Warren Buffett, the icon of investment, reminds us of the importance of attending to reputation: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
Based on the volume of articles appearing about reputational risk, it appears that business is heeding his words—and with good reason.
A recent article on CFO.com points to the stark statistics in the recent Aon-sponsored “Reputation Review 2012” issued by Oxford Metrica. Some of the most eye-opening findings: among the 10 companies that suffered the most reputational damage last year, two lost almost 90 percent of their value, seven lost more than a third, and only one recovered to the point where its value was higher than before events caused the reputational hit.
Randy Nornes, Executive Vice President of insurance broker Aon Risk Solutions, notes that these reputation-damaged firms were “too slow or misdirected in their response.” This viewpoint echoes a seminal article in the Harvard Business Review that noted, “Most companies…do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. This is not risk management; it is crisis management—a reactive approach whose purpose is to limit the damage.”
According to Nornes, while reputational risk falls into a number of areas across the business, it is often manifested in the supply chain. But insight into this fact is lost among brand owners that do not take an end-to-end approach to managing their supply chain operations.
Supply chain disruptions and their associated impacts (to revenue and reputation alike) are not restricted to first-tier suppliers and customers—which means that risk management programs shouldn’t be either. The ability to access information from every part of the trading network, and the ability to view this information in a real-time context, can help organizations identify or anticipate risks to reputation, as well as inform the range of decisions that may be taken to mitigate them. That’s where collaborative execution comes in—bringing together the people, processes, and technologies needed to identify and resolve supply chain disruptions before the negative effects are felt by your customers, and then your reputation.
After all, hits to brand reputation can translate quickly to reductions in shareholder value. As Dr. Rory Knight, Chairman of Oxford Metrica, notes in his introduction to Reputation Review 2012: “The last year has seen a number of high profile corporate reputation events that have caused considerable value destruction for many companies and their shareholders. These stand as a stark reminder to corporate boards around the world that reputation, both its development and protection, now warrants and indeed demands an increasing proportion of their collective attention.”
So to paraphrase Buffett, when it comes to the serious business of managing reputational risk, it’s high time to do things differently. Taking an end-to-end, collaborative approach to supply chain management is an excellent place to start.
To learn more about building a more resilient supply chain—from component supplier to customer—download our new eBook, “Supply Chain Is Risky Business: What Can You Do About It?”