Why relying on intuition can backfire when it comes to crafting a successful business strategy.
Based on research Anastasiya Zavyalova, Mike Pfarrer, Rhonda K. Reger and Timothy Hubbard
When A Respected School’s Name Is Tarnished, Non-Alumni Cut Giving While Alumni Stay Loyal
- Research findings about the effects of a good reputation after a negative event have been mixed.
- According to some findings, a sterling reputation builds a useful stock of goodwill; according to others, a good name is a burden because it raises expectations that can be dashed.
- New research shows how this works. A good reputation helps a university that’s in trouble when the stakeholders identify personally with it – and harm it if they don’t have a personal link to the school.
It’s easy to think this maxim is a simple key for professional survival. In good times, after all, a sparkling name draws new prospects; in bad times, a history of excellence may earn a second chance. But reputation actually isn’t always the best shield for an organization facing crisis, according to a study coauthored by Anastasiya Zavyalova, an assistant professor in strategic management at Rice Business. Studying the impact of what they call “negative events,” Zavyalova and her team looked at the behavior of donors after the university they helped had a major NCAA infraction. What they found was surprising. The less a stakeholder was emotionally and cognitively bound to the school, the less a good reputation helped.
Instead, for these stakeholders with low identification — weak personal links to the organization — a good reputation undermined their loyalty once that good name was tarnished. Organizations with lower profiles actually lost less of this type of stakeholder loyalty.
Zavyalova’s findings advance a much-debated question on the benefits of reputation. While intuition and grade school teach that a good name is a personal asset, past researchers have found that for organizations, that’s not always so. According to some findings, Zavyalova’s team writes, “A high reputation is a benefit because of the stock of social capital and goodwill it creates.” But other research shows that a sterling reputation makes matters worse when an organization is in trouble. A good name, in some cases, is “a burden because of the greater stakeholder attention and violation of expectations associated with a negative event.” In other words, the disappointment is greater.
To test when a good name helps and when it hinders, Zavyalova and her colleagues studied donor data from 658 U.S. universities. Identifying the donors as “stakeholders,” the researchers analyzed the giving patterns of alumni and non-alumni after a so-called “negative event” — major reported infractions of NCAA rules.
What they found was that non-alumni, or low-identification stakeholders, cut back their giving in greater numbers if the school had a high reputation. (The researchers measured reputation by rankings from U.S. News and World Report). These donors, it turned out, actually proved more loyal to schools with lesser reputations when they ran into NCAA trouble.
A good reputation only helped when the donors were alumni, or in other words, felt a personal link with the school. For these high-identification donors, the writers theorized, “the stock of social capital and reservoir of goodwill” influenced their views. According to previous research, such donors bask in the reflected glory of their school when it’s in the ascendant — and take it personally if negative events threaten the school’s profile. As a result, they may cut the school some slack, attributing the negative event to situational factors.
In fact, the researchers found, high-reputation schools actually got a bump in support from their high-identifying stakeholders after an increase in the number of NCAA violations — at least for awhile. When a “negative event” was too great in magnitude, it appeared to turn these stakeholders against the school as well.
These insights suggest strategies for managers. First, in industries where negative events typically occur in some volume, it may not make sense to cultivate high personal identification at all. Second, since the two types of stakeholders react so differently, a manager of a high-reputation organization might deploy different responses when there are problems. One approach: for low-identification stakeholders, reduce the perceived volume of wrongdoing by publicly sharing plans to address the problem. The high-identification stakeholders might merit another tactic: remind them of their close bond with the organization — and ask for some loyalty during a troubled time.
Anastasiya Zavyalova is an associate professor of management at Jones Graduate School of Business at Rice University.
To learn more, please see: Zavyalova, A., Pfarrer, M., Reger, R., & Hubbard, T. (2015). Reputation as a benefit and a burden? How stakeholders’ organizational identification affects the role of reputation following a negative event. Academy of Management Journal, 59(1), 253–276.