Presented by:

John Dalton
Director of LSPR Worldwide

Financial performance and capital

Customer benefits Tangible assets Business processes

Intangible assets Stakeholder engagement Culture values
Adapted from: Intangible Assets: J. Daum; Wiley, 1999

Human/Structural capital



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   What does reputation mean to you? How much is your company s reputation worth? Can you measure and manage your reputation? How much of your organisation is made up of intangible assets? 4   .

Ghandi 5 .REPUTATION: An Overview  What one mistake do businesses keep making? Answer: Asking the wrong questions Issues facing business change little. but the answers do Ask not what I should be doing. but WHAT NEEDS TO BE DONE: source P. Drucker   We must become the change we want to see .

but corporate reputation must be earned What exactly does reputation mean? Various perspectives and meaning.REPUTATION: An overview  Corporate image can be created. both in a business and cultural sense 6   .

   7 .hillandknowlton. whereas 5 years only 19% thought the same.REPUTATION: An Overview  Hill and Knowlton s Corporate Reputation Watch 2004 Survey: Some key findings www.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.

co. followed by failure to change www. the insurance firm A o n po l l e d 2 0 0 0 t op U K s private companies and showed that loss of reputation was viewed as the greatest risk.aon.REPUTATION: An Overview  In 2001.uk 8 .

oil 9 .WHO IS AT RISK? You are at particular risk if you:  Offer life-saving or life threatening products pharmaceuticals or arms  Enjoy high. waste. alcohol. tobacco  Produce significant spill-over effects mining. mobiles  Confront changing social mores fashion. global brand awareness luxury brands  Are based on new technology GM.

GLOBAL BUSINESS CONTEXT Pluralism: over time markets are inherently entropic This leads to CREATIVE DESTRUCTION Sustaining a competitive brand now relies more on reputation than it did a decade ago: reputation is one of the key sustaining factors 10    .

Media distortion and anti-campaigning 4. Loss of authority from key institutions 3. Trustworthiness 1. Increased fraud reward based incentives 2. Growth of urban decay and ant-social behaviour 5. Poor corporate governance and corporate behaviour The Precautionary Principle 11 .TRUST: the engineering of consent Trust vs.

CHANGE IN ATTITUDES  In the Industrial age. inherent value cannot be as easily communicated in 5-10 sec commercial Therefore. products and services rely more on reputation the key vehicle for which is the BARND and its ability to create value 12   . the marketing model was driven by advertising For knowledge-intensive products.

not as value creating elements and stakeholders 13 . sustainability is the key Mobile phone industry is a classic example Old systems deemed employees as cost factors.CHANGING ATTITUDES    Corporate value can no longer be determined by short-term profit and sales Long-term.

CHANGING ATTITUDES Transition from the neo-classical economic theory to socio-economic theory stakeholders Triple bottom line and sustainability: Economic Social Environmental    Differentiate by behaviour 14 .

India) Enron (USA) WorldCom (MCI) (USA) Shell (UK) Nike (USA) Arthur Anderson (USA) Parmalat (Italy) Yukos (Russia) 15 .REPUTATION ICE BERG         Union Carbide (USA Bhopal.

based on their perception and interpretation of the image that the company communicates over time John Dalton Managing Corporate Reputation 16 .REPUTATION: An Overview Reputation is the sum values that stakeholders attribute to a company.

REPUTATION: An Overview Reputation is the principal means through which a market economy deals with consumer ignorance Professor John Kay Reputation exists because of asymmetric information 17 .

REPUTATION: An Overview Reputation is a collective term referring to all stakeholders views of corporate reputation.expectations 18 . including identity and image Professor Gary Davies Manchester Business School Reputation = experience .

IT ALL ABOUT ISSUE MANAGEMENT Good reputation management is based on issue management      Issue identification Issue Analysis Issue Change Strategy Options Issue Action Programme Evaluation of Results 19 Monitoring Weblogs and user groups online .

governance & CSR Off-shoring Innovation and value creation IP theft & counterfeiting Customer retention and equity Development of an amateur media online 20 . salt and food labelling GM technology Mobile phone radiation Stem cell and embryo technology Nanotechnology Biodiversity loss and pollution Compliance.SOME HOT ISSUES             Obesity.

BRANDS AND REPUTATION Phase I Phase II Phase III Corporat e Identity Corporat e Image Reputatio n 21 .

CORPORATE IDENTITY          Logo TM Name typeface Slogan or tagline Packaging and uniforms Colour and semiology Brochure and advertising Annual Report Websites Photography 22 .

IMAGE FORMATION Communications Quality of goods & services Organisation Structure & Culture Financial Performance Communities Attitude & behaviour of employees Corporate Image Experience Corporate Social Responsibility 23 Physical Environment .

ROYAL DUTCH SHELL: Image problems      Nigeria and the Ogoni People Greenpeace and Brent Spar 1995 Profits before principles Pollution and biodiversity loss Reserves crisis 2004 over estimate 24 .

ROYAL DUTCH SHELL: corporate communications        Shell s Society Report Shell Foundation Profits and Principles campaign Environmental Reports Local Reports and external assurance Reporting GRI and UN Global Compact Adaptation of International Financial Reporting Standards: Dow Jones Sustainability Index: 25 .

ROYAL DUTCH SHELL: Corporate Communications       Developed and pioneered scenario planning for crisis management Highly developed CSR and Branding Corporate communications centralized Significant alteration to organizational structure Strategy of stakeholder engagement Listing on the Dow Jones Sustainability Index 26 .

rags to riches Classic example of corporate brand-building success      1994 equity worth little by 2000.$50 billion Strategy brand focused Good use of corporate identity name and slogan: use of semiotics 1996 IPO youngest company ever to enter FTSE-100 Integrated marketing communications campaign: strong positioning against competitors 27 . Market Cap .TELECOMS: Orange .

employing over 65.000 staff and over 130 million customers  Success and reputation because of its brand: brand driven 28 .TELECOMS: Vodafone  Vodafone is the world s largest mobile telecommunications community.

TELECOMS: Vodafone Brand strategy     key to its success   Operates over 300 of its own stores Sells through independent retailers Extensive sponsorship Advertising .high profile-celebrity endorsement Extensive below the line promotion High profile involvement in CSR: award winning 29 .

TELECOMS: Vodafone    Extensive market research and focus groups Innovation Vodafone live! Increased penetration of new data services Sponsorship of: Ferrari and Formula 1 Manchester United English cricket Epsom Derby 30     .

Asia and Caribbean Foreign Extra Stout Nigeria largest overseas market A pint of Guinness has less calories than equivalent Semiskinned milk In Muslim countries sold as Malta Guinness non-alcoholic 31 . USA Guinness Draught In Africa.UK Sold in 150 countries & brewed in 49 Brewed for local tastes In UK.GUINNESS: A REPUTABLE DRINK             250 year-old beer brand Well know and identifiable Irish provenance Made from nature ingredients Owned by Diageo. Europe.

GUINNESS: A Brilliant Brand       Brilliant marketing communications: advertising Highly innovative and adaptive: -introduced larger Harp -introduced Guinness Draft Extra Cold -in Nigeria it is seen as a Nigerian brand Large degree of passion involved with the brand Single global brand vision: Power. Goodness. Communion Brand experience. perfect pint campaign Good congruence in sponsorship 32 .

transfer from industrial capitalism to a new knowledge-based economy Industrial capital based mainly on physical assets New economy based on intangible assets and value creation 33   .INTANGIBLES  The last two decades have witnessed a revolution .

shareholder sentiment and market speculation 34 .I N T A N G I B L E S Market Capitalisation Brand Reputation IP Customers Employees Innovation Organisational structure Book value ___________ $ * The above would also be affected by other variables including macroeconomic factors.

INTANGIBLES  A company s market value is driven by its anticipated earning potential the net present value of its future economic profit Intangibles are systematically underreported within existing accounting practice 35  .

62% of an average company s value was represented by physical or hard capital .by 1992 this had decreased to 38% and in 2000 was as low as 20% The market to book value ratio 36  .INTANGIBLES  The Brookings Institute found that in 1962 .

INTELLECTUAL CAPITAL MARKET VALUE Market Value Financial Capital Human Capital Intellectual Capital Structural Capital Organisational Capital 37 Customer Capital .

INTANGIBLES Welcome to the world of intellectual capital   Human capital Structural and organisational capital  Customer or stakeholder capital 38 .

INTANGIBLES Market to book ratio: Dell 17.6% of Cocacola s market capitalization was reported as book value 39 . only 6.2   Capital is now not just financial it is anything that adds wealth and value Back in 1999.5 Pfizer 18.

finished goods) (direct delivery to customers) Physical capital 40 .INTANGIBLES Brand capital Sales push focus Customer pull focus NEW ECONOMY Human capital Production focus Customer focus Working capital High Low OLD ECONOMY (WIP.

Daum (1999). p4 41 . J. Intangible Assets. Wiley.INTANGIBLES I n t a n g ib le a s s e t s T a n g ib le a s s e t s 1 8 Market value 2 84 2 8 1982 1992 1999 Development of the value of intangible assets as a percentage of total market value of S & P 500 companies between 1982 and 1999.

INTANGIBLES Utility Transportation Technology Services Retail Pharmaceuticals M edia Financial services Food and drink Engineering Engergy Construction Chemicals Auto Other 0 5 10 15 20 25 30 35 Market value as a multiple of net book value: Taken from eCFO. p95 42 . Wiley 2001.

INTANGIBLES AND ACCOUTNING   Off the balance sheet Problems with global accounting do not properly allow the inclusion of internally generated assets. except those obtained by acquisition The issue of goodwill REPUTATION IS AN INTANGIBLE ASSET IN ITS OWN RIGHT 43   .

7. 2. Coca-Cola Dell Wall-Mart 44 .REPUTATION AND METRICS The FT World s Most Respected Companies 2004 Financial Times November 1. GE Microsoft Toyota IBM 5. 3. 6. 4.

ftse4good.com Companies 45 .REPUTATION INDEXES  The Harris ± Fombrun Reputation Quotient (RQ) www.com  The Dow Jones Sustainability Index  Financial Times ± World¶s Most Respected www.thereputationinstitute.ft.com Companies  Management Today ± Britain¶s Most Admired Companies  FTSE4 Good Index: www.fortune.com  Fortune Magazine ± Global Most Admired www.

REPUTATION AND METRICS Vital Attributes:  Corporate Governance  Shareholder value  Innovation  Corporate responsibility (CSR)  Role and leadership of CEO  Satisfied employees! Value creation that is sustainable 46 .

DRIVERS OF CHANGE       Increased specialisation outsourcing and disintermediation Relationship marketing one-to-one customer relationship Business is increasingly customer-led rather than production driven Alliances and partnerships Vulnerability of brand equity Decline in trust especially institutional 47 .

DRIVERS OF REPUTATION          Financial performance and shareholder value Corporate responsibility Corporate governance: compliance and regulation Technology Internet and wireless Weblogs (blogs) over 5 m web journals Investor engagement (SRI) and NGOs Stakeholder convergence and managing stakeholders expectations Employee expectations Brand and operational risk 48 .

sanctioned or rejected on basis of stewardship criteria 49 Health and safety records of partners Financial performance Sustainability Indicators of reputational value taken adapted from: eCFO. marches. race) Employee satisfaction Society Boycotts. p115. Wiley. incidents License to operate Direct action Media reports Partners Quantity of partnerships accepted. C. gender. 2001 . Read et al.DRIVERS OF REPUTATION Indicators Indicators Cash flow Earnings Costs Capital expenditure Market growth Shareholders Number of shareholder resolutions Results of shareholder satisfaction survey Customers Satisfaction survey Customer complaints Third-party ratings and awards Employees Employee turnover Employee profiles (ability.

DRIVERS OF REPUTATION A more intrusive and sensational media media amplification Need for transparency (disclosure) and accountability Companies as social institutions Globalization and the rise of corporate brands Notion that ethics counts Historical Enron and WorldCom Reputation as an asset in its own right .$ Victim culture insurance claims 50        .

CORPORATE GOVERNANCE      Good corporate governance and compliance are seen by many as the primary force behind reputation management FSA in (UK) Basel II Sarbanes Oxley (USA) Role of compliance officers 51 .

REPUTATION: an enabler?         Gain control and anticipate events Avoid long-term brand equity damage Avoid boycotts or sale losses Ensure compliance and shareholder value Better stakeholder relations NGOs Better media relations and issue management Understand your risk exposure and allow easier entry into new markets and brand extensions Improved investor relations and profile 52 .

retention and internal communications Better understanding of issues Preparation for crisis situation Alignment of strategy with key stakeholders expectations Sustainable wealth and value creation Development of alert systems and a radar 53 .REPUTATION: an enabler?       Better employee output.

thereby securing a price advantage 54 .REPUTATION: an enabler?     Positive influence on regulators when issuing licenses Local authorities may take it into account when considering planning applications In the financial markets more likely to raise capital Reduce the cost of entry into new markets.

MEDIA MANAGEMENT Good and diligent management of the media is central to reputation management: media profile      Learn which media are the most influential within your target group Supply the press with information that is accurate and useful Build relationship with journalists Look for triggers within issues monitor the media and other users groups Use media intelligence agencies 55 .

prweb.com Prnewswire: www.metrica.romeike.echoResearch.MEIDA INTELLIGENCE     Romeike: Metrica: Echo: www.com www.com www.com 56  .prenewswire.com Prweb: www.

PR AND REPUTATION World of confusing terms      Public relations: a discipline in transition Public affairs and lobbying Corporate affairs Corporate communications Reputation management What s the difference? 57 .

PR AND REPUTATION PR BRAND REPUTATION Desired image Vehicle of promise Delivery of promise 58 .

CORPORATE COMMUNICATIONS Marketing Management Communications Communications Organisation Communications .Van Riel (1995) 59 .

REPUTAION: An Overview Brand Reputation Organisational Reputation Stakeholder Reputation Reputational Radar 60 .

61 .Relationship between PR and Reputation    Public relations and reputation are intricately linked: PR more specific issues: media relations. public affairs. event management and branding Reputation management is more holistic in its approach and involves all employees. crisis management.

1990s.Traditional PR       Reputational Management Strategic in nature 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 2010   Less strategic Non-integrated Focus . 2000 62 .short-term Key people involved Aims to give the best possible image Media relations focused Focus on transactional stakeholders       1980.

Some Traditional PR functions

Crisis Management

Assessing stakeholders opinions

Stakeholder conflict

Events & Exhibitions


Change Management


Media profile, monitoring


Internal Communications

Corporate Affairs & Lobbying

Investor Relations

Corporate Publications: Annual reports 63

Some Key Tools For PR Practitioners

Photography Stunts E-mail Press Release


Launch Events

Hospitality Events



Corporate Structure


Websites & Portals Case Studies Editorial Coverage VNRs 64


Direct marketing Advertising Packaging




Point of sale Internet/ wireless



Integrated marketing communications


BRAND AND REPUTATION What is the difference between brand and reputation are they the same? Brand = promise Reputation = delivery on the promise 66 .

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 67 .

BUSINESS CASE FOR REPUTATION  Does a good financial performance develop a perception of a good reputation? Good links do exist between corporate image and customer satisfaction Satisfied customers are not always loyal 68   .

based on assessing the maximum amount that would be lost 19 out of 20 days.REPUTATION AND FINANCIAL PERFORMANCE    Risk and reputation are linked Traditional methods of assessing risk: Value at risk VaR a measure of the riskiness of a portfolio. given typical levels in market prices 69 .

BUSINESS CASE FOR REPUTATION MANAGEMENT How do FTSE 100 companies currently measure performance?  Growth in earnings per share (EPS)  Total Shareholder Return (TSR)  Earnings before Interest and Tax (EBIT)  EBITA  Economic Value Added (EVA)  Return on Capital Employed (ROCE)  Net Operating Profit After Tax (NOPAT) 70 .

BUSINESS CASE FOR REPUTATION MANAGEMENT How do FTSE 100 companies currently measure performance?     Cash flow Cost of capital management Market share Strategic targets 71 .

co.cost of capital) x capital employed Other ways of measuring shareholder value include:      Net Present Value (NPV) Price/earnings ratio (P/E) Capital asset pricing model (CAPM) The Du Pont Equation The Wealth Added Index (WAI) www.BUSINESS CASE FOR REPUTATION Measuring Shareholder Value EVA = (rate of return .sternstewart.uk 72 .

REPUTATION AND CREDIBILITY FOR FOREIGN FIRMS     IPO London Stock Exchange Alternative investment market (AIM) OFEX Share price is now an indicator of a company s reputational capital 73 .

FOREIGN FIRMS AND REPUTATION DEVELOPMENT         Develop investor relations and financial communications Produce detailed Annual Reports Develop media profile Work towards best practice and compliance with corporate governance Establish a strong and transparent working board Integrate risk analysis in all areas of the business Develop strong and clear corporate responsibility polices Appoint risk and reputation officers 74 .

INVESTOR RELATIONS         Educate key stakeholders: NGO Help shape and modify legislation Correct misconceptions Lobby on behalf of a trade body Lobby at the Diplomatic level Highlight unfair or restrictive practice Grassroots campaign development Develop high profile media campaigns 75 .

hostel environment a more pluralistic approach is required 76 .THE STAKEHOLDER I M P E R A T I V E    Classic discussion based on whether a company is solely responsible to just its shareholders or a wider range of interests Pure economic argument focuses on optimising or maximising shareholder return BUT: modern business operates in a volatile.

STAKEHOLDERS CONTRACTUAL  Customers  Employees  Distributors  Suppliers  Shareholders  Lenders  Alliances COMMUNITY  Consumers  Regulators  Government  Local community  Media  NGOs  Trade groups 77 .

TQM . just the way it is executed. 78 .Xerox and Motorola Reengineering Intellectual Capital (KM) GE It is not the strategy itself sometimes. 2.STRATEGIC APPROACH TO REPUTATION Since 1980s Three big ideas 1. 3.

therefore they are a source of competitive advantage Co-creation of value 79    .STRATEGY AND REPUTATION  An organisation s strategy describes how it intents to create value for its shareholders and stakeholders What is the link between reputation and intangibles? Intangibles are hard for competitors to imitate.

instead they work more indirectly via a complex chain of cause and effect The impact of a new tangible asset tends to be more immediate Intangibles need to be generally combined with other assets HR and IT 80   .STRATEGY AND REPUTATION  Intangibles per se do not directly affect financial performance.

BALANCED SCORECARD Kaplan s and Norton s Balanced Scorecard approach and strategic maps Four perspectives:  Financial  Customer  Process  Developmental  81 .

CASE STUDY: Coca-Cola: problems          Poor executive reshuffle Anti-Americanism: Mecca and Zam Zam Cola Problems in Belgium 1999 Faltering financial performance Crisis with Dasani drinking water UK 2004 Obesity issues Problems with NGOs in India Trying to grow faster than the market Deaths in Colombia 82 .

Coca-Cola:  Solutions Continuous brand equity building within communities Citizenship initiatives Work with Greenpeace on reducing carbon dioxide emissions Open acknowledgement of the obesity issue within the US Sustaining brand identity and Image Re-evaluation of strategic growth 83      .

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. experience and communications Organisational culture and structure Contract fulfilment Business presentation and conferences Customer facing staff 84 .

HOW TO DEVELOP A REPUTATION             Innovation 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 85 .


Clear strategies and resources Learning from other s mistakes Listening to customers opinions Audit and assurance Measuring and evalutation IP protection Stakeholder analysis, mapping and engagement Deliver on customer promise Think global, act local

HOW TO DEVELOP A REPUTATION: Organisational Structure 

Who talks to who? Final gatekeeper responsibilities Question of internal communications Vertical to global matrix to e-business network structures The Case of ABB Asea Brown Boveri

CEO leadership and senior management commitment

Communication audit

Frame your corporate communicational structure

Implementing programme and resources

Maintaining and evaluating

measuring and monitoring 89 .employee survey  External Stakeholders survey  Assessment     Gap analysis Structural equation modelling Sensitivity analysis Competitor analysis    Strategic communication planning Communication programme implementation Evaluation.HOW TO CONDUCT A COMMUNICATION AUDIT Based on GCI group Corporate Brand study  Internal management survey .

risk and issue management not just crisis management 90 .CONCLUSION     The early part of the 21st Century is the era of reputation management and the management of intangibles The ruthless organisation cannot succeed Companies must adopt pluralistic approaches to managing risk and reputation.must adopt a socio-economic approach Emphasis must go on pro-active approaches.

CONCLUSION   Reputation management must be strategic in nature. but must incorporate emergent properties and reporting: involve everyone. not just managers Getting organisational structure right and managing structural capital is critical 91 .

CONCLUSION     Corporations must be innovative. emergent and monitored Stakeholders views must be measured and evaluated: what is stakeholder reputation? Reputation management should not stop at senior management and customer facing staff: all employees should be involved 92 . and adaptive Reputation must be viewed as a strategic weapon. passionate.

CONCLUSION     Brands are the glue of reputation Develop brand equity internally and externally Ensure your employees understand your intangible assets Be proactive with the media 93 .

and integrate 94 .CONCLUSION     Ensure your brand is not too easily copied or imitable: differentiate by behaviour View CSR as a way forward. integrate. then integrate. not a defence mechanism Develop first rate corporate governance Ask the right questions.

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