Reputation and the middle-market firm

Reputation is one of your most important assets. Embedded in the concept of “goodwill,” accountants label reputation as the most intangible of intangible assets. This doesn’t mean that the concept isn’t important, but rather that it’s challenging to measure and assess.

Indeed, goodwill may represent a significant chunk of a company’s overall value, capturing the difference between tangible assets — buildings, machinery, intellectual property — and the actual price a would-be buyer would offer.

Value everywhere

The most common lens for reputation is through marketing. From that perspective, a customer relies on corporate or brand reputation to help make a decision about buying a product or service, or how much to pay for it. This is especially true where the customer must discern the quality or performance of a product or a service he/she doesn’t understand or is unable to judge.

But the value doesn’t end there. Reputation impacts almost everything, from the ability to withstand a downtrend or bad publicity, to diversifying into a new product line with reputation a decisive factor in convincing a customer to give it a try.

Employee recruitment is also greatly impacted by reputation. A study by Larry Inks and Raymond Noe from The Ohio State University’s Fisher College of Business found that 79 percent of respondents agreed a good employer brand was essential for drawing top talent. Of executives from firms with clear employer brands, 83 percent thought their reputation also helped them hold on to existing talent.

Reasons for neglect

Yet, compared to their large brethren, middle-market firms tend to pay little attention to reputation.

First, middle-market firms often manufacture unbranded intermediate products that aren’t sold directly to customers. Still, the reputation of these suppliers in the eyes of their corporate buyers is critical, and, in some cases, intermediate inputs of the sort of “intel inside” can transcend all the way to a final buyer.

There is a lack of knowledge about the broader ramifications of reputation or its timeliness. Middle-market companies also are often hard pressed on an operational level and lack the time, or wherewithal, to engage in the long-term strategic thinking that reputation building and application require.

Time to invest

Regardless of the underlying reason, middle-market firms would do well to pay more attention. This means, among other things, making an actual investment in building reputation. This doesn’t necessarily mean advertising. In one case, a firm decided to honor commitments made by a company it acquired, even though it wasn’t legally obligated to do so.

A middle-market firm also needs to determine what is critical to a buyer and what it wants to be known for. Quality? Reliability? Service? All of the above?

Then comes the question of how to build reputation and how to parlay it in regular business as well as in a crisis. Indeed, you may want to think of reputation as credit, which is not less important than the financial credit you rely upon to survive and prosper.

 

Oded Shenkar is the academic director of National Center for the Middle Market, the leading source for knowledge, leadership and research on midsize companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.