eBusiness Weekly
Dr Musekiwa Clinton Tapera
Corporate Reputation (CR) has not been taken seriously in influencing or creating corporate value for companies in Africa.
In many instances, it has been relegated to a cosmetic issue not worth allocating resources or not worth considering during corporate strategy planning.
Yet due to globalisation and the competitive nature of today’s business, corporate reputation is a critical aspect of creating corporate value. Central to the delivery of corporate reputation to companies are Public Relations strategists, Corporate Affairs people, Marketing practitioners and Stakeholder relations personnel.
In Africa generally and Zimbabwe in particular, the above critical champions of corporate reputation find it difficult to penetrate or rise up the corporate ladders as they are viewed as big spenders who do not bring real corporate value.
They are viewed as master of ceremonies, spin doctors, event managers and whose value for business growth, investment and profitability is not significant for corporate value.
Based on recent research studies, its emerging that corporate reputation is real business worth, calculating to determine its corporate value. It has been and is being proven that reputation is an intangible asset which influences business growth generally, market growth, investment and enhances shareholder value.
Dr Musekiwa Clinton Tapera
CR may not be identified as an asset on the balance sheet but it has great impact on investor confidence, talent attraction, supplier attitudes, stakeholder relations (Relationship Capital) and many other business facets.
By definition, corporate reputation is the enduring perception held about an organisation by an individual or group or network that forms a collective system of beliefs and opinions that influences people’s actions with regards an organisation.
It is also the impression that significant people have about your business based on the company’s past actions and future predictions. It is an outcome of the organisation actions or behaviours. Taken from these perspectives, corporate reputation for business or commercial organisation has a bearing on value and must be taken as a critical issue for corporate strategy.
Reputation dictates how people behave and in whom they place their trust. Once trust is gone it is very difficult to regain it and in some cases its loss is irredeemable. Therefore reputation is ultimately a measure of trust.
Warren Buffet once remarked that it takes twenty years to build a reputation and five minutes to ruin it. If you think about that you will do things differently. It is also important to note that damage to reputation is almost impossible to cost before an event and always easier after it.
How good corporate reputation create corporate value
Pertinent questions to ask in order to dissect the relationship between CR and corporate value are:
◆ Does good corporate reputation lead to better profits
◆ Do better profits lead to a good corporate reputation
◆ Does the creation of a better corporate reputation lead to the creation of shareholder value
A better understanding of the role of corporate reputation in creating financial value will benefit practitioners such as Company Corporate Affairs managers, PR and communication practitioners, Marketing practitioners, Financial Managers, Investment people and many others in organisations.
A number of these important business practitioners find it difficult to communicate to their “internal” clients the process by which good corporate reputation contributes to a better financial performance and to a higher share market value for a company.
Creating corporate value
In business there are very important corporate value drivers at a strategic level that create corporate value. The three imperatives to address are: Investment to achieve a return in excess of the cost of capital (Return), growing the business (Growth), and managing risk (Risk).
In this case a good corporate reputation can help a company grow by the following simple things:
◆ Unlocking incremental sales from current markets.
◆ Fuelling future growth by helping the company to expand into new markets.
◆ Lowers the risk of doing business with the company.
◆Creating options by helping the company to test the viability of new business ventures.
◆ How does a good CR affect the three principal value drivers (Return, Growth and Risks, That is CR’s impact on corporate value)
◆ Corporate brands specialists have summarised corporate reputation research with these findings:
More sales volumes:
A good CR helps to increase sales revenue through increasing the size and loyalty of customers. Size in this case means number of customers. CR also helps to increase the volume purchased by each customer.
In a clinical and quiet way CR reinforces customer satisfaction and counter isolated episodes of customer dissatisfaction (by allowing customers to rationalise a service failure).
These effects increase the probability that a customer will repeat purchase. Corporate Reputation decreases the sensitivity to price rises and also decreases the effects of the price discounts by competitors, especially with loyal customers.
The rationale here is simply that a good Corporate Reputation either makes it psychologically easier for a consumer to choose, for example, by reducing perceived risk and/or by conjuring up positive associations.
Corporate brand effects:
When a company uses its name as an umbrella brand for its products and services, its CR is also signalled and signified by the corporate name.
Therefore, companies with good CR can leverage this asset or brand equity through that product branding strategy by launching new products and services, and entering new markets under the umbrella of the Corporate Brand.
Companies with strong Corporate Brands often need to spend less on their marketing than their less respected competitors to achieve the same target sales and it costs less to establish brand name recognition among target consumers.
Profit effects:
In a 2002 research by Roberts and Dowling, it was shown that companies with a better reputation than their industry rivals enjoy longer period of sustained profitability. Therefore, a good CR helps to prolong profitability. The persistent profit effects above also suggest that the better reputation companies will be less risky to investors and other stakeholders who have fiduciary relationships with the company.
Investor base:
Companies with good reputations often attract more investor interest than those who do not. And because Investment Banks raising new equity price, the risk of under subscription into their fees structures, a company with a good reputation may be able to structure a lower cost of new equity.
Good reputation companies can be issued a higher initial price and thus return more money to the owners (increased shareholder value).
Credit rating:
Well respected companies are often considered the less risk entities for investment both for working capital and new capital expenditure.
Performance bond effects:
A good CR acts as a performance bond for companies (they put their reputation at risk if they default) and this may allow them to negotiate better terms to trade than a less well respected competitor.
Lower sales variance:
A good CR (and reputation) is often responsible for more customer loyalty and this can help to produce a more stable sales base and thus reducing the variance in sales when economic conditions or competitive actions act against the company.
To sum up the above discussion, CR must not be taken as a peripheral business function but should be a top table activity worth its value.
It can be monetised and given its true value. What practitioners should do in the days of data analytics and initiate formulae that can be used to objectively calculate its value.
Gone are the days without data and figures to justify its importance.
Practitioners must show their worth in management meetings, strategic planning workshops, board meetings and other business managements by demonstrating objectively and based on real figures the value of their profession to companies CR is one of them as it is critical for driving business.
Claim your space empirically and scientifically.
