Riku Ruokolahti: An employer’s image has a direct impact on a company’s business
“The most interesting aspect of an employer’s image is its impact on demand for a company’s products and services. Not on demand for jobs, but on demand for the company’s products and services,” says Riku Ruokolahti, author of *The Handbook of Reputation Management*.
The importance of employer branding has been preached to companies for decades. Historically, perhaps the most significant factor in the rise of employer branding hegemony was the 1997 study *The War for Talent* by McKinsey & Company consultants Ed Michaels, Helen Handfield-Jones, and Beth Axelrod. The study examined the recruitment challenges faced by large corporations and used demographic data to justify the coming war for skilled workers. In Western countries, the age groups most critical to the workforce would be smaller in the future, and the supply of labor would decline.
Employees are finding their footing in the face of this new reality. The "War for Talent" concept had nearly fizzled out with the bursting of the IT bubble at the turn of the 21st century, but continued growth in the real economy soon made it relevant again.
The importance of employer brand gained further momentum with the publication of Jim Collins’ *Good to Great*, which was once considered the world’s best business book. The book’s message was based on a study by a research team of several dozen people that identified the reasons behind companies’ long-term peak performance. Collins and his colleagues studied companies that had achieved outstanding success over a period of three decades. One of the reasons for success identified by the research team was having the right people.
“According to Collins, getting the right people in the right places was even more important than the company’s direction.”
We should get rid of those bad apples as quickly as possible!
Since long-term competitiveness requires constant renewal, it makes more sense to first bring in enough talented individuals and let them set the company’s direction, rather than the other way around: first setting the direction and then hiring people who fit it. Companies should also limit their growth to the number of “right” people available. If a recruitment decision is in doubt, it is still worth continuing the search, even if a suitable candidate is not in sight. According to Collins’ research, this way of thinking was common among companies that achieved outstanding success.
Jim Collins and his team placed a great deal of emphasis on the competitive aspect of employer branding. After all, a company can only select its employees from among those who want to work there, and it’s not a given that these applicants will always be the right fit.
“So far, we have identified two reasons to pay attention to employer branding: the competition for talent itself, and the impact of a talented workforce on a company’s overall competitiveness.”
But is there something else at play here? Yes, there is. The third—and in many cases the most interesting—aspect of an employer’s image is its impact on demand. Not demand for jobs, but demand for the company’s products and services.
You get what you pay for
Stakeholders’ perception of a company as an employer is one dimension of reputation for any company or organization that employs people. It is an integral part of the broader set of perceptions that together form a company’s overall reputation. In our reputation management work, we measure the components of reputation as distinct entities and perform data analysis on how these various components influence, for example, people’s willingness to purchase. In this work, we often find striking statistical correlations between a company’s or organization’s employer brand and people’s willingness to buy.
“In our reputation management work, we measure the components of reputation as distinct entities and conduct data analysis on how these various components influence, for example, people’s purchasing decisions,” explains Riku Ruokolahti.
Let me spell it out: An employer’s image has a direct impact on business, and in some cases, it’s even the single most important factor driving purchasing decisions! Sometimes we can tell right away from the jaws dropping on the executive team that this came completely out of the blue. After the initial shock, some of the team seem a bit distracted, and the smiling HR director’s tense cheeks seem to say: “What did I tell you?!” The pain hanging in the air stems from the fact that smart people’s minds are reorganizing themselves. Can this be true? What does this mean for what we do?
But it’s not that hard. I often ease cognitive pain with concrete examples. Would you buy consulting services from a firm that no one wants to work for? Can the best advice really come from a firm that ends up hiring people who can’t find work anywhere else? What if you suddenly need help with a busy project that’s sure to involve gritting your teeth and long hours? Would you buy help from a partner whose employer brand reflects bureaucracy and a rigid culture?
The impact of employer brand on demand depends on the context. In industries that involve service or partnership, our data analyses show that employer brand is more significant than in industries where these elements are not prominently present. For example, for a German online store that sells socks, employer brand may be less significant than for a B2B company that strives for close partnerships with its customers, and so on.
Riku's tips for managing your employer brand:
1. Measure and analyze. Assess the company’s internal—as well as external—organizational reputation through research. It’s important to have a thorough understanding of the company’s reputation. The big picture helps you understand how employees perceive the company from perspectives beyond their actual work. Reputation is a broader concept than job satisfaction.
2. Strengthen and grow. Build on your proven strengths and address your weaknesses. Grow as an organization and as an employer.
3. Engage and communicate.Share the internal and external results of the reputation assessment with the entire organization. Base your message on verified strengths. External communications must align with the views of your own team.
Riku Ruokolahti has written a handbook on corporate reputation and reputation management. The excerpt published here, “The Incredible Importance of Employer Image for Business,” can be found in the handbook’s second section: “Systematic Reputation Management.”
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