orgtheory.net

can you outsource reputation management?

Saku 

I’d like to thank Teppo for inviting me and the other owners of this arena for having me. I have been lurking around this blog every once in a while for some time now and am impressed with what you are doing.

When Teppo asked me to visit, my first reaction was: please, let me prepare. I am working on a million things right now and need to gather my wits to rise to the occasion. My second reaction was: wait a minute, I can use this exalted arena to vent out whatever ideas I am currently working with, maybe get some feedback or at least get the engine running each morning. Incidently, this morning is a rather solemn occasion: Columbine High School -type shooting took place yesterday in a Finnish high school (http://www.yle.fi/news/id74371.html) and everybody’s pretty shaken up, as this is extremely rare in our context. I wish I had something profound to say about this but maybe it’s best to leave this open to interpretation.

The topic I would like to discuss today reputation management, a topic which has been studied stateside for instance by such people as Charles Fombrun and Violina Rindova, and in Europe by Majken Schultz and others. I’d like to introduce a phenomenon which Pekka Aula, my co-author and I have been looking at lately, the outsourcing of reputation management by some firms.

Reputation building: doing good stuff

At the intuitive level, you create a good reputation by

1. Doing good stuff

2. Doing it to parties who are in a good network position to spread the word

3. Being communicative about the good that you do.

Charles J. Fombrun begins his book Reputation, which many consider the rallying call to managers regarding the importance of reputation:

“Do you recall the last time you hired a contractor to make improvements to your house or apartment? Or the last time you called on a travel agent for assistance in planning a trip? […] If you are like most people, you didn’t just pick their names out of a phone book. You probably went to them because they were recommended to you by a family member, friend or someone else you trust. If so, you hired them based on their reputation.” (Fombrun, 1996, p. 1)

Choosing hairdressers, dentists, carpenters, real estate agents and so on in our personal lives is a tangible example of, not just how reputation can be an asset to a business, also how it is built in a network. Herein lies one of the key messages of reputation management (I think): when building your reputation, do not try to communicate promises that you will not keep, either now or in the future. In a recent paper in Strategic Organization (5/1, 2007) Rindova, Petkova and Kotha build an inductive account of how new businesses build reputations in the media. They argue that firms build reputation on three kinds of action patterns:

  • Symbolic actions
  • Innovative actions
  • Action level and composition

Read the Rindova et al. paper if you want to know these mean, and how the process or reputation building is mediated by stakeholder cognitions. My point is just that reputations are built fundamentally on actions, not in PR or marketing. Indeed, my coauthor Pekka Aula once noted that: “marketing increases reputation risk.”

Can you outsource the good stuff?

That’s the moral we would like to believe, isn’t it? You get rewarded for doing good things and punished for doing bad things. Indeed, reputation can be used as a motivator for corporate social responsibility and other forms of business ethics: do good stuff or pay for it. The soup thickens somewhat when we look at the arrangements companies make to “buy reputation”, or “outsource reputation.” Indeed, I would argue that there is a whole business for reputational outsourcing. I am not talking about PR or marketing agencies who make companies look good, but assurances that you can acquire that your actions are moral or benevolant.

Many big businesses have been linked to child labor in the developing world, which is certainly harmful for their reputations. This is a tricky issue, since many businesses have outsourced operations to a number of subcontractors. For reputational reasons, it is in the parent company’s interests to control its subcontractors in order to protect its reputation. IKEA has had to face reputation risks, as it employs a lot of contract factories. IKEA has published its ethical codes for subcontractor activities entitled The IKEA Way on Purchasing Home Furnishing Products, which includes a chapter entitled The IKEA Way of Preventing Child Labour (http://www.ikea-group.ikea.com, read 20 June 2005). IKEA’s rhetoric is friendlier in tone that Nike’s, yet it is still firm. In its general ethical guidelines it states the following:

“The IKEA Group believes in long-term relationships with suppliers who share our commitment to promote good practices, and who want to grow and develop with IKEA. We expect them to respect fundamental human rights, and to treat their workforces fairly and with respect.” (www.ikea-group.ikea.com/corporate/responsible/conduct.html)

IKEA has apparently succeeded rather well in fighting child labor, as UNICEF considers the company to be a successful example in its guide on preventing child labor (http://www.unicef.org.uk/publications/clrg/app6.asp). It would be hard for a company to receive better institutional support than this. Sporting goods manufacturer Reebok and clothing manufacturers Levi Strauss and Pentland Group are mentioned in the same context.

It can be argued that the arrangement between IKEA and UNICEF is a form of reputational outsourcing. While UNICEF commences in reputational outsourcing only as a “minor venture on the side”, there are organizations specializing in reputation outsourcing of specific kinds. One well-known example is Fairtrade Labelling Organizations International. It is “an association of 20 Labelling Initiatives that promote and market the Fairtrade Certification Mark in their countries” (http://www.fairtrade.net/). The certification process for a producer operating in the third world, as well as an importer in the developed world involve the implementation of a set of standards maintained by the Fairtrade organization, as well as fees paid to the certification branch. The standards involve issues such as work conditions, pricing, various contractual issues such as favoring long-term contracts, etc (www.flo-cert.net).

While there is no reason to doubt that Fairtrade is driven by an ethical mission, the certification process can also be viewed as a reputational outsourcing service. The key is that the Fairtrade accepts a reputation risk in return for compliance with its standards as well as a set of monetary fees. They too regard the producers and traders as “customers” and make assurances that they are continuously improving their “services”.

The “carbon offsetting” fares, offered for instance by many airline companies are a further example of reputational outsourcing. Airline passengers are reminded by their airline providers that, by traveling by air, they are taxing the environment. A solution is offered by adding a voluntary, extra fare, calculated on the basis of the length of the travel and number of passengers. The notion of “offsetting” the environmental damage caused by the airplane is based on the activities of the offsetting organization, which conducts a variety of projects to conduct or fund projects that plant new forests, implement sustainable energy sources and so on.

One of many such acts of outsourcing reputation is the partnership between British Airways and Climate Care, an offsetting company. Climate Care is a financier, which provides funding to a number of projects aimed at reducing CO2 emissions or their effects. Climate Care (http://www.climatecare.org/) attracts potential business partners by offering them, among other things “a cost-effective – or cost-free – way to engage consumers in products or services”. The company assures that it is “committed to leading best practice in our approach to offsetting emissions. Our Environmental Steering Committee has played a key role in guiding our work.” The Environmental Steering Committee, which is brought up as a source of legitimacy, consists of representatives of a number of legitimate environmental organizations, such as WWF, Forum for the Future and the British Foreign Secretary’s Office.

There have been critical voices around whether carbon offsetting is a good thing in practice – see, e.g., http://www.ft.com for a number of critical texts with the keyword “carbon offsetting”. Indeed, the kind of reputational outsourcing offered by organizations like Climate Care bear a striking resemblance to the age-old business by the Catholic Church of selling indulgences to sinners (a practice which Martin Luther saw as the final insult). It indeed seems lucrative to companies: let us charge your customers a bit more for the evils they are committing by buying your products/services and give them absolution for their sins. You gain reputation as a benevolent company, while your customers pay the bill.

Advertisements

Written by smantere

November 8, 2007 at 5:13 pm

11 Responses

Subscribe to comments with RSS.

  1. Saku, interesting ideas. I’m certainly sympathetic to the idea that organizations actively and strategically try to manage their reputation. I’m a little less convinced by the idea that they are “outsourcing” reputation management. It’s not clear to me how relying on certification contests, like receiving recognition by Climate Care for being carbon friendly, is outsourcing anything.

    Two aspects of this sort of reputation management don’t seem to match up with my idea of outsourcing. First, as you say in the post, many of these external certifiers and evaluators are set up, managed, or intimately connected with the firms they are overseeing. But they usually try to establish them as neutral third-parties. Without that neutral status, they wouldn’t be very good at generating reputations for the companies they oversee. Industries set up their own trade associations all the time in order to offer prizes for being more labor-friendly, environmentally-friendly, etc. It’s in the interest of the organizations to see these outsiders thrive and create standards that their stakeholders will view as legitimate purveyors of quality. This doesn’t seem like outsourcing as much as a supplier/client relationship. Or maybe the financiers, associations, etc. are better thought of as institutional intermediaries.

    The other reason I have trouble with the outsourcing concept is because once created and legitimated, these intermediaries actually have quite a bit of coercive power. They may begin as extensions or networked partners with they organization, but they can transform into powerful agents on behalf of external audiences (like activist communities). They can tell the corporation how to act or at least gently encourage them to act appropriately. A bit of resource dependence goes a long way.

    Could you explain why outsourcing works as a concept in these examples? Why outsourcing and not something else?

    Like

    brayden

    November 8, 2007 at 8:21 pm

  2. Hi Saku,

    You have crafted a nice post and I enjoyed your thoughts about reputation. I must agree with Professor King’s comment that “outsourcing” is a difficult concept in that it does not seem to apply to the relationships that are being built between corporations and external agencies that, in effect, provide third-party confirmation.

    You might take a look at Professor Paul Argenti’s work and in particular his chapter on identity, image, and reputation. Paul’s point, and I would agree, is that consistency must be a critical factor when trying to manage reputation. The company’s action must be consistent with the reputation being built amongst many stakeholder groups. Reputational risk increases dramatically when the reputation and the reality are inconsistent.

    So the fountainhead of reputation management will be strategy and values. What the company is and does will matter greatly.

    The external agencies such as the UN, UNICEF, or even PETA position themselves along a continuum I might tentatively describe as analytical verification to coercive verification. The UN typically would not hijack a company’s reputation or brand while PETA would. No company that actively measures and manages its reputation would ever outsource to any third-party (hence the corporate communication function now resides in-house), and these agencies would never accept the role of being outsourced too because they would then lose their third party status.

    Instead we might think about a verification or a confirmation role. We might think about partnerships in proactive and productive cases, or perhaps attacks and brand hijacking in confrontational cases (e.g., PETA and KFC). Soft power to hard power.

    The relationships you focus on–between corporation and the external agencies who have the power to either enhance or detract from a company’s reputation–are a critical and we must fully understand them. Keep pushing forward! I hope the reference to Professor Argenti’s work may somehow prove useful in this journey. He also has some great articles you can read (look in the Sloan journal). I really look forward to hearing and talking about where you take this project.

    Like

    Michael Netzley

    November 9, 2007 at 2:29 am

  3. Brayden and Michael,

    thanks for the kind and critical comments. This thing is proving to be just as intellectually stimulating as I hoped it to be.

    Allow me to try to rephrase your critique first. As I read your comments, your critique was:

    “Allying yourself with not-for-profit organizations such as Fairtrade, Unicef or Climate Care is not outsourcing because these not-for-profits are able to exert control over the firms activities.

    Ergo, instead of outsourcing reputation management, we should talk about verification or confirmation, that is, treat the not-for-profits as judges or evaluators instead of subcontractors.”

    Did I read you right? If yes, here’s how I build my argument. I would argue that while the not-for-profits, if they do their job well, certainly have the role of judging the firms moral, societal, environmental, or whatever performance. However, it is also possible to see them as “reputational subcontractors” from the firm’s point of view.

    I have argued that:

    1. To build a good reputation you need to do good things.
    1.1 Cohering with environmental and societal values are regarded as “doing good things” by many stakeholders (although there are other important things as well, such as quality, etc)

    2. There are not-for-profits such as Climate Care, which do good things on behalf of a company, such as billing the firm’s customers for the carbon emissions.

    3. Outsourcing is letting somebody else do something for you.

    ERGO:

    4. Reputation management, consisting of doing good things is outsourced to others if they do good things on behalf of the company.

    Some of these arrangements such as Unicef’s partnerships with IKEA aren’t as clear-cut as CC and British Airways, but I think it should not be too hard to accept that a key motivation for IKEA’s reputation management in having the alliance is that it gets to associate itself with the good stuff that Unicef’s doing.

    OK, now to the critique. You argued that the outsourcing concept does not work because the not-for-profits have power over the firm. Indeed, it would be foolish for Unicef to to accept the reputation risk of allying with a firm without an element of control over whether the firm is a reliable ally. If the firm gets caught using child labor, Unicef loses faith.

    However, don’t subcontractors have power over a client. I thought “Supplier bargaining power” was one of Porter’s five forces?

    Like

    smantere

    November 9, 2007 at 3:39 pm

  4. Hi Saku,

    You are giving me much to think about. I am very glad I found this site and your entry.

    Let me think about this some more. The question I am asking is how the framework of a subcontractor’s contractual relationship might change how I typically think about a corporation’s relationship with external stakeholder group such as UNICEF, Climate Change and others.

    I have always thought about third-party relationships as being unique because there is not any sort of contractual or regulatory element, yet these organizations have the power to make our life much better/worse. I am having trouble, initially, coming to terms with these third-party organizations as being analogous to subcontractors. That said, I have never really thought along these lines and am wondering if I have been missing something.

    I look forward to continuing the conversation after a good night of sleep. The hour is late in Singapore.

    I love the conversation.

    Michael

    Like

    Michael Netzley

    November 9, 2007 at 4:38 pm

  5. I have thought about this some more and I think here is where I come down on the issue. Third-party organizations such as Climate Care, UNICEF, UN, or even PETA are not outsourcing because the whole point of these third party verification models is to reward companies for not outsourcing. These third-party organizations want green practices, child welfare, sustainability, and more to become part of the corporate DNA. They want real and meaningful changes in the way companies operate. They do not want these important issues outsourced to a consulting agency or anyone else for that matter. In the simplest of terms (perhaps an over simplification, but I think you will get my point): they want these reputational issues taken out of the hands of PR tacticians and instead integrated into the strategic planning processes for the entirety of a company’s functional departments. They want these reputational issues handled by the strategy folks. Consequently, corporate communication starts showing up on the organizational chart and the issue of consistency between what a company says and what it does becomes critical.

    Whether a third-party achieves its goal by using a carrot (the UN recognition for sustainable forestry practices is a great example) or through coercive tactics (PETA and GreenPeace), the bottom line is that these organizations want the company to take full responsibility day-in and day-out.

    In today’s environment, outsourcing is unlikely to work and I think a reputation framework which invites us to think along the lines of an outsourcing metaphor may offer some theoretical insights but perhaps (in the end) not be the best operational framework for a corporation.

    Food for thought. Enjoy the rest of your weekend.

    Michael

    Like

    Michael Netzley

    November 11, 2007 at 3:39 am

  6. […] I suspect many of you think I am crazy for even asking such a question.  But many times some of our best discoveries come as a result of stepping back and asking fundamental questions.  A colleague at  the Swedish School of Economics and Business Administration, Saku Mantere, has asked such a question at an academic blog called OrgTheory.  You can rad the entry here: Can you outsource reputation management?  […]

    Like

  7. Hi Michael,

    Thanks again for a good argument. Your point:

    “These third-party organizations want green practices, child welfare, sustainability, and more to become part of the corporate DNA. They want real and meaningful changes in the way companies operate. They do not want these important issues outsourced to a consulting agency or anyone else for that matter. In the simplest of terms (perhaps an over simplification, but I think you will get my point): they want these reputational issues taken out of the hands of PR tacticians and instead integrated into the strategic planning processes for the entirety of a company’s functional departments.”

    is a good one. Indeed, this is supposed to be the role for many organizations, at least this is what we’d expect the role for many of these “watchdog” organizations to be: to reward practice of reputation management built on doing good instead of just portraying a good image (not that you can’t do both).

    However, it would appear that the line between the watchdog- and the subcontractor-role seems to be blurred in interesting ways in real life. Consider the way that Climate Care is attracting new corporate clients (http://www.climatecare.org/business/benefits/):

    “Using carbon offsetting within your business can have a range of benefits for you.

    * To demonstrate your CSR credentials to clients, employees and other
    * As an innovative marketing tool to improve customer retention and attract new clients.
    * As a cost-effective – or cost-free – way to engage consumers in products or services.
    * To demonstrate continual improvement on your impact on the environment.
    * To engage your employees in climate change and the business impact.”

    Is there no hint of the subcontractor role in that sales pitch?

    saku

    Like

    smantere

    November 12, 2007 at 8:51 am

  8. Saku,

    I would suggest you can outsource anything except for accountability.

    Linda M. Lopeke
    http://www.smartstartcoach.com
    SMARTSTART: Success-to-go for people working@the speed of life!

    Like

    linda m lopeke

    November 12, 2007 at 1:06 pm

  9. Linda,

    I fully agree with that. Accountability is what I would call the “external aspect” of responsibility, what you are expected by others in terms of the responsibilities placed upon you.

    So, a vero good point.

    saku

    Like

    smantere

    November 14, 2007 at 1:05 pm

  10. I’d like to suggest an excellent site for finding Call Center Projects at OutsourcerMarketplace (dot) com

    Like

    Marcellus Hoerger

    March 5, 2010 at 6:19 pm

  11. […] interesting post caught my eye which talked about reputation management not from just a PR perspective but a talked […]

    Like


Comments are closed.

%d bloggers like this: