Posts Tagged ‘scenario planning’

There’s no avoiding the bad odds of maintaining a coveted top shelf reputation spot in one’s industry. Each year Weber Shandwick measures the rate at which companies lose their #1 most admired position in their respective industries on the Fortune World’s Most Admired Companies survey. We call this the “stumble rate.” Between 2011 and 2012, 49% of the world’s largest companies experienced a stumble, up from last year’s 43% but exactly the same as 2010’s rate.  With 1-in-2 companies losing their enviable industry position during the past year, the stumble rate highlights just how difficult a good name is to keep.  Looking at this finding another way, #2’s have good odds of becoming #1’s in their industry. Either way, reputational equilibrium is hard to keep. Companies have to continually manage their reputations and watch out for vulnerabilities. Perhaps companies should apply "stress tests" in the same way they are applied in medicine -- determining how the organization's core equity responds to external stress or crisis in a controlled environment. Very much like scenario planning.

2012 Reputation Stumble Rate from

Fortune's Most Admired Companies Survey

 

The industries that have the same #1 this year as last year are:  Aerospace & Defense, Beverages, Computers, Consumer Food Products, Delivery, Electric & Gas Utilities, Electronics, Entertainment, Food Services, Health Care: Insurance & Managed Care, Health Care: Medical Facilities, Health Care: Pharmacy & Other Services, Home Equipment & Furnishings, Information Technology Services, Insurance - Property & Casualty, Internet Services & Retailing, Mining, Crude Oil Production, Network Communications, Pharmaceuticals, Securities, Semiconductors, Soaps & Cosmetics, Specialty Retailers: Apparel, Specialty Retailers: Diversified, Superregional Banks, Trucking, Transportation & Logistics, Wholesalers: Diversified, and Wholesalers: Office Equipment & Electronics. Seven industries have had a new number one each year since 2009. The industries with the most churn are Airlines, Energy, Food & Drug Stores, Life & Health Insurance, Motor Vehicle Parts, Telecom and Tobacco. During the past three years, a total of 40 industries have seen at least one stumble, so with nearly 60 industries represented on the ranking each year (it varies year to year), few are immune to reputational stumbling. We also looked at the rankings within each of the nine reputation drivers that survey respondents assess companies on to help understand why companies stumbled. Of the stumblers between 2011 and 2012, we learned that...

• One stumbler experienced a ding to just one of its drivers. Sometimes it just doesn’t take much when you have strong reputational competition.
• Two stumblers lost ranking across all nine drivers.
• The most pervasive loss of reputation was in the areas of Use of Corporate Assets and Social Responsibility. Nineteen stumblers’ rankings went down on these two drivers, followed closely by Management Quality with 18 stumblers losing rank on this driver.
• What may have degraded perceptions of these drivers? A 2011 media analysis of the largest drops suggest that survey takers may have been sensitive to management changes (e.g., one CEO step-down announcement considered by analysts to be too far in advance of his intended departure date and one long-term CEO retiring) and management of assets (e.g., property spin-offs and failed asset funding). As for social responsibility, no stumbler experienced particularly steep drops on this driver so nothing reported in the media popped as a clear reason for the dings. Perhaps CSR activities are once again being more closely scutinized by peer survey takers as CSR becomes expected behavior.
• The driver least damaged was Global Competitiveness with 12 stumblers losing position.

 

In a piece I wrote for The HuffingtonPost for 2012, I forecasted that reputation blackmail would show its hand this year. Lo and behold, a front page article in yesterday's paper headlined "Hackers-For-Hire Are Easy to Find."  The article had to do with two feuding brothers from Kuwaiti who were suing one another over business they held. One of the billionaire brothers found someone to hack into his brother's account and post online all his brother's personal emails including finances, legal affairs, pharmacy bills and everything else that you can imagine gets sent and received from one's personal account. The cost: $400. Hackers to hire are that cheap and apparently easy to find. One of the reasons there has not been much on this topic where reputations can be easily lost is that people do not want to report this type of reputation blackmail and generate even more attention. In this instance, the one brother hired Invisible Hacking Group located in China and here is how it works:

"It requested the target person's email address, the names of friends or colleagues, and examples of topics that interest them. The hackers would then send an email to the target that sounded as if it came from an acquaintance, but which actually installed malicious software on the target's computer. The software would let the hackers capture the target's email password."

You get the picture. Reputation blackmail presents a very scary scenario. Not only is privacy damaged but reputations which take a long time to rebuild get decimated.  Reputation protection can only go so far. Risk management and reputation warfare gets more complicated by the day.

I have posted about scenario planning before and wrote about it in my last book as well.  Scenario planning is a good way to plot what your leadership might do when their reputation falls off a cliff. I have always been fascinated by the process, especially when it works.  In fact, I have a recent Royal Dutch Shell Scenario Planning book that I bought from Amazon about three years ago. I keep it out on my desk as a reminder of a smart way to plan. It was amazing to me that it sold commercially. Today’s WSJ had an article on the return of scenario planning. It was very popular after 9-11 when companies felt the urgent need to prepare for such sudden disasters. Apparently it lost some favor as the economy became bullish and everyone lost their senses. A study by Bain & Co. which I have used in presentations showed that  scenario planning had soared from 1999 to 2002 as a risk management tool (up 30%) among senior executives.  Now it is back on the upswing as we face unprecedented economic challenges. I did not realize that scenario planning first surfaced in the US Military in the 1950s and became popular with companies such as GE and Shell in the 1970s. My mistake for believing that Royal Dutch Shell was the source. Peter Schwartz, a partner at the Monitor Group and former head of the Global Business Network where I first learned about him, says that scenario planning is a learning tool and for making informed decisions. Not just a tool for the worst case scenario but a process for learning how to make the right and avoid the wrong decisions. The article ends on an upbeat note – that perhaps scenario planning can be used to plot possible responses to a business upturn. Same could be said about reputation recovery. Time to start. Never too early. Only too late.

    Recently reread GE Jeff Immelt’s Letter to Shareholders in its 2008 Annual Report.  A few comments.  I like how GE has a picture of its senior team in the introduction.  It is not the first time but it goes a long way in honoring the team.  I always find GE’s CEO Letters revealing.  The general theme is that GE along with the global economy and business in general have to be “reset” for the long-term and perhaps forever.  “The interaction between government and business will change forever.  In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.”  Immelt calls it a reset world. The CEO is resetting the company to focus on three big themes – emerging market growth, clean energy and sustainable healthcare.

 

One of my favorite parts, of course, came when Immelt discusses GE’s reputation.  Immelt has often mentioned “reputation” in his CEO Shareholder Letters and clearly considers reputation a metric of success.  He said in an earlier CEO Letter (2002): “My own role on the GE Board is clear. I have two functions: lead the company as CEO with integrity, clarity and purpose, as measured by financial performance and reputation.”  This time he said, “Let’s face it: our Company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration. I accept responsibility for this. But, I think this environment presents an opportunity of a lifetime. We get a chance to reset the core of GE and focus on what we do best.”  

 

When I wrote my book on Reputation Recovery, I had a section on Resetting the Company Clock which came from a statement made by Nissan CEO Carlos Ghosn.  It is the role of the CEO to not only be the company’s reputation guardian but to reset the company clock when crisis strikes, winds shift or people do not recognize the urgency of the day.  The word reset is a good one.

 

Interestingly, Immelt notes that GE has instituted more scenario planning, presumably to see around corners and a new process to identify what he calls industry “naysayers” who might have something important to tell his unit heads. We call these people “badvocates” but either way, GE intends to listen more carefully than before.

 

In the last paragraph, Immelt says “GE will be a better company winning through this crisis.” I underlined the word winning.  In recent weeks, I have heard several CEOs use “winning.” Maybe something’s changing.