The Factors And Linkages Which Impact Corporate Reputation - Case Study Example

Corporate Reputation Name Institution Course Date Table of Contents Table of Contents 2 List of Figures 3 List of Tables 4 Corporate Reputation 5 Executive Summary 5 Brief Overview of Volkswagen Company 6 Reputational Crisis 6 Consequences of the Scandal 6 Definitions of Corporate Reputation 7 Comparison of Definitions 8 Forces that led to Reputational Crisis 8 Internal Forces 8 External Forces 9 Relational Forces 9 Building Blocks of Corporate Reputation 10 Brand Personality 10 Volkswagen’s Culture 10 Values of the Brand 11 Strategy Development 12 Kapferer’s Brand Identity Prism 12 Gaps in Corporate Brand 13 Role of Communications in Linking Building Blocks 13 Gaps between the Building Blocks 14 Importance of Corporate Reputation 14 Measuring Corporate Reputation 15 Recommendations of Rebuilding Volkswagen’s Reputation 16 References 17 List of Figures Figure 1 Kapferer's Brand Identity Prism 13 List of Tables Table 1 Volkswagen's Brand Personality 10 Corporate Reputation Executive Summary Volkswagen is an automobile company which has been the market leader for many years. It is operational in more than thirty countries thriving more in China and the European countries. However, as the report has documented, Volkswagen found itself in a reputational crisis following their evasion of meeting the emission standards of their diesel engines. The report has documented the internal, external, and relational forces that led to Volkswagen’s reputational crisis and their consequences. The report has also highlighted the different definitions of corporate reputation and analyzed the common issues and differences in these definitions. Additionally, it has evaluated the building blocks of corporate reputation concerning the Volkswagen Company tackling aspects like the organizational culture, values, strategy development. The building blocks have been analyzed using Fill’s model. Kapferer’s Brand Identity Prism has also been incorporated in the report for analysis of the building blocks while identifying the gaps that exist in the corporate brand. The report has documented the role that the organization, management, and marketing communications play in providing the linkages between the building blocks as well as evaluating the gaps that exist between them. Also, the report has assessed the importance of corporate reputation concerning Volkswagen Company. The Consumer Reputation Index (CRI) has been identified as a method for measuring corporate reputation which has been applied to the Volkswagen Company. Following Volkswagen’s tarnished reputation; the report has given some recommendations of what it could do to restore their good corporate reputation. Brief Overview of Volkswagen Company The Volkswagen Group is an international automobile manufacturer which is the leading passenger model. It was ranked among the top five brand-driven car models in the year 2015 (Rhodes, 2016). The Volkswagen Company is focused and dedicated to the delivery of ‘environmentally sound and safe’ vehicles. The main brands of the Volkswagen include Porsche, Audi, Skoda, and Volkswagen AG (Rhodes, 2016). The company operates in more than 30 nations with its primary focus in China as well as the European countries where it has twelve distinct brands. Additionally, the Volkswagen Company also provides a broad range of different financial services. Some of these financial services include banking, leasing, financing, some fleet management and insurance activities (Rhodes, 2016). Reputational Crisis The Volkswagen Company was involved in a diesel scandal which was dubbed ‘diesel dupe (Burki, 2015).’ The Environmental Protection Agency (EPA), established that several of Volkswagen vehicles that were being sold in the United States had a software or rather a ‘defeat device’ in their diesel engines (Burki, 2015). This device could detect when the vehicles were being subjected to any tests, and could then alter their performances accordingly so that the results could be improved. Volkswagen admitted that approximately 11 million of their cars globally were already fitted with that ‘defeat device (Burki, 2015).’ Consequences of the Scandal After admitting to this practice, Volkswagen began undergoing numerous problems in the market especially because by this time their reputation was damaged. They incurred some explicit costs which included legal fees, government fines, recall costs, as well as some expected loss concerning their operating income (Krall and Peng, 2015). Their financial analysis reported that they accumulated some costs which added up to about 15.6M pounds. Additionally, there were also some non-quantifiable costs which were associated with this damage involving reduced brand equity as well as the losses in the investor and employee confidence in the company (Krall and Peng, 2015). Despite Volkswagen issuing the appropriate compensation for the vehicles that were affected and numerous press releases to try to repair their reputational damage, it was evident that there was still more that had to be done to regain the consumer trust (Krall and Peng, 2015). Definitions of Corporate Reputation One of the definitions of corporate reputation is that it consists of various collective judgments of a particular company by the evaluations of their environmental, social, and financial impacts which have been accumulated over a given period (Gotsi and Wilson, 2001). Another definition is that it entails some collective evaluations of an organization’s previous actions as well as its ability to deliver and therefore enhancing the company’s results to their stockholders over a particular period (Barnett, Jermier, and Lafferty, 2006). The corporate reputation of a company can also be defined as the total of all the beliefs and views that are held regarding a given company on the basis of its history as well as the prospects as compared to some of its close competitors (Argenti, and Druckenmiller, 2004). Comparison of Definitions There are some evident common points about what corporate reputation is. One is that it consists of a series of assessments or evaluations over time. This means that it takes some considerable amount of time for a company to establish their reputation. Also, it deals with how people perceive a company based on their past performances on various aspects as well as in their future projections. The difference in the definitions of corporate reputation is when it comes to aspects that drive a company’s reputation when trying to uphold their reputation. As observed in the definitions, some of them focus on the maintaining a high perception for impressing the market, some because it is a part of their culture, and some because it is just a requirement to maintain a positive company image. Forces that led to Reputational Crisis Volkswagen’s diesel reputational crisis was evidently influenced by a variety of factors which comprises of internal, external, and relational factors. Internal Forces One internal force that contributed to the Volkswagen’s reputational crisis is its organizational culture. Culture is considered to be a significant tool which leads to people making decisions which are not in the positive benefits of the company (Wei et al., 2016). In the case of this company, Volkswagen had a ‘no-failure’ culture which led to them making one of the most detrimental decisions which was to make a ‘defeat device’ to surpass tests (Wei et al., 2016). Rather than solving the issue, they decided to install these devices to make their vehicles appear to environmentally-friendly just because their internal culture did not create room for any form of failure (Wei et al., 2016). External Forces Some of the external forces that led to Volkswagen’s reputational crisis include the social, technological, environmental, and legal forces. The environmental regulations had set some emission standards which were not to be exceeded (Booth, 2000). Since Volkswagen vehicles did not meet these emission standards, they decided to use some technology which was available to them to make their diesel engines to appear environmentally-safe. Since the software technology was readily available to them; then they made use of it so that they could appear to meet the set environmental regulations (Booth, 2000). Additionally, since they wanted to maintain the proper reputation of their vehicles socially, instead of acknowledging that their diesel engines had a problem, they decided to cheat so that their social reputation could still hold (Booth, 2000). Relational Forces Porter’s five forces can be attributed as one of the aspects which led to Volkswagen’s reputational crisis (Nuttall, Holweg, and Leybovich, 2011). Being on the forefront of an automobile industry, coming clean about the diesel engine could jeopardize a lot of it. If they come clean about their ‘defeat devices’ then there could be high risks that their industry rivalries, like Toyota, could surpass them (Nuttall, Holweg, and Leybovich, 2011). Also, there were threats of new entrants and substitutes who would take advantage of their damaged of trust of their vehicles. The bargaining powers of their suppliers and their buyers could also be affected if they did not cheat about their diesel engines (Nuttall, Holweg, and Leybovich, 2011). Building Blocks of Corporate Reputation Brand Personality Brand personality can be defined as a collection of the human features which can be associated with a given brand. It has its focus on what a particular brand speaks about the client and how the client feels regarding their association with a given brand (Brammer and Pavelin, 2006). Volkswagen’s brand personality is associated with five distinct dimensions which include sophistication, competence, excitement, ruggedness, and sincerity (Brammer and Pavelin, 2006). The following table summarizes Volkswagen’s brand personality; Personality Dimension Sophistication Classy and elegant Competence High quality and reliable Excitement Trendy and innovative Ruggedness Masculine Sincerity Family-oriented Table 1 Volkswagen's Brand Personality Volkswagen’s Culture Regarding the organizational culture, Volkswagen has a combination of a variety which includes hierarchy-oriented, market-oriented, and adhocracy-oriented cultures. The hierarchy-oriented culture is where an organization focuses on efficiency and doing things the right way (Bosnjak, Bochmann, and Hufschmidt, 2007). This is evident in the Volkswagen Company as it is always driven by efficiency. Aside from the diesel scandal, the company has strived to build its reputation (Bosnjak, Bochmann, and Hufschmidt, 2007). In the process, it has incurred a lot of costs because they always want to do things right. Volkswagen’s market-oriented culture is evident since it always focuses on achievement and staying ahead of the competition (Bosnjak, Bochmann, and Hufschmidt, 2007). As discussed earlier, one of the forces that led to the reputational crisis of Volkswagen is the Porter’s five forces which strive to assist the company to remain competitive and relevant in the market. They have also attempted to build back their corporate reputation so that they can gain their comparative advantage back. The adhocracy-oriented culture is associated with high levels of dynamism, entrepreneurship with the primary focus on risk-taking and innovation (Bosnjak, Bochmann, and Hufschmidt, 2007). It is apparent that Volkswagen has embraced this culture because of their broad brand range across more than thirty countries around the world which depicts high levels of entrepreneurship and innovation. The ‘defeat device’ is also a symbol of innovation and risk-taking which just went sour. Values of the Brand Volkswagen has a variety of values which guide their everyday operations. These values include (Janssen, 2013); Responsibility Sustainability Determination Strong success attitude Trust Learning Cooperation Respect These values guide and shape their daily activities which then affect their workplace’s atmosphere. They also impact the way the company faces and addresses their challenges and their eagerness to work as well (Janssen, 2013). Additionally, the values are linked and intertwined to form a comprehensive value structure (Janssen, 2013). Strategy Development One of the primary focuses of developing strategy in Volkswagen is becoming the environmental and economic leader in the worldwide automotive industry. Therefore, their strategy is centralized in profitability and environmental protection of their vehicle-related products. This is so that they can ensure that each of their products makes a positive contribution towards their brand success in the competitive marketing conditions. Kapferer’s Brand Identity Prism Brand identity can be defined as the common element which sends a single message amidst a wide range of its communications, actions, and products (Azoulay and Kapferer, 2003). Volkswagen as a brand is widely known for manufacturing long-lasting, stylish, and aesthetically pleasing vehicles which consider environmental aspects (Ciceo, 2013). The following Kapferer’s Brand Identity Prism is adapted to suit that of Volkswagen. Figure 1 Kapferer's Brand Identity Prism Gaps in Corporate Brand One of the significant gaps in Volkswagen’s corporate brand is the ‘Vision-Culture-Image’ gaps (Davies, and Chun, 2002). The vision is focused on the aspirations that the top management has on its company. The culture is associated with the attitudes, behaviors, and values of the enterprise. The image is how the outside world views the company. Many companies, including Volkswagen, have had a problem when it comes to the establishment and management of these vital aspects of the cooperate brand (Davies, and Chun, 2002). Every of these components need to be blended for a successful corporate brand and failure to this integration will lead to significant gaps in the corporate brand of a company. Role of Communications in Linking Building Blocks The management, marketing, and organizational communications play a crucial role in linking the building blocks of corporate reputation. One of the evident roles that these components play is that they consistently offer or come up with new marketing communication mechanisms (Harris, and Chernatony, 2001). These communication tools, in turn, provide the opportunity for consumer engagement and interactions which ultimately strengthen the brand relationships while at the same time improve the brand experiences (Harris, and Chernatony, 2001). Therefore, the central role that the management, organization and marketing communications play in providing the linkages among the building blocks is that they come up with the new market a mechanism which in turn leads to an enhanced brand reputation (Harris, and Chernatony, 2001). They also link the traditional marketing communication with the new ones to fill the gaps in marketing while addressing the needs of a larger consumer market. Gaps between the Building Blocks The significant gaps in the building blocks are linking each building block with the personal perceptions, experiences, and expectations that are intrinsic in building the relationship between the company and its clients as well as the building blocks of the company’s corporate reputation (Anand, 2002). This then ends up complicating the reputation management process. Each of the building blocks plays a particular role that deals with imagery, performance, feelings, judgments, and resonance (Anand, 2002). Corporate building blocks focus more on performance, and imagery and leave the other aspects at a lower scale which is what creates the gaps amongst them (Anand, 2002). Importance of Corporate Reputation The importance of a good corporate reputation will be documented concerning Volkswagen Company. After the diesel scandal, the reputation of the company was significantly damaged which led to multiple losses and other adverse effects associated with the performance of the business (Burki, 2015). The importance of corporate reputation for Volkswagen is that it enhances the perception of the consumers about the quality of the vehicles that are manufactured by Volkswagen (Brammer, and Pavelin, 2006). If the consumer perception is enhanced, then it is apparent that there will be an increase in sales and profits which is one of its primary focuses. Another importance is that it will assist in the improvement of their capacity to hire and retain some qualified staff members for the respective operation fields. This will also go a long way in enhancing the employee’s morale and consequently their productivity (Wei et al., 2016). Corporate reputation has also aided the Volkswagen Company to expand to a global scale both regarding market penetrations as well as in the facilitation of alliances (Wei et al., 2016). This has also enabled the attraction of many investors which has played a role in allowing the access to cheaper capital. Finally, Volkswagen for a long time has been able to be differentiated from its competitors like Toyota, which has, in turn, helped the company to establish a better market position (Wei et al., 2016). Measuring Corporate Reputation One of the methodologies for measuring corporate reputation is through the use of a Consumer Reputation Index (CRI) (Lewis, 2001). This method is specific as it only covers a particular stakeholder group and has its primary focus on the measurement of corporate reputation based on socially responsible issues. Putting this into perspective, Volkswagen can compose one primary question about the overall perception of the respondent of the company (Lewis, 2001). This issue needs to be one which incorporates environmental, economic, and social aspects. The respondents need then to be guided by the parameters of answering the questions such that the answers that they give tackles issues about the quality of their vehicles, their innovation, and leadership, their ability to generate positive feelings, their relationships with their clients, as well as their social responsibility practices (Lewis, 2001). These responses are then scored, and it will give an overview of the company’s reputation as well as where they can adjust to improve it. Recommendations of Rebuilding Volkswagen’s Reputation Following the tarnished image that Volkswagen has following the ‘defeat device’ menace, it could implement the following recommendations so that its corporate image could be rebuild. The first thing it could do is to show that it is remorseful for partaking the scandal (Zhou, 2016). At least it has shown this by the way it has incurred many costs in giving compensations to all those that were affected by the scandal. Also, Volkswagen has to depict maximum cooperation with the regulators and show transparency to each of the regulations (Zhou, 2016). It could also be beneficial if the company could take to communicate with its customers openly and directly about what happened and what they intend to do moving forward (Kitchen and Watson, 2010). Open and transparent communication with their clients is likely to prove that they are remorseful and that they are willing to reform for the better; transparency is key. Finally, Volkswagen can change or open up new structures and strategies which will not give room for a repetition of the same scandal that took place (Kitchen and Watson, 2010). This change of structures can start from the management downwards. 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