In the wake of the Toyota recall, more companies grapple with how to manage something they can't measure.
David M. Katz, CFO Magazine
May 1, 2010
"But it has no real way to predict when, to what extent, or if its brand can regain its former sparkle ? " ----- The best way to think about "reputation" is to understand its role in a brand's Value Proposition / Value Delivery System. Toyota didn't just take a hit to the esteem in which it was once held (the "sparkle"); it's brand proposition was undermined. Toyota's value proposition rests squarely on RELIABILITY. It is the chief reason consumers were willing to pay more for a Toyota, and why its resale values were higher vs. competition. Now that Toyota's management has put its core benefit to consumers at risk, I CAN STATE WITH GREAT CERTAINTY that the brand will never regain the position it once had in the minds of consumers. Being slow to respond was bad enough, but not the key. The key was the Toyota Value Delivery System was also undermined, which was probably more important than the safety issues themselves. That is, a RELIABLE brand can be counted on to advise its customers of a potential problem before it becomes an issue. In this instance that would have meant that Toyota management would not have withheld information on any safety issues, but would have instead handled it in the customers interest within days of the problem being first discovered - years ago. Instead, some idiot or idiots rolled the dice with the company's most important asset - the brand's key reason for being! Not only did they undermine RELIABILITY, they made Toyota UNTRUSTWORTHY! And, their actions resulted in unnecessary deaths. The monthly sales gain mentioned in the article is nothing to be excited about, because the article mentions that it was achieved with incentives. This is the point of measurement. "Reputation" is best revealed in market share, revenues and profits: -Toyota will now have to play the incentives game, which it did not have to do before. -Toyota will no hold a pricing advantage, due to the failure. -Over the long haul, Toyota's profits will be down because of higher costs and lower consumer sales. -Preference for Toyota has been lessened, because Toyota cannot be considered RELIABLE any more. Reputation is measured every day in therm of market share, revenues and profits. Its the only measurement that matters.
Posted by Robert Miller | May 12, 2010 09:48 am
It's important to understand how damaging reputational crises can be. But the real story is how to prevent them. 70% of the value of the average company is intangible. This is because processes, knowledge and networks (all considered intangible by accountants) are the core drivers of competitive success--and reputation. Managing reputation starts with managing these intangibles. That's why in our new book, Intangible Capital, we say that Reputation is the New Bottom Line.
Posted by Mary Adams | May 12, 2010 09:19 am
In addition to providing weekly metrics on corporate reputation for thousands of public companies, the Steel City Re Corporate Reputation Index is a tool to help executives improve their management of the underlying drivers of reputation. These are the intangible assets comprising the business processes that govern ethical behavior, innovation, quality, safety, sustainability and security. Companies with superior reputations are superior intangible asset financial managers, and they are rewarded several ways: superior pricing power, lower operating costs, and lower credits costs. They have higher net incomes, higher earnings multiples, and lower equity betas. And they are more resilient when events strike. This benefits all stakeholders, especially investors, and is why hedge funds subscribe to the Index. For CFOs interested in learning more, we recommend the book: Mission Intangible. Managing risk and reputation to create enterprise value.
Posted by Nir Kossovsky | May 01, 2010 05:21 pm© CFO Publishing Corporation 2009. All rights reserved.