Dr. Charles J. Fombrun
Founder & Chairman, Reputation Institute
I would be remiss not to react to the provocative blog published by the Schumpeter namesake columnist in The Economist this week (http://www.economist.com/node/21553033), in which consultancies such as Reputation Institute were criticized for distracting companies from their core activities by encouraging them to focus on improving how they manage their reputational assets.
That was an inaccurate characterization of our work. I wrote my original book ‘Reputation’ in 1996 precisely to defend the thesis that a company’s reputation is a new form of ‘cognitive asset’ whose economic value is rapidly growing and so should be recognized, measured, and actively managed on par with a company’s more tangible assets.
Then as now, those of us providing strategic advice in this space have repeatedly stated that reputation is not an end in itself. Rather, reputation is an outcome of a process that connects a company’s value proposition and business model to what it stands for in its everyday behavior and actions. Indeed, the example that the Economist provides of BP under Browne/Hayward is a very good example of how a company that tried to manage the company’s reputation as a stand-alone asset would fail precisely because the images it was trying to convey about the company was not aligned with its behavior.
If we have learned anything in the years of research and analysis done since I wrote my first academic article on this topic in 1990, it’s that every company needs institutional support from a broad stakeholder ecosystem in which it is embedded, and that no company wins support by simply engaging in advertising and PR campaigns that do not reinforce the reality of what the company is actually doing.
We have taken to describing the emerging socio-economic system around companies as a ‘reputation economy’ to capture the fact that earning support is increasingly a function, not of marketing and PR, but of direct experiences, on one hand, and of hearsay, on the other. In this reputation economy, the companies that are emerging as leaders are worrying as never before with generating positive real-time experiences on the frontlines, while simultaneously securing favorable impressions from the diffuse clouds forming around them. That is what we mean by active reputation management. The best of these companies are doing it by strategically constructing an array of initiatives designed to align their company’s vision with its capabilities and by ensuring that these initiatives address the expectations of their stakeholders.
In the short run, however, it’s true that many companies can and will prosper without directly focusing on building reputation. But these companies are also likely candidates for going awry in the long run because lax practices mean they stockpile huge risks that later prove costly to mitigate (consider, for instance, the tobacco industry’s current payouts and regulation). Lacking a solid reputation, many of these companies also fail to take advantage of the opportunities they have to outperform rivals along the way.
In Schumpeterian terms, a poor reputation invites creative destruction, whereas a strong reputation, rooted in deep-seated, trusting relationships with stakeholders, provides a powerful countervailing force to the unbridled rivalry of open competitive markets. Were he writing today, I am quite sure the original Joseph Schumpeter would have recognized reputation management as a powerful influence on the competitive dynamics of markets. To be fully competitive and value-creating, I suggest that companies and their managers need to worry more -not less- about their reputations.