Ludwig-Maximilians-Universität München – Institute for Market-based Management

Reputation Management

Brief description (April 2011)

Prof. Dr. Manfred Schwaiger Institute for Market-based Management (IMM) Kaulbachstraße 45/I D-80539 München phone +49 89 2180-5640 Fax +49 89 2180-5651 e-mail [email protected] www http://www.imm.bwl.lmu.de

1 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Ludwig-Maximilians-Universität München – Institute for Market-based Management

1. Reputation as a Management Objective

2 Corporate Reputation Management Prof. Dr. Manfred Schwaiger A company‘s market value can hardly be derived from tangible assets … S&P 500 (1980-2010) HDax (1980-2010) **

* *

Sources: Ballow/Burgman/Roos/Molnar: “A New Paradigm for Managing Shareholder Value, July 2004, p. 7 Lev: Intangibles: Management, Measurement, and Reporting,” Brookings Institution Press, 2001 Lev: Remarks on the Measurement, Valuation, and ReportiReportingng of Intangible Assets . Economic Policy Review, Sept. 2003 Thomson Reuters Datastream * 2000-2007 ** HDAX contains stocks of 110 largest, publicly listed corporations in Germany (DAX, MDAX, TecDAX)

3 Corporate Reputation Management Prof. Dr. Manfred Schwaiger … the central intangible asset is a company‘s corporatttite reputation

Reputation: general evaluation of a company by its various stakeholders. Incorporates both, cognitive and emotional components. An assessment of reputation is based on factual experiences as well as on perceptions relying on communicated messages.

Products & Services

Strategy & Innovation

Manager & Employees Reputation Performance & Market pos.

CSR & Fairness

… Corporate Communications

Sources: Schwaiger/Cannon 2004, Sobol et al. 1992 ; Fombrun 1996; Gray/Ballmer 1998; Hall 1992; De Quevedo 2001 ; Tucker/Melewar 2005

4 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Companies build competitive advantages and increase their marktket va lue b y f ost eri ng reput ttiation

Reputation Media Media

Customers Employees Investors Politicians Suppliers

. Trust in products . Win war for talents . Better access to . Advantages in . Lower and advertising  Willingness to capital markets negotiations procurement . Retention apply . Lower credit . Favorableness costs . Higher purchase  Salary premium costs and support . Higher rates . Better retention . Increased . Reduced risk of commitment . Price premium. Higher productivity willingness to buy litigation and hold shares and stocks

Sources: Fombrun/van Riel 1998; Goldberg/Hartwick 1990; Lafferty/Goldsmith 1999; Caminiti 1992; Preece et al. 1995; Klein/Leffler 1981; Milgrom/Roberts 1986; Dowling 1986; Eidson/Master 2000; Nakra 2000, Brown 1997; Cordeiro/Sambharya 1997; Deephouse 1997; Fombrun 1996; McMillan/Joshi 1997; Roberts/Dowling 1997; Srivastava et al. 1997

5 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Reppputation drives financial performance

Regression analysis using reputation and stock data show:

. Investments in reputation-building activities over a longer period show a positive impact on the shareholder value (market value) (“Inves tmen t Eff ect“) .

. The overall reputation depends on innovative and communicative capabilities as well as on finance based influence (“Performance Effect“).

Sources: Eberl/Schwaiger 2005; Roberts/Dowling 2002; Schwalbach 2000; Hildebrandt/Schwalbach 2000

Investments Reputation Market value Reputation

Investment Performance Effect Effect

6 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Repppputation champions outperform the DAX-30 index

Price index (basis = 100) Top 25% Reputation DAX 200 Risk: DAX =101= 1.01 (daily basis)

175 156

150

114 125

100

Difference in index points 75 60

30

50 0 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Corporate reputation data: Stock market data: Source: IMM Corporate Reputation Monitor© Source: Datastream 9 waves analyzed: 2005-12, 2006-06, 2006-12, 2007-06, 2007-12, 2008-06, 2008-12, 2009-06, 2009-12 Period: 30/12/2005 – 31/3/2010 Sample size ranges between 26 to 28 DAX firms Dividends included During each wave a representative sample of the German general public was surveyed Weighting schemes: DAX stocks are weighted by market value; reputation portfolio stocks are weighted equally (Note: similar results for market value weighting)

7 Corporate Reputation Management Prof. Dr. Manfred Schwaiger A lack of reputation can be fatal …

. June 28, 2007: Fire in the transformer building in a nuclear power plant in Germany, malfunction of the power grid → shutdown of both reactors

. July 16, 2007: Head of the nuclear energy division and Head of Corporate Communications have to resign

. July 27, 2007: commission of independent experts is installed by Vattenfall (among them the former BMW‘s H ead of C orporat e C ommuni cati ons (budget: 7,5 Mio. $)

. „The shutdown of the plants has burdened the profit by $ 85 Mio.“

(Vattenfall Europe, interim report Nov. 2007). Source: Spiegel

8 Corporate Reputation Management Prof. Dr. Manfred Schwaiger The other end of the scale: Nestlé

9 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Ludwig-Maximilians-Universität München – Institute for Market-based Management

2. Our Approach of Corporate Reputation Management

10 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Our reputation model is based on a multinational study and hbhas been ad dtdbopted by several lblhi blue chip compani es

Source: Schwaiger, M. (2004): Components and Parameters of CtRttiCorporate Reputation – an EiilEmpirical Study, in: Schmalenbach Business Review, Vol. 56, S. 46-71

11 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Reputation is not a goal in itself. It has to be linked to itttimportant outcomes and dblthi enable their management!

Check implementation . MttidMeasure reputation and Media response o.k.? outcomes within your Effectiveness and efficiency  strategic group. Locate your as expected? Controlling position compared to  benchmarks Measuring

Outcome (e.g. Loyalty, Engagement, Willingness to invest  etc.) Acting Feed drivers! Improve TQM, Explaining Calculate impact of quality, Performance, set up CSR performance, CSR, strategy.  attractiveness etc. via Create facts and drive Reputation on outcome perception (Corp. Comm.) (driver analysis)

: Tool Setup (Measuring, Integration of Studies) ca. 4 Month Driver analyses per stakeholder group ca. 2 Month Rule of thumb: 12-14 Month then steady state

12 Corporate Reputation Management Prof. Dr. Manfred Schwaiger First Steppgp: Measuring reputation

Identify more with Design of the study

Likeable company General public: CATI Opi n ion lea der: CAPI Likeability Recruiment Market: Online Miss more than other companies

Data collection: TNS Infratest Reputation

About 2.000 / 300 / 2000 interviews, 50-60 companies Recognized world-wide

Companies selected for Competence Top competitor in evaluation have to be known its market at least by name Performs at a premium level

13 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Measurement results: Reputation Portfolio and TtGMitTarget Group Monitor

65%

60% Deutsche Lufthansa Audi Beiersdorf 55% VW Linde Adidas-Salomon Deutsche Post Henkel 50% Deutsche Bahn Siemens Bayer DaimlerChrysler Microsoft Schering BMW Group 45% DeutscheBörse Börse Schenker IBM TUI MAN

y HUK Coburg L'Oreal Metro Aral Hewlett-Packard Deutsche Telekom Commerzbank Fresenius Boeing 40% Allianz Porsche Target Group Monitor: Mü Rüc k BASF AXA Germanwings Continental Shell Reputation of a company in all 35% Dresdner Bank Infineon Deutsche Bank ThyssenKrupp Likeabilit Kühne und Nagel EADS Toyota HypoVereinsbank RWE E.ON SAP surveyed stakeholder groups 30% Altana UilUnileve r BP 25% Accenture Mc Donalds 20% Burger King General Public 15%

10% 69,28% 50% 55% 60% 65% 70% 75% 80% 85% 90% Journalists Competence NGOs/NPOs 75,39%

59,38%

Reputation Monitor: 64,39% Perception of Likeability and Competence of one Academics 71,29% Politicians selected stakeholder group

(currently: ~60 companies) 69,53% 73,20% CEOs etc. Analysts

14 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Second Step: Analyzing reputation drivers 4di4 dimens ions cover the ma in s ta ke ho lder groups

Corporate Performance (capital market perspective)

Recognized world-wide

Competence TOP competitor

Performance at a premium level Corporate Social Quality of Products & Services Responsibility (customer perspective) Identify more with ((popinion leader pers pective )

Likeable company

Likeability Miss more than other companies

Attractiveness (employee perspective)

15 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Second Step: Explaining reputation FdiididitdFor every dimension drivers are deposited

Corporate Performance .High quality of products/services (capital market perspective) .Good value for money .Good services .Well managed .Customer concerns are held in .Economically stable high regard .Manageable risks

.Reliable partner Recognized .Growth potential .Rather innovator than imitator world-wide .Clear vision about the future .… .… Competence TOP competitor

Performance at Quality of Products & Services a premium level Corporate Social Responsibility

(customer perspective) Identify (opinion leader perspective) more with

Likeable company

Likeability Miss more than .Forthright information .Highly qualified employees other companies .Fair attitude towards .CldCould see myself lfkifthi working for this competitors company .Social responsibility .Likeable physical appearance .Environmental engagement .… .Is not only concerned about the profit Attracti veness .Corporate Citizenship (employee perspective) .…

16 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Linking reputation to customer retention proofs a significant effect of lik eabilit y ( ex.: power suppli ers’ mark et)

Identify more with ,80 Likeable company Responsibility ,87 Miss more than ,80 ,22 79% other companies Attractiveness ,31 Likeability ,73 69% Long term ,83 committed

,88 ,40 Commitment Choose again ,85

,13 (n.s.) Recommendation Quality ,50 Competence ,68 Recognized ,68 91% ,80 world-wide

Top competitor in ,88 Performance its market

Performs at a premium level

Source: Schwaiger/Zinnbauer (2003): „Unternehmensreputation: Treiber der Kundenbindung auch bei mittelständischen EVUs, „ in: Zeitschrift für Energiewirtschaft, 27. Jahrgang (2003), No. 4, S. 275-280

17 Corporate Reputation Management Prof. Dr. Manfred Schwaiger … and in the bank market

Identify more with

Quality & Likeable company Honesty ++ Miss more than other companies

Likeability ,86 79% Long term committed ++ Commitment Choose again

Responsibility ,09 (n.s.) Recommendation ++ Competence

+ Recognized world-wide PfPerformance Top competitor in its market

Performs at a premium level

Source: Zinnbauer/Bakay/Schwaiger (2004): „Hohe Reputation stärkt bei Banken und Sparkassen die Kundenbindung,“ in: Betriebswirtschaftliche Blätter, Heft 06/2004, S. 271-274

18 Corporate Reputation Management Prof. Dr. Manfred Schwaiger PLS analyyggsis allows calculating a “driver ranking”

Rank Position (Impact on comp. to Driver Factor loyalty) benchmark

1 (20.12%) ++ Rather innovator than imitator Quality

2 (16.74%) - Well managed Performance

3 (12.70%) o Customer centricity Quality

4 (6.68%) + Physical appearance Attractiveness

5 (()6.22%) -- Sincere information CSR

6 … … …

19 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Third Step: Derive recommended actions from driver rankings and competiti ve positi ons…

0,1 xyz 0,1 2 4 For example: 6 18 21 indicator 7: „well managed“ 0,0 19 10 -0,010 0,000 0,010 0,020 0,030 0,04013 0,050 0,060 0,070 sition of

oo 14 20 15 IdiIndicator has hihiflhigh influence on -0,1 8 customer loyalty (via reputation) 9 3 1 7 and is less developed than for the -0,1 12

lative p 5 other benchmarks. This driver has ee

r 11 tbto be wor kdked on.

-0,2

16 17 -0,2

-0,3

influence on customer loyalty

Dimension 1 = impact on outcome Dimension 2 = position in the strategic benchmark group

2006 Strategist of the year

20 Corporate Reputation Management Prof. Dr. Manfred Schwaiger … analyze risks, develop strategic communication guidelines and i mpl ement th em creati vel y

Unfortunately: That does not always work…

bad performance

legal issues

board member deviance

identify risks product flops

environmental scandal

communication disaster

… t

21 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Fourth Step: Controlling Measures pretest – media resonance analysis - posttest

5% 4% Airport Lounge 3% Formel 1 2%

1% Likeablility 0% Stiftungs Lst-Lst . -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% -1%

-2% TSV 1860 -3% Oper -4%

Competence

22 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Ludwig-Maximilians-Universität München – Institute for Market-based Management

3. RttiMReputation Managemen t as a Steerin g T ool

23 Corporate Reputation Management Prof. Dr. Manfred Schwaiger The Concept

1. Consolidating: 6 endogenous indicators for reputation Getting a common linchpin for all studies, capturing all relevant aspects  3 for likeability of corporate reputation  3 for competence

2. Measuring & Managing Determine Goals and potential drivers, identify levers of reputation in eachlh relevan ttkhldt stakeholder group Communication in Communication to the financial employees/ 3. Operations & Communications sector recruitment market derive suitable operative programs and communication measures Corporate 4. (Control) Tool Reputation for measuring the effectiveness of single activities regarding corporate reputation Communication to Communication to consumers opinion leaders

24 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Summarizing: What are th e b enefit s o f repu ta tion managemen t for a firm ?

Beneficial aspects

+ Transparent management and Increased steering concept with proven impact market on corporate performance value + Compatible tool allows linking communications measures and using existing market research studies and + Instrument to control actions in every section available with respect to effectiveness and (long-term) criiisis efficiency prevention + The resulting impacts of the drivers allow the identification of a hierarchy of the messages  prioritization of goals

25 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Ludwig-Maximilians-Universität München – Institute for Market-based Management

4. CVs + Project Examples

26 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Prof. Dr. Manfred Schwaiger University Professor of Management Ludwig-Maximilians-Universität Munich

 Responsibilities: Chair of the IMM, Dean (2003-2005), Dean of Studies (1999-2003 and since 2005), Head of the working group for the international study programme “European Master in Management”, Member of the executive committee of the German Academic Association for Business Research (VHB), member of the board of the Munich Experimental Laboratory for Economic and Social Sciences (MELESSA)

 CilCurriculum vit ae: Academic studies of Business Administration/Economics at Universität Augsburg with majors in Marketing and Operations Research, Ph.D. (Dr. rer. pol.) in 1992, post-doctoral thesis (Habilitation) in 1997  Fields of Research: Market-based Management, Market and Trends Research, Communications Management, Corporate Reputation, Competitive Advantage  Consulting Experience: Numerous ppjrojects with German Blue-Chip-Compp(anies (concernin gpg topics such as Customer Satisfaction and Customer Loyalty, Employee Motivation, Corporate Communications and Marketing Strategy)

27 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Prof. Dr. Marko Sarstedt, MBR  Assistant Professor for Quantitative Methods in Marketing and Management  Academic studies of Business Administration at Universität Passau, Helsinki School of Economics and Business Administration and Ludwig-Maximilians- Universität München; Majors: Empirical Research and Corporate Planning, Information, Organization and Management, Statistics  Ph.D. (Dr. oec. publ.) from the Institute for Marked-based Management (IMM) / Ludwig-Maximilians-Universität München  Junior Professor at the Ludwig-Maximilians-Universität München  Fields of Research: Heterogeneity in Structural Equation Modeling (mainly PLS Path Modeling), Effects of Cultural Sponsorship, Reputation, Success Factors in Marketing, Data Qualit y and Scale Develo pment  Consulting Experience: Telco, Engineering

28 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Dipl.-Kfm. Felix Kessel  Research and Teaching Assistant  Academic studies of Business Administration at Ludwig-Maximilians- Universität München; Majors: Market-based Management, Human Ressource Management, Computer Sciences  Field of Research: Green Marketing, Sustainability, Corporate Social Responsibility  Consulting Exppggerience: Engineering

Dipl.-Hdl. Markus Kick  Research and Teaching Assistant  Academic studies of Human Resource Education & Management at Ludwig- Maximilians-Universität München; Mayors: Market-based Management, Statistics  Field of Research: Reputation, Brand Impact on Health Insurance Choice Decisions

29 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Dipl.-Kffr. Martina Littich,M.A., M.A.  Research and Teaching Assistant  Academic studies of Communication Science and Business Administration at Ludwig-Maximilians-Universität München and Universidad San Pablo CEU in MdidMjMadrid; Majors: A ppli lidCed Communi ca tion Researc hAdh, Adver tiitising Psyc hlhology; Market-based Management, Marketing  Field of Research: Effects of Communication on Reputation/Stock Returns, Health Marketing  Consulting Experience: Engineering

Dipl.-Kffr. Elena Michel  Research and Teaching Assistant  Academic studies of Business Administration at Ludwig-Maximilians- Universität München and Università di Bologna; Majors: Market-based Management, Marketing , Advertising Psychology  Field of Research: Return on Marketing, Corporate Reputation and Stock Returns Risk, Corporate Reputation and Analyst Stock Recommendation  Consulting Experience: Automotive

30 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Dipl.-Kfm. Sascha Raithel, MBR  Research and Teaching Assistant  Academic studies of Business Administration at Universität Augburg; Majors: Data Analysis and Statistics, Information Management and Market Research, BiBusiness IfInformati cs  Fields of Research: Marketing Performance Measurement, Marketing- Finance-Interface, Corporate Reputation  Consulting Expp,erience: Insurance, IT

Dipl.-Kfm. Matthias Schloderer, MBR  Research and Teaching Assistant  Academic studies of Business Research at Ludwig-Maximilians-Universität München and Technische Universität München; Majors: Marketing, Empirical Research and Planning, Market/Advertising Psychology  Fields of Research: Corporate Reputation (Corporate Reputation Monitor© in the Opinion Leader Market, NPO Reputation, War for Talent), PLS Path Modeling, Effects of Cultural Sponsorship, Customer and Student Satisfaction  Consulting Experience: Insurance, Telco, Aviation, Defense, Engineering

31 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Dipl.-Hdl. Kathrin Stingl, MBR  Research and Teaching Assistant  Academic studies of Human Resource Education & Management at Ludwig- Maximilians-Universität München  Field s o f Researc h: MktiMarketing in Hig her Educati on, Stud ent E xpect ati ons and Satisfaction  Consulting Experience: Insurance

Dipl.-Kffr. Petra Wilczynski, MBR  Research and Teaching Assistant  Academic studies of Business Administration at Ludwig-Maximilians- Universität München; Majors: Market-based Management, International Markets, Advertising Psychology  Fields of Research: Corporate Reputation, Measurment Theory and Quantitative Methods  Consulting Experience: Insurance

32 Corporate Reputation Management Prof. Dr. Manfred Schwaiger IMM Team

Dipl. oec. Lorenz Zimmermann  Research and Teaching Assistant  Academic studies of Business Administration/Economics at Universität Hohenheim and University of Connecticut; Majors: Marketing, Managerial Accounting , Applied Social Research , Statistics  Consulting Experience: Insurance, Automotive, Telco

33 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Projjpect example 1:

. Client is market leader in Germany, suffers from severe Situati on custhCEOdtomer churn, CEO under pressure idiin media . Media response mostly negative

. Comprehensive analysis of customers, employees, financial community and opinion leader markets in Problem Germany (driver analysis) . additional studies not desired, integration in existing ones

. Identification of claims that show positive impact on Support provided reputation in all stakeholder groups . Feed drivers that distinguish client from competitors

. As opposed to competitors , innovation is not a main Exemplary results driver, but good management is. . Draw benefits from physical appearance (better evaluated than competitors‘ appearance), refrain from specific sponsoring activities . Understanding customer needs far more important than friendliness in service fields

34 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Projjpect example 2:

. Oligopoly market, client is one out of two global players Situati on andtd tech no logy lea der . Media response mostly negative, CSR activities on trial

. Effective reputation management in Germany and France Problem . Check whether global or regional (communications-)strategy seems more effective

. Custom-made Study (GER/F): CAP-interviews (TNS) with journalists, analysts, top managers and politicians Support provided . Derive implications for operations and corporate communications

. Advantages in perceived innovativeness and market Exemplary results leadership claims should be exploited by means of communications (skimming; no additional investments) . Increase reliability, which is perceived below benchmarks (investment program) . CSR activities show minor impact (savings possible!)

35 Corporate Reputation Management Prof. Dr. Manfred Schwaiger Projjpect example 3:

. Client is regional energy supplier Situati on . CittdttittilltkhldCommitment and trust are important in all stakeholder groups, but difficult to manage

. Identify drivers of reputation as antecedent of trust Problem focusing on customer loyalty and derive suitable measures

. Development of a loyalty model (SEM) Support provided . Identification of loyalty drivers based on a regional CATI sample

. Reputation model explains 70% of loyalty variance Exemplary results . Only likeability component has significant impact . CSR activities are effective and are perceived better than those of the benchmarks . Lack of competence (compared to benchmarks) should be eliminated with respect to other stakeholder groups

36 Corporate Reputation Management Prof. Dr. Manfred Schwaiger