technologies and ocean strategies

• Leverage something you know: develop and invest in the core

• Embrace the notion of “creative destruction”


How to Develop a Reputation

• Quality of products and services• Passion for brand• Customer relationship marketing• Strong corporate governance and compliance• Integrated risk and issue management• Crisis planning• Corporate responsibility (CR)• Strong brand values and communications• Organisational culture and structure• Contract fulfilment• Business presentation and conferences• Customer facing staff


How to Develop a Reputation

• Innovation: incremental, substantive and transformative• Vision and leadership by CEO• Investor relations and public affairs• Intelligence gathering • Developing media profile • Adaptive and ability to reinvent• Community relations• CEO’s reputation• Core competencies• Establishing networks and alliances• Understand the market• Develop brand experience: “moments of truth”


John Dalton,

Director of LSPR Worldwide

[email protected]

john dalton

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