Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in Germany [1 ed.] 9783836608251, 9783836658256

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MA-Thesis / Masterarbeit ISBN: 978-3-8366-0825-1

Robert Burkhardt

Reputation Management in Small and Medium-sized Enterprises

Copyright © 2008. Diplomica Verlag. All rights reserved.

Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in Germany.

Diplom.de Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Robert Burkhardt Reputation Management in Small and Medium-sized Enterprises Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in Germany. ISBN: 978-3-8366-0825-1 Druck Diplomica® Verlag GmbH, Hamburg, 2008 Zugl. Fachhochschule Ludwigshafen, Ludwigshafen, Deutschland, MA-Thesis / Master, 2007

Copyright © 2008. Diplomica Verlag. All rights reserved.

Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden, und die Diplomarbeiten Agentur, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. © Diplomica Verlag GmbH http://www.diplomica.de, Hamburg 2008 Printed in Germany

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Abstract

Abstract Reputation is the total of a company’s perception by all of its stakeholders. Thus, Reputation Management comprises the total of a company’s systematic activities to influence its reputation positively. By now, it is regarded as a pivotal instrument to support corporate management. Although SME’s represent about 99 percent of German enterprises, it is still unknown how they handle Reputation Management. This dissertation improves transparency by investigating the current status. Therefore, a survey with SME’s in the Greater Stuttgart area was conducted. As a result, a user rate of more than 40 percent demonstrates that Reputation Management has already arrived SME’s. The general understanding is considered as proficient although the term itself is still rather unknown. Further, the survey proves that there is a correlation between the use of Reputation Management and economic success. Summarising, users are regarded as more vital, less vulnerable and more successful. SME’s indicated to be open-minded for external support in implementing Reputation Management. Due to its increasing importance, the topic represents an additional market for the consulting industry, which is still undeveloped.

Keywords: Reputation, corporate strategy, Small and Medium-sized Enterprises, social

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responsibility, stakeholder value, intangible asset, management consulting.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

i

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To those who work on their dreams

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

iii

Preface

Preface “It takes 20 years to build up a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” 1 Warren Buffett

British Petrol, Deutsche Bank, Nike, Siemens, Volkswagen – what do these companies have in common? First, they are part of the world market leaders in their business area and successful trendsetters, e.g. British Petrol in sustainable resources, Nike in sports goods and Siemens in high technology. Second, all of them had these “five minutes” to ruin their reputation.2 They are perceived in close contact with environmental pollution, mass layoffs, child labour, corruption and fraud. What went wrong and how strong were the economical influences from these issues? In fact, these companies did not care enough about managing their reputation in an appropriate way and it is obvious that they underestimated the power of their stakeholders. Due to the explosion of a refinery in Texas and bursting pipelines in Alaska the share price of British Petrol 2006 lost 8.32 percent while its competitor Exxon Mobile increased its share price at 36.43 percent.3 In a current corruption affair at Siemens the public prosecution department estimated a damage of 200 million euros.4 These examples illustrate that reputation neither can be ignored nor can be dismissed as a buzzword. Due to their size and influence, multinational corporations dominated upcoming reputation issues for decades. But in the age of INTERNET and mobile communication reputation has become more visible for Copyright © 2008. Diplomica Verlag. All rights reserved.

every size of company, which requires explicit management. As a result, Small and Medium-sized companies (SME) face a new challenge. This work will contribute in bringing more clarity into this situation.

1 2 3 4

Buffett, Warren, quoted in: Internet, 05/02/2007. Ibid. Cf. Kroder, Titus et al: Beyond Safety, in: Financial Times Deutschland, 19/01/2007, p. 25. Cf. Fromm, Thomas: Ermittler sprechen von Bande bei Siemens, in: Financial Times Deutschland, 23/11/2006, p. 1. v

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Table of contents

Table of contents Abstract .....................................................................................................................i Preface ......................................................................................................................v List of figures..........................................................................................................xi List of tables......................................................................................................... xiii Abbreviations ........................................................................................................xv Glossary................................................................................................................ xvi 1

Introduction ............................................................................................................1 1.1

The role of Reputation Management in the course of time.....................1

1.2

Aims and objectives of this dissertation ....................................................4

1.3

Methodology..................................................................................................5

1.4 2

2.2

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Research philosophy and general approach ..............................5

1.3.2

Research strategy and method .....................................................7

1.3.3

Limitations of the chosen methodology .....................................8

Structure of work ..........................................................................................9

Basic principles of Reputation Management .................................................11 2.1

3

1.3.1

Definition, scope and limitations ..............................................................11 2.1.1

Reputation Management in practice .........................................11

2.1.2

Definition in literature .................................................................12

2.1.3

Evaluation and conclusion..........................................................17

Constitutive elements, structures and interactions................................19 2.2.1

Stakeholder value perspective ...................................................20

2.2.2

Key reputation drivers ................................................................21

2.2.3

Implementation and management ............................................23

2.2.4

Benefit of a good reputation .......................................................26

Reputation Management in organisations .....................................................29 3.1

Identification of related business areas....................................................29 3.1.1

Reputation and marketing management..................................30

3.1.2

Reputation and corporate management ...................................31

3.1.3

Evaluation and synthesis ............................................................33

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

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Table of contents

3.2

4

4.2

4.3

Classification guideline ............................................................... 33

3.2.2

Differences between SME’s and large-scale enterprises ........ 36

3.2.3

Implications for Reputation Management ............................... 37

Concept and preparation ........................................................................... 39 4.1.1

Choosing an appropriate target group ..................................... 39

4.1.2

Sample size.................................................................................... 40

4.1.3

Questionnaire design................................................................... 40

4.1.4

Specification of questions............................................................ 43

4.1.5

Time schedule............................................................................... 48

4.1.6

Risks and preventive measures.................................................. 49

Execution of survey .................................................................................... 49 4.2.1

Pre test with selected target group members........................... 49

4.2.2

Data collection and response...................................................... 50

Analysis and evaluation of results ........................................................... 51 4.3.1

General data.................................................................................. 51

4.3.2

Key findings.................................................................................. 52

4.3.3

Detailed interpretation of data................................................... 53

Conclusions and recommendations................................................................. 77 5.1

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3.2.1

Reputation Management survey ...................................................................... 39 4.1

5

Small and Medium-Sized Enterprises...................................................... 33

5.2

From a SME’s perspective.......................................................................... 77 5.1.1

Overall status ................................................................................ 77

5.1.2

Value-benefit situation ................................................................ 78

5.1.3

Influencing factors ....................................................................... 78

5.1.4

Best practices................................................................................. 80

From a consulting industry’s perspective ............................................... 83 5.2.1

Market potential ........................................................................... 83

5.2.2

Key success factors....................................................................... 85

viii

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Table of contents

6

Outlook..................................................................................................................87

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Bibliography ..........................................................................................................89

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

ix

List of figures

List of figures Figure 1: Generation of reputation capital .................................................................3 Figure 2: The author’s research path ...........................................................................6 Figure 3: Collection of terms in the context of reputation......................................13 Figure 4: Relationship of identity, image and reputation ......................................15 Figure 5: Difference between image and reputation (schematic)..........................19 Figure 6: Reputation audit cycle ................................................................................24 Figure 7: Reputation landscape..................................................................................25 Figure 8: Positioning of Reputation Management in the value chain ..................29 Figure 9: Questionnaire structure (schematic).........................................................41 Figure 10: Time schedule for the survey execution.................................................48 Figure 11: Response rate..............................................................................................50 Figure 12: Qualifying of questionnaire data.............................................................51 Figure 13: Participating enterprise categories..........................................................53 Figure 14: Focus of business activities and functional areas..................................54 Figure 15: Level of awareness of Reputation Management ...................................55 Figure 16: General attitude of participants...............................................................56 Figure 17: Why Reputation Management is yet undeveloped ..............................56 Figure 18: Use of Reputation Management according to size ...............................57 Figure 19: Use of Reputation Management in main industries.............................57 Figure 20: How long Reputation Management is used already............................58 Figure 21: The coordination of Reputation Management ......................................59 Figure 22: Planned implementation of Reputation Management.........................60 Figure 23: Time-related expectations of success ......................................................61 Copyright © 2008. Diplomica Verlag. All rights reserved.

Figure 24: Knowledge of stakeholder needs ............................................................61 Figure 25: Contact rate.................................................................................................63 Figure 26: Correlation of good knowledge and high contact ................................64 Figure 27: Estimated reputation (median comparison) ..........................................64 Figure 28: Intensity of work on reputation drivers (means)..................................66 Figure 29: Percentage of participants measuring reputation.................................67

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

xi

List of figures

Figure 30: Reasons not to measure reputation......................................................... 68 Figure 31: Measurement methods of Reputation Management............................ 69 Figure 32: Improvements due to the use of Reputation Management................. 70 Figure 33: Correlation between success and measurement ................................... 71 Figure 34: Expected influence of Reputation Management ................................... 71 Figure 35: Expected influence list of order ............................................................... 72 Figure 36: Influencing factors..................................................................................... 74 Figure 37: Practices of Reputation Management users........................................... 82

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Figure 38: Selected company profiles........................................................................ 83

xii

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

List of tables

List of tables Table 1: Excerpt of reputation definitions ................................................................12 Table 2: SME recommendation of the European Commission..............................35 Table 3: Ranking of stakeholder knowledge ............................................................62 Table 4: Positive and negative ranking of work intensity......................................65 Table 5: Comparison of high/medium influence and improvement ....................73 Table 6: Summary of influencing factors ..................................................................79 Table 7: Matching tables..............................................................................................80

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Table 8: Proficiency ranking of Reputation Management users ...........................81

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

xiii

Abbreviations

Abbreviations Chief Executive Officer

cf.

confer

ed.

editor/edition

e.g.

exempli gratia, for example

et al

and others

et seq.

et sequens/et sequentes, and the following one/s

ibid

ibidem, in the same place

i.e.

id est, that is

I-IMC

Institute for International Management Consulting

n=

sample size

no.

numero, number

p.

page

pp.

pages

NGO

Non-Governmental Organisation

SME

Small and Medium-sized Enterprises

RM

Reputation Management

vol.

volume

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CEO

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

xv

Glossary

Glossary BLOG

Short word for web log. Website with regular entries similar to a diary. Blogs can provide personal perceptions to all Internet users within a short period.

CHIEF REPUTATION OFFICER

New management role for a person who is in charge of Reputation Management. The term was created by Fombrun in the nineties.

HALO

Perception of an object, which is outshined by an overall impression leading to a biased reality, e.g. a supplier likes to work with a high reputable company because it expects that the relationship influences its reputation positively.

HOMO OECONOMICUS

Perspective of man in the nineteenth century regarding man as a being, which is reduced to rational aspects and pursues to maximise its benefit without moral and social values.

INTANGIBLE VALUE

Non-monetary values like reputation, patents, trademarks and knowledge. They are abstract and cannot be measured physically.

INTERNET

Worldwide network of computers accessible for everybody having the proper equipment. The most popular service of the Internet is the

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World Wide Web, which is a huge collection of single websites. For convenience, this work uses both terms as synonyms. PAINTING THE FORTH BRIDGE

Idiom for a Sisyphean task expressing that an activity cannot be finished.

xvi

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Glossary

SELLERS’ MARKET

Market where sellers dominate economic activities. It is a situation where the demand is bigger than the offer.

SOCIAL WEB

The second generation of the World Wide Web dominated

by

user-driven

content.

Large

websites enable users to practice social networking. SWOT ANALYSIS

Technique to analyse strengths, weaknesses, opportunities and threads.

WAR FOR TALENTS

Term expressing a lack of qualified people available on labour market. Thus companies fight for the best people by trying to attract

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them extraordinarily.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

xvii

Introduction

1

Introduction

1.1

The role of Reputation Management in the course of time

Protagonists like Bauhofer proclaim Reputation Management as “the strategic asset in the competition of the 21st century”.5 Fombrun observes that since the last decade intangible assets like patents, technology and reputation got more and more into the business focus. Assuming that the reasons for that are similar, he concludes that they enable companies to create competitive advantages.6 This gains in importance due to increasing competition in global companies as well as in saturated markets. Despite of being an apparently new topic reputation is not new at all. Taking a closer look reputation is even as old as humankind is: Every single person has a reputation. It makes us more predictable for others, which is a necessity for a running society. Reputation is transferable on organisations, institutions and companies of any size because all of them are characterised by being an artefact of a group of people with similar interests or aims. The roots of Reputation Management go back to the year 578 when the first known company, the Japanese building company Kongo Gumi, started its business by being asked to build a temple.7 At this time there was no competition in a present sense and the detailed circumstances cannot be reconstructed any more, but it is obvious that this company was ordered due to reasons which convinced the client that they have the potential to make it. More than a millennium later, in 1766, Adam Smith observed two important things in trade: First, cheating is not profitable because one single cheat costs more contracts than it is possible to win at the same time. Second, the

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disposition to cheat a customer depends on the frequency of deals they make

5

6

7

Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, p. 191. Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 5-6. Cf. Wittwer, Judith: Die Greise der Unternehmenswelt, in: Tages-Anzeiger, Internet, 24/05/2007. 1

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

together.8 Smith recognised that there is a correlation between the behaviour of traders and their economical success which both are dependent from the amount of information exchanged. With this observation, he laid the cornerstone for Reputation Management. However, it took more than 200 further years until the subject came up on business agendas. Up to the fifties, the

SELLERS’ MARKET

situation in western industrialised

countries did not request to take much care about reputation issues. Companies were busy to distribute their goods and satisfy basic customer demands. This situation lasted during the following two decades although competition increased and customers became more selective. The eighties finally rang in a paradigm shift. Globalisation was the new determining factor and was accompanied by an increasing number of mergers and acquisitions. Companies were forced to turn away from remaining OECONOMICUS

HOMO

fragments and enhance their focus on soft factors, which could be

used for change management. At the same time when audio-visual media gained in importance, companies registered an upcoming interest of publicity. This was no contingency but it was the first time general public used media as an active channel to demonstrate their demands and forced companies to react. In 1983, Shapiro introduced reputation into modern literature by analysing the correlation between quality and reputation. He identified that reputation plays an important role in the buying process when the quality of a product is not easily visible. In these cases, buyers depend their choice on reputation as an indicator for quality.9 Few years later, occurrences like the effort of Royal Dutch Shell in 1995 to sink the Brent Spar oil facility in the North Sea and the collapse of Enron in 2001 Copyright © 2008. Diplomica Verlag. All rights reserved.

caused by accounting fraud, raised public interest in ecological and ethical questions. People demanded social responsibility and guidelines for corporate governance. This put Reputation Management finally on the business agenda.

8

9

Cf. Smith, Adam: Lecture on the Influence of Commerce on Matters, in: Klein, Daniel (ed.): Reputation. Studies in the Voluntary Elicitation of Good Conduct, Ann Arbour 1997, pp. 17-20. Cf. Shapiro, Carl: Premiums for High Quality Products as Returns on Reputations, in: The Quarterly Journal of Economics, vol. 98, issue 4/1983, p. 659.

2

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

The breakthrough was initiated by Fombrun in 1996 who transferred the topic from a scientific discussion into the consciousness of business people. Based on research studies and illustrated by practical examples this work is regarded as standard literature in Reputation Management.

Corporate Strategy

Corporate Practices

• Differentiation • Diversification • Core Competence

• Image Nurturing • Identity Shaping

External Ratings

Reputation Capital

Figure 1: Generation of reputation capital10

Fombrun demonstrates the impact of managing reputation and underlines the correlation between reputation and financial success, which is reflected by reputation capital. With his reputational audit, Fombrun introduces an approach to integrate and run Reputation Management in companies.11 This is the first time that the topic has been put into a management framework allowing to cope systematically with reputation. Bauhofer is one of few experts who realised early the potential of Reputation Management: In 2004, he brought it to Europe and adapted the idea to the Copyright © 2008. Diplomica Verlag. All rights reserved.

demands of European companies. He emphasises the impact of change from a shareholder’s perspective to a stakeholder-orientated company as a fundamental precondition. Based on that Bauhofer developed a 360 degree approach

10

11

Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, p. 392. Cf. ibid., pp. 1-56, 192-209. 3

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

covering all relevant factors of Reputation Management and allowing a holistic perspective on decisive company interactions.12,13 The current status of evolution and at the same time the new challenge for Reputation Management lies in coping with an increasing use of new technology like mobile communication and INTERNET software. With applications like eBay, Amazon and YouTube INTERNET has stepped into the so-called SOCIAL WEB in which content is mainly generated by users. With electronic aids like recensions, comments,

BLOGS

and multimedia messaging people have been

enabled to contribute perceptions very quickly and provide them to a mass of users. This has important effects on Reputation Management which have to be taken in account: The number of channels which have to be considered increases and comes along with a higher speed on building reputation as well as an additional coverage of publicity.

1.2

Aims and objectives of this dissertation

As presented before Reputation Management is definitely a ubiquitous business topic by now. In Germany 2.96 million companies generate a yearly revenue of 4.35 trillion euros.14 According to the Institut fuer Mittelstandsforschung at Mannheim University thereof a 99.7 percentage is covered by SME’s. As a result, SME’s express the decisive power of German economy with a total revenue of about 4.33 trillion euros per annum.15 It is apparent that some largescale enterprises use Reputation Management – Fombrun already illustrated his

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work with several examples.16

12

13

14

15

16

Cf. Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, pp. 49-80. Cf. Sparring Partners: 360° Reputation Management by Sparring Partners, Internet, 10/02/2007. Cf. Statistisches Bundesamt Deutschland: Umsatzsteuerpflichtige Unternehmen 2004, Internet 12/02/2007. Cf. Institut fuer Mittelstandsforschung Universitaet Mannheim: Bedeutung des Mittelstands in Deutschland, Internet, 07/02/2007. E.g. J. P. Morgan and Salomon Brothers, both in: Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 339-385.

4

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

But despite of their particular importance it is still unknown, how SME’s handle the topic. Up to now the aspect of Reputation Management in SME’s is a black box in literature. This is the situation the dissertation aims to take up and bring in more clarity. The conclusive research question is: “What is the current status of Reputation Management in SME’s?” Getting an answer to that question outlines the primary objective, which has to be investigated. To come closer to a result several subordinated objectives has been established as follows: a. Identification of the number of SME’s using Reputation Management, obtain feedback of their general understanding of managing reputation and how this have been implemented in their organisation. b. Assessment of the existing value-benefit situation of Reputation Management in SME’s and how it is measured. c. Identification of factors influencing the use of Reputation Management and establish best practices. d. Derivation of possible effects and opportunities for the management consulting industry. The results of the research work will provide an insight into the level of

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maturity and acceptance of Reputation Management within the focus group.

1.3

Methodology

1.3.1

Research philosophy and general approach

To get a common understanding of the approach it is necessary to outline the applied research philosophy first. The author’s research philosophy is mainly based on interpretivism with aspects of positivism and realism. What does this decision implies for the reader? This means that the research question cannot be answered in terms of “law-like” results like in physical sciences. Reputation Management is an

INTANGIBLE VALUE,

which has to be

interpreted due to its specific perception. Only an enormous reduction of the

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

5

Introduction

environmental complexity would allow controllable models providing crystal clear results. But at the same time the significance of the topic would be completely lost, which leads this option to absurdity. Nevertheless positivism is present: The work gives an impression of the situation of Reputation Management in SME’s which can be generalised in a sense of transferring the results from the focus group on other SME’s – not as a law but with a high degree of probability that the situation is congruent. Furthermore, realism is involved. Reputation is a phenomenon, which exists although people are not necessarily aware of it. It is helpful to know that the work is dealing with socially constructed interpretations of people and companies, which means that in the end the research work has to handle a subjective reality.

Options Research Philosophy

Attributes Positivsm

Research Approach Research Strategy Research Method

Realism

Interpretivism

Deductive

Experiment

Sampling

Survey

Secondary Data

Inductive

Case Study

Grounded Theory

Observation

Ethnography

Interview

Action Research

Questionnaire

Figure 2: The author’s research path17

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In literature, a deductive research approach is often chosen in a positivistic setting like physical sciences where it has its origins.18 Nevertheless, as mentioned before Reputation Management cannot be reduced to variables with a cause-effect link. Consequently, the author’s choice was an inductive approach. In order to reach the objectives of the dissertation, initial point is the 17

18

Following Saunders, Mark et al: Research Methods for Business Students, 3rd ed., Harlow 2003, p. 83. Cf. Saunders, Mark et al: Research Methods for Business Students, 3rd ed., Harlow 2003, pp. 82-89.

6

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

structured collection of data as a basis for interpretations and conclusions later on with the aim of understanding people’s perception of Reputation Management in SME’s.

1.3.2

Research strategy and method

Starting point of research is systematic literature research to gain an overview of Reputation Management with all its relevant aspects. This desk research aims to collect relevant data and is deemed to be a fact finding of Reputation Management which leads to a common understanding of the main principles for the dissertation. The subsequent field research will then enable the author to establish the specific situation in SME’s. The present research question offers two general options in choosing a research strategy: The execution of a case study or the conduction of a survey. On first sight, a case study seems to be an appropriate way to deal with an intangible topic. It allows an in-depth analysis and an individual procedure according to company needs. But a second view makes clear that it is not the right way to deal with the research question: For executing a case study and deriving conclusions it would be first necessary to identify a SME which already applies Reputation Management. Furthermore, to find out different understandings and influencing factors there would be the need of a comparison requesting to identify several SME’s that fit into the focus. Due to the young character of Reputation Management on business agendas and according to the author’s experience in the field of SME’s, which reflects the tendency of not acting as a pioneer in tasks that are regarded as being outside the value chain, it is obvious that a case study strategy would be like

PAINTING THE

FORTH BRIDGE which

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makes it unreasonable. In consideration of the elucidated reasons, the conduction of a survey is regarded as an appropriate strategy to gain reliable results. Due to the demand of identifying the current status of Reputation Management it is necessary to get a representative feedback although this implies a standardised method and it is not possible to meet all specific company needs and perceptions. However, this is considered as a minor disadvantage, which has to be accepted.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

7

Introduction

The survey is carried out as a web-based questionnaire and supplemented by additional information provided by the author to gain a common understanding about the topic. This method was chosen as it is low cost and to improve reliability through involving as many companies as possible. The investigation of the survey results finally answers the research question and enables the author to draw conclusions in order to achieve the objectives of the dissertation.

1.3.3

Limitations of the chosen methodology

This work cannot be regarded as representative of the situation throughout Germany due to the high number of SME’s. The given time frame and limited access to SME’s do not allow a balanced random sample including SME’s of all regions, industries and sizes. However, the results of SME’s operating in one of the most prosperous industry regions in Germany will reflect strong tendencies and trends common in Germany. The survey is planned in cooperation with the Stuttgart Chamber of Industry and Commerce, which will supply data access. With more than 140.000 member firms, it is the second biggest Chamber of Industry and Commerce in Germany. The choice of a web-based questionnaire might suggest that only a reduced target group, SME’s with INTERNET access, is involved in the survey which would lead to the disadvantage of validity. However, according to a study 79 percent of all companies in Germany have INTERNET access. In businesses with a minimum of 20 employees it is even 92 percent and higher.19 Due to this result, the impact on validity is regarded as a minor issue.

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Moreover, it has to be taken into account that the survey is a snapshot of a period of several days. Although this circumstance levels typical answer patterns caused by individual performance on different workdays (i.e. Monday morning and Friday afternoon) it cannot be excluded that the same survey could deliver different results being executed at a later date: Reputation Management in companies is subject to permanent changes and is influenced

19

Cf. Statistisches Bundesamt: IKT in Unternehmen. Nutzung von Informationstechnologie in Unternehmen. Ergebnisse fuer das Jahr 2006, Wiesbaden 2007, pp. 32-33.

8

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Introduction

by individual perception. Further aspects of reliability and validity are discussed in detail within the concept of the Reputation Management survey in chapter 4.1 on page 39.

1.4

Structure of work

The present dissertation is subdivided into five parts. First of all the reader gains an impression of the initial situation. After a brief outline of Reputation Management history, aims and objectives are explained in detail followed by the elaboration of finding an appropriate research methodology. The second part focuses on the development of a common understanding of Reputation Management by describing basic principles. These principles comprise investigations in definition and scope, followed by an inspection of constitutive elements, structures and interactions. Aiming to assign Reputation Management to organisations the third part identifies relevant business areas by elaborating pros and cons. It is followed by the determination of SME’s, its characteristics and hence possible implications for Reputation Management. In the fourth part, a survey is designed and executed. An in-depth analysis outlines differentiated results for various participating groups in accordance with the objectives of this dissertation. Finally, the author derives conclusions and recommendations from a SME’s perspective as well as from a consultant’s perspective. After the identification of best practices, key success factors and market potential, an outlook shows Copyright © 2008. Diplomica Verlag. All rights reserved.

future development of Reputation Management. A short overview on page xv refers to abbreviations in the text and all terms marked in SMALL CAPS are explained in a glossary on page xvi. For citations, the author used the Turabian style, which is popular for research work. The titles of non-English resources are translated in the bibliography on page 89. Please notice that due to the close relationship between I-IMC and Lincoln University the dissertation has been written in British English language style.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

9

Basic principles of Reputation Management

2

Basic principles of Reputation Management

2.1

Definition, scope and limitations

2.1.1

Reputation Management in practice

What is Reputation Management all about? First of all it is necessary to separate the term into its semantic components reputation and management. While management often is mixed up with leadership, organisation or administration it is the minor issue in comparison with reputation: In practice the general understanding of reputation is heterogeneous and is used in a wide range of settings and correlations. Generally speaking it is used to express the perception of something which spans from products, people and organisations to countries, animals and religion.20,21,22 This makes clear that the comprehension of reputation is an entanglement of terms starting from prestige right through to stereotypes. Meanwhile reputation is used rather inflationary and serves as a company name, a technical service generating website rankings and even now seems to be appropriate as a bonus for killing creatures in a computer game.23,24,25 In business often terms like image, brand, name, identity and quality are used. Marketing professionals like Michael struggle in using reputation properly as well as newspapers like Handelsblatt mixing up several terms in one article.26,27 Moreover to mention is a public relations agency offering Perception Management and a brand research company using the term Word of Mouth Marketing.28,29 Despite of the Babylonian confusion reputation is ubiquitous for years in businesses. Multinational corporations deal with it as well as medium-sized

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20

21 22 23 24 25 26 27 28 29

Cf. Beise, Marian/Cleff, Thomas: Assessing the Lead Market Potential of Countries for Innovation Projects, in: Journal of International Management, vol. 10, issue 4, pp. 453-477. Cf. Wolmarans, Riaan: A new age of denial, in: Mail & Guardian, Internet, 02/02/2007. Cf. Carroll, James: Church, State, and Katrina, in: The Boston Globe, Internet, 12/09/2005. Cf. Reputation: Company website, Internet, 06/03/2007. Cf. Nielsen, Jacob: Alertbox. Current Issues in Web Usability, Internet, 05/11/1999. Cf. Blizzard Entertainment: World of Warcraft, Internet, 13/03/2007. Cf. Michael, Bernd: Gesucht: Die neue Offenheit, in: Absatzwirtschaft, Internet, 13/12/2006. Cf. Otten, Christina: Deutsche lieben Porsche und Audi, in: Handelsblatt, 15/11/2004, p. 13. Cf. Peter Buetikhofer & Company: Perception Management, Internet, 27/03/2007. Cf. Ethority: Word of Mouth Marketing, Internet, 24/05/2007. 11

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

enterprises and corner shops, often unconsciously or as a fragment of marketing activities. The crucial change during the last two decades manifests itself in two aspects: The realisation of reputation as a vital phenomenon, which can be influenced actively and preventively, and its pivotal role to economic success as a precious intangible asset if it is practiced systematically.

2.1.2

Definition in literature

From a scientific perspective, Reputation Management shows a similar undifferentiated picture. It has to be stated that until today there is no unique definition in literature. Schwalbach confirms that there are often used interpretations reflecting a general understanding, but there is still a lack in

Copyright © 2008. Diplomica Verlag. All rights reserved.

definition.30

Author

Definition

Andersen and Sorensen (1999)

A shared bundle of attributes

Balmer (1998)

The perception of a firm

Bennet and Gabriel (2001)

Distribution of opinions

Deephouse (2000)

Evaluation of a firm

Goldberg (2003)

An intangible resource

Gotsi and Wilson (2001)

An overall estimation of a company over time

Hanson and Stuart (2001)

The corporate image over time

Herbig and Milewicz (1995)

An estimation of consistency

Larkin (2003)

A value judgement

Post and Griffin (1997)

Synthesis of opinions, perceptions and attitudes

Zyglidopoulos (2001)

Set of knowledge and emotions

Gioia (2000)

A lasting, cumulative, global assessment

Dutton (1994)

Beliefs about what distinguishes a firm

Table 1: Excerpt of reputation definitions31

Barnett conducted a study to find out a definition of reputation. After analysing hundreds of articles and books published from 2000 to 2003 and its dependent

30 31

Cf. Schwalbach, Joachim: Reputation. Forschungsbericht, Berlin 2004, p. 1. Cf. ibid., pp. 30-32.

12

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

sources he found out that although only a fraction offered a formal definition there still remained 49 sources providing a definition of reputation.32 Table 1 illustrates an extract. To complicate the issue of mix-up, reputation and Reputation Management are often used in a context including terms like corporate

responsibility,

corporate

ethics,

corporate

governance

and

sustainability which makes it difficult to keep them apart as well as to find dependencies and overlaps like shown in figure 3.

Sustainability

Corporate ethics

Stakeholder value

Dominating impression

Corporate reporting

Credibility

Social entrepreneurship Corporate name Morality

Perception

Corporate brand

REPUTATION

Value based management

Corporate cuture

Triple bottom line

REPUTATION MANAGEMENT

Overall appeal Corporate identity

Corporate philantrophy

Third party‘s social attitute

Corporate citizenship

Rating

Corporate governance

Corporate design

Recommendation management

Prestige

Public relations

Corporate image

Corporate social responsibility

Corporate communications

Goodwill

Trustworthiness

Sustainable shareholder value

Corporate responsibility

Public trust

Integrity

Constitutents Family businesses

Public perception management

Figure 3: Collection of terms in the context of reputation33

To clarify all terms and putting them into relationship would go beyond the scope of this work. Thus, it focuses in the following on the definition of

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reputation and the delimitation of reputation and image, which is the most commonly misused term. Etymologically reputation roots in the Latin word reputatio, which means consideration, calculation and account. The verb reputare expresses in addition to rethink and to balance. Management comes from the Latin term manum agere,

32

33

Cf. Barnett, Michael et al: Corporate Reputation: The Definitional Landscape, in: Corporate Reputation Review, vol. 9, issue 1/2006, pp. 26-38. Own figure. 13

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

which means to take somebody by the hand to lead him. Image, imago, is also of Latin origin and means picture, reflection and imagination.34 From Fombrun’s point of view, corporate reputation is the total perception of activities and perspectives of a company attracting its decisive stakeholders. It expresses the emotions of influential stakeholders when they compare the firm in relation to its competitors. The time dimension implies that reputation depends on past actions as well as on future options. Due to the known fact that people tend to compare for better orientation, Fombrun puts reputation into a polypolistic setting. Delimiting reputation from image Fombrun regards image as a mirror of corporate identity, which is represented by all values and regulations that connect all employees within a company. This mirror can be congruent to identity but more often it differs due to ill-concerted practices. The total amount of images of all relevant stakeholders reflects the corporate reputation.35 Finally, Reputation Management, according to Fombrun, is described as taking systematically care about relationships, internal organisation, building, sustaining and defending reputation.36 Bauhofer defines reputation as the “dominating impression people get about a company” and “reflects the […] corporate culture”.37 He underlines that this impression is individually perceived. In contrast to image, reputation is not regarded as a short-term option and cannot be manipulated. The reason lies in people’s minds in which the process of building reputation needs time for stabilisation. Therefore, short-dated measures like image campaigns only have influence on image but they do not change reputation immediately. Following Bauhofer, Reputation Management is the concerted application of proreputational activities, which is based on the precondition of a stakeholder-

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oriented company aiming to create sustainable value.38

34 35

36 37

38

Cf. Martin, Albert: Latein Woerterbuch, Internet, 15/03/2007. Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 37, 72. Cf. ibid., pp. 192-209. Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, pp. 17-18. Cf. ibid., pp. 15-17, 116-119.

14

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Basic principles of Reputation Management

Like Fombrun, Bauhofer figured out a relationship between identity, image and reputation. The main difference in his interpretation is that reputation is not an aggregation of several individual images but it represents corporate culture, which is characterised by creating sustainable value.

Corporate Identity

Corporate Image

Corporate Reputation

Names, Signs

Perceptions, Marketing

Experience, Reflections, Attitudes

Figure 4: Relationship of identity, image and reputation39

Another point of view is presented by Einwiller. She defines reputation as the good name or good record of a reputation object, which is a result of third party’s social attitude. Further reputation is regarded as the intention to create trust and is a result of social interaction, which is spread in social networks. The delimitation to image is determined by the number of people sharing the same attitude: While reputation is regarded as a wide-spread attitude, image is defined as the individual knowledge of a person that is created by its perception and in case of brand image additionally is associated with a specific Copyright © 2008. Diplomica Verlag. All rights reserved.

stimulation like name and design.40 Einwiller’s definition implies that reputation is per se positive – a perspective that differs from preceding interpretations. Although she sharpens the genesis of reputation and brings in the aspect of social networks, she remains open in relation to stakeholders.

39

40

Cf. Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, p. 16. Cf. Einwiller, Sabine: Vertrauen durch Reputation im elektronischen Handel, St. Gallen 2003, pp. 95-108. 15

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

Corporate branding is the area in which Meffert puts reputation. On the one hand, he confirms the basic definition of Fombrun but criticises on the other hand that there is no selective delimitation from image. As a consequence in his opinion the image of a corporate brand includes reputation.41 Niedereichholz defines reputation as “the total evaluation of a company by all of its stakeholders. It is the emotional reaction […] on the factors reliability, credibility and trust.” Accordingly, the management of reputation is described as “the total of all concepts and measures to impact […] all relevant stakeholders of the company”.42 Image reflects the corporate identity. Due to the option of influencing the image actively, it is possible that the image does not correspond to identity.43 With these interpretations, Niedereichholz is completely in line with Fombrun and Bauhofer. Thielemann represents the version that Reputation Management is stakeholdersupport respectively public perception management, which is first of all opportunistic. He differentiates between ethical activities, which are executed due to their relevance for the higher aim that is economic success and activities, which are executed because they are for the sake of an ethical matter. Latter create an intangible asset which he calls the key success factor earned reputation.44,45 Thielemann shares the view of supporting relevant stakeholders with most other experts as well as the point of view that reputation has to be earned within a longer period of time. The crucial difference in his approach is the importance of ethics, which is regarded as a precondition for separating earned reputation from reputation. Completing the selection of definitions, relevant encyclopaedias deliver some more interpretations. For the Brockhaus encyclopaedia, reputation is a Copyright © 2008. Diplomica Verlag. All rights reserved.

synonym for prestige and name whereas image is outlined as a mental picture, 41

42

43 44

45

Cf. Meffert, Heribert (ed.) et al: Markenmanagement. Identitaetsorientierte Markenfuehrung und praktische Umsetzung, 2nd ed., Wiesbaden 2005, p. 152. Niedereichholz, Christel/Niedereichholz, Joachim: Consulting Insight, Muenchen 2006, pp. 51-53. Cf. ibid. Cf. Thielemann, Ulrich: Wie verdient man sich seine Reputation und was traegt sie ein, in: Gesellschaft fuer ethische Fragen (ed.): Arbeitsblatt, issue 45/2004, pp. 16-22. Cf. Thielemann, Ulrich: Akzeptanz oder Legitimitaet? Die Idee verdienter Reputation, Arbeitsblatt, issue 5/2004, pp. 5-8.

16

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Basic principles of Reputation Management

which includes information and emotions.46,47 Vahlen’s encyclopaedia of marketing defines reputation as a construct including past and future aspects which helps contractual partners to anticipate future behaviour. It is based on trust and implies fair behaviour in unforeseen situations. Image meanwhile is interpreted as opinions and associations of an object creating a subjective picture in a person’s mind. This picture gives orientation and influences actions.48

Finally,

Gabler’s

encyclopaedia

connects

reputation

with

trustworthiness. Reputation in the sense of a good record reflects the experience of all market participants with a person or a company. Due to the impact of communication on reputation, it is useful to establish and promote a relevant communication network. Image is regarded as the big picture of an object, which is perceived by a person.49

2.1.3

Evaluation and conclusion

Summarising the last chapter it has to be noticed that the introducing statement of Schwalbach has to be confirmed: There is a common understanding of what is reputation all about but yet no general definition. All presented interpretations share the view that reputation is an intangible asset, which depends on people’s perception. Although the conceptual focus differs it is clear that there is a relation between reputation and economic success. It is also undisputable that reputation contains attributes like trustworthiness, orientation and experience. Regarding the delimitation of reputation and image, the interpretations are more controversial. In common is only the fact that most of them share one of two main aspects: Image has to be regarded in another period, i.e. reputation is Copyright © 2008. Diplomica Verlag. All rights reserved.

a short-term phenomenon and image is something that rests with one person whereas reputation is the result of many persons’ judgement.

46 47 48

49

Cf. Brockhaus: Die Enzyklopaedie, 20th ed., vol. 18, Leipzig/Mannheim 1998, p. 289. Cf. Brockhaus: Die Enzyklopaedie, 20th ed., vol. 10, Leipzig/Mannheim 1998, p. 421. Cf. Diller, Hermann (ed.): Vahlens Grosses Marketinglexikon, 2nd ed., Muenchen 2001, pp. 627, 1491-1492. Cf. Bruhn, Manfred (ed.)/Homburg, Christian (ed.): Gabler Lexikon Marketing, 2nd ed., Wiesbaden 2004, pp. 319, 734. 17

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Basic principles of Reputation Management

To ensure a proper comprehension of the dissertation it is essential to work with a common understanding of reputation. Therefore, the author determines working definitions as follows: a. Reputation Reputation in the sense of corporate reputation is the total of a company’s perception by all of its stakeholders including past and future aspects. It is an extract of various individual experiences, demands and cognitive attitudes enabling people to anticipate future corporate behaviour and its impact on their needs. Due to its origin, reputation strongly depends on socio-cultural environment. Reputation per se is value-neutral. A positive reputation is characterised by four dimensions: credibility, reliability, trustworthiness and responsibility.50 b. Reputation Management Reputation Management comprises the total of a company’s systematic activities to establish, preserve and improve its reputation positively with the aim of growing sustainable company value. Reputation Management is a commitment to a responsible stakeholder communication reflecting the corporate culture; it is not an opportunistic lip service. c. Delimitation of reputation and image Image in the sense of corporate image represents the company’s total impression on a person, which might reflect its corporate identity. Like a snapshot, it is a short-term phenomenon and therefore volatile and subject to permanent changes reflecting what a company wants to be regarded as of its target groups. In order to reach that, image can be Copyright © 2008. Diplomica Verlag. All rights reserved.

modified

quickly

using

unidirectional

communication.

Whereas

reputation aims to grow sustainable long-term company value, image is appropriate to generate short-term value in attracting potential buyers.

50

Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 70-72.

18

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

Company

Company

Corporate Identity

Corporate Culture

Can be reflected via

Must be reflected via

Marketing Communications

Reputation Management

Stakeholder Relations

Image Campains

Target group

Person

Person

Person

Person

...

Corporate Image Image

Image

Image

Image

...

Stakeholder

Stakeholder

Stakeholder

...

Reputation

Stakeholders

Corporate Reputation

Line of Correlation

Figure 5: Difference between image and reputation (schematic)51

2.2

Constitutive elements, structures and interactions

Fombrun and Van Riel describe corporate reputation as “a crossroads of converging disciplines”.52 The disciplines include six different aspects of reputation: An economic and strategic view, a marketing view, an organisational and sociological perspective and finally an accounting point of view.53 Although it is impossible to integrate these fields of study with regard to their various understandings of reputation the following paragraphs take up some

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aspects while answering what the essential elements, the way of thinking and the structures are which characterise Reputation Management.

51 52

53

Own figure. Fombrun, Charles/Van Riel, Cees: The Reputational Landscape, in: Corporate Reputation Review, vol. 1, issue 1/1997, p. 5. Cf. ibid., pp. 6-10. 19

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

2.2.1 The

Stakeholder value perspective most

important

precondition

before

explaining

how

Reputation

Management works is to get familiar with a stakeholder value perspective. In 1986, Rappaport introduced his shareholder value approach, which is a strategic view that focuses on the demands of company owners, the shareholders, aiming to increase company value.54 Since then, a large number of enterprises implemented this approach. Although Rappaport emphasises that his idea is not exclusively focused on shareholder’s financial interests but considers demands of other stakeholders as well, shareholder value is often criticised due to its incompleteness.55 This requirement is what the stakeholder approach aims to meet. It regards a company within its socio-economical context and tries to find a vital balance between a company’s goals and the demands of its interest groups, the stakeholders. Following Fombrun and Bauhofer, every company has some typical stakeholders, which the author assigned to six dimensions:56,57 1. Internal dimension:

employees, unions

2. Financial dimension:

shareholders, investors, analysts

3. Market dimension:

customers, suppliers, competitors

4. Socio-cultural dimension:

NGO’s, local community

5. Political-legal dimension:

government

6. Public dimension:

general public, media

This makes clear that traditional target groups known from marketing communications are not equivalent to stakeholder groups due to their lesser

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range; however, they are a central part of them.

54 55

56

57

Cf. Rappaport, Alfred: Creating Shareholder Value, New York 1986. Cf. Rappaport, Alfred: Ten Ways to Create Sharehoder Value, in: Harvard Business Review, vol. 84, issue 9/2006, pp. 66-77. Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 194-196. Cf. Sparring Partners: 360° Reputation Management by Sparring Partners, Internet, 20/03/2007.

20

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

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2.2.2

Key reputation drivers

Once taken up a stakeholder value’s perspective the question comes up which frameworks and instruments are available for a company to create and maintain an atmosphere with a sustaining impact on its reputation? Currently there are five fields of activity which drive reputation fundamentally:58 1. Corporate identity (design, communications, culture) 2. Corporate responsibility (social responsibility, governance, citizenship) 3. Human resources management 4. Innovation management 5. CEO Corporate identity is the essential building block and the vital connection between the inside of a company and its outside perception. It consists of corporate design, communications and culture. Thus, all efforts in strengthening corporate reputation must be in accordance with the corporate identity. If this troika is not practiced consequently within the company it is useless to think about implementing Reputation Management as it does not work. As part of corporate identity, the field of corporate communications comprises a concerted communication to meet stakeholders’ expectations of all dimensions. Furthermore, it can include communication aspects around litigations, crises and issues. Corporate communications are the pivotal link to interact with stakeholders. The concept of corporate responsibility describes the sense of responsibility of a company regarding all possible impacts on economy, society and environment. By realising its partial concepts of social responsibility, governance and citizenship a company stands for transparent and fair behaviour with its stakeholders, Copyright © 2008. Diplomica Verlag. All rights reserved.

generation of long-run company value, responsible use of natural resources and contribution to community.59 Another major aspect is represented by corporate governance: It includes principles, policies and guidelines for a responsible company’s direction. Its relevance increased in line with the demand for more

58

59

Cf. Sparring Partners: 360° Reputation Management by Sparring Partners, Internet, 20/03/2007. Cf. Senge, Konstanze: Wie tragfaehig ist CSR? Das Beispiel Wal-Mart, in: Forum Wirtschaftsethik, vol. 14, issue 3/2006, pp. 19-25. 21

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Basic principles of Reputation Management

transparency after several economic scandals and led to the Sarbanes-Oxley Act in 2002.60 As a result the translation of corporate responsibility in companies serves a better accountability, credibility, reliability and honesty – core values each of them driving reputation.61 Human resource management is an essential instrument to attract high performers. In the

WAR FOR TALENTS,

reputation represents a competitive

advantage due to the fact that companies with a high reputation are more attractive for applicants. Salary, responsibility and safety is not enough any more but it is often the culture, the ethical attitude and the contribution to community what turns the scale motivating candidates to apply for a distinctive company making them proud to work at.62 Companies are increasingly confronted with a global market situation which is characterised by saturation, high competition and declining margins. Innovation is an option, which enables them to cope with that situation and ensure future success. Futurologists like Schwartz predict a long-lasting worldwide economic boom due to innovation and Hamel proclaims that future competition will fight for mental leadership, creativity and the ability for rapid transitions.63,64 Those companies relying on innovation are regarded as vital, pro-active and adaptive, which affects corporate reputation in a positive way. One of the most important roles in driving corporate reputation finally has the CEO itself. As the decisive person with the ability to direct and shape a company, he or she has direct influence on reputation. Therefore, it is essential to work properly with all stakeholders, to act as a driver and role model and to represent the compressed identity and behaviour of a company. Unfortunate

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CEO behaviour increases the risk of a sudden damage of reputation

60

61

62

63 64

Cf. Peemoeller, Volker: Corporate Governance, in: Gabler Wirtschaftslexikon, 15th ed., Wiesbaden 2000, pp. 653-657. Cf. Freeman, Bennett: Substance Sells: Aligning Corporate Reputation and Corporate Responsibility, in: Public Relations Quarterly, vol. 51, issue 1/2006, pp. 15-17. Cf. Helm, Sabrina: The Role of Corporate Reputation in Propelling Employee Pride and Commitment. Lecture at Dortmund University, 02/02/2006. Cf. Hamel, Gary/Prahalad, C. K.: Wettlauf um die Zukunft, Wien 1995. Cf. Schwartz, Peter: Ihr Europaeer seid zu pessimistisch, in: Manager Magazin, vol. 36, issue 8/2006, pp. 92-93.

22

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Basic principles of Reputation Management

significantly.65 For instance, public persons called up to boycotts due to the announcement of Deutsche Bank CEO Ackermann to lay off 6,000 employees immediately after declaring a record profit and Wolfowitz, former president of the World Bank, had to step down following an ethics scandal that led to a damage of reputation confirmed by a confidential report.66,67 Following Bauhofer, the determinant instruments a CEO has to use to drive reputation include corporate communications, stakeholder relations, management style and personal style.68

2.2.3

Implementation and management

According to the variety of definitions, there are several views with a collection of methods and instruments advising how to manage a company’s reputation, each of them in recognition of its specific scientific background. Due to time constraints, this work focuses at that point on standard literature. The following paragraphs outline the main aspects of Fombrun’s approach, which are basically shared by Bauhofer and Niedereichholz.69,70,71 Considering the building, preservation and improvement of corporate reputation there are three fundamental steps, which can be repeated regularly to monitor the development like a panel and to allow precocious control: 1. Identification and analysis of current status 2. Design of the desired future status 3. Derived package of measures

65

Copyright © 2008. Diplomica Verlag. All rights reserved.

66

67 68

69

70

71

Cf. Kellerman, Barbara: Wann Topmanager sich entschuldigen sollten, in: Harvard Businessmanager, vol. 28, issue 6/2006, pp. 73-86. Cf. Steger, Ulrich/Salzmann, Oliver: Die soziale Verantwortung von Unternehmen, in: Harvard Businessmanager, vol. 28, issue 7/2006, p. 8. Cf. World Bank: Second Report of the Ad Hoc Group, Internet, 14/05/2007, p. 51. Cf. Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, pp. 103-114. Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 194-209. Cf. Bauhofer, Bernhard: Reputation Management. Glaubwuerdigkeit im Wettbewerb des 21. Jahrhunderts, Zuerich 2004, pp. 149-171. Cf. Niedereichholz, Christel/Niedereichholz, Joachim: Consulting Insight, Muenchen 2006, pp. 53-57. 23

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

First of all it is necessary to find out the current reputational situation. A factfinding records corporate identity, current focus groups and the company’s perception within these groups aiming to get a broad and measurable overview. The instruments of choice for realisation typically include identity analyses, image analyses, focus group analyses, coherence and if effective gap analyses.

1. Analysis of current status ƒ Identity ƒ Image ƒ Coherence

3. Execution of measures ƒ Transition management ƒ Task force involvement

2. Design of future status ƒ Strategy ƒ Competition ƒ Organisation

Figure 6: Reputation audit cycle72

In the second step, the future situation is designed. Therefore, it is necessary to deepen strategic aspects first. Depending on the company’s strategy, market position, the competitive situation and internal strengths, the reputational design can be set up. Thus, it is useful to apply instruments like strategic analyses,

SWOT ANALYSES

and portfolio techniques. Afterwards a future

reputation is defined, stakeholders have to be identified, strategic adoptions Copyright © 2008. Diplomica Verlag. All rights reserved.

described and the organisational setting must be fixed. For a vital Reputation Management it is important to anticipate perceptions and plan appropriate measures in advance. Hence, it is recommended to install an early warning system collecting issues, possible risks and regular feedback from all stakeholders. Further stakeholder relations have to be planned thoroughly and collaboratively. For these extensive tasks, Fombrun advises to create a new 72

Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, p. 207.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

management role, the CHIEF REPUTATION OFFICER managing the transition and all future reputational issues. The third step cares about realising the transition from current to future status. It is a bunch of derived measures establishing Reputation Management in daily business. It is important to keep in mind that the transition is not only a technical issue but also rather a change process, which have to be realised very carefully. Additionally it is advisable starting the transition with the employees due to their high influence on building and maintaining reputation.73

Concerted use

Reputation Drivers

Reputation Quotient (et al)

Positive impact

Reputation Management

Feedback Audit

Reputation

Measurement

Generation Growth

Reputation Capital

Threat Investment in reputation

Reputation Risks

Return on reputation

Company management

Figure 7: Reputation landscape74

Figure 7 provides an overview of a reputation system with its implications and correlations: First, there must be a commitment to invest in Reputation Management. To influence reputation positively it is necessary to apply Copyright © 2008. Diplomica Verlag. All rights reserved.

reputation drivers in a concerted way. Reputation is not only positively driven but also negatively influenced by reputation risks. These threats have a wide range from coping with technical disasters e.g. British Petrol’s pipeline burst in Alaska, up to the fatal victory sign of Deutsche Bank’s CEO Ackermann at court. Regular audits provide feedback to management and allow anticipatory

73

74

Cf. Caudron, Shari: Forget image. It’s your reputation that matters, in: IndustryWeek, issue 2/1997, p. 16. Own figure. 25

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

adjustments. Aiming a growing good reputation, it generates reputation capital, which is estimated as the gap between market value and its total of all tangible values.75 This brings up the question how reputation is measured. One method is the calculation of a reputation quotient, which is a survey based key figure including the dimensions emotional appeal, products and services, financial performance, vision and leadership, workplace environment and social responsibility.76 The result enables media like Forbes to rank corporations regularly.77 After all, the capital represents the measurable part of the outcome of Reputation Management and is deemed as a benefit-value comparison, the so-called return on reputation.

2.2.4

Benefit of a good reputation

What is the benefit and why is it good value, endeavouring to implement Reputation Management? A company with a good respectively high reputation, ideally even better than its competitors, is perceived by its stakeholders as highly credible, trustworthy, reliable and responsible. This has a straight impact on various aspects referring to the six dimensions of a stakeholder value perspective, introduced in chapter 2.2.1 on page 20:78 1. Internal dimension It is common knowledge that companies with high reputation attract more high performers than others. Employees are proud to work at those companies and are motivated and loyal above average. This can be measured e.g. in days of illness, achievement of individual objectives and number of improvement suggestions. Due to the ambition to maintain this particular situation there is a stronger commitment from Copyright © 2008. Diplomica Verlag. All rights reserved.

unions and management to cooperate.

75

76

77

78

Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, p. 80. Cf. Fombrun, Charles/Foss, Christopher: The Reputation Quotient, Part 1: Developing a Reputation Quotient, in: The Gauge, vol. 14, issue 3/2001, pp. 1-2. Cf. Clark, Hannah: The World’s Most Respected Companies, in: Forbes Magazine, Internet, 21/11/2006. Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, p. 72-80.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Basic principles of Reputation Management

2. Financial dimension High reputation gives shareholders and investors a better return on investment. Due to the ability to achieve higher prices while costs for sourcing and processes are declining a company’s margin increases. Reputation Management copes systematically with reputation which reduces the probability of damage caused by unforeseen risks and gives analysts a safe and predictable feeling. This leads to a higher ranking strengthening a company’s position in financial negotiations. 3. Market dimension Customers prefer to buy products and services from a company with good reputation. Reputation works as a decision support and simplifies customer’s life. Knowing “to do the right thing” they accept to pay higher prices and are more loyal which is reflected in higher margins and a higher repurchase rate. If a company launches new products customers often trust them in advance. Suppliers are interested to work with a highly reputable company and accept lower prices or additional conditions because they benefit from the HALO of this reputation. 4. Socio-cultural dimension The judgement of NGO’s gives management latitude by acting proactively and forward-looking and not to be forced to defend its position. The increasing influence of NGO’s effects customer behaviour due to their role as independent opinion leaders with a perspective from outside. Local communities appreciate highly reputable companies and support them with local patriotism influencing customers’ preferences, loyalty and tolerance.

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5. Political-legal dimension A company with high reputation has more influence on political issues due to its stakeholder awareness. Well cultivated government relations can anticipate regulations and accelerate pending decisions. Usually these effects interact with community and public aspects.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

27

Basic principles of Reputation Management

6. Public dimension Every company needs media to communicate with its stakeholders and high reputation goes down well with the public and attracts media to report. Just as other stakeholders they want to benefit from a company’s HALO.

This revolving phenomenon stabilises reputation and improves

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competitiveness.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

3

Reputation Management in organisations

3.1

Identification of related business areas

Following Caudron, today’s marketplace is characterised by the fact that more and more goods have become a commodity. As a result, most companies face a highly competitive situation.79 Due to the permanent risk of substitution, they are forced to build up new competitive advantages distinguishing them from others. In this process, Reputation Management is regarded as a promising option. Hall confirms that reputation is regarded as the most important intangible resource among top managers.80 However, before implementing Reputation Management it is important to bring it into line with a company’s organisation. Due to the aim of generating competitive advantages, it is useful

Support activities

to regard a typical company’s value chain.

Firm infrastructure Human resource management

RM?

Technology development Margin

Procurement

Inbound logistics

Operations

Outbound logistics

Marketing and sales

After sales service

RM?

Primary activities

Figure 8: Positioning of Reputation Management in the value chain81

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Observing the value chain there are two options to implement Reputation Management in organisations: marketing or corporate management. However, what are the reasons for this consideration? Referring to the constitutive

79

80

81

Cf. Caudron, Shari: Forget image. It’s your reputation that matters, in: IndustryWeek, issue 2/1997, p. 13. Cf. Hall, Richard: The Strategic Analysis of Intangible Resources, in: Strategic Management Journal, vol. 13, issue 2/1992, pp. 135-144. Porter, Michael/Millar, Victor: How information gives you competitive advantage, in: Harvard Business Review, vol. 63, issue 4/1985, p. 153. 29

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

elements of Reputation Management, it has to be stated that except for marketing all business areas can only cover single aspects. Marketing comprises corporate communications acting as a link between company and market. Within this pivotal role, it is conceivable to enhance existing responsibilities and implement a stakeholder value perspective into marketing. Apart from that, this raises the question about the handling of other reputation drivers, which leads to the second option. Corporate management as a cross-sectional discipline is able to act in a broad area with authority covering all aspects of Reputation Management. However, is it able to execute Reputation Management? Following these aspects, the paragraphs hereafter investigate the options of an adequate implementation in detail.

3.1.1

Reputation and marketing management

Marketing is commonly regarded as a market-oriented direction of a company.82 According to the American Marketing Association, it “is an organisational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organisation and its stakeholders.”83 Usually marketing is divided into four relevant fields of interest:84 1. Marketing research 2. Marketing strategy and objectives 3. Marketing instruments 4. Marketing organisation Marketing research identifies and analyses information from market and is the

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basis for all further marketing activities. Strategy is set up in line with marketing objectives, which are derived from firm’s objectives. The chosen strategic approach is afterwards realised by applying a balanced mixture of

82

83

84

Cf. Meffert, Heribert: Marketing. Grundlagen marktorientierter Unternehmensfuehrung, 9th ed., Wiesbaden 2000, p. 8. American Marketing Association: AMA Adopts New Definition of Marketing, Internet, 23/03/2007. Cf. Froboese, Michael/Kaapke, Andreas: Marketing. Eine praxisorientierte Einfuehrung mit Fallbeispielen, Frankfurt 2000, pp. 26-29.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

instruments, known as marketing mix. Finally, there are various options to integrate marketing into business organisation, often as a cross-sectional company department. What would be the implications if one would implement Reputation Management in marketing? Referring to a stakeholder perspective, initially it would be necessary to identify all relevant stakeholders and integrate them into systematic market research. Due to the fact that marketing research focuses on markets this step would imply an enhancement to cope with macro-economical aspects like political, legal, environmental and cultural issues. This requirement applies as well in the definition of marketing objectives and choosing an appropriate strategy. Marketing instruments include concepts and activities regarding products, pricing, placement and promotion whereas the latter, concerning

mainly

with

communicational

issues,

advertisement,

sales

promotion and public relations, would take over a new key function along with the execution of Reputation Management. From an organisational point of view, marketing would accept a role with such an extensive responsibility due to additional tasks concerning the whole firm that it would be no more marketing again. Summarising it has to be determined that marketing cannot take over Reputation Management. Considering again the essentials and drivers it would be an option for marketing to support Reputation Management partly by extending its radius in marketing research and corporate communications but it should be completed and controlled by other responsibilities.

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3.1.2

Reputation and corporate management

The plethora of management literature expresses that corporate management, in the sense of a company’s direction and administration, is not a task which is defined formally and practiced equably by every manager but it is subject to trends, individual experiences and characters.

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

31

Reputation Management in organisations

To get a common understanding of corporate management the main fields of activity are regarded in this work as follows:85 1. Objectives 2. Organisation 3. Decisions 4. Control 5. Employee relations The effective direction and administration of company requires a number of complementary objectives to align all activities and use existing resources efficiently. Organisation helps to structure activities, responsibilities and processes to execute tasks in a way that value creation takes place. Due to the complex and dynamic environment a company has to cope with, it is essential to maintain flexibility. A company using a fixed set of activities would not meet market demands, which requires profound decisions. Additional controlling provides decision support, helps to monitor progress and stimulates employees to further activities. An important basis for that is the maintenance of a good relationship between management and employees. Only employees who are encouraged in their activities support company’s objectives effectively. The implementation of Reputation Management in a company’s corporate management would affect all mentioned activities. In particular, the objectives would be enhanced and organisation would have to cover additional reputational aspects. Decision support would balance the impact on corporate reputation and control would have to include all stakeholder issues as well. Nevertheless,

several

aspects

of

Reputation

Management

could

be

implemented: All fundamental ideas of corporate identity root in corporate Copyright © 2008. Diplomica Verlag. All rights reserved.

management. Cornerstones how to lead and treat people as well as strategic considerations are both laid by corporate management. As a result, it could be an option to implement Reputation Management in the area of corporate responsibility as an additional field of activity in a related setting.

85

Cf. Malik, Fredmund: Fuehren, Leisten, Leben. Wirksames Management fuer eine neue Zeit, 11th ed., Stuttgart/Muenchen 2001, p. 392.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

3.1.3

Evaluation and synthesis

The crucial question is: Is Reputation Management a task of corporate management or is it more effective to implement it in marketing? Regarding the complexity of Reputation Management and its far-reaching implications it must be one of the main tasks of corporate management. This is the place where Reputation Management is being initiated, driven and represented. It is a pivotal part of a company’s basic strategy, which requires management commitment. Due to limited resources, corporate management needs extensive support. Marketing therefore is an ideal partner to realise reputational activities. However, it cannot provide the complete execution. Other partners like human resources, production and controlling have to deliver regular support. Recognising this difficulty Fombrun created a new role, the OFFICER.86

CHIEF REPUTATION

Reporting to the CEO this is the person who coordinates all activities

of building, maintaining and improving reputation. He or she has the responsibility and the power to arrange all requested activities and represents the missing link.

3.2

Small and Medium-Sized Enterprises

In preparation for the conduction of a survey, it is necessary to get a common understanding of the target organisation. This chapter outlines the character of a SME and its implications for the survey.

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3.2.1

Classification guideline

Although there are various interpretations of the term medium-sized enterprises Reichling’s description reflects common understanding. He notes that a medium-sized enterprise is “an economic decision unit of a certain, in relation to other units, smaller size whose equity is mainly owned by a single person or a family and is managed by this person or family members aiming to keep this 86

Cf. Fombrun, Charles: Reputation. Realizing Value from the Corporate Image, Boston 1996, pp. 196-198. 33

Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

unit autonomously.87 The annual report Mittelstandsmonitor confirms the unity of ownership and management as the distinctive attribute of a SME.88 Turning this understanding into a quantifiable definition it has to be stated that there are several interpretations again, mainly depending on country-specific definitions. In Denmark for instance, SME’s are limited to a maximum of 100 employees whereas in France the scale ranges up to 499 employees.89 Due the outstanding importance of Germany in export and as a consequence thereof its global integration plus the influential economic role of Europe the author chooses a guideline, published in 2005 by the European Commission. It represents the majority of European definitions and is recommended for EU member states. The SME definition reads as follows: Small and Medium-sized Enterprises employ less than 250 people and generate a yearly turnover of up to 50 million euros or report a balance sheet total which does not exceed 43 million euros.90 While the number of employees is mandatory, enterprises have the option to choose between turnover and balance sheet total depending on which figure fits best – an option that was created due to the big difference of turnover between manufacturers and dealers.91

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87

88 89

90

91

Reichling, Helmut: Was ist eigentlich ein mittelstaendisches Unternehmen, Internet, 24/03/2007. Cf. KfW Bankengruppe (ed.) et al: Mittelstandsmonitor, Frankfurt 2007, p. 5. Cf. Guenterberg, Brigitte/Wolter, Hans-Guenther: Mittelstand in der Gesamtwirtschaft – anstelle einer Definition, in: Institut fuer Mittelstandsforschung Bonn (ed.): Unternehmensgroessenstatistik, Bonn 2002, pp. 15-19. Cf. European Union (ed.): Commission recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, in: Official Journal of the European Union, issue 5/2003. Cf. European Commission: The new SME definition. User guide and model declaration, Bruessel 2003, pp. 12-13.

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Reputation Management in Small and Medium-sized Enterprises : Analysis and evaluation of the use of Reputation Management. A survey of Small and Medium-sized Enterprises in

Reputation Management in organisations

Within this definition companies can be divided into two subgroups: a. Micro enterprises are companies with less than 10 employees and a yearly turnover or a balance sheet total of up to 2 million euros. b. Small enterprises employ a maximum of 49 people and report a yearly turnover or a balance sheet total of up to 10 million euros.92

Enterprise Category

Employees

medium-sized

< 250