Violina Rindova and Luis Martins University of Texas at Austin

Transcription

1 SHOW ME THE MONEY: WHAT MAKES REPUTATION AN INTANGIBLE ASSET Violina Rindova and Luis Martins University of Texas at Austin

2 Intangible Assets and Competitive Advantage Current strategy research emphasizes that intangibles assets are: Valuable: affect price premia and likelihood of exchange Employee recruitment, commitment, and retention Customer willingness to adopt new products Investors risk tolerance Difficult to imitate Cannot be purchased, must be developed Fundamental to sustainability of advantage

3 The Assumed Asset Status of Reputation Much research stimulated by the intuition that reputations are valuable assets because they affect firm performance Two approaches: When observed behaviors theorized to lead to reputation are associated with positive performance, the presence of reputation and its asset status is assumed Positive associations between a firm s position in reputational rankings and firm performance viewed of evidence of the possession of the reputational assets

4 Goals of Contribution To examine different conceptualization of reputation in order to articulate the distinct mechanisms through which reputations are understood to create value To theorize these mechanisms as relevant asset attributes To enable researchers to move away from assuming broad reputational effects toward understanding the specific ways in which reputations affect a firm s economic and social bottom-lines

5 Theoretical Treatments of Reputation as an Intangible Asset Valuable (Fombrun, 1996) Affects firm performance Employee recruitment and retention Customer willingness to adopt new products and pay price premia Investors risk tolerance Difficult to imitate due to social complexity (Barney, 1991) Cannot be purchased, must be developed through persistent flows (Dierickx & Cool, 1989)

6 Theoretical Treatments of Reputation A signal A set of heterogeneous collective perceptions A position in status hierarchy (rankings)

7 Reputation Based on Signals Theoretical basis: Economic research on strategic interactions and signaling Definition: Beliefs about an organization s strategic type (e.g. ability to deliver quality or competitive toughness) Value-creating mechanism: Observable behaviors reveal unobservable attributes, which can be used to predict future strategic interactions

8 Reputations as Collective Perceptions Theoretical basis: Management research, sociology of knowledge and perception Definition: Recognition of a firm in its organizational field, in the form of awareness, impressions, knowledge, and beliefs. Value-creating mechanism: Familiarity, availability, and collective verification. Issues: Diversity of perceptions and interests among stakeholders => the one reputation or many debate Lack of clarity about the nature of perceptions and cognitive mechanisms

9 Attention v/s Evaluation in Collective Perceptions Two distinct effects: Availability: Awareness, recognition, visibility, prominence Economic impact is through level of collective attention focused directly or indirectly in the firm Directly frequently used as example or reference point Indirectly readily available for recall, consideration sets Favorability: General or attribute-specific favorable assessment Attribute-specific based on signals Generalized positive schema Generalized independent of specific observations, an overarching frame Shift from attribute-specific to generalized favorability increases effect across stakeholder groups and occasions

10 Generalized Schemas Legitimacy is generalized in that it represents an umbrella evaluation that, to some extent, transcends specific adverse acts or occurrences; thus, legitimacy is resilient to particular events, yet it is dependent on a history of events. Legitimacy is a perception or assumption in that it represents a reaction of observers to the organization as they see it; thus, legitimacy is possessed objectively, yet created subjectively legitimacy is dependent on a collective audience, yet independent of particular observers. An organization may deviate from individuals' values yet retain legitimacy because the deviation draws no public disapproval. In short, when one says that a certain pattern of behavior possesses legitimacy, one asserts that some group of observers, as a whole, accepts or supports what those observers perceive to be the behavioral pattern, as a whole despite reservations that any single observer might have about any single behavior (Suchman, 1995)

11 Reputations as Relative Status Positions Theoretical basis: Sociological research on social stratification and certification Definition: Explicated position of a firm relative to its rivals/peers in a status hierarchy created and presented by third-party intermediaries Generalists and specialists Value-creating mechanism: Simple, usually quantitative, comparison based on third-party measurement systems (with varying degrees of reliability and validity)

12 Toward a Multidimensional View of Reputational Assets The three divergent perspective suggest four relevant asset attributes Specialization Accumulation Appeal/Attractiveness Codification

13 Asset Specialization Economic value of reputation derived from signals depends on: the clarity and specificity of perceptions within a given stakeholder group concerned with the particular attribute deduced from prior behavior To the degree that reputations are derived from signals they are highly-specialized assets. Asset specialization is the extent to which a firm s reputation facilitates interactions and exchanges between the firm and a specific stakeholder group that holds the beliefs about the specific firm attribute.

14 Asset Mass/Accumulation The economic value of reputation as collective recognition depends on level of collective attention focused on the firm The collective recognition component of reputation describes its asset mass/level of accumulation. Asset accumulation is the extent to which a a firm s reputation affects its interactions and exchanges with a large number of stakeholders, the breadth of its reach.

15 Beware of Visibility Alone Visibility often used as a measure of reputation Pfarrer, Pollock & Rindova (AMJ, forthcoming) show: Both high-reputation and celebrity firms benefit more from positive earnings surprises than firms that possess neither asset Visibility only: Less rewards for positive surprises than either highreputation, or celebrity firms Highest penalties for negative surprises (Most penalized (more than firms with no intangible assets)

16 Asset Fungibility/Appeal The economic value of reputation as favorable collective assessments depends on the tendency to assess subsequent information as positive because an initial positive frame is present (firm-specific positive bias) The favorability component of reputation describes the asset appeal/fungibility. Asset appeal is the extent to which a firm s reputation generates a firm-specific positive bias in subsequent assessments of the firm s actions and outcomes.

17 Asset Codification The economic value of reputation as explicit relative comparison in industry rankings depends on their social facticity taken-for-grantedness of the hierarchy presented in the ranking It describes the degree of asset codification. Asset codification is the extent to which a a firm s reputation is viewed as social fact and acted upon as such.

18 Toward a Multi-dimensional View of Reputational Assets View of Reputation Cognitive Mechanisms Asset Attributes Signals Collective Perceptions Position in Status Hierarchies Prediction Attention Evaluation Simplification and objectification Specialization Accumulation Fungibility Codification

19 In Conclusion: Valuing Reputational Assets Collective recognition of a firm s ability to deliver valued outcomes Specialized versus general High or low levels of accumulation High or low levels of favorability Codified or diffused Based on a track record a history of observed actions and outcomes Relative to precise expectations Relative to general public opinion Codification as a substitute for the track record Reputational assets vary in levels of accumulation, favorability, specialization and fungibility, and degree of codification.

20 Questions? Thank You!