The Impact of Word of Mouth

For many years I have been stating in my workshops that reputation is important because people will tell other people about their experiences in dealing with your organization. For many years marketers have spoken about the exact same thing , with their focus being on marketing and sales targets.

It is a known fact that we will ask the people we trust for advice when making major purchasing decisions. For instance a young person buying a car most likely will ask his father for advice on the purchase that he or she wants to make. Often we do this as routine behavior. The words we hear can have a major impact on our buying decisions.

Now new research from academics at the London School of Economics and Political Science (LSE) and The Listening Company have revealed the real financial impact words can have.

They found that word of mouth, both positive and negative, is a powerful component in driving UK business growth.

Word of mouth can also be used to predict sales growth; the higher the net-promoter score*, the industry standard measure of word of mouth, the higher the growth. Dr Paul Marsden and Alain Samson of LSE and Neville Upton, The Listening Company, compared the results of a telephone survey on a random sample of 1,256 adult consumers in the UK against the 2003 and 2004 sales data from banks, mobile phone networks, supermarkets or car manufacturers.

The found that both word of mouth advocacy (as measured by net-promoter score) and negative word of mouth were statistically significant predictors of annual 2003-2004 sales growth:

• Companies enjoying higher levels of word of mouth advocacy (higher net-promoter scores), grew faster than their competitors in the period 2003-04.
• Companies suffering from low levels of word of mouth advocacy and high levels of negative word of mouth, grew slower than their competitors.
• A 7 per cent increase in word of mouth advocacy unlocks 1 per cent additional company growth.
• A 2 per cent reduction in negative word of mouth boosts sales growth by 1 per cent.

The report concludes by suggesting that the net-promoter score as a measure of word of mouth advocacy may be useful not only in predicting sales growth, but also in predicting share performance and employee productivity….ultimately having a influence on how the company is regarded (reputation)

Dr Paul Marsden, LSE’s Institute of Social Psychology, said: ‘These findings suggest that businesses seeking year-on-year growth may be overlooking their most powerful growth-generating asset; existing clients, customers or consumers. With a range of turn-key solutions for optimising word of mouth advocacy, businesses can transform satisfied buyers into vocal advocates who become part of a volunteer sales force.’

The researchers conclude that three simple questions could predict overall business performance:

• Likelihood that customers would recommend a company or brand to friends or colleagues. Net-promoter score as a predictor of sales growth.
• Likelihood that investors would recommend investing in a company to friends or colleagues. Net-promoter score as a predictor of share performance.
• Likelihood that employees would recommend working for their company to friends or colleagues. Net-promoter score as a predictor of productivity.

Read more about this survey:

The economics of buzz – word of mouth drives business growth finds LSE study – News archive – News and events – Press and Information Office – LSE

Moving prospects along the Ladder of Loyalty to become advocates – people who will vocally promote your organization is an important task for managers, but even more so for Reputation Managers.

We need to monitor very closely what people are saying about us, and when these words are not positive we need to correct them, we need to educate and persuade until a person’s words of choice becomes favourable to the organization.

Check out Finweek 29th May edition

On the 11th May I wrote an article on Tiger Brands in my blog.

This week the Finweek magazine’s leading article is ”Into the tiger’s lair – Is Peter Matlare the right man to restore Tiger Brands’ tarnished reputation?”

This is an interesting article with regards to Peter Matlare’s views on managing a crisis and I am quoted as well. The article is a good case study about CEO’s in general.

All in all it makes for interesting and worthwhile reading. Unfortunately you need to be a subscriber to access the article online, but should you wish to, you can do so online at http://www.fin24.com/finweek/FinweekEnglish.aspx

Reputation Risk also has a Visual dimension

 I walked into a shop this afternoon when I saw something that made me laugh and think.

Immediately I asked the shopkeeper to share a copy with me.

Cartoonists and Graffiti artists display their dissatisfaction about situations through their graphic actions. So do we, when we show taxi drivers the finger.

The Chinese has a saying that water will always find a way. Activists are no longer who you think they are. We have artists, blogger’s, mobile phone users, Facebook commentators and even old people using technology.

Even a Shopkeeper with imagination.

So what are you going to do when you see these cartoons or satirical outbursts? Tear them off the wall like they used to do in the Cold war? Spray Paint the Graffiti?

Meanwhile our electrical utility have been bearing the brunt of jokes and ridicule. However it seems as if they are now going to arise funds in a most unusual manner. Unfortunately there is a delay in deliveries to music shops.

Are there any songs you would like to add to this list?

From a Reputation Protection perspective I wonder how many organizations have bothered to define the actions aggrieved stakeholders will take when their expectations are not met.

In my Stakeholder Reputation workshops I define for the audience the word Reputation as the reflection of an organisation over time as seen through the eyes of its stakeholders and expressed through their thoughts, words & actions.

In the same vein Reputation Risk emerges when the reasonable expectations of stakeholders are not met.

Gestures such as the Nazi sign, the union’s clenched fist and the average person’s finger is expression of beliefs, interests or anger.

Reputation Managers should monitor these actions as well. Humour is a wonderful thing – it sometimes elegantly get a message across. Like above.

When I was at school Elton John had a hit song with ”Don’t let the sun go down on me”. Imagine that – Al Gore! Mother Nature decides a Power Outage is OK!

 

Employing Spinmeisters is not enough!

A while ago I e-mailed a company that had some negative publicity suggesting to them that they needed to be careful as their reputation risk profile is increasing.

Incredulously I received a mail back from the company stating that management was perfectly happy with the performance of its spokesperson.

This is a clear showing of how managers can misunderstand reputation risk and so-called spin. Protecting an organisation’s reputation start way before you have to field media questions and appear in a negative light in the media.

It is much more than just issuing statements to the media or starting an internal witch-hunt for the persons that leaked certain information to the media.

It is about acting proactively, investigating the allegations and realising that there are some dissatisfied stakeholders. What is clear from the articles in the media is that this company’s internal stakeholders are dissatisfied. That is why Reputation Risk is often defined as the state of negative public opinion when the reasonable expectations of stakeholders are not met. It can result in loss of sales, share value decreases and breakdown in relationships.

What this company does not realise is that Reputation damage is rarely an accident.  If you dig deep enough into an accident, you will find intent; you will find a policy that made the accident possible.  The earliest warning signs involve issues of integrity or quality.  Where a company is accommodating policies that disadvantage either customers, employees or shareholders – even if they’re not doing anything illegal that is the beginning of an environment where the values of the company are going to make a decision possible that ultimately could do a lot of damage.

Everybody’s reputation breaks. There is no’ such thing as an indestructible reputation.  Even the best company’s reputations have. You have to look at it as a suit of armour.  Sooner or later your reputation will be in jeopardy, and how thick will your armour be.

Unfortunately there seems to be in many companies a tendency to treat reputation risk management like a faucet. Something that you can switch on when the time comes. This stems from the inability to realise that damage control and fire- fighting after the event or crisis is a Reactionary Approach.

Internationally there has been a paradigm shift towards a Proactive approach which includes building up “reputational capital” before a problem or crisis arises.

It will do this company good to realise that to build reputational capital require an understanding of the drivers of corporate reputation and the risk and opportunities that each driver offers. That knowledge coupled with the understanding that no Company, organisation or individual whose livelihood depends on public support can afford to function without a reputation building and a crises communication plan will enable delegates to formulate strategies for building, sustaining and protecting corporate Reputation.

This thinking and understanding is far more than just having a “spinmeister” employed.

10 Things you might not know about Stakeholder Management & Corporate Reputation

1. Did you know that the word stakeholder refers to those individuals or groups that can have a legal, moral or economic stake in your organization?
2. Did you know that your organization’s reputation is its greatest asset, but yet it’s Greatest Risk?
3. Did you know that Reputation Risk has been shown in more than 5 international surveys to be the biggest and most difficult risk to manage by organizations?
4. Did you know that there are three definitions of Reputation Risk, with Stakeholder Reputation Risk one of them?
5. Did you know that Stakeholder Reputation Risk refers to the risk that emerges when the reasonable expectations of stakeholders about performance and behavior are not met?
6. Did you know that Stakeholder Profiling should be done every time you tackle a new project, assignment or campaign?
7. Did you know that there are stakeholder groupings which include categories such as though leaders?
8. Did you know that the drivers of corporate reputation can be correlated with stakeholders?
9. Did you know that the Universal principles on which Stakeholder Management is based originated from four conferences that were hosted by the Centre for Corporate Social Performance and Ethics in the Faculty of Management [now: the Clarkson Centre for Business Ethics & Board Effectiveness or CC(BE)] between 1993 and 1998?
10. Did you know that some studies have shown that Corporate Reputation can influence as much as 55% of a company’s share price?

These are but some of the items that I will expand on at my next Stakeholder Reputation workshop on the 17th June.

Tiger Brands cleans out its closets – A Lesson in Reputation Risk Management

How does a 100 year of company destroy its reputation, trust in it as well as its market capitalization?

Simple , really! It allows practices like price fixing and collusion to operate and flourish and become part of the way things are done in the company.

Read more: Business Report – Tiger Brands cleans out its closets

As a keen observer of organizational development (OD) and behavioural practices I am disturbed:

• Where were the OD experts in all of this? The outside consultants who should advise? Surely there must have been rumours, incidents and talk about these types of behaviour?
• Where were the Reputation Managers or was PR just another activity based exercise in the company?
• Where were the Compliance Officers in all of this?
• Where was the Internal Auditors and Risk Managers?
• Where were the internal employees who should be questioning unethical practices and conduct?

Surely there must be processes in any organization to determine smoldering risks. Smoldering risks are those risks that can result in unplanned visibility and reputation damage should it go public (Technically, a smoldering crisis is any serious business problem which is not generally known within or without the organisation, which may generate negative news coverage if or when it goes “public” and could result in fines, penalties or unbudgeted expenses). Surely there must be a process in any organization to act on those small insignificant issues that can potentially cause harm when they come into the open.

The Sunday Independent of today reports that Tiger Brands is continuing a company-wide review to root out anti-competitive behaviour, after a R53 million rand fine for collusive tendering was slapped on its medical supplies firm, Adcock Ingram, on Friday. And this, just after another fine because of price fixing in the bread industry.

Peter Matlare, the Chief Executive of Tiger Brands, promised journalists on Friday that ‘’We are intent on rebuilding our reputation through a culture of compliance and strong ethics, engagement with all of its stakeholders and the adoption of world class business practices’’.

Do I have a message for Mr Matlare!

Dear Mr Matlare, How are you going to do this?

Dear Mr Matlare, The means to do this starts with raising awareness and education and training.

The means to do this have existed for years. It just so happens that I have been addressing these issues the past 12 years, facilitating workshops in more than 8 countries. In the 12 years I have regularly sent notifications to companies like Tiger Brands and interestingly enough to Adcock in particular.

In 12 years only one delegate from Marketing attended one of my workshops. In fact I was told a few years ago by a then Adcock PR person to stop bothering them, they have got things under control. Sure, they did.

Oh, the fallacy of assumptions. As if a few people in a PR department can manage the reputation of a company.

There is clearly a misunderstanding by management teams in South Africa. Managing and protecting a company’s reputation is a multi-dimensional and holistic management function. It cannot be managed linearly by any one department.

In the case of Tiger Brands, their behaviour was the pivot to damage, and that behaviour was influenced by the thinking practices in the organization.

The Thinking practices within an organisation is defined as the mental activity of every member of the organisation….all the idea generation, learning & skill development, exchange of information, development of strategic directions, project planning, communication, market research, problem solving, process improvement and quantum leaps that make up the total intellectual activity of the organisation.

(Source: Transformation Thinking by Joyce Wycoff).

How come all of the above experts did not identify or do anything about these practices? Is it because of our tendencies to only identify tangible asset risk?

It surely is time for organizations to take a closer look at the intangible performance drivers in the business and how they interact with the tangible drivers.

What Mr Matlare is speaking about is called Radical transformation. Not transformation in the BEE sense, but real transformation. The thing is that transformation can occur in any organisation when every member of the organisation becomes an important, participating part of the whole….when every member is taught fundamental but powerful thinking skills and the dynamics of how to think together.

What is going to be necessary at Tiger Brands is a radical a change of direction on all levels within an organisation, a change of not only how they work, but how they think, interact, participate and perform.

Reputation makeover is not a short term process, but they can bounce back, provided they have the impetus to do it.

Dear Mr Matlare, here is a formula that you can apply to the Tiger Brands group.

Change == D+V+S+C

For change to happen a business has to:

- Be dissatisfied with its present state

- Have a clear Vision of where it wants to go

- Take the necessary steps to get there

- Create enough energy (or tension) to overpower the COST required (in terms of money, time and energy) to make the change happen

I hope that you all cherish your Reputation enough to make this change happen. Good Luck!

Commitment to Health & Safety is much more than Lip – Service!

I am intrigued by how often I read that management express their commitment to Health & Safety Practices in an organization AFTER an accident had taken place.

I think it is time to take a look at why Health & Safety Practices in an organization becomes problematic.Years ago there was a book called Fishes rot from the Head – it had to do with governance practices.

However the title is apt and points to where it starts. Waterfalls flow top to bottom.

It does start at the top. Senior Management are normally exposed to the Occupational Health & Safety Act through a rudimentary overview session. Sometimes this session last only a few hours, because management cannot attend a longer work session since they are always so busy. Fair enough. But how come they can always find the time to pay attention to it after an accident had taken place? Now when it is too late!

Training Managers in Health & Safety is also affected by the traditional view that senior management do not need thorough training. I mean they are highly skilled, often MBA qualified graduates and after all Safety is just common sense.

Is it? What is so common about it?

Perhaps the problem also in the What, Why and When of training. Once-off training is like going to church, once only. After all if you get the message, why go again? No, you go over and over because Repetition is the mother of skill.

Golfers practice their swings over and over, they often go back to basics BUT for senior management it is not necessary after all their job is just to direct. Isn’t it?

In Defence Forces around the world they use a basic principle when training new soldiers. I would like to take just two aspects of this and apply it to the South African situation.

1. Proper Job Instruction – What methods of training are you using in your organization? Competency based training or just awareness sessions? How are you measuring transfer and application of learning? The traditional Sit by Nelly approach is fraught with dangers.

2. Proper Job Indoctrination – This is similar to what the Graduate School of Business at the University of Cape Town call the Immersion principle. For instance you carry your rifle around with you, you sleep with it, go to eat with it for at least a few weeks before you are even given bullets to shoot with at the shooting range. They make sure that you are able to handle your rifle in all types of situations before letting you loose.

In many organizations, PROPER and THOROUGH induction is non- existent. All you get is a vague overview.

I recall that about 15 years ago Xerox released the findings of a study that showed that there can be a loss of up to 98% of learning if there is no follow up, such as refreshers, mentoring and coaching back on the job.

Perhaps I need to share a practical example  with you. My job is to advise companies on how to build, sustain and protect their organization’s reputation. Some time ago I was off to a meeting at a client when I walked past a paint spraybooth. In the booth a young man was working with oil veneer paints spraypainting an object. Now these types of paint is dangerous and the young man is supposed to wear a certain category of respiratory mask to protect himself against hazardous chemical exposure, except his mask was sitting on his forehead.

Since I like to use humour to get my points across, I shouted at him saying: ”Hey man, put your mask over your mouth – a women does not wear her bra on her forehead!”. He laughed and shouted back:”It won’t help, the damn thing is blocked’!”

Now, I could not leave it, because it was important to ascertain whether he knew why he was supposed to wear a mask. He did. When I asked him why he had not reported it, he said that he did so on many occasions, but that apparently there were no money in the budget.

So here is a young man, taking his life into his own hands and where are the managers who so succinctly wrote in the annual report – We care for people?

So now I was concerned. So off to management I went.When I asked the line manager to see his PPE register, he went blank.What is that, he asked.

Ok, to cut a long story short – the young man in the spray booth last got a new mask +/- 2 years ago. So where was senior management? Why were they not reinforcing standards, taking action. After all, they are the ones walking past him every day!

AND this was a branch of a listed company, one of the JSE Social Responsible index companies. Sitting on a time bomb. Sitting on a Reputation Risk time bomb.

The company was clearly non-compliant with the Occupational Health & Safety act. It clearly was not consistent – its actions, behaviours and communication was not aligned. For me an outsider it was clear that their values was not being demonstrated.

This may sound like being naive, but on my first visit to any company I can get one hell of an impression of the company just by looking at the state of the bathroom facility. In the Bible it is stated that if God cannot trust you in the small things, how can he trust you in the big things.

It is quite interesting that if you go and do root cause analysis of accidents, that it is often the small things that cause major damage.

Perhaps it is time for organizations to review their public commitment to Health & Safety, to do introspection and to rectify what is wrong. And that process can be started by senior management being willing to submit themselves to retraining and ensuring that they are up to date with the latest thinking in the field.

After all, waterfalls DO FLOW TOP to bottom.

Years ago, ISM (IBM in South Africa) had an advert that said ”If your failure rate is one in a million , what do you tell that one customer?” The same applies to other companies. If your death rate is one in a”million what do you say to that person’s family and loved ones?

Lessons in Building your Own reputation: Time.com: 100 of the World’s Most Influential People

The latest Time list of the world’s most influential people also contains many lessons about strong, visible leadership and reputation building.

You may find lessons to manage your own reputation if you study these examples closely.

Time.com: 100 of the World’s Most Influential People | The Best Article Every day

It does not matter where you find yourself, it does not matter how rich or influential you are, your only stock in trade is your Reputation.

Manage it with care!

IOL: Toxic water killed E Cape babies – report

I just read this article IOL: Toxic water killed E Cape babies – report and there are a few items that I would like to use as discussion and learning points. I will raise my comments in italics.

• An interim report acknowledged that a “multiplicity of causes” including “systematic failures affecting water quality” were to blame for the deaths of the babies, said the provincial government in a statement.

This statement in itself is already a warning for Crisis Managers in organizations. Problems tend to occur in clusters. When one problem or barrier has been identified, there will most likely be others associated with it. A staff member who does not show responsibility because of undefined or unrealistic work expectations will likely also show a level of distrust in his or her superiors. It is essential to identify the nature of the multiple barriers and problems and to deal with the whole cluster.

Problems and barriers also tend to sustain and reinforce each other. Suppose, for example, that the effectiveness and quality of communication between a municipal manager and a government office are hampered because he mistrusts them and they are geographically distant from each other.

The geographic distance will reduce the likelihood that the mistrust will be overcome, and, at the same time, the mistrust prevents the bridging of the distance. Although one problem may be eliminated, interdependency means that the force of the other sustaining problems may counteract the effort.

To solve problems before they escalate into crisis  situations will need systemic thinking. Holistic thinking needs to be taught – it does not come naturally.

• The report states that urgent action, including declaring an emergency in the area, was apparently recommended but not carried out. This sounds just like what happened when Hurricane Latrina (I know it is supposed to be Katrina, but when all the effluent and waters mixed it became like a latrine)struck. It took the Mayor of New Orleans 48 hours to enact his plan.

This raises serious doubt over the ability of municipalities to react to disasters and emergencies. I wonder how many of these municipalities comply with the Disaster Management Act. I wonder how many comply with international best practice when it comes to testing of plans.

• An official health report, tabled two weeks at a closed council meeting, indicated there had been a breakdown in a water purification works in October last year.

Yet no action was taken. It is called Assumptions. To assume that staff will repair something is naive. To assume that a small insignificant issue does not have the potential to cause harm is naive and it points directly to the type of thinking methodologies employed by managers and employees.

• The report states that the Cloete Joubert Hospital in Barkly East failed to report the deaths in time for a proper investigation but a senior hospital manager said the municipality did nothing until 15 deaths were reported.

This points directly to communication failures, and it raises serious points with regards to incident reporting mechanisms, internal communication structures and process flow. I wonder who in Government looks at these type of things. Who conducts Communication audits? Who ensures that these types of issues are addressed.

GCIS? I doubt it. The Health Department Communication staff? I doubt it! Internal Communication needs regular attention. It needs auditing.

• On Wednesday, the provincial government said other socio-economic factors were also to blame including poor service delivery, environmental health and human resource “challenges”.For example there had been inadequate intravenous fluids and antibiotics to deal with the babies who became ill.

This again highlights lack of planning and supply chain management. Something is wrong with the system. It is a known fact in Organizational Development circles that a bad system will always beat a good employee’s intentions. Lack of Service delivery points directly to leadership.

In the Private sector there is consequences when there is failure and lack of performance. In local government there is cover ups and progression up the ranks because the only criteria used is that of political clout.

• The report also states that people did not have enough Health education.

This is a rural area and there are difficulties in communication sure enough. However it points directly to the authorities.Water, Health and Hygiene issues fall into the realm of Risk communication. Again I must question risk communication efforts in municipal districts as well as the ability of any organization to conduct crisis communication.

Just to enlighten my readers, Crisis communication refers to communication about an unfortunate event or occurrence that can hurt people, organizations, and economies, among other things. Risk communication refers to communication related to the health and safety of people and the environment.

While we can see that the principles of risk communication sometimes pertain to crisis communication… It is also clear that not all risk communication is crisis communication, and, conversely, not all crisis communication is risk communication.

The message of how to deal with a water contamination situation – now that it is a crisis situation, is that Crisis Communication or Risk Communication? Read the last 2 paragraphs of the news release, and let me know what you think.