Note to Netflix: reputation is the new bottom line

The last chapter of Intangible Capital is entitled Reputation Is the New Bottom Line.

In it we explain that, while the financial bottom line is still critical to the success of every business, it’s not enough. The financial bottom line helps you put cash in the bank.  But the reputational bottom line gives you the license to continue to generate cash in the future.

Reading the NY Times recent overview of the Netflix saga, I couldn’t help but see this as another example of the power of reputation. Netflix lost 800,000 subscribers and 25% of its stock price after they announced an unpopular change in their pricing model.

The article recounts an interview with Netflix CEO Reed Hastings: Read more

Relationship Capital Risks

Relationship Capital is not always immediately understood as a knowledge asset. But the growing interconnections facilitated by technology with customers, outsourcing partners, suppliers and many other kinds of partners have created a body of shared knowledge that is critical to the operation of most businesses.

Shared is a key word here because, while sharing is an important component of relationship capital, it also represents a source of risk to the organization. Many an American company has given away its IP in recent years as its knowledge has moved from the category of proprietary structural capital to the category of shared relationship capital with outsourcing partners.

There is another aspect to relationship capital that is embodied in brand and reputation. Reputation gets more and more attention because of the vulnerability created by social media and always-on communication systems; any mistake can be broadcast immediately and the price for it can become significant. In many ways, reputation has become the most important metric for business today; it’s your license to do business in the future. As important as profits are to a business, no one cares how much BP made before the oil spill. What counts is the confidence of their stakeholders going forward. While reputation can and should be managed through a marketing function, the real work comes from strategic and risk management of the entire organization’s intangible capital.

The key risks associated with relationship capital include the: Read more

Manage Reputation by Managing Intangibles

It is actually interesting and somewhat perplexing to us that sustainability reporting has received more attention to date than intangibles reporting. The reason this book has a chapter on reputation is that we feel that intangibles management is a key determinant of corporate reputation. The current lack of information available to stakeholders about intangibles puts corporate reputation at increasing risk.

When there is incomplete information about the details of business, reputation becomes a proxy for its overall success. That’s how small problems can have much greater effect than perhaps they should. If stakeholders do not have a clear picture of what’s going on, they will assume the worst. In the long run, we believe that good intangibles management and transparent communication will diminish the wild swings of reputation that many companies experience today. In the short run, you can make this happen yourself. Read more

Reputation and Intangibles – Connecting the dots

My last few posts have been about reputation. There are some out there that would ask what the big deal is. What’s different now? Companies have always had employees and customers. Why do they have more influence now?” Why do I need to think about reputation more than before? There are actually several forces driving this change.

The first driver is the shift in the control of the means of production. In the industrial era, a company’s profits were driven by what it owned. Workers had to come to the employer to get access to the means of production. It gave companies a greater level of control over its workers. With the rise of the knowledge economy, however, the knowledge held by employees and, indeed, external stakeholders have become an important part of a corporation’s “means of production.” The knowledge factory relies on the unique contribution of human and relationship capital elements. This shift in the balance of power means that companies have to pay more attention to the interests and priorities of their stakeholders as “partners” in the success of the knowledge factory.

The second driver of the increased focus on reputation is the acceleration of communications. If you didn’t understand this before, you certainly do now given the events of wikileaks, Tunisia, and Egypt. Blogs, Twitter, Facebook and other social networks are just the latest developments in a society that had already developed 24-hour news. It is easier than ever before for anyone to get a message out. Sometimes all it takes is a blog post or a YouTube video by one disgruntled customer to go viral and threaten your reputation in an instant.

The third driver is an increased interest in sustainability and corporate social responsibility. Sustainability is an umbrella term for a number of related trends including corporate social responsibility and triple bottom line. CFO magazine defines sustainability as “the practice of publicizing a company’s environmental and social risks, responsibilities and opportunities…it can be thought of as an environmental-impact statement for the entire corporation, with ‘environment’ defined not only in terms of natural resources and climatological effects but also the economic and social impacts of labor practices, charitable endeavors and governance structures.”

The fourth and final driver is the lack of transparency of intangibles. There is a shocking lack of information available to internal and external stakeholders about the knowledge side of business. So when news does get out about a problem or a failure, then the reaction is swift and often very negative. If your stakeholders don’t understand how your business works and don’t receive periodic information beyond just the financials, then bad news is a warning to get out. The less your stakeholders understand about your business and the less you share about non-financial aspects of it, the more vulnerable you are to severe reactions to bad financial news.

You need to consider all four drivers as you think about managing your reputation. But we ask you to pay special attention to the last driver—intangibles reporting. You have a lot of control over your reputation—if you are getting the kind and quality of information to your stakeholders. And very few companies have developed good reporting on intangibles. That means that the 80% of corporate value that is driven by intangibles is invisible. Stakeholders can only guess at it unless you give them the information they need. This is really the goal of Intangible Capital. Helping you see, leverage and communicate about your intangibles. Because it will help you perform better AND because it will help you get the reputation you deserve.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

Reputation: beyond shareholder thinking to stakeholder thinking and back again

When we talk about the core intangible capital of an organization, we spend most of our time focusing on the intangibles that drive customer value creation and revenue generation. This is a helpful perspective for operational performance and strategies. In this view, relationship capital focuses on the partners that help support your business model: your customers, partners and vendors.

In thinking about reputation, however, it is important to flip the perspective and see your company through the eyes of your people and your partners. As contributors to the knowledge factory, they are also stakeholders in its success. What do they think of the organization? Does it seem sustainable? Is it a place they want to be or to do business with? Read more

Reputation Is the New Bottom Line

In both the tangible and the intangible economy, the ultimate metric for all companies is and will be their ability to generate profits—a strong bottom line. Profits and the cash they provide ensure an organization’s survival.

But in the knowledge economy, it is no longer enough to just produce a strong bottom line. Read more

Facebook and Goldman – Why Zuckerberg is putting his company’s reputation and value at risk

As the Goldman Sachs transaction with Facebook has progressed in recent weeks, I kept thinking about the quotes I read in the Time cover story about their Person of the Year, Facebook founder Mark Zuckerberg:

“The thing that I really care about is making the world more open and connected…Open means having access to more information, right? More transparency, being able to share things and have a voice in the world. And connected is helping people stay in touch and maintain empathy for each other, and bandwidth.” (this was in the hard copy magazine which doesn’t seem to be available on Time’s website)

How does this statement stand up against what Goldman’s deal with Facebook? Read more

CFO Magazine published my comments on reputation

In the September issue of CFO a comment by Intangible Capital author, Mary Adams:

Prevention Is the Best Approach

It’s important to understand how damaging reputational crises can be (“What’s a Reputation Worth?” May). But the real story is how to prevent them.

Seventy percent of the value of the average company is intangible. This is because processes, knowledge, and networks (all considered intangible by accountants) are the core drivers of competitive success — and reputation.

Managing reputation starts with managing these intangibles. That’s why we say reputation is the new bottom line.

Mary Adams
Founder and Principal
I-Capital Advisors
Winchester, Massachusetts

 

Program this Friday: Reputation in the Post-BP Marketplace

“This has now turned into a reputation matter, financial and political, and that is why you will now see more of me,” said BP Chairman Carl-Henric Svanberg 18 June 2010, as headline risk mushroomed and intangible asset value collapsed.

Join me Friday, 9 July, at 12h00 EDT for the Mission Intangible Monthly Briefing. I’ll be hosting Jonathan Salem Baskin and Nir Kossovsky to talk about reputation and how to manage it.

If you are general counsel, chief financial officer, a risk officer, a manager of strategic partnerships, a reputation executive (marketing, PR), a board member of any public company, or have a financial interest in any publicly traded security, you (or a colleague Send to a Friend) won’t want to miss this event. Learn more

Relationship Capital: Brands versus Reputation

The final category of relationship capital (after customers and partners) is brand and reputation capital.

Brand is how your customers see your products. Reputation is about how all your stakeholders view your entire operation. Each is important. Brand communication is generally thought to leave more room for definition by the holder. That is, I can influence how you see my brand through my marketing and management of the customer experience. But both brand and reputation are as much about your stakeholders’ knowledge of you as it is your knowledge of them. This shared knowledge is what make brand and reputation part of relationship capital. Read more

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