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Candace Jones Boston College Ivan Manev University of Maine

Signaling Differentiation or Legitimacy? How Architects Socially Construct their Reputations for Expertise. Candace Jones Boston College Ivan Manev University of Maine Cambridge Colloquium on Complexity and Social Networks October 28, 2002.

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Candace Jones Boston College Ivan Manev University of Maine

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  1. Signaling Differentiation or Legitimacy? How Architects Socially Construct their Reputations for Expertise Candace Jones Boston College Ivan Manev University of Maine Cambridge Colloquium on Complexity and Social Networks October 28, 2002

  2. 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

  3. Reputation building is a social process of consensus about what and who should receive esteem (Becker, 1982). • constituentswho develop criteria and standards, • actorswho signal key attributes to constituents(Rindova & Fombrun, 1999) • asystem to distributerecognition 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)

  4. How do professional service firms build their reputations for expertise? • A professional service firm builds its reputation through content and channel

  5. Content: What was signaled? • Uniqueness: by differentiating itself from competitors through know how • Legitimacy: by establishing trustworthiness through third parties-- credentials and/or relations

  6. Reputation 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

  7. Reputation 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

  8. Tradeoffs between differentiationand 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).

  9. 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)

  10. CHANNEL: THROUGH WHOM 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

  11. REPUTATION 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

  12. REPUTATION 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)

  13. REPUTATION 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?

  14. PURPOSE 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

  15. SIGNALING STRATEGIES FOR DIFFERENTIATING AND LEGITIMATING KEY RESOURCES

  16. RESEARCH CONTEXT • Institutional building market for state buildings in a western state • Focus on expertise • Studies, programs & designs • Construction projects eliminated: selected by lowest bid

  17. RESEARCH 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

  18. PROJECT 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

  19. PROJECT COMPETITION PROCESS • State 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 SOQ • Interorganizational (State Agency, User Client, Bldg Board) • 110 client evaluators- Avg 6 per project. • Low co-occurrence (3 on 3 projects) • Professionals: architects

  20. PROJECT COMPETITION PROCESS State agency SIGNAL Selection committee Architectural firm User client SCORE Bldg board

  21. DATA SOURCES State 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

  22. QUALITATIVE 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

  23. QUANTITATIVE 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

  24. QUANTITATIVE 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

  25. QUANTITATIVE MEASURES • Uniqueness • Emphasizeshistory 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

  26. QUANTITATIVE 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

  27. QUANTITATIVE 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?

  28. SIGNALING 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

  29. SIGNALING 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

  30. DISCUSSION Uniqueness • Controls for market & project type renders unique history of experience marginalin 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

  31. DISCUSSION Legitimacy • 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

  32. DISCUSSION • 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

  33. IMPLICATIONS • 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

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