Reputation is known to be a ubiquitous, spontaneous, and highly efficient mechanism of social control in natural societies. It is a subject of study in social, management and technological sciences. Its influence ranges from competitive settings, like markets, to cooperative ones, like firms, organizations, institutions and communities. Furthermore, reputation acts on different levels of agency, individual and supra-individual. At the supra-individual level, it concerns groups, communities, collectives and abstract social entities (such as firms, corporations, organizations, countries, cultures and even civilizations). It affects phenomena of different scales, from everyday life to relationships between nations. Reputation is a fundamental instrument of social order, based upon distributed, spontaneous social control.
The concept of reputation is considered important in business, politics, education, online communities, and many other fields, and it may be considered as a reflection of that social entity's identity.
Cognitive view of reputation
The cognitive view of reputation has become increasingly prominent in reputation research. It has led to improved understanding of the role played by reputation in a number of practical domains and scientific fields. In the study of cooperation and social dilemmas, for instance, the role of reputation as a partner selection mechanism started to be appreciated in the early 1980s.
Working toward such a definition, reputation can be viewed as a socially transmitted meta-belief (i.e., belief about belief) that is a property of an agent, that results from the attitudes other actors have about some socially desirable behaviour, be it cooperation, reciprocity, or norm-compliance. Reputation plays a crucial role in the evolution of these behaviours: reputation transmission allows socially desirable behaviour to spread. Rather than concentrating on the property only, the cognitive model of reputation accounts not only for reputation-formation but also for the propagation of reputation.
To model this aspect, it is necessary to specify and develop a more refined classification of reputation. A recommendation can be extremely precise; in the stock market, for example, an adviser, when discussing the reputation of a bond, can supplement his informed opinion with both historical series and current events. In informal settings, gossip, although vague, may contain precious hints both to facts ("I've been told this physician has shown questionable behavior") and to conflicts taking place at the information level (if a candidate for a role spreads defamatory information about another candidate, whom should you trust?).
Moreover, the expression "it is said that John Smith is a cheater" is intrinsically a reputation spreading act, because on one hand it refers to a (possibly false) common opinion, and on the other the very act of saying "it is said" is self-assessing, since it provides at least one factual occasion when that something is said, because the person who says so (the gossiper), while appearing to spread the saying a bit further, may actually be in the phase of initiating it.
Gossip can also be used as an identifier only - as when gossiping about unreachable icons, like royalty or showbiz celebrities - useful only to show the gossiper belongs to the group of the informed ones. While most cases seem to share the characteristic of being primarily used to predict future behavior, they can have, for example, manipulative sub-goals, even more important than the forecast.
In the case of a communication between two parties, one (the advisee) that is requesting advice about the potential for danger in a financial transaction with another party (the potential partner, target), and the other (the adviser, evaluator) that is giving advice. Roughly speaking, the advice could fall under one of the following three categories :
- the adviser declares it believes the potential partner is (is not) good for the transaction in object;
- the adviser declares it believes another (named or otherwise defined) agent or set of agents believes the potential partner is (is not) good for the transaction in object;
- the adviser declares it believes in an undefined set of agents, hence there is a belief the potential partner is (is not) good for the transaction in object.
Note the care to maintain the possible levels of truth (the adviser declares - but could be lying - it believes - but could be wrong - etc..). The cases are listed, as it is evident, in decreasing order of responsibility. While one could feel most actual examples fall under the first case, the other two are not unnecessarily complicated nor actually infrequent. Indeed, most of the common gossip falls under the third category, and, except for electronic interaction, this is the most frequent form of referral. All examples concern the evaluation of a given object (target), a social agent (which may be either individual or supra-individual, and in the latter case, either a group or a collective), held by another social agent, the evaluator.
The examples above can be turned into more precise definitions using the concept of social evaluation. At this point, we can propose to coin a new lexical item, image, whose character should be immediately evident and is clearly linked to reputation.
Image is a global or averaged evaluation of a given target on the part of an agent. It consists of (a set of) social evaluations about the characteristics of the target. Image as an object of communication is what is exchanged in examples 1 and 2, above. In the second case, we call it third-party image. It may concern a subset of the target's characteristics, i.e., its willingness to comply with socially accepted norms and customs, or its skills (ways), or its definition as pertaining to a precise agent. Indeed, we can define special cases of image, including third-party image, the evaluation that an agent believes a third party has of the target, or even shared image, that is, an evaluation shared by a group. Not even this last is reputation, since it tries to define too precisely the mental status of the group.
Reputation, as distinct from image, is the process and the effect of transmitting a target image. To be more precise, we call reputation transmission a communication of an evaluation without the specification of the evaluator, if not for a group attribution, and only in the default sense discussed before. This covers the case of example 3 above. More precisely, reputation is a believed, social, meta-evaluation; it is built upon three distinct but interrelated objects :
- a cognitive representation, or more precisely a believed evaluation - this could be somebody's image, but is enough that this consist of a communicated evaluation;
- a population object, i.e., a propagating believed evaluation; and
- an objective emergent property at the agent level, i.e., what the agent is believed to be.
In fact, reputation is a highly dynamic phenomenon in two distinct senses: it is subject to change, especially as an effect of corruption, errors, deception, etc.; and it emerges as an effect of a multi-level bidirectional process. Reputation is also how others know and perceive you as an individual.
While image only moves (when transmitted and accepted) from one individual cognition to another, the anonymous character of reputation makes it a more complex phenomenon. Reputation proceeds from the level of individual cognition (when is born, possibly as an image, but not always) to the level of social propagation (at this level, it not necessarily believed as from any specific agent) and from this level back to individual cognition again (when it is accepted).
Moreover, once it gets to the population level, reputation gives rise to a further property at the agent level. It is both what people think about targets and what targets are in the eyes of others. From the very moment an agent is targeted by the community, his or her life will change whether he or she wants it or not or believes it or not. Reputation has become the immaterial, more powerful equivalent of a scarlet letter sewed to one's clothes. It is more powerful because it may not even be perceived by the individual to whom it sticks, and consequently it is out of the individual's power to control and manipulate.
More simply speaking for those who want a working definition of reputation, reputation is the sum of impressions held by a company's stakeholders. In other words, reputation is in the "eyes of the beholder". It need not be just a company's reputation but could be the reputation of an individual, country, brand, political party, industry. But the key point in reputation is not what the leadership insists but what others perceive it to be. For a company, its reputation is how esteemed it is in the eyes of its employees, customers, investors, talent, prospective candidates, competitors, analysts, alumni, regulators and the list goes on.
Image and reputation are distinct objects. Both are social in two senses: they concern properties of another agent (the target's presumed attitude toward socially desirable behavior), and they may be shared by a multitude of agents. However, the two notions operate at different levels. Image is a belief, namely, an evaluation. Reputation is a meta-belief, i.e., a belief about others' evaluations of the target with regard to a socially desirable behavior. To better understand the difference between image and reputation, the mental decisions based upon them must be analyzed at the following three levels:
- accept the beliefs that form either a given image or acknowledge a given reputation. This implies a believed evaluation gives rise to one's direct evaluation. Suppose I know the friend I mostly admire has a good opinion of Mr. Berlusconi. However puzzled I may be by this dissonance-inducing news, I may be convinced because of my friendship to accept this evaluation and share it.
- use image to decide whether and how to interact with the target. Once I have my own opinion (perhaps resulting from acceptance of others' evaluations) about a target, I will use it to make decisions about my future actions concerning that target. Perhaps, I may abstain from participating in political activity against Mr. Berlusconi.
- transmit my (or others') evaluative beliefs about a given target to others. Whether or not I act in conformity with a propagating evaluation, I may decide to spread the news to others.
Since 1980, the study of 'corporate reputation' has attracted growing scholarly attention from economics, sociology, and management. Economists use game-theory to describe corporate reputations as strategic signals that companies use to convey to markets some of their qualities and abilities. Sociologists view corporate reputation as descriptions of the relative status that companies occupy in an institutional field of rivals and stakeholders. Management scholars describe corporate reputations as an aggregation of perceptions that form as audiences judge the behaviors of companies.
In practice, corporate reputations are revealed by the relative rankings of companies created and propagated by information intermediaries. For example, business magazines and newspapers such as Fortune, Forbes, Business Week, Financial Times, and The Wall Street Journal regularly publish lists of the best places to work, the best business schools, or the most innovative companies. These rankings are explicit orderings of corporate reputations, and the relative positions of companies on these rankings are a reflection of the relative performance of companies on different cognitive attributes. Corporate reputations are found influence the attractiveness of ranked companies' as suppliers of products, as prospective employers, and as investments. For those reasons, companies themselves have become increasingly involved with the practice of reputation management.
Many organizations create public relations and corporate communication departments dedicated to assisting companies with reputation management. In addition, many public relations and consulting firms claim expertise in reputation management. The growth of the public relations industry has largely been due to the rising demand for companies to establish credibility and reputation. Incidents which damage a company's reputation for honesty or safety may cause serious damage to finances. For example, in 1999 Coca-Cola lost $60 million (by its own estimate) after schoolchildren reported suffering from symptoms like headaches, nausea and shivering after drinking its products.
Although most companies see reputation management as a central pat of a CEO's role, managing reputation involves a set of ongoing activities that are best managed when they are delegated to a specific individual in the organization. That's why some companies have created the position of Chief reputation officer. A growing number of people in the business world now have the word "reputation" in their titles –including Dow Chemical, SABMiller, Coca-Cola, Allstate, Repsol YPF, Weber Shandwick, and GlaxoSmithKline (although no longer). Hoover's shows a list of such officers.
Social media like Twitter, Linked In, and Facebook have made it increasingly important for companies to monitor their online reputations in order to anticipate and respond to criticisms of their actions. There are two main routes that customers can take when complaining about companies -individual-direct response or broadcast-based response. For a company, it takes a lot of time and effort to address individual-direct responses. One study showed that "...72% of customers expect a reply within one hour." In order to best recover from negative complaints on social media, it is important for a company to prove its authenticity by providing more specific answers directly to its critics.
A corporate reputation can be managed, accumulated and traded in for trust, legitimization of a position of power and social recognition, and people are prepared to pay a premium price the for goods and services offered, which in turn generates higher customer loyalty, a stronger willingness from shareholders to hold on to shares in times of crisis, and greater likelihood to invest in the company's stock. Therefore, reputation is one of the most valuable forms of "capital" of a company. "Delivering functional and social expectations of the public on the one hand and manage to build a unique identity on the other hand creates trust and this trust builds the informal framework of a company. This framework provides "return in cooperation" and produces reputation capital. A positive reputation will secure a company or organisation long-term competitive advantages. The higher a company's reputation capital, the lower the costs of supervising and exercising control."
Building reputation through stakeholder management
According to stakeholder theory, corporations should be managed for the benefit of all their "stakeholders," not just their shareholders. Stakeholders of a company include any individual or group that can influence or is influenced by a company's practices. The stakeholders of a company can be suppliers, consumers, employees, shareholders, financial community, government, and media. Companies must properly manage the relationships between stakeholder groups and they must consider the interest(s) of each stakeholder group carefully. Therefore, it becomes essential to integrate public relations into corporate governance to manage the relationships between these stakeholders which will enhance the organization's reputation. Corporations or institutions which behave ethically and govern in a good manner build reputational capital which is a competitive advantage. A good reputation enhances profitability because it attracts customers to products, investors to securities and employees to its jobs. A company's reputation is an intangible asset and a source of competitive advantage against rivals because the company will be viewed as more reliable, credible, trustworthy and responsible to its employees, customers, shareholders and financial markets.
In addition, according to MORI's survey of about 200 managers in the private sector, 99% responded that the management of corporate reputation is very (83%) or fairly (16%) important. Reputation is a reflection of companies’ culture and identity. Also, it is the outcome of managers' efforts to prove their success and excellence. It is sustained through acting reliably, credibly, trustworthily and responsibly in the market. It can be sustained through consistent communication activities both internally and externally with key stakeholder groups. This directly influences a public company's stock prices in the financial market. Therefore, this reputation makes a reputational capital that becomes a strategic asset and advantage for that company. As a consequence, public relations must be used in order to establish long lasting relationships with the stakeholders, which will enhance the reputation of the company.
Causes and consequences
According to Kevin Money and Carola Hillenbrand, many conflicting models of reputation exist. Terminology such as reputation, branding, image and identity is often used interchangeably. Much of this confusion has been alleviated by recent work integrating reputation models to underlying theories. Reputation models can be placed in a broader framework that distinguishes reputation from its underlying causes and from its consequences. This approach is important to clarify the meaning of reputation.
- Causes of reputation are seen to reside in stakeholder experiences. Stakeholder experiences relate to a company's day-to-day business operations, its branding and marketing and "noise" in the system, such as the media and word of mouth. Further causes of reputation may include the perceived innovativeness of a company, the customers' expectations, the (perceived) quality of the company's goods and services and the subsequent customer satisfaction, all of which differ according to the respective customers' cultural background.
- Reputation consists of the beliefs that stakeholders hold about a company (the cognitive element)and the feelings that stakeholders have about a company (the affective element). While the cognitive element of reputation can reflect the uniqueness of a company or of products in term characteristics such as brand attributes (whether an organisation is delivering high quality products, is international, friendly etc.), the affective element is always evaluative. In other words, it gives an indication of whether stakeholders like, admire or trust a company and its attributes. A unique and distinctive cognitive evaluation of a company only has value if this results in a positive affective evaluation and positive consequences of reputation.
- The consequences of reputation reside in the behaviors (supportive or resistant) that stakeholders demonstrate towards a company. Behaviors such as advocacy, commitment and cooperation are key positive outcomes of a good reputation. Boycotts and lawsuits are key negative outcomes of a bad reputation.
The convergence of globalization, instantaneous news and online citizen journalism magnifies corporate wrongdoing or missteps. Some companies face new assaults on its reputation daily. Reputation recovery is often a long and arduous process to rebuilding equity in a company's name. Research has found it takes approximately 3.5 years to fully recover reputation. James C. Collins of Good to Great fame says it takes a company seven years to go from good to great. The path is clearly long. The reason reputation recovery has risen in importance is that the "stumble rate" among companies has risen exponentially over the past five years. In fact, 79% of the world's most admired companies have lost their number one positions in industries in that time period. Companies which were once heralded as invincible no longer are.
In the context of brand extension strategies, many companies rely on reputation transfer as a means of transferring the good reputation of a company and its existings products to new markets and new products. Consumers who are already familiar with other products of an established brand, exhibiting customer satisfaction and loyalty, will more easily accept new products of the same brand. In contrast to brand extension, the general concept of reputation transfer also requires the transfer of a company's values and identity to the new products and/or services and the related brands when entering new markets. It is important, however, to pay attention to the image fit between preexisting and new brands, for this factor has been proven to be critical for the success of brand extensions. In contrast to the special case of brand extension, the general concept of reputation transfer also requires the transfer of the values and identity of a company to the new products and/or services and the related brands when entering new markets. A strong image might therefore even hamper the introduction of new product lines if customers do not associate the competences relevant to the new market/category/product line with the existing company or brand. A company's reputation is furthermore influenced by culture, as nationalities differ with regard to how valued specific aspects of the company's brand identity are in the respective national culture (e.g. environmental concerns or work ethics) as well as with regard to popular cultural dimensions (e.g. Hofstede). Subsequently, these differences impact the success of reputation transfer significantly.
Online reputation is a factor in any online community where trust is important. Examples include eBay, an auction service which uses a system of customer feedback to publicly rate each member's reputation, or Amazon.com which has a similar review system. One study found that a good reputation added 7.6% to the price received. In addition, building and maintaining a good reputation can be a significant motivation for contributing to online communities .
Individuals employ monitoring to ensure that they keep up with their online reputation. Given the number of sites on the Internet, it is impossible to manually monitor the entire web for pages that may affect one's online reputation. Free tools such as Google Alerts can be used to keep track online reputations on a small scale, while larger businesses and clients may use more powerful analytics to monitor online interactions and mentions.
Paid tools for online reputation management focus on either brand protection or online reputation. These tools track mentions of a brand or product on the Internet, on Facebook, Twitter, blogs, and other social networking sites and websites.
Online reputation can be evaluated by how well it is being managed. This form of reputation is usually called web or digital reputation to distinguish it from the online reputation. Indeed, digital or web reputation does not concern the virtual online reputation only, but the whole real reputation of a person or a company as it is affected by the Internet. Online reputation furthermore should not be confused with a company's digital identity.
An online reputation is the perception that one generates on the Internet based on their digital footprint. Digital footprints accumulate through all of the content shared, feedback provided and information that is created online. Due to the fact that if someone has a bad online reputation, he can easily change his pseudonym, new accounts on sites such as eBay or Amazon are usually distrusted. If an individual or company wants to manage their online reputation, they will face many more difficulties.
According to one study, 84% of responding business leaders saw the greatest reputation threat online to companies as negative media coverage. The next two greatest threats are customer complaints in the media or on grievance sites online (71%) and negative word of mouth (54%). This negative word of mouth could be from dissatisfied customers but from employees as well. With the power of business review websites and customer forums, a company's online reputation can be damaged anonymously online.
Employers have begun using the online reputations of job applicants to help their hiring choices. By checking a candidate's social networking profiles on sites such as Facebook, Twitter and MySpace, employers gain insight into a candidate's character and suitability for a job.
Some individuals and organizations hire reputation management companies to attempt to hide truthful but unflattering information about themselves. A recent alleged example is that of Dr. Anil Potti, who resigned from Duke University after it was discovered that he had misrepresented himself on his resume and became the subject of a scientific misconduct investigation.
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