Intangibles Measurement V: Reputation is the New Bottom Line

There are huge challenges all over our economy–in health care, in transportation, in agriculture, in energy production, in education, and on and on. These challenges will not be resolved by resorting to industrial era answers. To solve today’s problems, we need to build our national skills base for intangibles management.

Which is a great segue to reputation, the last in my intangibles measurement series. The general reputation of business gets talked about a fair amount these days. As does the importance of reputation to individual companies. Today, the speed of communication makes it hard to hide even small mistakes. And sometimes small mistakes get blown out of proportion. The easy answer is to blame the media. There are two other answers that cannot be ignored.

First, stakeholders are paying more attention. They are interested in what you are doing and also how you are doing it. This means that they will look at your profitability but also your contribution to sustainability in your community and in our global environment. In the knowledge era, you need your stakeholders more than ever. They supply much of the knowledge upon which your organization depends (think employees, customers, outsourcing partners, to name just the big one). That knowledge walks away if they decide you are not worth their attention.

Second, stakeholders (and, frankly, management too) suffer from a lack of information that they can use. Most information available today is still produced under the accounting models that were designed for a tangible economy. Knowledge, relationships, process, people–and reputation–are all missing in the information you and your stakeholders use to evaluate your organization. Often, the only concrete information that gets through is the financials or the necessary disclosures when something goes wrong. Both come late in the game. So when there is bad news, your stakeholders will probably overreact.

They overreact because they have to. If the important parts of your business are a black box, then bad news is a warning that something is wrong. If they had better information to begin with, then they could put the news into context. If not, they are going to assume (correctly in a lot of cases), that this news surprised you too. That tells them that you don’t have a good understanding of what is going on inside (and outside) your company.

Your business is a knowledge factory that is dependent on human, relationship and structural capital. Structural capital includes processes to do what you do. If you don’t do something yourself, the knowledge and the work is performed through the relationship with a supplier. The system begins and ends with people who keep it all working. But all three parts are necessary. And all three parts need to be evaluated as part of normal management practices.

Think about the recent problems with tainted peanut butter that got into products all around the country. The peanut butter came from a single supplier in a single plant but affected dozens of suppliers to schools, hospitals and even Kellogg’s. Because there was no good information about how this kind of problem is prevented, stakeholders have to assume that there are more problems in the system waiting to happen.

Which shows why reputation is the true bottom line of your company. You have to have a financial profit to continue to operate. But that’s not enough. For your company to be truly viable, you have to have a reputation that earns the trust of your stakeholders, that becomes your license to operate and make a profit next year too.

The best way to deliver this bottom line is through effective management of both your tangible and intangible assets, through being proactive about explaining how your management practices work and being transparent about how things are going.

Keep your license to operate up to date. Nurture your reputation through sound intangibles management.