Business, Media, Politics, Sport

The importance of character and personality of an organisation on corporate reputation – Sports Direct Case Study

The purpose of this report is to examine the importance a corporation’s character in the development of a corporate reputation.

The report will critically examine the concepts and theories pertaining to corporate character, culture and identity and assess to what extent these principals influence Sports Direct’s corporate reputation and make recommendations on future campaigns.

1.1 Character and its impact on Corporate Reputation

“A corporate reputation is a collective representation of a firm’s past actions and results that describes the firm’s ability to deliver valued outcomes to multiple stakeholders.” Fombrun (p6., 1996)

Corporate reputation (CR) is earned over time through stakeholder interactions and touch-points with an organisation; preconceptions and expectations; messages in media and word-of-mouth (Bernstein, 1984). It can be argued that corporate reputation is governed more by uncontrollable external forces than internal drivers.

Corporate reputation is directly proportional to the relationship between stakeholder expectations and organisation action (Fombrun, 1996). Corporations must strive to ensure that their actions meet or exceed stakeholder expectations across six key drivers (Greyser, 1996).

It is corporate personality, according to Roper and Fill (2012) which is the building block which governs how companies will create their communication strategy and how they will aim to meet or exceed stakeholder expectation. Therefore, an organisation is going to manage its corporate reputation, they must understand their own personality first.

Figure 1 Building blocks of corporate reputation – (Roper & Fill, 2012)

1.2.1 Character

To understand how character impacts on corporate reputation, two areas must be considered, the role that character plays in the organisation and in the brand.

1.2.2 Character in the organisation

Organisational personality according to Markwick and Fill (1997), comprises of two core factors; organisation culture and the strategic purpose. These elements dictate how the company will operate and conduct its affairs:

  • Organisation culture – ‘the way things work round here’
  • The strategic purpose – ‘long-term planning, goal setting’

Pros The model encapsulates Fomburn’s view that the organisation is governed by its past actions (Organisation culture) and its ability to deliver future aims (strategic purpose).

Con Fails to address the impact of Greyser’s drivers on corporate personality

1.2.3 Character in the brand

Organisational culture and strategic purpose steer the decisions made within the business and define the company’s character.

Corporate personality

Figure 2 – Corporate personality traits (Keller & Richey, 2006)

Keller and Richey (2006) developed a framework for discussing corporate personality traits which relate to Thurstone’s ‘Measurements of social attitudes’ (1931) and is backed up with empirical evidence from Balmer and Soenen (1999) and Hatch and Majken (2001) [See figure 4]. The model is broken down into three components with two subset personality traits each:

  • Heart – Passionate and Compassionate
  • Mind – Creative and Disciplined
  • Body – Agile and Collaborative

It is important that businesses carefully manage their corporate brand personality as these traits are fed throughout the organisation and can ‘attain sustainable success against’ competitors and ‘drive employee behaviours’ (Keller and Richey, 2006).

‘Corporate brand personality reflects the values, actions, and words of all employees of the corporation’ (Keller and Richey, 2006).

1.2.4 Conclusion

‘Personality is embodied in the way that the organisation carries out its business, the logic of its activities, the degree of persistence and aggression it displays in the markets in which it operates in and the standards that are expected of all stakeholders’ (Fill, 2002)

Corporate personality governs how an organisation will work and the strategies it employs. The culture and strategic vision of the company (which creates corporate personality) influence the corporate identity. These are considered the only controllable elements of corporate reputation with external factors such as environment and campaign outcomes feeding back into the decision chain.

The biggest impact that corporate personality has though on corporate reputation is the influence it has over employees’ heart, mind and body traits. Their decisions, sales interactions with the market, marketing’s campaigns, customer supports interaction with customers and the organisation’s interactions with stakeholders will be governed by the company’s character.

‘Corporate personality is what an organisation actually is.’ (Fill, 2002)

1.3 Sports Direct character and its impact on its corporate reputation

1.3.1 Current market position

Sports Direct’s handling of the PR crisis and difficult trading conditions highlighted that the company can benefit from its senior management’s entrepreneurial style of leadership. It can quickly alter its strategy to changing market conditions. The company has been built on a combination of two of Porter’s Generic Strategies, Differentiation and Cost Leadership.

1.3.1.1 SWOT[1]

Strengths Weaknesses
·         Wide range of specialist brands (owned and suppliers)

·         Strong online and offline UK distribution

·         Market leading brand with strong past financial performance

·         Over-reliance on the UK sector

·         Poor relationship with major brands

Opportunities Threats
·         Expanding reach and offerings through acquisitions

·         Increasing preferences from consumers towards digital purchase trends

·         Growth in digital can increase brand’s audience reach

·         Growth in the European footwear market

·         Increased competition from JD Sports and Brands directly (Nike and Adidas)

·         Decreasing number of zero-hours contracts and more employee rights will increase labour costs

·         BREXIT could decrease the number of low-skilled employees

Below is a review of how the Sports Direct currently performs based on the 5 S model (Chaffey and Smith, 2013) prior to the PR scandal and 2016:

Sell Serve Sizzle Speak Save
·     Sports Direct has been witnessing growth in online revenue which has increased by 14.4% from £335.4 million to £383.8 million in FY2015
·    The company generated 79.5% of its revenues from the UK
·    Attempting to increase European presence
Owns named brands which allow it to offer premium brand names at low prices
·     Focused on discount and low-end value chain
·     Entering new markets thanks to acquisition strategy
·     The operating profit margin increased from 9.2% in FY2014 to 10.4% in FY2015, whereas the net profit margin increased from 6.7% to 8.5% during the same period

Sports Direct’s current positioning within the market is designed to leverage the strength of offering brand names at discount, thus keeping it lower than its competitors. The low price point and tight control of supply chains enable it to have market penetration, but in lean economic conditions will suffer because of decreases in sales volume.

Corporate position
Figure 3 Sports Direct Competitor Positioning Map

1.3.2 Current Corporate Reputation

Sports Direct (SD) has been ruthless in its pursuit of cutting costs. It hit the headlines when an undercover Guardian (2016) investigation found that employees on zero contract hours had been paid effectively less than minimum wage. Staff were subjected to strict ‘Victorian-like’ working conditions (Appendix 1).

The staff were too afraid to speak out about their low pay in fear of being reprimanded or fired. The reports into the organisation’s practices changed the environment that it works within. These accusations combined with difficult trading conditions resulted in decreased sales, share value, stockholder value, and harmed their corporate reputation.

The new market which they find themselves in is directly governed by its culture and its ruthless strategy. To salvage its corporate reputation and share value, it must look to improve its brand image through a culture and strategy shift.

1.3.3 Corporate Reputation Value

Van Riel & Balmer’s Corporate Reputation Value (CRV) model (Figure 2) highlights the role of environment on Culture and Strategy and shows its influence over the corporate reputational flow.

Corporate Reputation Value ModelFigure 4 Van Riel & Balmer’s Corporate Reputation Value model (1997)

The CRV model highlights the impact that environment has had on the current reputation of SD. Once the media picked up on working conditions, all stages of the reputational flow were impacted.

Pros – The model highlights the environmental impact on corporate identity throughout the reputational flow. It also highlights how corporate identity, reputation and outcomes continually influence each other

Cons – Without showing how these stages influence the environment, the model negates that corporate reputation is governed by its past actions

1.3.3 Culture

Strengths Weaknesses
·         Entrepreneurial drive from owner

·         Decisive decision-making process

·         Authoritarian

·         Little regard for worker rights

·         Fear of discussing issues with management

·         Broken promises

·         Closed communication climate

 

Internal implications for CR – Decreased employee satisfaction, communications breakdown

External implications for CR – Increased pressure from media and stakeholders

 

1.3.2 Strategy

Sports Direct has a long history of strategic investment and acquisition which has helped the company buy-in to new markets both internationally and diversify its product ranges. It also helps mitigate against risk, by moving into luxury brands allows it to compete at different price points from its current offering.

SD’s investment and operation strategy (2016) shows the how intrinsic acquisition is to the future business development plan (Fig 5).

Corpoate Rep - Sports Direct Strategy

Figure 5 Sports Direct operation strategy

This tactic follows Porter’s differentiation strategy for investors highlighting the company’s willingness to expand its portfolio. It was needed as investor relations were at a low in 2016 with the company admitting:

“We are in trouble – we are not trading very well. We can’t make the same profit we made last year… We are supposed to be taking the profits up – they are not supposed to be coming down. And the more the media frenzy feeds on it, the more it affects us.” – Mike Ashley[2]

The investments can be seen to make an impact during the year offsetting the decrease in share value which occurred in July 2016 reaching lows of 252.2 (July 26th, 2016).

Strengths – Differentiation strategy, supply change control, ROI management, product diversification
Weaknesses – Talent management, business restructuring, job security

Internal implications for CR – Job insecurity for SD and acquired businesses’ staff

External implications for CR – Investment shows fiscal strength, PR for shareholders

1.3.4 Character

Character is governed by the culture of an organisation and the strategy it adopts. Many of these traits which have been both responsible for the initial problems and the strong reactive strategy follow the partner of an entrepreneurial leadership style. According to a quick consumer survey, the strongest rated characteristics Sports Direct (six and above) exhibits are the following traits from the Corporate Personality scale:

  • Ruthlessness
  • Machismo
  • Informality

Conversely, the least rated (four and below) terms for Sports Direct were:

  • Chic
  • Competence
  • Agreeableness

The two strongest reactions to the word association questionnaire both reflect the brand’s products informal/casual sports clothing (7) and that it is not chic (2) or prestigious. The other word choices from the Corporate Personality index relate to the organisation rather than the products. The ruthlessness and machismo ratings are terms which shouldn’t be associated with a sports brand in the modern era especially with the growth in the female fitness market.

Personality ChartFigure 6 Adapted from Davis et al op cit, p15

Strengths – Affordability, informality and seen as unchic

Weaknesses – Overly macho, lack of empathy/warmth

1.3.4 Impact of character on the organisation

‘Reputation is a perception of an organisation built over time’ (Balmer, 1998) through the actions it takes within its market environment. Sports Direct’s brand image/organisational reality is one that the board instigated through its actions and its corporate culture which focused more on margin than it does on its stakeholders and staff. Its actions have tarnished its brand and will take years to mend.

If it is to restore its reputation, it must seek to redevelop its company culture to help improve its character.

1.4 Recommendations for a new corporate strategy plan

1.4.1 Proposed changes

To improve the brand’s corporate image through:

  • Increased female representation at board level from 14%[3] up to 40% of members by the 2020 AGM
  • Become the largest selling activewear retailer in the UK by unit sales within the female demographic within three years
  • Create a digital content platform centred on female fitness and wellbeing which will aim to capture 25% of female users on database within two years

1.4.2 Corporate identity

Considering many of the negative publicity that the company faces and can be linked to the brand’s corporate personality, it is important that the campaign addresses (Keller & Richey’s) Heart, Body and Mind of the organisation. It must look to provide actions which substantiate the corporate change and deliver upon its promises.

 

 

Heart Mind Body
Compassionate

Since losing its only female board member, SD must look to include female representation at board level and go further by increasing it and provide increased benefits to female employees

Disciplined

Work towards creating a 40-60 female to male ratio. Look to acquire or develop brands for women

Collaborative

Develop a network of vloggers and fitness professionals to create content for a video hub

Passionate

Build on successes of Lululemon and Sweaty Betty in activewear by campaigning on empowering women

Creative

Utilise digital channels such as Facebook, YouTube, Instagram and Snapchat to create content for women

Agile

React quickly to fitness and style trends within the market and ensure technology meets customer expectations

1.4.3 Positioning

The athleisure / activewear market is worth over £5.1Billion per annum in the UK. JD Sport has taken to this market and have captured a sizable share. According to the Telegraph, Sports Direct have even conceded that JD Sports currently have the “athleisure market sewn up” (Armstrong, Telegraph 17.09.2016).

If SD wishes to get back into this market and make a claim for leading the female sporting sector, they will need to differentiate from JD Sport’s current offering.

Athleisure spendFigure 7 http://www.telegraph.co.uk/business/2016/09/17/the-rise-of-athleisure-how-the-high-street-is-cashing-in-on-offi/

1.4.3.1 Quality

The quality of the new activewear range/products should aspire to be of a high standard to show that the brand is investing in its new audience, investing in women.

1.4.3.2 Price

Targeting the lucrative activewear market, Sports Direct will be able to increase its price range to include higher ticket items and increase its average spend per shop. This will place it in competition with Foot Locker and create a price differentiation strategy from JD Sports. Undercutting JD on price could lessen the brand image SD are aiming for, therefore, a higher price point and exclusive ranges will be required.

Corpoate Rep - Suggested Sports Direct Strategy.jpgFigure 8 Suggested Sports Direct Competitor Positioning Map

1.4.4 Communications Audit

  Current communication strategy Proposed communication strategy
Messaging Focused on price point, “Big Brand” Sales, discounts and bulk purchasing power. Messaging to the audience and stakeholders will focus on the idea that by empowering women both within the organisation and the market they show that the company can change with the times. Messaging will predominantly be brand led and focused on generating traffic through to the fitness hub.
Benefits Enables SD to differentiate from competitors as the leading ‘cost effective’ sports retailer Allow SD to compete with JD Sport on price, capture leads and audience insight platform for the organisation.

 

1.4.5 Planning

The campaign to improve the company’s reputation will take time as trust must be earned and new brand values adopted by consumers and employees. A recommended three-year plan has been suggested in Appendix 2 for potential campaign schedule and launch dates. It focuses on developing digital infrastructure to in years one and two with board changes also occurring across a three-year period.

1.4.6 Financial and political implications

Financial – The market is growing and is showing few signs of abating, the danger for Sports Direct is if it fails to capture enough of the market as high-street brands such as H&M, Top Shop and Next begins to increase their leisure-ware ranges and begin to carve into SD’s current market share.

Political – Gaining traction within this market will provide positive external PR, the campaign combined with the internal staffing structure will show the brand is willing to act upon its promises for change. Offering better working conditions for staff and being an equal opportunities employer are traits consumers expect to see, leading the charge will only help SD overcome its poor corporate reputation.

1.4.6 Evaluation

Sports Direct face poor market conditions, innovative competitors and disastrous CR thanks to their treatment of employees. Its corporate personality is one which seeks to ruthlessly seek out cost savings across employment and supply chains through acquisition to maximise ROI. The working conditions of staff caused outrage in the media and public and tarnished its corporate reputation.

To repair it, SD must seek to change its corporate personality and act on the promises which it makes in the market.

The suggested marketing campaign focuses on offering stakeholders promises that SD is changing to meet the demands of the modern era. If the company does not alter its personality or its values, then it will fail its employees and repeat the cycle. The market will continue to believe the poor corporate reputation it has established. This campaign will offer hope, the promise of change and forge a reputation on sport as a driver for health and wellbeing for all.

[1] Based on additional information from MarketLine SWOT analysis report for Sports Direct PLC (2015)

[2] http://www.independent.co.uk/news/business/news/sports-direct-mike-ashley-investors-deserting-after-its-founder-admitted-it-was-in-trouble-a6947331.html

[3] Sports Direct Annual Report & Accounts 2016

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