Seat at the Table

Yahoo and the International Olympic Committee (IOC) both recently reversed very bad business decisions that should have been run through a reputation risk management forecasting model (in the case of Yahoo, they may have done this – see the last paragraph).  In the case of the IOC, they made ridiculous demands of Iraq’s committee (after allow Uday Hussein to run the show in the past) including the reinstatement of previous committee members who had since been kidnapped.  In the case of Yahoo, they initially announced they were shutting down their music service and suggested people burn music files they bought onto CDs as the licensing technology would be shutdown.   The IOC has since allowed Iraq in and Yahoo announced a compensation plan for people that bought digital files.

In the case of the IOC, a common sense approach to reputation analysis would have told them the initial decision had potential disaster written all over it.  In the case of Yahoo, a similar previous decision by MSN would have shown them the potential for damaging their brand as one consumers can trust.

In both cases, I suspect they did not seriously, or at least properly, weigh the potential economic damage by the reputation impact.  Had they, a week of very strong criticism would have been avoided.

So how does a company weigh such decisions?  There’s no one magic formula but a basic approach would be as follows:

1. Do a social and regular media forecast analysis to determine how the decision may be covered.  This includes determining probably positioning based on previous reporting of similar decisions, confidential facts that may be leaked or uncovered, and how widely it may be covered.  This should be based both on previous reporting as well as the use of panels of former journalists under NDA (yes, such panels are available).
2. Survey relevant audiences as to how the decisions will impact their view of the brand (obviously this has to be done carefully, and in many cases on a blind basis, to avoid damaging leaks)
3. Include questions relating to economic impact such as likelihood of watching programming or using a service after hearing news
4. Use data from the previous question to determine what the potential revenue or investment impact is over the short and long term
5. Calculate if the cost of not making the decision (or changing it) is greater or less than the economic impact.
6. Determine if there is a second stage plan that can take place should the communication of the announcement not go well.  This plan (such as Yahoo’s – see below) should recover the cost of the goodwill with the remaining reputation impact being worth the risk.  This is core to the risk analysis.

Obviously, this is a simplistic approach but the bottom line is this: regardless of messaging and positioning of a tough (and bad) decision, the bottom line is to project the worst news reporting context, the impact on buyers and investors and see if you still want to make that decision.

Taking a look at the Yahoo case, they may have already done this.  They quickly announced a compensation plan for buyers of digital music.  Obviously, the cost of the plan is was worth rebuilding some good will.  It’s quite possible they had the plan in the pocket and took the risk of not initially announcing it figuring that if the reporting was negative (and it was), the cost of asking forgiveness was still worth the remaining reputation impact.