Signaling Differentiation or Legitimacy? Signaling Differentiation or Legitimacy?
How Architects Socially Construct their How Architects Socially Construct their
Reputations for ExpertiseReputations for Expertise
Candace JonesBoston College
Ivan ManevUniversity of Maine
Cambridge Colloquium on Complexity and Social Networks
October 28, 2002
Developing an expertise in a specific field is
what differentiates you. Prisons are very
complex projects. [The State agency] is not
going to trust a new firm designing a prison
facility. Justice facilities are very, very
complex and very, very specialized. So the
secret is to become an expert in the fields
that the State is distributing work.
Partner, Architectural Firm 31
Reputation building is a social process of consensus about what and who should receive esteem (Becker, 1982).
– constituents who develop criteria and standards,
– actors who signal key attributes to constituents (Rindova & Fombrun,
1999)
– a system to distribute recognition and renown• relational embeddedness (Krackhardt, 1992; Uzzi, 1996)
• structural embeddedness/holes (Coleman, 1988; Burt, 1992
• through key 3rd parties– regulators, critics, analysis, awards, rankings (Lang & Lang, 1988; Rao, 1994; Zuckerman,
1999; Fombrun & Shanley, 1992, Deephouse, 1996, 1999)
How do professional service firms build their reputations for expertise?
A professional service firm builds its
reputation through content and channel
Content: What was signaled?Content: What was signaled?
Uniqueness: by differentiating itself from
competitors through know how
Legitimacy: by establishing trustworthiness
through third parties-- credentials and/or
relations
Reputation through differentiationReputation through differentiation
RBV emphasizes internal development of unique competencies and relations not easily imitated (Barney, 1991; Hall, 1992)
– Expertise in drug research for specific diseases (Henderson & Cockburn, 1994)
– Relationships with clients (Artz & Brush 1999; Gulati & Gargiulo, 1999)
Since constituents can rarely verify the possession of unique resources, they rely on signals
Implicit assumption of matching between parties
Reputation through LegitimationReputation through Legitimation An institutional perspective emphasizes external
validation (Becker, 1982; Fombrun & Shanley, 1990; Rao, 1994)
– Winning certification contests (Rao, 1994)
– Gaining credentials from agencies or professions (Abbott, 1988; Deephouse, 1996; Zuckerman, 1999)
– Embedding relations to signal knowledge of clients & processes, and acceptance by others (Baum & Oliver, 1991; Gulati & Gargiulo, 1999)
Implicit assumption of stability and reproduction of social order
Tradeoffs between differentiationTradeoffs between differentiationand legitimation?and legitimation?
Firm performance declines as resource allocations move away from the industry norm– banking (Deephouse, 1996, 1999)
– airlines (Miller & Chen, 1995)
– large, publicly traded corporations (Geletkanycz & Hambrick, 1997; Zuckerman, 1999)
Novel activities and resources hinder shared understandings, creating confusion for constituents (Aldrich & Fiol, 1994; Zuckerman, 1999).
Differentiation and Legitimation?Differentiation and Legitimation?
Resource-based and institutional perspectives may
provide complementary perspectives (Oliver, 1997)
– Draw on resources and manage institutional capital through
symbolic processes (Lounsbury & Glynn, 2001; Suchman, 1995)
– Capabilities and legitimacy coevolve in complementary ways
(Jones, 2001).
– Professionals need uniqueness to provide innovative
solutions to problems (Sutton & Hargadon, 1996) & legitimacy
through credentials to perform work (Abbott, 1988)
CHANNEL: THROUGH WHOM CHANNEL: THROUGH WHOM WAS SIGNAL VERIFIED?WAS SIGNAL VERIFIED?
Reputation built through information about present behavior and depend on embeddedness of relations (Raub & Weesie, 1990)
– Relational embeddedness: ties with specific clients (Uzzi, 1996, 1997)
– Structural embeddedness: overlapping ties among clients and professionals (Gulati & Gargiulo, 1999)
– Third parties: information through brokers (Burt,
1992, Burt & Knez, 1995), trade or professional journals
REPUTATION THROUGH RELATIONSREPUTATION THROUGH RELATIONS
Most empirical reputation research examined
– surveys, rankings and media reports such as Fortune 100,
500; Best 100 Companies for Women, Corporate Social
Responsibility (e.g., Fombrun & Shanley, 1990; Zuckerman,
1999; Deephouse, 2000;)
– case studies (e.g., Hitchcock, Fine etc)
Ignoring information flows through networks of
relationships
REPUTATION THROUGH RELATIONSREPUTATION THROUGH RELATIONS
Network researchers – social relations shape reputation through controlling how
information flows
– Competing arguments: closure and structural holes• Closure allows for consensus and information spread (Coleman, 1988;
Granovetter, 1995)
• Structural holes allows for actor to control information and for non-redundant information (Burt, 1992)
• Several scholars argue for tradeoffs between closure and holes (Gulati & Gargiulo, 1999; Gulati & Singh, 2000; Ahuja, 2000)
• Uzzi finds curvilinear relationship between relational embeddedness and performance (1997)
REPUTATION BUILDING TACTICSREPUTATION BUILDING TACTICS
– Yet, network scholars rarely measure reputation (e.g., Granovetter, 1985, 1992; Gulati, 1995; Gulati & Gargiulo, 1999; Uzzi, 1996)
– Do firms build their reputations through
• third parties: brokers such as analysts and rankings?
• dyadic relations (relational embeddedness)?
• structural embeddedness?
PURPOSE OF THE STUDYPURPOSE OF THE STUDY Fine grained analysis of how signal content (e.g., differentiation
and legitimation) and channel contributed to a firm’s reputation
We examined::
– Architects’ signals of differentiation and legitimation on knowledge and client relations
– Whether architects emphasized brokers (e.g.,media), relational embeddedness or structural embeddedness as sources of reputation signals
– How clients responded to these signals and sources
SIGNALING STRATEGIES FOR DIFFERENTIATING SIGNALING STRATEGIES FOR DIFFERENTIATING AND LEGITIMATING KEY RESOURCESAND LEGITIMATING KEY RESOURCES
Resources
Ties
Differentiate
dyadic ties
Legitimate
third parties
Expertise
(Professionalknowledge)
Show tacitknowledge throughexperience
Emphasizeprofessionalcredentials
Gain awards toshowcase skills
Relationships
(strength of tie& networkposition)
Develop strong tieswith clients. Thishistory creates uniqueunderstandings
Emphasizeestablished reputationwith third party
Embed clientrelations
RESEARCH CONTEXTRESEARCH CONTEXT
Institutional building market for state buildings in a western state
Focus on expertise
– Studies, programs & designs
– Construction projects eliminated: selected by
lowest bid
RESEARCH DATARESEARCH DATA
Projects over $500,000 in estimated
construction budget Required competitive submittal process:
32 projects 1993-1995 selected 29 projects used for study
Average of 10.5 lead architectural firms
competing for project
PROJECT SELECTION CRITERIAPROJECT SELECTION CRITERIA
Formal Rating Criteria firm specific project experience, architects’ experience, past performance, capacity of firm (e.g., number of licensed professionals), firm location to project site, team approach & objectives (team means interorganizational project team)
Informal Criteria“Quality”: preserving historical value of a building, aesthetics, culture, heritage and other issues…However, these are not critical issues to legislative analysts and the Governor. They want it cheaper, faster, and functional.”
Assistant Director for State Agency
PROJECT COMPETITION PROCESSPROJECT COMPETITION PROCESS
StateState released Request for Proposal (RFP):project scope and budget
Architectural firm responded with Statement of Qualification (SOQ). Composed of four sections:
Prior firm experience Individual resumes Firm Capacity: Age, Size, No. licensed professionals Firm References—clients for past year and past 5 years
SOQs: Proprietary Data—not publicly shared or available
Client Evaluators gave reputation score for SOQClient Evaluators gave reputation score for SOQ• Interorganizational (State Agency, User Client, Bldg Board)• 110 client evaluators- Avg 6 per project. • Low co-occurrence (3 on 3 projects)• Professionals: architects
PROJECT COMPETITION PROCESSPROJECT COMPETITION PROCESS
Architectural firm
SIGNAL
SCORE
Selection committee
Bldg board
User client
State agency
DATA SOURCESDATA SOURCESState Archives: Project Competitors, Evaluation sheets, Prior dollar amount awarded and
project awards
Architectural Firm SOQs (Proprietary data) Sampling Strategy:Intense (11+), Frequent (2-10) & Rare (1) 189 of 218 SOQs (67%) submitted for 29 projects.
Interviews (N = 37) 18 Architectural firms (35% of pop), Clients (State Agency & User client), 14
Engineering firms 27% of pop), AIA rep
Regional Trade Magazine Best project awards from 1990 to 1995
QUALITATIVE DATA &METHODSQUALITATIVE DATA &METHODS
Coded 56 (30%) firm SOQ introductory statements across 7 projects
Stratified sampling on budget & bldg type to maximize heterogeneity (Cook & Campbell, 1979)
– Two low budget of different building types• $568,000 clubhouse and $750,000 visitors center
– Three average budgets of different building types• $10,700,000 Technology Research center• $11,000,000 Performing Arts center• $15,000,000 University classroom
– Two high budgets of different building types• $50,000,000 hospital wing• $50,000,000 football stadium renovation
QUANTITATIVE DATAQUANTITATIVE DATA SOQ acted as network generator
– client listing– Strength of ties (repeated work)– created adjacency matrix architectural firm and client
interactions (489 x 489) SOQ generated firm prior experience
– 3-20 prior projects per firm SOQ (N = 593)• types of experience (market & bldg), treated cumulatively and
sorted by project date
SOQ listed firm credentials – # Licensed professionals and state registrations
QUANTITATIVE MEASURESQUANTITATIVE MEASURES
Dependent Variable– Reputation score from selection committee
Controls:– Firm age– Rivalry (number of firms competing for project), – Prior award (months since last state award), – building market
• education, performing centers, technology, office/housing. Office/housing = omitted
• Type: program vs design
QUANTITATIVE MEASURESQUANTITATIVE MEASURES
Uniqueness – Emphasizes history of experience & matching
on experience & relations– Knowledge
• Prior experience: # projects in market & bldg type
• Cost Advtg: cost per square foot on prior projects
– Client Relationships• User Frequency: # prior projects for user client
• State Frequency: # prior projects for state agency
QUANTITATIVE MEASURESQUANTITATIVE MEASURES
Legitimacy– Emphasizes credentialing by third party
– Knowledge • # licensed professionals• # state registrations• Awards- listing in regional trade magazine for best project
award in prior three years (binary)
– Client Relations• Reputation: prior average score of firm on state competitions• Client Embeddedness: Burt’s constraint measure
– sum of direct and shared indirect relations
QUANTITATIVE METHODSQUANTITATIVE METHODS
Hierarchical OLS Regression– Indep Var: SOQ data on prior projects– Dep Var: Reputation score from clients– How a firm’s signaling strategies predict its reputation
score
Between method triangulation– Does signal framing match experience?– To what do constituents attend when assessing a firm’s
reputation score?
SIGNALING EXAMPLES: UNIQUENESSSIGNALING EXAMPLES: UNIQUENESS Experience
– [Our firm] has successfully completed 34 major science and computer center facilities
Cost Advantage– Cost estimating is of great importance and is continuous throughout the
project. We determine cost effective solutions and accomplish proper results within budget
Client Relations: State and User – [We] have designed and completed 13 medical buildings for the [State]
over the past seven years– [We] have developed a strong working relationship with user groups and
University entities responsible for developing new facilities on campus
SIGNALING EXAMPLES: LEGITIMACYSIGNALING EXAMPLES: LEGITIMACY Credentials
– Our current staff size includes 23 licensed architects broad range of experience and diversity of interests. Because of our size and experience, we are able to staff as needed in the design and production process to meet the most stringent schedule
Awards– In addition to receiving over 30 major design awards, the firm was named as the [regional]
AIA firm of the year
Registrations-practice scope– [Firm XX] is a regional design firm which specializes in architecture for education and
healthcare
Client Embeddedness– The firm has experience in nearly every type of institutional facility. Our client list
includes all the major universities and colleges in the state, school districts, many towns and cities, and a wide range of business, commercial, recreational and military clients
ARCHITECTS’ SIGNALING STRATEGIES (SOQ Intro)
High Budget(N=12)
Avrg Budget(N=23)
Low Budget(N=21)
Mean(N=56)
UNIQUENESSExperience .75 .827 .857
Cost Advtg .33 .347 .38
Client Relat+ .75 .696 .33 P = .05
Avg. .61 .623 .522 2.78
LEGITIMACY#LPs/Credentl .50 .217 .286
Geo Scope .08 .043 .048
Reputation .75 .608 .095Awards .25 .174 .048Client Embedns .083 .13 0Avg. .333 .234 .095 .51
Paired T-test for means of uniqueness & legitimacy signals P=.000+ANOVA for differences between budgets
HIERARCHICAL REGRESSION ON REPUTATION SCOREVariable Base Uniqueness Legitimacy Unique Legit Full
Control Knowl Relat Knowl Relat
Budget -.17* -.19* -.19* -.20* -.22** -.20* -.24** -.25**Firm Age .01 -.01 -.06 -.06 .00 -.01 -.06 -.06Rivalry -.17* -.16* -.16* -.17* -.17* -.16* -.17* -.17*LastAwrd .03 .04 .02 .03 .10 .03 .08 .07Education -.31* -.29* -.31* -.39** -.31* -.30* -.37** -.35*Performn -.04 -.01 -.05 -.08 -.01 -.02 -.05 -.02Tech -.34* -.25** -.34** -.41** -.30* -.35** -.37** -.37**Program .21* .18* .18* .21** .17* .16+ .18* .16+
Unique Experience .21** .17* .15+Cost advtg .07 .07 06User Freq .06 .03 06State Freq .16* .13 .00
Legit # LPs .23** .20* .18*Awards .13* .13+ .11# Registrns -.27*** -.23*** -.26***
Pr Reput .19* .19* .17*Constraint .62** .42+ .29Constraint ² -.58* -.35 -.23F 2.86** 3.15*** 3.08*** 4.73*** 3.91*** 2.92*** 4.72*** 3.82***R² .12 .16 .15 .23 .20 .18 .29 .31 R² -- .04 .03 11 .08 .06 .16 .19Adj R² .08 .11 .10 .19 .15 .12 .23 .23 F -- 3.84* 3.03+ 8.27*** 5.72*** 2.75* 6.29*** 4.15***
DISCUSSIONDISCUSSIONUniqueness Controls for market & project type renders unique history of
experience marginal in matching
Differentiating knowledge by experience – Route that has marginal effectiveness (4% variance)– Insignificant in presence of legitimacy variables
Differentiation through dyadic client relations was ineffective– Most emphasized strategy in PSF literature
– Public agencies may need to distribute work across firms
DISCUSSIONDISCUSSIONLegitimacy Credentialed knowledge was powerful predictor
With more licensed professionals– easier to justify “objective selection”– facilitates blame deflection if things go wrong – Clients were professionals (architects)
Legitimation through awards effective
Work across many states, highly ineffective – reduces dependency on & influence of state clients– More difficult to “sell” as local firm to public
DISCUSSIONDISCUSSION
Client Relationships verified by others was powerful predictor
Client embeddedness was curvilinear– too few overlapping ties make firm an unknown quantity,
amplifying uncertainty.
– Too many overlapping ties amplify problems on projects among those in network
Prior ratings among institutional clients created “path dependency” in reputation
IMPLICATIONSIMPLICATIONS Routes to Reputation
– Dyadic relations • most emphasis in PSF literature• the least effective strategy with institutional clients
– Media rankings• Awards in trade journal was somewhat effective• May cultivate reputation as “overkill”
– Embeddedness in client & architectural firm network• Most effective by itself, but drops out in presence of knowledge variables• Must be managed due to curvilinear effects
– Institutionalized into client ratings was most effective