Reputation Management in Small and Medium-sized Enterprises

MA-Thesis / Master von Robert Burkhardt

Abstract:

Protagonists like Bauhofer proclaim Reputation Management as “the strategic asset in the competition of the 21st century”. 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. 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. 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 disposition to cheat a customer depends on the frequency of deals they make together. 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 HOMO OECONOMICUS 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.

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 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.

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.

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. 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 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 covering all relevant factors of Reputation Management and allowing a holistic perspective on decisive company interactions.

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.

Table of Contents:

	Abstract	ii
	Preface	iv
	List of figures	viii
	List of tables	x
	Abbreviations	xi
	Glossary	xii
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
1.3.1	Research philosophy and general approach	5
1.3.2	Research strategy and method	7
1.3.3	Limitations of the chosen methodology	8
1.4	Structure of work	9
2.	Basic principles of Reputation Management	10
2.1	Definition, scope and limitations	10
2.1.1	Reputation Management in practice	10
2.1.2	Definition in literature	11
2.1.3	Evaluation and conclusion	16
2.2	Constitutive elements, structures and interactions	18
2.2.1	Stakeholder value perspective	19
2.2.2	Key reputation drivers	20
2.2.3	Implementation and management	22
2.2.4	Benefit of a good reputation	25
3.	Reputation Management in organisations	28
3.1	Identification of related business areas	28
3.1.1	Reputation and marketing management	29
3.1.2	Reputation and corporate management	30
3.1.3	Evaluation and synthesis	32
3.2	Small and Medium-Sized Enterprises	32
3.2.1	Classification guideline	32
3.2.2	Differences between SME's and large-scale enterprises	35
3.2.3	Implications for Reputation Management	36
4.	Reputation Management survey	38
4.1	Concept and preparation	38
4.1.1	Choosing an appropriate target group	38
4.1.2	Sample size	39
4.1.3	Questionnaire design	39
4.1.4	Specification of questions	42
4.1.5	Time schedule	47
4.1.6	Risks and preventive measures	48
4.2	Execution of survey	48
4.2.1	Pre test with selected target group members	48
4.2.2	Data collection and response	49
4.3	Analysis and evaluation of results	50
4.3.1	General data	50
4.3.2	Key findings	51
4.3.3	Detailed interpretation of data	52
5.	Conclusions and recommendations	75
5.1	From a SME's perspective	75
5.1.1	Overall status	75
5.1.2	Value-benefit situation	76
5.1.3	Influencing factors	76
5.1.4	Best practices	78
5.2	From a consulting industry's perspective	81
5.2.1	Market potential	81
5.2.2	Key success factors	83
6.	Outlook	85
	Bibliography	86

Text Sample:

Chapter 2, Basic principles of Reputation Management:

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. 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. 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. Moreover to mention is a public relations agency offering Perception Management and a brand research company using the term Word of Mouth Marketing.

Despite of the Babylonian confusion reputation is ubiquitous for years in businesses. Multinational corporations deal with it as well as medium-sized 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.

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 definition.

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 sources he found out that although only a fraction offered a formal definition there still remained 49 sources providing a definition of reputation. 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.

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 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, which means to take somebody by the hand to lead him. Image, imago, is also of Latin origin and means picture, reflection and imagination.

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. Finally, Reputation Management, according to Fombrun, is described as taking systematically care about relationships, internal organisation, building, sustaining and defending reputation.

Bauhofer defines reputation as the “dominating impression people get about a company” and “reflects the […] corporate culture”. 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 pro-reputational activities, which is based on the precondition of a stakeholder-oriented company aiming to create sustainable value.

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.

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 stimulation like name and design. 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.

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.

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”. 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. With these interpretations, Niedereichholz is completely in line with Fombrun and Bauhofer.

Thielemann represents the version that Reputation Management is stakeholder-support 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. 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 synonym for prestige and name whereas image is outlined as a mental picture, which includes information and emotions. 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. 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.