Joaquín Garralda. Professor. Instituto de Empresa
20 September 2003
A firm’s reputation is built on both external (long-distance) and internal (short-distance) factors.
The confusion that sometimes surrounds the term “reputation” is due to the fact that, on analyzing one, special importance is often afforded to one angle only, obscuring or concealing some of the other aspects involved. We encounter judgements on a company’s reputation that emphasize fundamentally external aspects – ones we could include under the umbrella-term of its image – while on the other hand considerations exist that underscore the cultural and emotional aspects of the firm – which I call more internal factors.
The reverse of this situation is the dispersion – save certain exceptions – of companies that make up the different rankings related to reputation (the firm most admired, most respected, most renowned, etc). While Microsoft remains in top positions on most international lists, other leading firms maintain their spots in but some of them. The interesting thing is that, in certain quarters, Microsoft is perceived as having a highly negative reputation, sometimes even for the same characteristics for which it is valued as a leader. Evidently, the methodology employed affects the results. For this reason, this article will take an analytical approach that not only serves to classify companies, but also helps firms choose between those actions that, directly or indirectly, may affect their reputation.
We begin with the definition of reputation as the sum of all perceptions held by the different agents involved with respect to a certain company. Next, it is a good idea to differentiate between two aspects to avoid confusion: a) the medium/message employed; and b) the recipient of the message. We can then add the variable that links them: the “distance” involved in the company’s interrelation with the different agents.
Using this approach, we can establish the parameters that enhance a reputation as: large size, good economic results and greater quota of “advertising visibility,” compared to competitors. All these could be considered “long-distance” factors, as they are objective messages which get through with full clarity to people who are rational in their perceptions and yet may have “distant” relations with the firm: analysts, shareholders, competitors, etc.
Keep your distance
On the other hand, we have “short-distance” factors. These, to influence reputation, require the people involved to be in contact with – or at a short distance from – the firm. This, so they can perceive the message with clarity (which may include certain emotional aspects) and thus exercise a positive influence. Among the most relevant examples are: the clients’ perception of value for money in the product or service; employees’ perception of the way the firm treats them; perception of the local community that experiences its activities; and NGOs that observe its behavior “in situ”.
As an example, we could establish differences between two highly reputable Spanish companies, El Corte Inglés and Inditex. With certain minor differences, they compete in the same sector. Both are large and achieve good results, although Inditex is more international. Nonetheless, their approach to the “distance” factor is quite different. El Corte Inglés is the leader in advertising costs, while Inditex scarcely advertises.
Should Inditex strive to follow the El Corte Inglés model in “distance” actions? In my view, given the current situation, it would seem that efforts to improve Inditex’ reputation would be more effective if it dedicated more time to those “short-distance” actions referred to above.
To sum up, the decision on where to place the frontier for actions to be taken could prove a key factor in increasing return on efforts made to enhance a firm’s reputation.