Samsung facing capability reputation hit over Galaxy Note 7, but firm will survive

Commentary from Rupert Younger, Founding Director, Oxford University Centre for Corporate Reputation, Saïd Business School

The reason why this is such a serious issue to the firm is that it is a capability reputation hit, not a character reputation hit. Hits to your capability reputation go to the core of what you as a firm are perceived as being able to do, as opposed to character reputation hits which relate to perceptions of how you go about the work that you do.

Capability reputations are very sticky — once earned they are hard to destroy. I am sure that this will be the case with Samsung and explains why they have taken the decision to stop production of the Galaxy Note 7. They don’t want the capability issues to infect perceptions of the firm’s other products. By doing this they are also showcasing a character reputation — this is how we go about dealing with defective products, i.e. you can trust us to behave this way whenever there are any product quality issues.

There are good examples of similar capability hits — NatWest and their cash machine dispensing issues a couple of years ago, and BP’s failure to stem the oil flowing into the Gulf of Mexico. These were high profile and very embarrassing, and did result in customer defections (around 101,000 accounts were closed at NatWest and a boycott of BP filling stations in the US resulting from 75,000 signatures), but ultimately both organisations remained in business and have continued to prosper. And of course Apple has had multiple missteps in terms of its capability reputation — remember ‘Antennagate’ (when holding the iPhone 5 in a certain way resulted in signal interference). This is the stickiness of capability reputations at play.

However, you can suffer multiple hits to your capability reputations and still retain your reputation for high product quality. The interesting question though is where the tipping point occurs. How many capability hits does it take for the damage to be terminal? The answer is either very many (e.g. Kodak, which over many years failed to innovate and ultimately went out of business) or one huge death star hit (Arthur Anderson in failing to spot massive fraud in an audit client, Enron). However, these examples are rare and that is why Samsung will survive this reputational hit.