Every business company has such a valuable tool as a reputation. As in the world of simple human relations, in the business sphere, this category has a dual nature: on the one hand, it can be a great opportunity to establish some kind of new relationship, attract new counterparties, and derive certain benefits; on the other hand, with a bad reputation, a company may simply not be able to start business cooperation with anyone.
Due to the fact that reputation is not a permanent phenomenon, and in the course of the activity of any business entity, it can change both for better and for worse, the company must constantly take care of it.
On the one hand, such “concern” can be called measures to continuously improve it, to develop a positive attitude of other companies and the public towards this business entity. On the other hand, it can be risk management that exists for each specific company.
In this article we will consider how it should ideally be, how you can protect your company from a loss of reputation, and how other players in the market deal with it in general.
Reputation Determination
We begin, perhaps, with a general definition of such a category as “reputation”. Indeed, as noted above, from real life we know that this term means the attitude of other people to one specific person who owns this reputation. In fact, this is the set of qualities that endow one whose reputation is in question.
In the world of business relations, everything happens in a very similar way. If one business structure wants to start a relationship with another, first of all, what it will focus on is the image of the company (that is, how other market participants, in particular those who already have experience working with it, see it )
Well, of course, depending on what kind of reputation the company has, its business will develop or, conversely, decline. This is precisely what is so important when it comes to attitude to a business entity.
Reputational risks
Threats, which are likely to damage the image of the company, the attitude of other business entities to it, are called, respectively, “reputational risks”. If you correctly approach their definition and timely identify where they may be lurking and what specific threat the company poses, you can prevent a lot of negative consequences for the business as a whole.
This is the task of risk managers working in this field of business. They are involved in risk management, maintaining the image of the company from any threats. In turn, the correct approach to this issue allows you to conduct a business, develop it and improve your financial performance in every way.
Types of risks
Again, since in our understanding the image of the company is something abstract, it is not always possible to understand what are the risks mentioned above. How can they be measured, evaluated, what needs to be done in order to understand where they appear and, of course, how to protect yourself from them?
In turn, we understand how financial risks look . This, in essence, is an opportunity to suffer monetary losses in one form or another. Where a business may lose its investment, there are clear financial risks. To protect yourself from them means not to make such investments, to refrain from them, sensibly evaluating the correlation of your chances of making a profit and losing everything.
According to a similar principle, reputation risks also work. The company may receive a negative attitude from those with whom it maintains business relations, as well as from the society - people who are direct consumers of its products or services. Only in order to understand more specifically what reputational risks may appear, we can conditionally divide them into three categories. Read more about them in the following sections.
Corporate Risks
The most common group of threats, the purpose of which is the reputation of the company, are corporate risks. They relate to the activities of a particular business entity and can be expressed in completely different moments in its work. The sphere of production, sales, company management and many others, all of them may be subject to corporate reputation risks. For this reason, each risk manager must ensure that each of these categories is protected. How is this expressed in practice? Very simple: each of us was faced with examples of such measures against corporate risks in everyday life.
For example, protecting the reputation of a particular company will be expressed in the fact that the latter conducts environmentally friendly production, conducts socially significant activities, initiates various activities related to charity and so on. That is, the image of such a company is based on the fact that it has a positive effect on certain areas of life, properly organizing its internal processes.
Global risks
Another category of factors that create a company's reputation risks is more global in nature. In particular, these are the factors that pose a threat to the whole sphere of production. For example, they take place when the public is reprehensible, for example, to a number of enterprises for the reason that they, on the contrary, negatively affect some areas of human life. Only in order for precisely “risks” to occur, it is necessary that factors negatively affecting the image of the whole industry appear suddenly. This would mean that such reputational risks were justified and the enterprises that did not take care of them suffered serious damage.
Local risks
Finally, the third type of factors that may adversely affect the assessment of the company by other business entities or by consumers of services and goods are risks that relate to some part of the company. The clearest example of such a phenomenon can be, for example, the qualities of top managers of a company or its leadership, which have been seen in some negative (from the point of view of the public) stories. Or, such risks may occur if the enterprise managers began to carry out the wrong (and maybe even reprehensible), from the point of view of other people, mass layoffs of employees, cuts in salaries, etc.
That is why each leader tries to work to create a favorable attitude for employees (and, therefore, for the company), introducing various incentives, increasing wages and taking other similar steps. Not only does this all motivate employees, such actions also preempt reputational risks that could harm the business.
Risk Priority
In fact, every risk manager who adequately assesses the market situation can (and should) clearly determine which of the risks are priority ones. We give a simple example. On the one hand, the company is engaged in the production of products that have unhealthy additives; on the other, it is going to carry out mass layoffs. From the point of view of the consumer, of course, more important is the quality of the product and its effect on the human body. After all, if information on the harmfulness of products is released, sales may fall substantially. On the other hand, the risk manager understands that the likelihood of identifying the fact of “harmfulness” of the product is minimal, while they will immediately know about dismissals.
In this case, in the short term, the company should think about how to cope with the risk of losing the image as a result of layoffs, and in the long term - “whitewash” in the eyes of the buyer and convince him that the presence of products that are harmful to health - it’s not so scary. A striking example, by the way, of successful “cases” in this direction are the largest megacorporations McDonald's and CocaCola. We all know that the food at Mack, like Kola, is seriously harmful. Nevertheless, we continue to buy both.
Properly prioritized risks determine how successfully the company copes with them and, thus, maintains its image. This is what is called “reputation risk management” and their competent avoidance.
Reputation in the eyes of counterparties
It is also important to understand that the company's reputation in understanding other business structures and in the eyes of the client is far from the same thing. After all, she displays this company from different points of view. How to change the reputation of a company if you look at it through the eyes of the business and the eyes of the client is very easy to understand. In the first case, the key is the honesty of the company, its attitude to partners, the distribution of roles in the business, the fulfillment of its obligations, its timeliness.
Reputation in the eyes of the client
As for what the business entity looks like in the eyes of the client, the success of the company in the field in which it operates is the best evidence of this. So, if it is a large enterprise or a well-known brand, it is obvious that its services / products are in demand and are in great demand in the market. If the subject has a tarnished reputation, respectively, with the sale of products he may have problems. In this case, there is a flaw on the part of risk managers of specialists working on the company's PR.
Image of enterprises
Another important point that I would like to emphasize in the framework of this article is the specifics of the company or enterprise. Obviously, there is a big difference between how the tarnished reputation of an industrial giant affects his work and, say, the image of a local grocery store. In the first case, the company is unlikely to be threatened by anything, since it is engaged in the release of goods for one purpose. There are a lot of similar examples: large factories and factories often have a not too enviable image in the eyes of the public.
Another thing is the business reputation of a legal entity providing direct services. Here, the role of other people's opinions increases significantly, and the latter begins to influence the entire business even more strongly. If a local newspaper writes that a small store sells stale dairy products, selling them here will be much more difficult.
Bank reputation
A completely different thing is the bank's reputation risks. Since financial organizations have their own, special market structure, special trust of people is necessary here (in particular, if we are talking about investors). A person should be ready to provide his money as a deposit, therefore, in this case, the image of the bank should be above all. If only information appears about payment problems or about a change in management of a banking institution, depositors may try to withdraw their money from this bank as quickly as possible, which, again, will negatively affect all its activities.
“Do not lose face”
The main task of each risk manager is to properly assess the reputation risk. These are, first of all, those factors that can negatively appear on the image of the structure, “drop it” in the eyes of customers and other companies. To prevent this from happening, you need to not only try “not to lose your reputation”, but also constantly improve it and take it to a new level. For this, the largest companies create special funds, hold a lot of events, turn to different tools, so that only the company's reputation is improved and “cleaned up”.
Reputation Recovery
Finally, if there is any scandal or unwanted information has been made public, the image of the organization can be saved. Whether it is the business reputation of a legal entity or the opinion of a client, all of this can be corrected by choosing the right strategy for future behavior. Often, business leaders whose reputation has suffered as a result of various information scandals, some unpleasant situations for society, and the like, first of all, apologize and show that they are fully involved in this process, they understand how important this is. Then begins the compensatory measures and so on. However, this is another conversation that is not related to the subject of the article.