A Matter of Reputation

A new survey of pharma companies evaluates leading and lagging players-and identifies potential stars.
Jun 01, 2002

From Washington, DC, to company boardrooms to business schools, the debacle that led to the down-fall of Enron and Arthur Anderson has spawned a flurry of activity. The public outcry for greater management accountability has made cleansing big business of the excesses of the '90s a "mission critical" for many corporate executives. The situation reinforces one basic but important theme: Reputation matters.

US Federal Reserve Chairman Alan Greenspan noted that a company's perceived value, more than ever before, may depend on its "capitalized reputation," adding ruefully that both "trust and reputation can vanish overnight." Warren Buffet, who took over as chairman of Salomon Brothers during that company's reputation crisis, reportedly told employees, "If you lose money for the firm, I will be very understanding. If you lose reputation for the firm, I will be ruthless."

Indeed, reputation has a lot to do with trust, which in turn, inspires confidence in key constituencies-shareholders, employees, customers, suppliers, and regulatory agencies. And confidence among those groups is a fundamental precondition for successful business performance.

For the pharma industry, which faces more than the usual share of public scrutiny, Buffett's advice may prove as applicable as it was in the financial world. If the industry is entering a less robust cycle, as some experts predict, a strong corporate reputation will be one of the most valuable assets in a CEO's tool kit-as critical to business success as a healthy balance sheet.

For that reason, Rating Research, a joint venture of the Ratrix Group and Opinion Research Corporation, decided to evaluate pharma companies' perceived reputation strengths and weaknesses. Using a broad range of criteria that are the cornerstone of any strong corporate reputation, as well as issues specific to the pharma industry, researchers conducted in-depth interviews with industry analysts and senior-level executives about 16 of the world's top pharma companies. This article reveals how each company stacks up against the industry's own criteria, highlights their strengths and weaknesses, and examines their prospects for the future.

What They Looked For The researchers based their assessment of pharma companies' reputation strength on two types of criteria. The first evaluated the companies based on a set of eight dimensions that contribute to business success. Companies that do well in the following areas tend, over time, to outperform those that do not:

  • competitiveness
  • marketing effectiveness
  • ethics
  • workforce/process
  • financial stability
  • social responsibility
  • strategic alliances
  • charitable support.

Second, the survey explored five key behavioral and perceptual measures that reflect the level of support a company has achieved as a result of its

market activities and the conduct of its senior management. These measures characterize interviewees' attitudes toward each company in question as:

  • willing to invest in it
  • willing to support it in times of controversy
  • willing to pay a premium for its products and services
  • prefer to do business with it
  • regard it as "excellent" overall.

Reputation Drivers Understanding the relative importance of one dimension versus another in creating a strong reputation is as critical as knowing the individual company performance scores on each dimension. Of the eight criteria that make up reputation strength, "competitiveness" carries the most weight in a company's being perceived as "excellent." Two key ingredients of that dimension are "offering innovative products and services" and "investing sufficiently in R&D"-both critical in creating a strong pipeline.

Marketing Effectiveness
The four companies with top scores for "innovative products and services" are Genentech, Merck, Johnson & Johnson, and Pfizer, in that order. The lead scores for "investing sufficiently in R&D," also in ranking order, belong to GlaxoSmithKline, Merck, Pfizer, and Genentech.

Following hard on the heels of competitiveness is marketing effectiveness, made up of at least four components:

  • effective corporate advertising, sales, and marketing
  • ability to respond rapidly to market conditions
  • ability to efficiently deliver products and services
  • a strong customer focus.

The winner is Johnson & Johnson, which earned recognition from about 80 percent of industry respondents for marketing effectiveness.

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