What do the resignation of Hewlett-Packard CEO Mark Hurd, the spate of Toyota recalls and the BP Deepwater Horizon accident have in common?
In addition to the fact that all three are recent high-profile examples of the destructive power of bad publicity, Daniel Diermeier believes they should teach manufacturers a valuable lesson about reputation management.
"The lesson you want to draw is that at this point, absolutely every aspect of your business model can get you into trouble and can lead to a reputational crisis," says Diermeier, the IBM professor of regulation and competitive practice and director of the Ford Motor Company Center for Global Citizenship at Northwestern University's Kellogg School of Management. "And that makes it really critical to develop reputation-management capabilities."
While reputation management is "largely considered a function within corporate communications," these incidents -- and many others -- point to the need for reputation management to be viewed as "an enterprise-wide capability," asserts Diermeier.
Reputational risk "is no longer just a specific aspect of your business," Diermeier says. "It can be anything from a disgruntled former employee with a cell phone to a regulatory investigation."
Three Tips for Manufacturers
In his workshops at the Ford Motor Company Center for Global Citizenship, Diermeier has observed that reputation management is one of the top issues on executives' agendas. That spurred him to write a book, "Reputation Rules: Strategies for Building Your Company's Most Valuable Asset," which offers tools and processes to help executives develop reputation-management capabilities.
In a conversation with IndustryWeek, Diermeier offered three tips to help manufacturing leaders protect their companies' reputations.
1. Think Strategically
"A common misunderstanding that executives have is they think about reputation as equivalent or a follow-up to having satisfied customers," Diermeier says. "What we see more and more is that reputation goes far beyond customer experience, and it is more and more driven by third parties, whether that's the media, social media or other customers."
That holds true not only for business-to-consumer companies but also for business-to-business companies, Diermeier adds.
In "Reputation Rules," Diermeier talks about the need to formalize reputation management, by creating a governance structure -- Diermeier prefers a corporate reputation council over a corporate reputation officer -- and investing in reputational intelligence systems.
"Because successful reputational strategies need to be designed before a crisis occurs, simply surveying customers, investors or other business partners will not do," Diermeier says in the book. "Once customers or investors start to worry, it is too late -- the deck is already stacked against the company. Therefore, in many cases, traditional business research tools such as surveys and focus groups can only measure the damage rather than prevent it in the first place. Proactive reputation management is impossible without good intelligence."
2. Your Supply Chain Can Bring You Down
In this day and age of "more globally and more diversified and outsourced supply chains," Diermeier asserts that "your reputational risk really extends beyond the limits of your company."
"Let's say you're a manufacturer and you have a supplier, or a supplier's supplier, and that supplier's supplier uses lead paint in the manufacturing of a toy," Diermeier explains. "You will be held accountable for that by the general public and by your customers.
"So the answer, 'Well, I didn't do it, my supplier did it,' or 'I didn't know' - that's no longer satisfactory."
You can't "outsource your reputational risk," Diermeier says.
"The fact that you have a more globalized and more diversified supply chain basically means more things can go wrong," he explains. "And if they go wrong, they're a lot more difficult to manage."
It's not just suppliers that can be a source of reputational problems. Manufacturers can "inherit the reputational risk" of their customers as well, Diermeier says.
"If there's a lot of scrutiny on a Wal-Mart or on a GM or on a Toyota, it will kind of travel up the supply chain and then can hit you as a supplier, even though you think you've done nothing wrong."
3. Compliance Isn't Enough
Remember the days when you could run a factory without having to engage in all this touchy-feely stuff like environmental stewardship and community involvement?
Those days, if they ever existed, are long gone.
"We, and by that I mean the general public, have a lot higher expectations of what companies' responsibilities' are," Diermeier says. " ... When you look at the shifting value orientations, especially among younger customers and employees that come from kind of a new generation, we see a lot more expectations for companies to comply and play a positive role with respect to society.
"And if they don't, then we hold them accountable directly."
Diermeier adds: "Compliance isn't enough anymore."
"You really have to become an active corporate citizen," Diermeier says.
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