Decision-making and the benefits of change: Edward de Bono

Before the benefits of a new idea become visible there will often be a negative period of confusion, the disruption of systems, criticism, worries about the cost, etc. All the negative aspects of the new idea may be visible or imagined immediately – but the benefits can only be seen in the future – and then, only if you are minded to see them.

That's why it is so important to consider the future benefits of change as part of the decision-making process. Unfortunately, this rarely happens. For example, would a CEO with an uncertain term of office be willing to decide on change when the full benefits of such a change might only come in 20 years' time? It is not likely. There are types of change where the rewards are much more immediate. Problem-solving is an obvious example of a change which can show immediate benefits. The problem is hurting someone or the system. Solving the problem shows immediate benefits. Even if the benefits are not immediate, they can easily be foreseen.

So problem-solving is an attractive exercise. As a result, too much management thinking is focused on problem-solving. Creativity is only seen as an additional tool of problem-solving.

The result is that matters which are not problems and which are perfectly satisfactory never get attention. There is no will to suggest change in such areas because the benefits of changing are not immediately apparent.

Improvement is always more difficult than problem-solving. That is why slow, step by step, incremental improvement is much favoured. The risk is small and gradually the benefits become visible.

There are always two sorts of risk involved with change.

The first is that the proposed change may not work. So there is a loss of time, money, energy, reputation, etc. The second risk is that the idea might work too well, but that one of its side-effects is to hurt or damage the organisation's current operations. Just as perceived gain is a powerful motivator, so perceived risk is an equally powerful de-motivating factor. The ideal design of change is to suggest something where the benefits are easily perceived. In addition it should be possible to try the change in a pilot scheme or small area so that the benefits can be seen. These benefits would act as a motivator for extending the reach of the change. Such designs are not always possible.

You can point to the success of the proposed change in other areas. You can point to the success of somewhat similar changes. Neither of these is totally convincing because the reluctant people point to differences in circumstances – which may be valid.

The usual pattern of change is to let other people try it first. When the idea has been shown to work, then you come in with a 'me too' and seek to do it better than the initiator. There are examples both ways. Sony initiated the video recorder with the Betamax system, but then VHS took over. On the other hand, Sony kept its lead with the Walkman. First in the field may be successful – or it may not. Certainly the risk and the cost for those who are not first in the field is very much less. What is important in the design of change is to consider the time profile of the benefits. Author: Edward de Bono via management-issues.com

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Jim Woods CEO & President, InnoThink Group

A leading strategy, innovation and hypercompetition consultancy.

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If Optimism is a Competitive Advantage Why Didn't It Work for Best Buy?

"Best Buy is mentioned as an example in the article below. This is a wonderful example of what occurs when engagement and innovation work but a company fails. Of course Best Buy ultimately failed to understand a more important aspect of competitive advantage. All advantages in the age of speed are temporary. Commoditization is a more unforgiving companion than happy faces." Jim

Most human resources managers base their motivational policies on a simple psychological premise: that optimistic, engaged employees are more productive and hence can help their employers grow and make more money. Put simply, workplace optimism, if nurtured properly, can be a competitive advantage. 

Companies don't directly measure the optimism of their employees. Instead they rely on engagement scores, typically gathered by outside consultants who exhaustively survey the staff. As in: Does your boss support you in getting your job done? Do you have a best friend at work? Then the number crunchers analyze the results. Many companies see a link between employee engagement and the bottom line. Best Buy (BBY), for example, says a 2% increase in employee engagement at one of its electronics stores corresponds, on average, to a $100,000 annual rise in sales at that location. 

At a time of widespread uncertainty it's understandable that companies are trying to make employees more hopeful. "The more optimistic have better coping mechanisms and can help their organizations recover more quickly," says Binna Kandola, whose British firm, Pearn Kandola, has conducted "happiness audits" for PricewaterhouseCoopers, among others.

HR managers often point to Campbell Soup (CPB) as the most compelling example of how an all-out assault on pessimism can alter a company's fortunes. When Douglas R. Conant became chief executive in 2001, Campbell had a reputation as an exceedingly pessimistic workplace. Management's engagement scores were the lowest of any big company Gallup had surveyed. Its stock was in the pits. Takeover rumors were rampant. And a leading securities analyst of the food industry likened the company to a "buggy whip" maker.
Conant decided that winning in the marketplace meant first winning in the workplace. He gave every employee the equivalent of a user's manual that explained how he himself operated. He replaced nearly all of the company's top 350 leaders, a signal, in part, that he was serious about heeding employee complaints that the place was broken. Then he set about transforming Campbell into a more employee-centric company. Conant created Campbell University, upgraded the recognition program that showers gifts and other awards on high performers, and penned up to 10 handwritten thank-you notes to employees a day. Today, according to Gallup, Campbell's engagement scores are among the highest of any company it measures, and its earnings growth has handily beaten that of its peers.

At J.C. Penney (JCP), HR boss Michael T. Theilmann knew 2009 would test him because the pullback in consumer spending had the potential to wreak havoc on sales and hammer morale. But he also didn't want to forfeit all the hard work he had put into boosting employee engagement over the previous four years. Theilmann, who totally buys into the correlation between engaged associates and increased sales, is something of an engagement junkie. After Penney's first engagement survey in 2005, he did a complete makeover of benefits. In 2005 only 67% of employees surveyed by the consulting firm Kenexa (KNXA) were deemed engaged. By last year, according to surveys, 76% were.

LAYOFFS ARE MISMANAGEMENT

In January, Theilmann and other Penney leaders launched a full-bore internal communications campaign. All Penney associates were told that they would not be losing their jobs, their health care, or their 401(k) matches. On the other hand, they were reminded that those whose performance fell into the bottom 10% were, as always, vulnerable. "You have to tell people ahead of time what you are going to do and not going to do," says Theilmann. "The last thing we want is our people walking around in a fog not knowing what's going to happen. We want people focused on our customers." In late July the company got its engagement scores for 2009. They actually went up, to 80%. Penney's earnings per share growth over the past five years is five times the industry average.

There's no better way to stoke pessimism than by firing a lot of people. "From our perspective, any kind of layoff is a sign of mismanagement," says Michael W. Rude, global HR chief at Stryker (SYK), the Kalamazoo (Mich.) medical technology company. Two months ago one of Stryker's manufacturing units was hit with a steep falloff in orders. Instead of chopping heads, two HR execs from separate Stryker divisions brokered a deal that would transfer 30 engineers from the ailing division to another Stryker unit. Engagement in both departments soared, something Rude attributes to the way the company handled the situation. At Stryker, pay and promotions are based in part on the engagement scores of a manager's direct reports. That, in essence, forces the bosses to double as optimism ministers. Says Rude: "People get jobs and lose jobs because of their ability to engage teams." Conlin is the editor of the Working Life Dept. at BusinessWeek. via businessweek.com

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If you're not irate in the first 10 minutes of reading, if I don’t provoke you to revolutionize your management and leadership from think to execute, if you aren’t teetering on the brink of reaching for the Maalox, if you don’t innovate like a banshee, then I have failed you. 
To learn more about how Jim Woods and Innothink Group’s uncanny abilities can increase your competitive advantage and top line growth contact us for a consultation. 
Jim Woods CEO & President, InnoThink Group
A leading strategy, innovation and hypercompetition consultancy.
www.innothinkgroup.com
719-266-6703

Why JC Penney's Blew It

Photo courtesy Business Insider

You might have seen recently that iconic retailer JC Penney is slumping badly. You almost certainly have seen the reason why: A massive, creative and aggressive new advertising and pricing campaign that promises simplified prices.

No more coupons or confusing multiple markdowns. No more 600 sales a year. No more deceptive circulars full of sneaky fine print. Heck, the store even did away with the 99 cents on the end of most price tags.  Just honest, clear prices.

Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love.

Shoppers hated it.

The campaign, which launched on Feb. 1, appears to be a disaster. Revenue dropped 20 percent for the first quarter compared to last year. Customer traffic fell 10 percent. Last year, the company made $64 million in the first quarter; this year, it lost $163 million.

Could we have a moment of silence please for what might be the last heartbeat of honest price tags?

Not only did Penney’s plain pricing structure fail to attract fair-minded shoppers –   business reporters wrote with seeming glee during the past few days that it “repelled” them.

Don't blame Ellen DeGeneres, the spokeswoman for the Penney’s plain pricing campaign. If only executives at the firm were familiar with the work of behavioral economist Xavier Gabaix and the concept of "shrouding," all of this could have been avoided.

Seven years ago, Gabaix and co-author David Laibson wrote a brilliant (if depressing) paper on shrouding and "information suppression" that should be required reading for all consumers and executives considering a harebrained new pricing strategy. The principle is simple, and shows why cheating is rampant in our markets and why honesty is rarely the best policy.

First, a definition of shrouding:

In days gone by, price tags were simple. An apple cost 10 cents.  A cup of coffee cost $1. But today, the consumer marketplace is far more complicated, giving sellers the opportunity to create confusion. Many items have follow-up costs that make the original price tag meaningless. 

Computer printers are the classic example. You might get a great deal on a printer, but if the ink is expensive, you lose in the end. In fact, Gabaix argues that it's impossible for consumers to intelligently shop for printers. No consumer knows how much ink costs -- the cartridges don't come in standard sizes, the amount of ink used to print varies and ink costs are unpredictable. That makes the true price of a printer "shrouded," in Gabaix's terminology. Not quite hidden, but not quite clear, either.  Advantage seller. It's easy for printer companies to lowball printer price tags and overcharge for ink, enabling them to print money.

If you think about it, shrouded price tags are everywhere. The hotel website might say "$99 a night" but you know the bill will be more like $120 or $130. Pay TV companies promise $30-a-month service, which ends up costing more like $50. And what happens when you buy a TV with a store credit card that offers an upfront discount but a complex interest charge? And so it goes.

Consumers complain about this constantly. That's the basis of the Red Tape Chronicles in fact. At its best, the maddening mixture of coupons, rebates, sales and fine print fees can feel like a game. At worst, it's being cheated. You'd think shoppers would love a chance to buy from a store that doesn't play these games, the way car buyers (allegedly) like shopping at no-haggle auto dealerships.

They don’t, says Gabaix, and Penney should have known better.

“I think it was an ill-advised move,” he said. 

All this price manipulation is really an information war, he says. Shoppers hunt for the tricks that let them save money. Stores hide booby traps that let them take money. It's a bad system, one I've labeled "Gotcha Capitalism." But it is the system we have now.

And it's simply impossible, Gabaix argues, to be the one company that attempts to bridge this information gap.  If a firm tries to educate consumers on tricks and traps, and tries to offer an honest product, a funny thing happens: Consumers say, "Thank you for the tips," and go back to the tricky companies, where they exploit the new knowledge to get cheaper prices, leaving the "honest" firm in the dust.

“Once you educate consumers on the right way to shop, they will seek out the lowest cost store, and that will be the one with the shrouded prices,” he said. “Once they are savvier consumers, you make less money from them.”

Gabaix calls this the "curse of debiasing." And it leads to this depressing conclusion: "Shrouding is the more profitable strategy."

To oversimplify for a moment, here's Penney's problem. They told the world that retailers only offer their best prices during crazy sales, and Penney stores would no longer host them. Sensible consumers apparently took that information to heart and decided to simply wait for such sales at other stores. As an added benefit, Penney lowered consumers' search costs, because they now knew they didn't need to bother driving to a Penney’s store anymore.

That's probably not what new Penney CEO Ron Johnson had in mind when he decided to spend his marketing budget on those witty DeGeneres ads. A former Apple Inc. executive who took the Penney’s job in November, he thought he was lifting the store out of the brutal commodity clothing market. He may ultimately succeed at that. But he won't do it by telling customers the firm's pricing is fairer than at other stores, Gabaix believes.

"It will be a very, very uphill battle," Gabaix said. "So, sorry for them."

There have been a few other celebrated efforts by companies to educate consumers that their higher prices are really lower prices after hidden fees. During the last decade, Intercontinental Hotels experimented with up-front pricing that included all fees on its website. Executives at the firm told the New York Times that customers left in droves, choosing competitors with lowball prices. 

More recently, Southwest Airlines has undertaken the most aggressive anti-shrouding campaign to date, picking on other airlines' baggage fees. The profitable carrier is holding its own with its "Bags Fly Free" campaign, but there are indications that the firm won't be able to resist all that free money forever. In what may be a sign of things to come, Southwest elected to leave AirTran's baggage fee structure in place after it acquired the competitor last year. 

Shrouding isn't the only reason Penney's pricing plan is flawed. The firm is also leaving a lot of money on the table by rejecting a phenomenon known as "price discrimination." Some people have more money than time, and some have more time than money.  Some shoppers don't mind spending hours to save $20; others would gladly give a store $20 to escape quickly. Smart retailers get money from both. By killing couponing, Penney has eliminated its ability to satisfy price discriminators.

And as others have pointed out, markdowns serve the age-old retailing trick of "anchoring." For some reason, even very smart consumers feel better paying $60 for something if you initially tell them it costs $100, and then reduce the price.

But the real problem is Penney's ill-fated attempt to cast itself as the only fair poker player in a game of cheats. Shoppers just aren't buying it. However unsophisticated consumers are, very few of them believe a pair of shoes bought at Penney's everyday low price will be cheaper than a pair of shoes bought at Macy's on clearance with a 25 percent off coupon.

Like it or not, hidden fees – and secret discounts – are here to stay. via redtape.msnbc.msn.com 

________________________________________________________________________

Hire Jim Woods to Speak to or Advise Your Organization

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Request a consultation: Office: +1 719.266-6703 or complete our form.  

 

Innothink Group is a strategic management, innovation and business coaching consultancy. 

Our Guarantee. Where many consulting firms are reluctant to bear risks or tie their rewards to project outcomes, we decided to build a better model. We align our success with yours. We’re outcome obsessed, outcome paid, putting nearly two thirds of our fees at risk subject to hitting predetermined milestones. More than a guarantee we wanted from the outset to create true partnerships with shared responsibility. See a few of our clients.   

We provide broad ranging advice covering innovation, commoditization, competitive advantage, business policy and strategy, as well as global strategy and implementation. 

Four Tips on Winning by Yum Brands President David Novak: Chief Executive Magazine

Yum! Brands’ David Novak at right

Yum! Brands’ David Novak has a secret for staying on his leadership toes: the “hot-shot-replaces-me” scenario. “I think, ‘If someone replaced me tomorrow, what would he or she do?’” explains the CEO of the world’s largest restaurant company, which encompasses the KFC, Pizza Hut and Taco Bell brands. “Since I like my job, why don’t I do it first?”

Results suggest his method is effective. During his tenure as CEO, the $11 billion company has flourished, reporting 13 percent-plus earnings per share growth for each of the last nine years. Novak has also spearheaded global growth; approximately 75 percent of the company’s profits now come from outside the U.S. versus 20 percent in 1997. The firm is one of a handful of U.S. companies that have taken China by storm, in its case by leveraging brand expertise—intellectual property that local competitors can’t reverse engineer as they might a physical product.

In a recent meeting with Chief Executive, Novak, who penned the recent book, Taking People With You: The Only Way to Make BIG Things Happen, offered four tips to delivering growth.

Be Humble. “Recognize that nothing big gets done by you alone,” he says. “So you need to know who’s on your team the same way a marketer knows its target audience. Know your people cold. What’s in their heads? What are they thinking? And then you’ve got to say, ‘Okay, to take them with me to achieve this strategy, what perceptions or beliefs do I have to build, change or reinforce to get them to come along?”

Grow Yourself. “Never stop learning,” urges Novak, who points to John Wooden, legendary UCLA basketball coach, as an example. “When he was winning national championships he met with and studied extra tall people and coaches of extra tall people. He was still focusing on growing himself. I think when you do that you’ll end up growing your business because you’ll be sharpening your skills and be able to apply that personal growth to growing your business.”

Wipe out “Not Invented Here” Syndrome. “Often when you have success, you get so insular that you don’t go outside and look to see what other people are doing,” he says. “I tell people one of the ways you get promoted in our company is to be a know-how builder, to get knowledge from other people and make yourself [and the company] smarter.”

Make Your Culture a Hero. “When we started our company, I had a chance to do a gigantic do-over, because we had been part of PepsiCo,” he explains. “So we looked at some of the best companies in the world at that time—Wal-Mart, Home Depot, Target and Southwest Airlines. Every one of them said the key to their success was their culture. You want to make it clear what you value in your company and then recognize the people role-modeling that behavior. Then make culture the hero of all the good things that happen in your company. As a CEO, you have to be the culture champion. via chiefexecutive.net

Hire Jim Woods to Speak to or Advise Your Organization

Innovation, Growth, & Hypercompetition Consultant/Speaker/Business Coach

 Website: InnoThink Group

Request a consultation: Office: +1 719.266-6703  or complete our form.  

 

Innothink Group is a strategic management, innovation and business coaching consultancy. 

Our Guarantee. Where many consulting firms are reluctant to bear risks or tie their rewards to project outcomes, we decided to build a better model. We align our success with yours. We’re outcome obsessed, outcome paid, putting nearly two thirds of our fees at risk subject to hitting predetermined milestones. More than a guarantee we wanted from the outset to create true partnerships with shared responsibility. See a few of our clients.   

We provide broad ranging advice covering innovation, commoditization, competitive advantage, business policy and strategy, as well as global strategy and implementation. 

You Are Beautiful Just The Way You Are

If you think this view of earth from the moon is breathtaking, just imagine how breathtaking you are to your creator from any view. Pass it on. Jim

 

Join the Courageous Living Revolution 

A respected life strategist, Jim is both inspired and inspiring with a pin point ability to see through to the core of the issues at hand and to address them straight on. It is his instinct and intuition, honed over 25 years of consulting and coaching private clients, that truly sets him apart. Jim’s spirit and delivery are impeccably delivered in a no nonsense manner resulting in maximum results.   

Jim’s passion for overcoming emotional fears was born of personal tragedy. He lived in his car following the divorce of his marriage of 30 years. In overcoming the legacy of this terrifying life stopping experience, Jim developed the principles and resources that he would later use to heal himself and so many others.

Today, Jim is a management consultant and speaker to leading companies. His past clients are: Whirlpool Corporation, MITRE and Lush Cosmetics. To have Jim speak to your organization or work with you privately contact him at 719-649-4118 or email.

Be Your Best Self Today - Six Strategies for Coping with the Blues: Dr. Toni Bernhard

Some mornings I wake up and there's no denying it—I've got the blues. It's as if an internal weather front has unexpectedly moved in. I may not even be by myself when the blues descend on me, but they always make me feel isolated; it's part of their "flavor." (The blues is to be distinguished from a heavy or dark mood that goes unchanged for weeks at a time. The latter could be a sign of clinical depression in which case you should seriously consider seeking the advice of a healthcare practitioner.)

Here are six suggestions for helping with those periodic blues.

1. Don't engage in "comparing mind."

Engaging in what Buddhist's call "comparing mind" can make the blues worse. It may seem as if others don't share your moods, but human beings are more alike than we realize. That neighbor who's always cheerful probably gets the blues. That friend who's in the "perfect" relationship probably gets the blues. Billionaires get the blues. In my experience, neither money nor loving relationships make people immune from the blues.

 

No matter what public face you see on other people, you don't know what their inner life is like. The odds are, it's not so different from your own. This is because we all experience what the Buddha called dukkha—usually translated into English as "suffering"—and referring to the difficulties all of us face at one time or another in our lives. For one thing, we are all subject to illness, injury, aging, and separation from those we love. Billionaires don't get a pass on these. No one does.

In addition, we're all products of our past conditioning and our life experiences. For most of us, that means we have our share of recurring painful thoughts and emotions. If a parent always told us that what we did wasn't good enough, we're likely to have internalized that conditioning and, as a result, repeatedly subject ourselves to self-criticism. No wonder we wake up with the blues on some days! Most of the time, I don't know the source of my blues; I've decided that's okay. I just know they'll intensity if I engage in comparing mind by telling myself how blues-free everyone else must be.

2. Don't try to force yourself out of the blues.

Trying to force the blues away is likely to intensify them. Part of the reason for this is that underlying that attempt to force them away is the negative judgment: "I shouldn't feel blue." Ordering yourself not to feel a certain way almost guarantees that you will! So, just be mindfully aware, without judgment, that the blues have come to visit, maybe even saying to yourself, "Ah yes, the blues again. I recognize you."

Exposing them in this friendly way to the sunlight of awareness can reduce their intensity. "Friendliness" is one of the translations for the word metta which is usually described as the Buddhist practice of lovingkindness. Sometimes though, the word "friendliness" hits the spot for me. I don't need to love those blues, but treating them with friendliness allows me to hold them more lightly until they run their course and go on their way.

3. Try Weather Practice.

I describe this practice in my book, How to Be Sick . Moods are as unpredictable and changeable as the weather. The blues settle in and then lift, just like a dense fog. Seeing the impermanent nature of the blues keeps you from identifying with them as a fixed part of who you are. This insight enables you to just see them as part of the ebb and flow of life. They arise in the mind, stay awhile, and then pass. Seeing this, you can calmly and patiently wait for those blues to lift and blow away.

 

4. If you can, go outside.

 

Changing environments can change a mood. Outside, the air has a different quality, the sights and sounds are different from those inside, and you'll feel part of the larger world around you. Take a short walk or just sit for a while.

Going outside is one of my sure-fire ways to change a blue mood. There's an espresso place a few blocks from my house. On a day when the blues has come to visit, if they haven't lifted by early afternoon, I get in my little Civic and drive to my special place, even if I only stay a half hour. Just the brief interaction with the barista helps take my mind out of that blues groove it's fallen into!

5. Reach out to someone who's having a tough time.

The Tibetan Buddhist teacher Pema Chödrön said that sorrow has the same taste for all of us. I think the blues do too. Connecting with someone else who is struggling can help you realize that you're not alone. In addition, reaching out to someone takes you out of your self-focused thoughts. The simple act of helping another can stir up a wind that will blow those blues right away.

6. Treat those blues to a fun time.

Without trying to force the blues to go away, but also knowing that they're as impermanent as the weather, take them with you to an activity that's just plain fun, no matter how silly. For you, maybe it's sudoku puzzles or playing with crayons and a coloring book. I have a few movies I love to watch over and over, like a favorite piece of music. When the blues settles in, I put one of them on (Groundhog Day, Best in Show, Gosford Park). The characters in them are like old friends and, with their company, I can patiently wait out my mood. Quite often, by the time I'm finished indulging in my little pleasureful activity, those blues have lifted and blown away!

I've found that it's good to have some "blues strategies" at the ready, because the blues are never polite enough to announce ahead of time that they plan to spend the day. If you have some strategies of your own, I hope you'll share them by leaving a comment.

© 2012 Toni Bernhard  

I'm the author of the How to Be Sick: A Buddhist-Inspired Guide for the Chronically Ill and their Caregivers , winner of the 2011 Gold Nautilus Book Award in Self-Help/Psychology. Website: www.howtobesick.com

via psychologytoday.com

________________________________________________________________________

 Join the Courageous Living Revolution 

A respected life strategist, Jim is both inspired and inspiring with a pin point ability to see through to the core of the issues at hand and to address them straight on. It is his instinct and intuition, honed over 25 years of consulting and coaching private clients, that truly sets him apart. Jim’s spirit and delivery are impeccably delivered in a no nonsense manner resulting in maximum results.  

Jim’s passion for overcoming emotional fears was born of personal tragedy. He lived in his car following the divorce of his marriage of 30 years. In overcoming the legacy of this terrifying life stopping experience, Jim developed the principles and resources that he would later use to heal himself and so many others. 

Today, Jim is a management consultant, coach and speaker to leading companies. His past clients are: Whirlpool Corporation, MITRE and Lush Cosmetics. To have Jim speak to your organization or work with you privately contact him at 719-649-4118 or email.

 

The Uncommon Sense of Worrying Less About Our Reputation: The Economist

 

 

PEOPLE have been debating reputation since the beginning of history. The Bible says that a “good name is rather to be chosen than great riches, and loving favour rather than silver and gold.” Others have dismissed reputation as insubstantial—a “shadow” in Abraham Lincoln’s phrase, or an “uncertain flame” in James Lowell’s. Shakespeare provided material for both sides: Cassio described reputation as “the immortal part of myself”, while Iago dismissed it as “an idle and most false imposition: oft got without merit, and lost without deserving.”

Today’s management-theory industry has no time for such equivocation. For its acolytes, reputation—or at least the corporate kind—is a “strategic asset” that can be “leveraged” to gain “competitive advantage”, a “safety buffer” that can be called upon to protect you against “negative news”, and a stock of “organisational equity” that can be increased by “engaging with the stakeholder community”.

On April 17th Gibson Hall—a wonderful Victorian edifice near the Bank of England—echoed not with the sound of Shakespeare (which would have suited it), but management speak. The Reputation Institute, a consultancy, revealed the results of its latest “Reptrack” Corporate Reputation Survey. And various spokespersons hammered home the importance of managing reputation. Reputation is so important these days, they said, that we live in nothing less than a “reputation economy”.

The launch of the British corporate-reputation survey was only one of a number of similar launches around the world: the Reputation Institute has offices in 30 countries. And it is only one of many consultancies that plough this particular furrow. Plenty of other organisations offer firms “holistic” advice on improving their reputations, such as Perception Partners in the United States or specialised divisions within many big consultancies. And a rapidly growing number of niche consultancies, such as ReputationDefender, give people advice on managing their reputations online. For example, they offer tips on how to push positive items up the Google ranking and neutralise negative ones.

It is easy to see why so many bosses are such eager consumers of this kind of advice. The market value of companies is increasingly determined by things you cannot touch: their brands and their intellectual capital, for example, rather than their factories or fleets of trucks. The idea of a “reputation economy” makes intuitive sense: Facebook is worth more than General Motors. At the same time, reputation is getting ever harder to manage. NGOs can turn on a company in an instant and accuse it of racism or crimes against the environment. Customers can trash its products on Twitter. Corporate giants such as Toyota and BP have seen their reputations collapse in the blink of an eye.

How successful are reputation consultancies in rendering the intangible measurable and manageable? The Reputation Institute has produced some intriguing results. Americans and Britons are more impressed with “old-economy” firms than “new-economy” ones. The three most reputable companies in America are General Mills (which sells food), Kraft Foods and Johnson & Johnson (drugs and household goods). The top three in Britain are Rolls-Royce (jet engines), Dyson (vacuum cleaners) and Alliance Boots (drugs and prawn sandwiches). In Britain the overall reputation of the corporate sector has declined since last year. In 2011 it looked as if British firms were recovering from the reputational catastrophe of the financial crisis. But outrage over bosses’ bloated pay and phone-tapping by big media companies—particularly News Corporation—have reversed that trend.

Nevertheless, there are three objections to the reputation-management industry. The first is that it conflates many different things—from the quality of a company’s products to its relationship with NGOs—into a single notion of “reputation”. It also seems to be divided between public-relations specialists (who want to put the best possible spin on the news) and corporate-social-responsibility types (who want the company to improve the world and be thanked for it).

Reputation as a by-product

The second objection is that the industry depends on a naive view of the power of reputation: that companies with positive reputations will find it easier to attract customers and survive crises. It is not hard to think of counter-examples. Tobacco companies make vast profits despite their awful reputations. Everybody bashes Ryanair for its dismal service and the Daily Mail for its mean-spirited journalism. But both firms are highly successful.

The biggest problem with the reputation industry, however, is its central conceit: that the way to deal with potential threats to your reputation is to work harder at managing your reputation. The opposite is more likely: the best strategy may be to think less about managing your reputation and concentrate more on producing the best products and services you can. BP’s expensive “beyond petroleum” branding campaign did nothing to deflect the jeers after the oil spill in the Gulf of Mexico. Brit Insurance’s sponsorship of England’s cricket teams has won it brownie points in the short term, but may not really be the best way to build a resilient business. Many successful companies, such as Amazon, Costco, Southwest Airlines and Zappos, have been notable for their intense focus on their core businesses, not for their fancy marketing. If you do your job well, customers will say nice things about you and your products.

In his “Autobiography” John Stuart Mill argued that the best way to attain happiness is not to make happiness your “direct end”, but to fix your mind on something else. Happiness is the incidental by-product of pursuing some other worthy goal. The same can be said of reputation.

^{Economist.com/blogs/schumpeter}

via economist.com

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