(2005)Status Evolution and Competition Theory and Evidence

STATUS EVOLUTION AND COMPETITION:THEORY AND EVIDENCEMARVIN WASHINGTON Texas Tech University EDWARD J.ZAJAC Northwestern UniversityIn this study,we (1)clarify and distinguish the concept of status,(2)identify and analyze the institutional and organizational factors that can lead to differences in organizational status over time,and (3)empirically assess the privileges implied by such ing extensive longitudinal data on competitive intercollegiate athletics,we found that status was a significant predictor of whether a college was invited to participate in the NCAA postseason basketball tournament,independently of performance considerations.While management scholars have long applied the concepts and tools of economists to study com-petition among organizations,more recent research has benefited from also considering the social foun-dations of competitive or market relations.In par-ticular,understanding of competing and transact-ing organizations has been enriched by the inclusion of concepts such as social embedded-ness,network ties,trust,and institutional environ-ments (Baker,1990;Granovetter,1985;Orru,Big-gart,&Hamilton,1992).Similarly,employing the essential and venerable sociological concept of sta-tus offers promise in enabling researchers to gain greater insight into both the antecedents and the consequences of interorganizational competition.The concept of status can be traced back to We-ber,who viewed it as “an effective claim to social esteem in terms of positive or negative privileges”(1978:305).Weber included status (staendische Lage,which translates approximately to “class po-sition”)as a positional or relational element of so-cial structure that can exist independently of eco-nomic antecedents and whose consequences can at best be described as privileges (rather than as merit-or achievement-based rewards).The implication of this for management researchers interested in com-petitive and/or market relations is that status dif-ferences (and changes in such differences over time)can affect competitive organizational behav-iors and outcomes in ways that are not based on traditional performance considerations.In this study,we contribute to the literature on organizational status and competition in several ways.We first decided that for the concept of status to have maximal usefulness in management and organizational research,it needed to be more clearly delineated from other related but distinct concepts,such as reputation and legitimacy.Spe-cifically,we analyzed why the notion of reputation refers more closely to economists’notion of per-ceived quality (useful for economic analyses of competitive outcomes),but status refers more to the unearned ascription of social rank (useful for un-derstanding the sociological foundation of compet-itive behaviors and outcomes).We suggest that this important difference be-tween economists’notion of reputation and sociol-ogists’notion of status has been underemphasized and/or conflated in prior research because it is much easier when discussing competition to view organizations as purely economic entities rather than also as social entities.We do not deny that organizations (or individuals)in competitive situ-ations are achievement-oriented in the pursuit of specific competitive outcomes (e.g.,gain market share,win the race).Rather,we suggest these com-petitive contests are also socially situated,and that an important implication of the social embedded-ness of competitive contests is that the quality (real or perceived)of competitors’achievements is not the only factor determining the competitive out-comes.We propose that social status,as the un-earned ascription of social rank,can also play a meaningful role in competition—irrespective of performance.Both authors contributed equally.We would like to thank Cameron Anderson,Tina Dacin,Rodney Lacey,Michael Lounsbury,Mark Mizruchi,Willie Ocasio,Huggy Rao,Marshall Schminke,Art Stinchcombe,and three anonymous AMJ reviewers for their helpful comments.௠Academy of Management Journal 2005,Vol.48,No.2,282–296.282A related challenge in the study of organizational status and competition is an empirical one:It is typically difficult to identify differences in compet-itive organizational outcomes that can be confi-dently attributed to socially based differences in status,rather than quality-or merit-based differ-ences that correspond to reputation.For example, research attempting to explain the variance in the Fortune reputation index has found that it funda-mentally mirrors differences in financial perfor-mance(Fryxell&Wang,1994).Studies of organiza-tional status typically do not control for real or perceived differences in quality or merit,which in turn makes it impossible to determine whether one is capturing differences in social status or simply reputational differences based on an organization’s ability to generate higher versus lower product quality.In fact,some prior research has actually defined status in terms of differences in perceived product quality;an example is Podolny’s definition of organizational status as“the perceived quality of that producer’s products in relation to the per-ceived quality of that producer’s competitor’s prod-ucts”(1993:830).What is needed,then,in efforts to assess whether organizational status matters,is empirical research that can control for merit-or quality-based explanations for competitive market stly,there exists a need for more research attempts to explicitly identify the institu-tional and organizational factors that can maintain, grow,or erode the status of an organization over time.In this article,we seek to address each of these issues.First,we theoretically and empirically an-alyze the concept of status and its potential rele-vance for understanding interorganizational com-petition.We propose three specific mechanisms—historical legacy,accumulation of positive association,and accumulation of negative associ-ation—that can affect the evolution of status for organizational actors.We then examine how these mechanisms can result in privileges(i.e., non-merit-based rewards)for higher-status actors in competitive contests.We develop and report tests of our hypotheses using a desirable empiri-cal context that allowed us to examine the effects of status after controlling thoroughly for merit-based performance.Specifically,we used exten-sive longitudinal data on intercollegiate athletics to test our status-based model by predicting which colleges a tournament selection committee would invite to participate in major yearly post-season basketball tournaments,independently of their performance and their competitors’performance.THEORYDefining StatusAs suggested above,for status to contribute max-imally to researchers’understanding of competi-tion,it must first be differentiated from other re-lated but distinct concepts used in the study of competitive processes.Prior research has shown sur-prisingly little interest in such an endeavor;in fact, prior research has confused status with reputation. To define organizational status as a summary indica-tor of perceived(that is,intersubjectively agreed-upon)or historical,performance-based differences in quality between(or among)two(or more)organiza-tions,given imperect information,is simply to use a definition that is more appropriately equated with “reputation.”Fombrun(1996:190)saw reputation as an indicator of“overall quality,”for example.We suggest that there are subtle but important differences between the two concepts:status is fundamentally a sociological concept that captures differences in so-cial rank that generate privilege or discrimination (not performance-based awards),while reputation is fundamentally an economic concept that captures differences in perceived or actual quality or merit that generate earned,performance-based rewards.1It is not surprising that economists have em-braced the concept of reputation and have linked it to the extensive literature on market signaling (Spence,1974;Weigelt&Camerer,1988).Organi-zations that are of high quality can develop repu-tations for quality over time,which can then serve a useful signaling function when other forms of direct and credible information on quality are lack-ing.Note that no reference to privilege is needed here,nor would it be appropriate,since reputation reflects either the underlying reality or the inter-subjectively agreed-upon reality of quality differ-ences among organizations.Again,reputation is an 1Social psychological research on intraorganizational institutions has sometimes invoked the concept of status; studies by of Sutton and Hargadon(1996)and Elsbach and Kramer(1996)are examples.However,these studies, while valuable,have typically used the term“status”without either defining it or distinguishing it from repu-tation or quality.For example,Sutton and Hargadon used “status”to refer to reputational gains or losses in techni-cal skills(they even labeled their context a“peer-ori-ented meritocracy”).Thus,their notion of status actually captures a rank-ordering of reputation that is based on performance-based evidence of actual and/or perceived quality.Similarly,Elsbach and Kramer,in their study of organizational identity,used“status”and“reputation”interchangeably when referring to the BusinessWeek rankings of top business schools.2005283Washington and Zajaceconomics-based concept:overall quality earns merit-based rewards and benefits,as does overall quality over time,embodied in reputation.In the case of organizations,it refers to an organization’s abilities(applied to the achievement of its funda-mental objectives).From this perspective,while some intersubjec-tive agreement is required when referring to an organization’s reputation,no assumption of full in-tersubjective agreement is required,since differ-ences in available information could lead to differ-ences in opinions(which may even be actively shaped by self-interest,as Fombrun[1996]sug-gested).Such differences can essentially be ex-plained away by“information asymmetries,”in keeping with an economic orientation.Status dif-ferences,on the other hand,reflect fundamental, social characteristics that can be unrelated to—and exist independently of—the product/service qual-ity differences(real or perceived)of primary inter-est to economists interested in competition.As noted earlier,we believe that this important difference has not received much attention in re-search on organizational status because it is much easier to conceive of an organization as an eco-nomic entity than as a social entity.To make our distinction between status and reputation more vivid,we would therefore like to use the example of individuals or products,rather than organiza-tions.For example,the Jaguar automobile has long suffered from a reputation for poor quality,while at the same time benefiting from the privilege of high social status.In the last decade,the Jaguar’s repu-tation has improved,owing to increases in per-ceived and actual quality,while its status has re-mained unchanged(or perhaps even decreased under new ownership by Ford Motor Company,a U.S.firm).Consider also the case of the Ford Motor Company(FMC)itself,which has often had descen-dants of Henry Ford at or near its top.Is the con-tinuing effort to have a Ford family member visible in the upper echelon of FMC contributing to the company’s reputation or to its status?Or consider another example of competition at the individual level:were votes for George W.Bush in the2000 presidential elections based more on his reputation (that is,an assessment of his accumulated experi-ences and actions in public office)or his status (that is,a social rank held by virtue of sharing a name and genetic relationship with a former pres-ident)?While one can and should debate these questions,and the question of how the two con-structs relate to each other,the key point is that reputation(based on perceived or actual quality) and status(based on agreed-upon social rank)are clearly two analytically distinct constructs.Stated more precisely,the concept of reputation, when applied to organizations,refers to a summary categorization of real or perceived historical differ-ences in product or service quality among organi-zations,given imperfect information.In contrast, our definition of status,which we see as consistent with Weber’s initial conceptualization,refers to a socially constructed,intersubjectively agreed-upon and accepted ordering or ranking of individuals, groups,organizations,or activities in a social sys-tem.Status generates social esteem and special, unearned(i.e.,non-merit-based)benefits known as privileges,which are granted to and enjoyed by high-status actors in a social system.Privilege can be understood very clearly by considering its op-posite,which is discrimination—an unearned det-riment for an individual,group,or organization (this equates with Weber’s notion of“negative priv-ilege”).Just as discrimination cannot be explained by perceived quality,privilege cannot be explained by perceived quality.Both come from social beliefs that have little to do with assessments of quality and have much more to do with social or cultural categorization schemata or stereotypes(e.g.,class, family,ethnicity,etc).Just as there are economic barriers to mobility or entry for organizations(with implications for the monopolization of profits),there are also social bar-riers to mobility or entry(with implications for the monopolization of privilege),which can be repre-sented as status differences.Note that we do not deny that economic considerations may have influ-enced the genesis of status differences(for instance, merit could have mattered at some point in his-tory),but we would add that the reverse may also be true(status differences may have influenced the genesis of economic differences).Our position is simply that the evolution of status over time in competitive situations can ultimately be ex-plained—at least in part—without reference to eco-nomic or merit-based logics.2Although the discussion above highlights how status can be confused with a fundamentally eco-nomic concept such as reputation,we also suggest that status can be confused with other sociological concepts,such as legitimacy.Legitimacy refers to the level of social acceptability bestowed upon a set of activities or actors(Dowling&Pfeffer,1975;2An alternative terminological choice would be to differentiate the concepts of reputation and status by contrasting“earned reputation”with“unearned reputa-tion,”or“merit-based status”with“class-based status.”Such constructions,however,seem awkward and less consistent with Weber’s initial conceptualization of status.284AprilAcademy of Management JournalSuchman,1995).Legitimacy may correlate posi-tively with status,but it may also be largely uncor-related or even negatively correlated with status. For example,although gambling activities have grown more socially acceptable in the United States,they have not seen an equal growth in sta-tus.Polo and bowling are both socially legitimate, but polo is the higher-status sport,in that people associated with it will be presumed to also have other,more socially valued attributes.Similarly,a high number of actors pursuing a particular activity is often viewed as reflecting the activity’s greater social legitimacy(Haveman,1993;Washington& Ventresca,2004),but popularity or pervasiveness may be uncorrelated,or even negatively corre-lated,with the social status of that activity.If one compared bowling to curling in the United States,the latter would emerge as the higher-status activity,despite the greater popularity of the former.In other words,an activity or an or-ganization can be highly socially legitimate(i.e., have achieved wide acceptance),but also have low social status.While our concern is with how the concept of status differs from the concepts of reputation and legitimacy,it is interesting to remember that Rao’s (1994)careful distinction between reputation and legitimacy.Rao noted that reputation is associated with an economic logic(we agree)and that legiti-macy is more social(we agree again).However,Rao did not devote similar attention to the differences between legitimacy and status,and his empirical study of competitive contests did not separate mer-it-based from class-based outcomes.Before proceeding,we would like to emphasize that neither our attempt to be true to Weber’s con-ceptualization of status nor our view of status as an organization-level property is idiosyncratic.For ex-ample,Simmel(1950),in his discussion of status, shared Weber’s emphasis on the privileges of social position,drawing a distinction between the actions of actors and the actors’places in a social hierar-chy,and arguing that hierarchical position deter-mines rewards.In addition,Stinchcombe followed Weber’s emphasis on the privileges of status and called for a general theory of status that was spe-cific to organizations,writing that“what is needed then,is a general measure of the predominant method of organizing social life into units which are evaluated relative to each other,and which reap the benefits of high rank or the disadvantages of low rank”(Stinchcombe,1965:71).The Evolution of StatusAnswering Stinchcombe’s call for the identifica-tion of organization-specific mechanisms of status, we propose three mechanisms governing three dif-ferent trajectories in the evolution of organizational status and privilege over time in a set of competing organizations.The first is historical legacy.Once status differences form,they tend to be perpetu-ated.Status evolves in a privilege-perpetuating di-rection by means of historical legacy.The second mechanism is the accumulation of positive anizations can positively influence their status over time.Status thus evolves in a privilege-enhancing direction through the accumulation of positive association.The third mechanism is the accumulation of negative association.Status can diminish over time,evolving in a privilege-reduc-ing direction through the accumulation of negative association.The first of the three mechanisms(historical leg-acy)is more cultural,and the latter two(accumu-lation of positive or negative associations)are more structural(Biggart&Delbridge,2004).Since all three mechanisms can coexist at any time,we ex-pect that their combined effect will predict the evolution of organizational status differences.Note that these mechanisms are neither mutually exclu-sive nor exhaustive;rather,we see them as a subset of potentially specific important explanations of how and why status can endure,but also may change over time as the strengths of various mech-anisms change.Status and Historical LegacyThe first evolutionary mechanism,historical leg-acy,operates through the perpetuating effect of dif-fering prior conditions.Merton(1968)termed this “the Matthew effect,”referring to a verse in the first book of the New Testament:“For unto everyone that hath shall be given,and he shall have abun-dance;but from he that hath not shall be taken away even what he hath.”In other words,once a system of social stratification has been established, it is likely to be perpetuated independently of merit.Prior research on the advantages of reputa-tion for perceived quality(Podolny,1993)has noted how prior conditions tend to be perpetuated, but it is important to note that Merton(1968:59) saw this process as a“double injustice”whose outcomes imply“enhancing rank”for high-status actors and“suppressing recognition”for low-status actors.Merton also wrote that the Matthew effect among scientists he studied“violates the norm of universalism embodied in the institution of science2005285Washington and Zajacand curbs the advancement of knowledge”(1968: 59).Perpetuation of a class system that exists apart from a merit-based system implies that organiza-tions of high status will continue to enjoy positive privileges and those of low status will continue to experience negative privileges(Weber’s term),or discrimination.If benefits had a meritocratic basis (either real or perceived quality),one would not expect the Matthew effect to persist over time. Merton’s(1968)research and his discussion of the Matthew effect are quite consistent with We-ber’s and Stinchcombe’s view of status,in that it proposes how an emphasis on tradition or status conventions(again,Weber’s term)can perpetuate differences in status and privilege that are not earned(i.e.,merit-based).The perpetuation of sta-tus differences is thus a form of social monopoliza-tion.This discussion of historical legacy suggests the first proposition regarding status in competitive environments:Proposition1.An organization with a histori-cal legacy of high status is likely to enjoy the privileges of high status in subsequent periods, independently of its competitive performance in those periods.Status and the Accumulation of Positive AssociationsThe first mechanism proposed as important for understanding the evolution of status tends to per-petuate the status quo,but other mechanisms pro-vide the potential for changing the evolutionary direction of an organization’s status.Given that status is fundamentally a relational concept,one mechanism for understanding changes in status differences among competing organizations over time is the accumulation of positive associations. More specifically,we suggest that status contagion processes can provide privileges for organizations that interact with other organizations that have high status.3Note that although our argument for status en-hancement focuses on contagion by association,it differs in significant ways from the typical network contagion argument used to assess the reputational benefits of collaborative affiliations,such as inter-firm alliances.First,our argument is original in that we propose that status contagion processes apply not just in cooperative relationships,but also in competitive relationships.We posit that the sheer act of electing to compete with high-status organi-zations becomes a positive association for a focal organization.Consistently with our emphasis on a privilege-based conceptualization of status,we ar-gue that the accumulation of such positive associ-ations enhances that organization’s status,inde-pendently of how well the organization fares in competition with those high-status organizations. Given these differences between network conta-gion and contagion by association,we believe it is both possible and desirable to conceptually and empirically separate two related notions:reputa-tion benefits and status benefits.Reputation bene-fits,the more economic notion,signal quality asso-ciated with earned rewards.Such benefits derive from cooperative associations.Status benefits,the more social notion,are an effective claim to social esteem associated with privileges,and they derive from either cooperative or competitive associa-tions.Status benefits,from our perspective,can accrue from an organization’s accumulation of ex-change relationships with high-status organiza-tions,even if these relationships are directly com-petitive,and even if the focal organization fares poorly in the competition.In other words,an orga-nization choosing high-status competitors can suf-fer a reputational loss through poor performance but a status gain through the social identification of being in the same group with higher-status compet-itors.Proposition2.An organization having associ-ations with high-status organizations is likely to enjoy the privileges of high status in subse-quent periods,independently of its competi-tive performance in those periods.Status and the Accumulation of Negative AssociationsThe contagion arguments made above clearly suggest that associating with high-status others is a3An accumulation of positive associations is likely to be particularly significant in well-established organiza-tional fields,where differing status positions are more clearly defined and visible(cf.Elsbach&Kramer,1996). Although our focus is on organizational status and com-petition,the notion of status and positive associations has a parallel in individual-level research.For instance,the study by Cialdini,Borden,Thorne,Walker,Freeman, and Sloan(1976)on“basking in reflected glory”showed that students were more likely to wear clothing with a school’s name on it when the school’s football team won its games than when it lost.Just as individuals seek association with successful organizations to increase their individual status,so do organizations,and we sug-gest further that organizations are willing to compete with high-status organizations(and even lose)to realize the benefits of associating with high-status actors.286AprilAcademy of Management Journalmechanism for status attainment.To the extent that the arguments are symmetric,they suggest a related mechanism;namely,that avoiding the accumula-tion of associations with low-status organizations will enhance a focal organization’s status.Note that the mechanism is again performance-independent: A focal organization’s status loss attributable to competing with low-status organizations will be significant and will be independent of that organi-zation’s competitive success vis-a`-vis the lower-status organizations.In short,we argue that status can be enhanced through the accumulation of pos-itive associations and depleted through the accu-mulation of negative associations.Thus, Proposition3.An organization having associ-ations with low-status organizations is less likely to enjoy the privileges of high status in subsequent periods,independently of its com-petitive performance in those periods.Note also that Propositions2and3are not re-dundant with each other,since the effect of associ-ation may not be symmetric;in addition,some organizations may simply have no associations with high-or low-status organizations.We now move to discussing our empirical context for exam-ining the three mechanisms discussed above and their predicted effects.EMPIRICAL SETTING:THE NCAATOURNAMENTEach year more than300college basketball teams in the United States compete for the opportunity to participate the NCAA(National Collegiate Athletic Association)postseason basketball tournament.Of the64teams that get invited each year to partici-pate in the NCAA tournament,about30receive automatic bids that are based on their win/lose performance records in their conferences for the year.An automatic,performance-based bid also goes to each champion(the team with the best win/lose record in its conference,or the winner of the conference tournament)of certain regional con-ferences.These conferences represent sets of col-leges such as the Big Ten,Ivy League,and the Pacific Ten.However,many other teams receive invitations to participate in the tournament that are based on the outcome of a private meeting of the NCAA Selection Committee.About35of the re-maining269to272members of basketball confer-ences are invited to the NCAA.The tournament selection committee is asked to pick the best teams in the current year.While the selection committee uses many“objective”criteria, such as a team’s win/lose record and their oppo-nents’win/lose record,it considers more clearly subjective criteria.In fact,contrary to popular opin-ion,the committee does not use a computer or an algorithm to determine which teams to invite to the tournament.A formal document,“NCAA Division I Men’s Basketball Championship Principles and Procedures for Establishing the64-Team Bracket,”describes how the committee selects,seeds,and creates the tournament bracket.There are two prin-ciples:“Select the best available teams to fill the at-large berths,regardless of conference affiliation, and“There is no limit on the number of teams the basketball committee may select from one confer-ence.”While it takes only two members of the nine-member committee to nominate a school for a potential at-large bid,it takes seven members to eliminate a“potential school”from receiving a bid. Lastly,the principles and procedures document states that“at any time during the process,the chair may designate a quiet period,generally15minutes in length,to permit members to individually reflect on the way they will vote.”This setting provided a desirable empirical con-text for examining status and privileges for at least two reasons.First,the subjective and secretive na-ture of the selection committee deliberations gen-erates controversy almost every year,as interested constituents attempt to divine why one school was invited when other schools with apparently supe-rior performance records were not.Clearly,the dis-cretion given to the committee provides a context in which the privileges of high status can operate, either consciously or unconsciously for committee members.Second,an invitation to participate in the NCAA postseason tournament provides substantial finan-cial rewards for the invited schools.During its early history,the NCAA tournament did not financially benefit its participants,but in the last ten years this has dramatically changed.Revenue for the1970 NCAA tournament was only$1.4million dollars (Raiborn,1986);for the1989NCAA tournament,it was$70million dollars;and for1995,it was more than$184million dollars(NCAA,1995).For the 1996NCAA tournament,television revenue alone was more than$178million dollars(NCAA,1997). This revenue is distributed to the teams that par-ticipate in the tournament.Each round of the NCAA postseason tournament that a school played in1990,the last year for which data are available, was worth about$294,000to the school(NCAA, 1997).Selection for the NCAA tournament also produces indirect financial gain as it increases at-tendance at regular season games,television cover-age,and alumni contributions.Padilla and Baumer (1994)found that while a regular season victory in2005287Washington and Zajac。