About Justin Smulison

Justin Smulison is the business content writer at RIMS.

A New Approach to Managing a ‘Classic’ Reputation

coca cola sweetener challenge

A new Coca-Cola-sponsored contest seems to publicly acknowledge its reputational risk, but at a minimal cost that could manage or even reduce it.

In early August, the beverage giant announced its Sweetener Challenge, seeking non-employees (preferably scientists or agriculture or nutrition professionals) who can bring the company a “natural, safe, reduced, low- or no-calorie compound that generates the taste sensation of sugar when used in beverages and foods.” The winner will be announced in Fall 2018 and will receive $1 million.

Taxes on soda, the decline of its consumption, and mounting data that sours on sugar has unquestionably affected the bottom line for the company and put pressure on the broader beverage industry. By initiating the contest, Coke seems willing to try a fresh approach to manage or favorably alter its reputation as a brand founded on sugary cola, while simultaneously attracting and retaining consumers and generating sales. That seems far less risky than not trying new techniques.

“[Reputation risk] is created when expectations are poorly managed and exceed capabilities, or when a company simply fails to execute,” wrote Nir Kossovsky in the 2014 Risk Management article “How To Manage Reputation Risk.” “Managing expectations is all about governance, operations and risk management—the blocking and tackling of running a business. Clearly, there can be perverse brilliance in a business strategy of setting expectations very low.”

Last year, Coca Cola suffered a net revenue decline from $11.5 to $9.7 billion, making the $1 million prize a cost-efficient gamble that, as Kossovsky suggested, can “conceptualize an ideal state and implement a roadmap to reduce reputation risk.”

Other companies have turned to their audiences for new ideas to increase awareness and improve their reputations. Folgers was jonesing for a new jingle this year and paid a songwriting duo $25,000 for a flavorful new take on “the best part of waking up.”

Even the commercial aviation industry sought out-of-this-world innovations from average stargazers. When the X Prize Foundation wanted to inspire the private sector to pursue commercial space flight, it did so with a $10 million prize. The pursuit of the Ansari X Prize generated $100 million in new technologies and was ultimately won by the Tier One project’s ShapeShipOne, which was financed by Microsoft co-founder Paul Allen.

According to Kossovsky, “reputational events are tried in the court of public opinion,” and Coke’s will both there and in stores. The company’s new sugar substitute will be announced in October 2018 and will eventually make its way into supermarkets. With just a few sips, consumers can ultimately decide if the company’s investment and reputation risk management technique was a sweet move.

Can You Have Too Many Coffee Shops?

The collective mood among Starbucks (SBUX) shareholders may have been dark and intense on Wednesday, following a 1% downgrade of the coffee company’s share price by BMO Capital Markets due to “store overlap.” BMO analyst Andrew Strelzik wrote: “There are now 3.6 Starbucks locations within a one-mile radius of the typical Starbucks in the U.S. relative to 3.3 and 3.2 stores in 2014 and 2012 respectively.”

That statistic does not factor in competitors, and implies that too many franchise cafes are located too closely together and are fighting for the same $2 per tall coffee.

The warning signs of overlap were acknowledged and dismissed by Starbucks CEO Howard Schultz in 2010, when he told the Harvard Business Review: “We’re not nearly close to saturation in North America, despite what the cynics or pundits might say…”

At the time of that interview, Starbucks total store numbers neared 17,000 and by the end of 2016, there were 25,085. Was seven years close enough to the saturation point to heed the warnings? Or does the old cliché about hindsight apply?

The overlap may have led to what’s known as risk failure, which Risk Management explored in a 2016 article, “The True Character of Risk.” Article author Michael J. Mazarr would characterize Starbucks’ market oversaturation as a “gray swan”—a danger that is “known, discussed and even warned about, but then discounted.”

Mazarr noted: “When senior decision-makers become immune to outcome-oriented thinking, they will not give serious consideration to risk. They may continue to give it rhetorical emphasis, talking about what could go wrong, but the trajectory of their judgment will never substantially vary.”

McDonald’s learned this same lesson the hard way in the 1990s. Although it had 19,000 worldwide locations, upper management wanted deeper market penetration and kept expanding. Cannibalization didn’t hurt the corporation at first, but investments in new locations outpaced the profits earned from increases in total sales. That led to the fast food chain closing 100 stores and unveiling the popular, but risky, offer of 55-cent Big Macs to attract and retain customers.

Unlike in 2008, when Schultz closed 600 locations overnight because he felt they weren’t meeting the Starbucks vision, the current problem is not reportedly a result of poor management or the inability to offer upscale imbibing experiences. Starbucks has just provided customers with too many options near their homes, workplaces and hangouts to get their next sandwich or caffeine fix.

Going Lo-Fi At Sea May Mitigate Cyberrisk

Cyberthreats have become seaborne in recent years, and preventative measures are on the radars of governments and the shipping industry.

GPS and other electronic systems have proven to help ensure safe and accurate navigation, but they have also put digital bullseyes on ship decks. These technology upgrades have unwittingly exposed ships to cyberrisk because their signals are weak enough for remote perpetrators to jam.

When ships and crew members rely solely on GPS systems, they can be at the mercy of a cyberhacker seeking to provide wrong positions (or “spoof”), endanger the crew and their cargo, or hold the crew, cargo or sensitive information for ransom.

These risks are exacerbated by the fact that ships typically do not have automatic backup systems, and younger crew members are increasingly reliant upon the newer electronic navigation tools.

Allianz’s Safety and Shipping Review 2017 highlighted the growing threat of cybercrime in the sector, and noted the increasing level of activity in the last five years. For example, World Fuel Services fell victim to an online bunkering scam in 2014 when it agreed to participate in a tender for a large amount of fuel from what it believed to be the United States Defense Logistics Agency. Cybercriminals collected $18 million from that successful impersonation. In 2016, hundreds of South Korean vessels had to return to their ports after North Korea allegedly jammed their GPS signals.

The report noted that most maritime cyberattacks have been aimed at breaching corporate security, rather than taking control of vessels, but warned that such attacks could occur.

Captain Rahul Khanna, head of marine risk consulting at Allianz Global Corporate & Specialty, noted in the report that more, larger-scale attacks are imminent if the risks are not appropriately addressed. “We can’t put IT security on the backburner,” Khanna said. “Just imagine if hackers were able to take control of a large container ship on a strategically-important route. They could block transits for a long period of time, causing significant economic damage.”

The report also stressed that “crew education and identifying measures to back up and restore systems should be implemented” to reduce cyberrisk.

Looking Back For a Signal Forward
Some companies and governments have heeded the warnings and are identifying these indicators of attack. Preventative measures may lie in a maritime tool that had taken a backseat to the prevalence of GPS—a backup radio technology called Enhanced Long-Range Navigation (eLoran), which was developed in the United States in the mid-1990s. It has continental reach, emits strong signals via a low-frequency and relies on land-based transmitters that reveal a limited number of fixed positions. These once-limiting traits could be the automatic backup systems ships need in the event of jamming or spoofing.

On July 20, 2017, when the Department of Homeland Security Authorization Act (H.R. 2825) passed the floor of the U.S. House of Representatives, eLoran’s importance was stressed. The act includes a section titled “Backup Global Positioning System,” which features provisions for the U.S. Secretary of Transportation to initiate an eLoran system. H.R. 2825 proposes that eLoran be made available as a “reliable…positioning, navigation and timing system,” with the purpose of providing “a complement to, and backup for the Global Positioning System to ensure availability of uncorrupted and nondegraded positioning, navigation and timing signals for military and civilian users.”

Reuters this week reported that South Korea’s Ministry of Oceans and Fisheries is looking to establish the technology in a test form by 2019.

Time will tell if eLoran is the most practical and cost-efficient method to mitigate cyberthreats at sea. It seems if companies want to mitigate maritime cyberrisk now, the first steps would be to look to the technology of the past and turn on the radio.