By the time business professor Theodore Levitt explained in a 1960s Harvard Business Review article how buggy whips comprised an exemplary industry that failed to adapt to changing markets, the former horse-and-buggy supplier Hermès was well into its twelfth decade of innovation. Founded in 1837 as a saddlery, its ability to meet stakeholder’s expectations for quality, integrity and craft hasn’t changed in the two centuries since. In fact, it earned Hermès the top spot in the November Consensiv 50 league table of reputational value.
In Consensiv’s model, reputation is not based on polls and surveys of sentiment dominated by firms with large advertising budgets. Instead, reputation is the expectation that companies will fulfill their commitments, and reputational value is the measurable economic consequence of how stakeholders behave in light of those expectations.
It’s notable that Hermès ranked first on the November 2013 monthly league table. (Read the full chart.) For one thing, unlike many of its competitors, Hermès has direct and tangible controls of its production process (34 of its 45 production units are located in its home country of France). In addition, the company focuses its worldwide distribution through a network of 323 stores. These controls on both the production and customer-facing sides of the business allow Hermès’ management to tightly manage both the expectations of its stakeholders and its ability to meet those expectations, and, as a result, the premium its stakeholders put on its reputation. Operations and communications management are so tight, in fact, that in its June 2013 interim report Hermès identified currency fluctuations as the greatest risk its business faced.
There are several things Hermès does not do that might come as a surprise to business professionals who still confuse reputation with brand and likability. In the consumer-products sector it is taken on faith that stakeholders value a company that engages in charitable works or invests in global sustainability initiatives. But Hermès is far less involved than other companies in charitable or social works efforts. It conducts no apparent campaigns on environmental responsibility, and yet operationally, it simply engages in sustainable practices. The company reported zero accrual for environmental liabilities in its 2012 financial statements (and noted that none of the group’s companies was ordered by a court to pay any fines related to environmental damages).
The experience of another French company, Dassault Aviation, demonstrates how any failure or shortcoming of controls can be quite damaging to reputation. Ranked on the Consensiv 50 for the past six months, the aircraft-manufacturing company disappeared entirely from the November table. This is partly due its vague warning on Oct. 17 that the U.S. government shutdown “delayed deliveries of a certain amount of planes,” forcing the company to assess the situation at the end of the year. Other plane makers acknowledged potential impacts of the shutdown but did so with far more clarity and confidence. An announcement of a 29 percent jump in sales for its third quarter was not enough to compensate for a possible absence of management controls of Dassault’s business, and its reputation suffered.