What Are Champions for in a Company
Status, defined as the relative position of an actor in a hierarchical order, and reputation-a rough signal of future quality based on past quality-are unquestionably two of the most extensively studied intangible assets in organizations and markets. Recent results now show that they might have different effects on organizational outcomes, shaping product quality and firm revenues in heterogeneous ways. Fabrizio Castellucci (Department of Management and Technology) does in fact tackle these and other important issues in his most recent article, Getting What You Need: How Reputation and Status Affect Team Performance, Hiring and Salaries in the NBA, coauthored with Gokhan Ertug (Singapore Management University) and forthcoming at the Academy of Management Journal. The authors offer evidence that reputation and status have different effects on outcomes: namely, reputation has a stronger effect on product quality, whereas the effect of status is more prominent on revenues.
In the paper, the authors' hypotheses are tested on a sample of players and teams in the National Basketball Association (NBA), using data from the 1989/1990 season to the 2004/2005 season, obtained from the Official NBA Guide, as well as data on salaries and ticket income from a variety of other sources. The NBA represents an ideal setting for studying status and reputation dynamics, in that the quality of players can be appraised through a detailed analysis of their in-game performance, while straightforward measures for status and reputation can easily be envisaged. Reputation and status for individual players are in fact measured through average performance in the past three seasons and player awards received, respectively.
The authors find that the team's season performance is influenced by the average reputation of players comparatively more than by the average status of the team roster, while the latter has a stronger effect on ticket income than the former. The actual in-court performance of the team also matters, however, in that it mediates the above relationships, particularly with respect to the reputation-ticket income linkage. Moreover, low performance relative to the team's aspiration levels will result in an increased likelihood of recruiting high-reputation players, rather than high-status players; the latter, however, are more likely to be recruited when ticket sales income is below the aspiration level. Finally, player salaries are affected as well: while a positive relationship exists between a player's reputation and his salary, this relationship will be weaker the higher the status of the player.
The empirical results obtained by the authors are highly relevant for both organization theory and actual practice, in that they extend our understanding of the benefits that organizations have in obtaining resources from high-reputation and high-status resource providers, and how reputation and status determine hiring and pay decisions. Also, the conclusions reached can be extended beyond the boundaries of the study, suggesting-for instance-that while hiring high-reputation CEOs often comes at a substantial cost, their impact on firm revenues might be insignificant.