A good reputation is like having good health—you only really appreciate it once you’ve lost it. Maintaining an unblemished corporate reputation has become increasingly difficult amidst the growing fragmentation of interest groups, capricious public expectations and the insidious rise of misinformation.
With the growing complexity and difficulty in mitigating the impact of reputational crises, a prevention-focused mindset to identify these emerging issues in the first place becomes essential rather than a nice-to-have.
In practice, this means organizations need to adapt their decision-making and intervention approaches to suit volatile, uncertain, complex and ambiguous circumstances. The linear, mechanistic and ordered approach of traditional management practice which tends to be the universal approach to getting things done often has completely unexpected outcomes when dealing with complex systems.
To paraphrase an old expression, if the only tool you have is a hammer, all problems will be treated as nails.
Reputational crises are frequently the compound effect of poor decision-making
One area of risk that is frequently ignored in crisis and risk management is the way organizations make decisions. In his book “The Logic of Failure,” Dietrich Dorner argues that crises don’t often just strike out of the blue, but very often they are the outcome of poor judgment, decision-making, or general organizational management.
Running a series of simulations, he uncovered that organizations generate positive outcomes when they make decisions more frequently, reflect continuously on the overall situation and possible courses of action, adapt consistently to changes, and finally, keep on asking the tough questions.
On the flip side, negative outcomes are generated when organizations make fewer decisions over time, act without analyzing the situation properly, don’t anticipate side effects and long-term repercussions, and get absorbed in pet projects that distract them from monitoring emerging needs and changes in the situation. Crises often result from the compounding effect of multiple poor decisions.
How can organizations avoid crises of their own making?
To avoid a crisis of one’s own making, organizations need to be aware of behavioral patterns driven by biases or the this-is-the-way-we-do-business mantra. They must recognize that we need a different approach, one that is better suited to managing complex situations.
In complex and chaotic contexts, organizations need to adapt their approach and become much more actively involved, constantly monitor the impact of their actions and make frequent course corrections. This latter approach is not only energy-intensive but leaves many managers deeply uncomfortable that they cannot “solve” the problem definitively.
Emerging risks are products of complex systems
The best way to minimize reputational crises is to be thoroughly prepared.
It is no longer sufficient to do the basics of mapping and preparing for risks that are on your radar. It’s imperative to prepare for emerging risks, those that are not obvious but can turn into full-blown crises at alarming speed.
Let us assume the following scenario: suppose a luxury hotel brand decided to bottle its own luxury brand of water, but the source of water is in a country thousands of miles away. This country has an active environmentalist movement that is particularly concerned about the impact of climate change on water security.
A few months after commencing operations, a political incident involving this country draws attention to the ownership of the bottling plant. The residents of the town where the plant is located complain that the bottling plant is taking water meant for the locals and exporting it to a country that is a major contributor to climate change. The governor, always on the lookout for popularity, orders the water rights to be suspended until an investigation has been carried out.
Without some form of pre-emptive risk management system in place, it is unlikely that the luxury hotel brand would have identified the confluence of a political incident and an emerging social concern with water consumption rights.
This is why organizations require systems in place to be able to track and monitor issues that may simply not occur to them or be on the radar.
Leverage the power of AI and predictive risk analytics to inform decision-making
Despite an increasingly challenging environment to navigate, we also have more ability than ever to predict risks and prevent crises. Preventive risk management systems that leverage AI to tap into vast amounts of data now allow organizations to make better-informed decisions.
Using advanced data analytics and machine learning algorithms we identify potential risks that may harm reputation, predict the impact of those risks, and develop strategies to mitigate them before they occur.
These systems analyze data related to the organization and its industry, including data on the organization’s past reputation and performance, current market trends, customer sentiment and competitor behavior to identify patterns and trends and make predictions about your future risks and potential impact on your organization’s reputation.
For example, a company that is facing a potential product recall can use predictive risk management to determine the likelihood of a recall and its potential impact on the company’s reputation. Based on this information, the company can then develop strategies to mitigate the risk, such as increasing product quality or implementing better safety measures.
Predictive risk management can also be used to monitor and manage an organization’s reputation in real time by tracking social media mentions and other online sources to quickly respond to negative comments and take steps to mitigate any damage to their reputation.
Prevention is better than cure
The level of complexity in today’s business environment has made decision-making much more challenging and increases the potential for errors or poor judgment which can disproportionately impact the organization’s reputation.
Taking a prevention-oriented approach to ensure better preparedness and investing in predictive risk management is always more cost-effective in the long term. The risk of permanent damage to yourself or your organization when fire starts to rage is too great.