Reputation FUD (Fear, Uncertainty and Doubt)

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Key Point: Use of a reputation taxonomy – similar to Harris Interactive’s “Reputation Quotient” methodology – can enhance risk analysis activities where reputation is a factor as well as increase the value that risk practitioners provide in their organizations by enabling more informed risk decisions.

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Within the risk management discipline there is an activity called “risk analysis” that will usually entail understanding the drivers – or dimensions – of frequency and severity for potential adverse events. One common severity dimension is reputation; defined by Oxford Dictionary (n.d) as “The beliefs or opinions that are generally held about someone or something”. Intuitively we all know what reputation is but putting your finger on what it is – for a business – can be challenging.

Over the years, I have seen many approaches to accounting for a reputation impact. Some methodologies encourage estimating some dollar value that can be associated with customer migration, expenses to combat negative publicity or expenses to make customers whole when an adverse event has occurred. Other practices will assign ordinal values of reputation badness. Some companies have built reputation correlation factors in their risk models for scenarios that have a potential reputation impact. Finally, some companies just annotate reputation as being a loss driver but do not try to estimate or measure any severity factors. While all of these approaches have merit, all too often I see reputation discussed or analyzed in the form of emotions: this potentially bad thing feels bad, therefore we will look bad. There has to be a more logical way to analyze reputation regardless if the method is quantitative or qualitative in nature.

I recently read a Harvard Business Review blog regarding reputation, in which Loeb and McNulty (2014) referenced a reputation scoring methodology called “Reputation Quotient” (RQ) developed by Harris Interactive [Harris] (2014). I began digging around Harris’ site and found the “2013 Harris Poll 2013 RQ Summary Report” (Harris, 2013), in which they detail out the RQ dimensions and variables. Here they are:

Emotional Appeal:
• Feel Good About
• Admire and Respect
• Trust

Products & Services:
• High Quality
• Innovative
• Value for Money
• Stands Behind

Workplace Environment:
• Rewards Employees Fairly
• Good Place to Work
• Good Employees

Financial Performance:
• Outperforms Competitors
• Record of Profitability
• Low Risk Investment
• Growth Prospects

Vision & Leadership
• Market Opportunities
• Excellent Leadership
• Clear Vision for the Future

Social Responsibility
• Supports Good Causes
• Environmental Responsibility
• Community Responsibility

The factors outlined by Harris Interactive can help us as risk practitioners talk more intelligently about reputation as part of our risk analysis – especially if our employers participate in the Reputation Quotient Survey (as mine does). For any scenario we are analyzing, where there could be a potential reputation impact, we can ask ourselves if the adverse event lends itself towards violating one of these factors. My intuition is that many assumptions about reputation would be challenged using such an approach. In addition, the RQ variables may be idea candidates for factors in quantitative statistical model to better understand severity.

Quantifying reputation can be challenging but talking about it an in objective and logical manner offers benefits. The more knowledgeable and objective we are in understanding squishy problem spaces like reputation the more information we can provide to our stakeholders to make more informed, effective risk management decisions. Better decision making ultimately creates value for the organization as it facilitates decisions around expense optimization, ensures tactical and strategic goals are being met and reinforces adherence to ethics and values.

References

Harris Interactive Inc. (2013). The Harris Poll 2013 RQ Summary Report.  Retrieved from http://www.harrisinteractive.com/vault/2013%20RQ%20Summary%20Report%20FINAL.pdf.

Harris Interactive Inc. (2014a). The Harris Poll Reputation Quotient. Retrieved from http://www.harrisinteractive.com/Products/ReputationQuotient.aspx.

Loeb, H. and McNulty, E.J. (2014, August 4). Don’t Trust Your Company’s Reputation to the Quants. Harvard Business Review Online. Retrieved from http://blogs.hbr.org/2014/08/dont-trust-your-companys-reputation-to-the-quants/.

“reputation”. (n.d.) Oxford Dictionaries Online. Retrieved from http://www.oxforddictionaries.com/definition/english/reputation.

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