How to measure reputation management performance?

Reputation Performance Measurement by Jouni Heinonen
Advisory Board Member of Repman Reputation Research Center Jouni Heinonen shares his views on reputation management performance.

How companies should measure their overall performance on reputation in a practical tools?

Reputation must be managed with determination, knowledge and skill, and the practical solutions for building reputation must be based on research and analysis.  Reputation surveys gives insight to the company’s reputational strengths and weaknesses and offers also a good platform for strong communications strategy.  In practice, reputation management begins with an evidence-based reputation survey and analysis. The goal of a reputation analysis is to simply answer one question: what is our reputation in the eyes of different stakeholder groups and what aspects of our reputation are important in comparison with our competitors? With Reputation surveys companies can:

• Measure and indentify strength /weakness of reputation
• Evaluate company’s strategic outlines in relation to the expectations and values of the stakeholders
• Find out the role of the communications in reputation building; how different marketing and communication channels strengthen reputation (evaluating communication effectiveness)
• Indentify reputation risks

Reputation management is not worth much if the measures and outcomes are not assessed and monitored regularly. Social media channels could be excellent tools for understanding what is important for the stakeholders. Different customer insight surveys and behavioral studies are vital to follow up from the perspective of reputation.

How this performance should be reflected as key performance indicators of the managers?

What should be the main KPI’s (key performance indicators) for reputation? Of course it depends of the reputational position of the company and business objectives. Typical Reputation KPI’s can be lead from the following. Return On Reputation Indicators (ROR):

•          Reputation Rankings (respect and trust)

•          Market value and share price development

•          P/E ratio in relation to competitors

•          Number of new prospects and customers

•          Development of customer profitability (price premium)

•          Lowered marketing costs

•          Finance costs in comparison with competitors, credit ratings

•          Salary costs in comparison with competitors

•          Staff turnover in comparison with competitors (job satisfaction and loyalty)

•          Customer satisfaction

•          Lowered recruitment costs

•          Share price development in a time of crisis situation

Who should be responsible in the company to follow the actions for reputation management performance?

Ultimately, reputation management is always the responsibility of the CEO and top management, but an enterprise should appoint a day-to-day CRO, chief reputation officer. Many initially find the idea of a designated CRO artificial, but a closer examination reveals its logic. Just as an enterprise appoints a CFO to guard the enterprise’s financial assets, a CIO to keep an eye on the enterprise’s information assets or a HR director for taking care of the human capital, why not appoint a reputation director to look after the enterprise’s intangible assets? If an enterprise recognises reputation as an important issue, its management and development must be someone’s responsibility. While business managers dealt with investor relations and risk management at the side of their other duties 10–15 years ago, they are now recognised as functions worthy of their own designated experts. The same logic also applies to reputation management.

Reputation management involves integrating all of the enterprise’s most important intangible assets much more extensively, not just marketing and communications: everything from customer services, marketing, communications, human resources, investor relations and business intelligence must be centrally coordinated and integrated. This is vital in order for an enterprise to be able to systematically develop and – as far as risks are concerned – manage its reputation. At the moment, most enterprises are wasting their intangible assets and creating reputation risks by pigeonholing different functions.

How this performance can be seen at the business results?

Although reputation is intangible, it is as real as tangible capital.  In fact, the value of reputation capital can even be greater than the combined value of all other assets. For this reason companies must know whether this capital is being effectively utilised, is it being wasted, or has it been completely unutilised.

Anticipated future cash flows affect the value of an enterprise. A good reputation gives investors trust and faith in the company’s ability to reel in those projected cash flows. The value of reputation also shows in the premiums paid in connection with business acquisitions or the ‘goodwill’ recorded as a result.

Reputation also has other kinds of measurable financial value. According to studies, reputation can justify a price for a product or service that is up to seven times higher. A good reputation also helps to lower marketing costs, as an enterprise with a good reputation does not need to market its services as much as its competitors.

A good reputation protects a company during crises, whereas a company with a bad reputation can easily find itself unarmed and unprotected. The stock market also rewards good reputations. In rising markets, the share prices of companies with good reputations increase more rapidly, and in falling markets their share prices decrease less than those of companies with bad reputations.

One of the key benefits of a good reputation is that companies with a good reputation have access to better resources at a lower cost, such as more qualified and skilled employees or loans at lower interest rates thanks to better credit ratings. It is important to analyse this “input side” performance of companies in addition to their traditional “output side” performance. Typical output indicators include various financial efficiency indicators, such as return on investment (ROI) and return on assets.