To celebrate 50 years since the founding of SDA Bocconi, this space hosts a selection of ideas generated by our Faculty that have made their mark in the landscape of management research. Relevant and concrete, conducted with scientific rigor and impactful for our society: these are the four pillars underpinning the pathway we propose. The SDA Insight initiative falls under the broader umbrella project, “50 Years of Ideas.”
What is the effect on organizations of the reputation and status of their resource providers? This is the question that inspired an article we published in the Academy of Management Journal in 2012. A priority task for any organization is to acquire external resources, and then combine them to develop, produce and supply products and services. So the extent to which an organization successfully achieves its goals depends in part on the external resource it recruits. The explains why it is essential to establish relationships with resource providers that are grounded in strong, enduring values and standards of quality. We define status as the position of a subject within a hierarchical structure as determined by the perceived quality of the products the subject supplies, and reputation as an indicator of the true quality of a company’s products in a given market. These two factors represent key intangible assets of resource providers, and both can have a direct effect on product quality and company revenues.
In our 2012 study, we found empirical evidence of the fact that reputation and status actually do impact organizational outcomes, albeit in different ways. Reputation has a stronger effect on product quality, and status on revenues. To verify this, we used a database of NBA players and teams from the 1989/90 season to the 2004/05 season, along with some excerpts from the official NBA guide and public information on salaries and ticket sale proceeds from basketball games.
In our article, we pointed out that team performance during a season is influenced more by the reputation of its players (who are resource providers in a literal sense), than by the status of the team on average, which tends to have a bigger impact on ticket sales. The relationship between reputation and ticket sales is also affected by the actual performance of individual players.
Our findings deepened our understanding of the benefits that status and reputation bring to organizations. What’s more, these conclusions can be extended far beyond the field of sports.
There’s a difference between actual quality and perceived quality of a resource provider’s products. This difference is more pronounced where market transparency is lacking. But it also exists in contexts such as the NBA, where the actual quality of a player can be objectively measured. Despite this fact, people still tend to form subjective assessments on product quality, which can lead to bad decisions in terms of resource providers. In other words, the risk is picking the providers we believe are high quality when in fact they are not. Let’s look at a concrete example. Companies can opt for a supply of microprocessor, for instance, that they perceive as top quality, i.e. high status, even if other suppliers produce microprocessors that are objectively better quality. If in the short term this choice might not have negative repercussions, since revenues could rise, in the long term it may erode the quality of the final product, and in turn the company’s competitiveness and profitability. Clearly social media play a powerful role in influencing the perception of quality. If we look to the world of sport, many players succeed in creating a perception of quality in public that is over and above their actual quality. They do this by strategically leveraging social media. Many players who were seen as something like superstars and were given very generous salaries thanks to this perception of high quality, actually proved to be bad investments. They probably generated more ticket sales at the arena thanks to the public’s desire to see a superstar, but they failed to perform on par with perceived expectations. This phenomenon can actually destroy value over the long term for a team - or for a company. But if leveraged strategically, the distinction between status and reputation can foster growth strategies. Companies can start by choosing high-status resource providers to boost revenues, and later transition to high reputation providers to improve quality and hence long-term value. Another option is a mix of providers, some high status and high profile in the eyes of consumers, to drive up profits, and others that are high reputation to enhance the quality of the final product.
