Harvard Business Review

How to Reverse-Engineer Criticism


Posted on Harvard Business Review: May 27, 2011 7:41AM

Good companies always strive to be better and a potentially useful way to catalyze such improvement is to consider how analyst and public criticism might be used to institute corporate change. By parallel, managers themselves might similarly benefit from "reverse-engineering" the criticism of not only outsiders but of their own colleagues: considering both parties as their benefactors on the road to greater performance. In both cases, however, constructive use of criticism only requires a dose of humility and an honest desire to make things better.

One such company that could be made better is Walmart: a fundamentally good (if not great) company that has long-suffered from substantial criticism by both analysts and outsiders related to everything from its employment and sourcing practices to its low-pricing policies. Walmart's principal problems appear to be largely reputation-related: a phenomenon that has cost the company millions in wasted PR consulting fees and possibly billions in lost, potential market capitalization over the last decade. Indeed, a 2006 campaign by the company's PR firm only made matters worse until Lee Scott, the previous CEO, temporarily turned things around.

However, more recent actions in the long-standing gender discrimination case against the company (i.e., Walmart v. Dukes) have resurrected its reputation problems in the eyes of analysts while its controversial market expansions both domestically and overseas have even led to protests. Indeed, (besides Toyota and BP) if there is any major business out there in need of reverse-engineering the work of its critics so as to restore itself on the path to greatness, it is Walmart.

In my opinion, the following redress is a shortlist of measures Walmart managers might undertake to begin accomplishing this feat:

Incorporate reputation risk management into the corporate strategy. Most PR firms only offer cosmetic remedies to firefight reputation threats as they arise. Since that strategy already failed disastrously for Walmart, a better approach would be to institute a risk management and control platform intended to reduce the likelihood and potential impact of reputation threats before they occur. This platform should furthermore be woven into Walmart's existing, corporate strategy (see next point) rather than divorced from it and placed in the hands of consultants, lawyers and HR professionals. It requires nothing more than data and hard work and Walmart is already ahead in the data game: having amassed the world's largest retail database that also contains millions of observations on its internal operations.

Keep the low-cost strategy but seek alternative ways for supporting it. Walmart's low pay and evidently discriminatory employment practices are inextricably linked to its (astoundingly effective) low-cost strategy. However, there are other ways to reduce costs without cutting wages or limiting employees' professional progress. Extending the above strategy to also reduce operational threats and improve efficiency across the board is one of them. Employees might furthermore be rewarded financially for assisting in the effort through the offering of ideas on risk reduction: also perhaps heading some of Walmart's reputation-building, outreach programs. To work, however, such a campaign must involve a commitment by Walmart's managers to treat their associates less like worker ants and more like valuable assets.

Come clean on labor abuses and make a clear break with the "old Walmart." Statistical analysis of Walmart's own data by the plaintiff's consultants in the Dukes v. Walmart case show that during the period examined women consistently and in every geographic sector, worked longer, performed better and gained more experience, for less pay with less reward and with far lower chance of promotion — at every level — than men, using exact, side-by-side comparisons. That finding only confirms the conclusions of a 1997 study undertaken by Walmart's own legal consultants. Though not necessarily supporting the specific Dukes claim, the findings mean that continuing denial by Walmart's management that workplace problems of this sort exist in the company only further damages its reputation while strengthening support for a costly, class-action suit. A better strategy would involve acknowledging the structural problem openly: asserting that Walmart is now a "new company" but then supporting that claim by changing the structure through painful, visible and audible steps. A good start would be firing every person that directly gave rise to the initial problem, even if many are now in the company's leadership ranks.

Handle accusations of competitive externalities by coordinating with local companies. Criticisms of Walmart's negative effects on communities are without strong foundation. Yet, that will not stop the many businesses that gouge their customers from complaining when a Walmart wants to move in. A cooperative strategy, in which Walmart attempts to coordinate with these businesses on how to adapt to grow within the Walmart sphere of influence could have potential; however, in the face of enduring criticism from agenda-possessing businesses and politicians, it might fail on a local level. Nonetheless, such an effort could still serve to reduce the drag on Walmart's stock price while helping to improve its public perception.

While these suggestions will in no way solve all of Walmart's problems they will help to make Walmart a better company, particularly in the eyes of analysts.

Formerly on the finance faculty of the Kellogg-HKUST business school, Maurice Ewing runs RiskKnowledge, which has helped companies forensically improve their management and enterprise risk management frameworks in more than 40 countries and 30 emerging markets. You can follow him on Twitter @mauriceewing.

Copyright © 2012 Harvard Business School Publishing. All rights reserved. Harvard Business Publishing is an affiliate of Harvard Business School.


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