Recent research shows that audiences sometimes respond to organizational performance in ways that seem anomalous according to prior theory. In this paper we propose that variations in the extent to which an organization conforms to the norms and expectations of a known organizational category can affect the way evaluators construct reference groups, and subsequently shape their responses to organizational performance. In an experiment on investing in and evaluating the performance of a certain kind of financial organization, we show that organizational atypicality increases an evaluator’s likelihood of choosing a nonconforming referent for the purpose of making (enhancing) evaluations of the organization’s performance. Evaluators’ ex ante feelings of commitment toward the organization further moderate this relationship. Our results have several implications for research related to organizational and categorical identity, performance evaluation, and judgment and decision making. The online appendix is available at https://doi.org/10.1287/orsc.2017.1154 .
Research summary:This article focuses on organizational naming as a strategic choice organizations make to overcome liabilities of atypicality. We argue that, in markets presenting an "illegitimacy discount," atypical organizations may use deliberate names-names that communicate the market categories to which organizations claim membership-to offset the consequences of atypicality. Using data from the global hedge fund industry, we show that atypical hedge funds are more likely than typical funds to have deliberate names. Importantly, the selection of a deliberate name is economically significant. First, funds with deliberate names grow faster than funds without deliberate names, especially among atypical funds. Second, while atypicality heightened the likelihood of failure during the recent financial crisis-even after controlling for fund performance-having a deliberate name mitigated this effect.Managerial summary: Differentiation is a core element of many organizations' competitive advantage. Nevertheless, as differentiation implies being atypical among one's competitors, differentiation strategies can also lead to an "illegitimacy discount" whereby differentiators are at risk of being misunderstood, miscategorized, and ignored by consumers. Here we investigate how atypical hedge funds-funds that differentiate themselves from their competitors by investing in notably unique ways-use names to offset the potential consequences associated with the "illegitimacy discount." Our analysis of more than 12,000 hedge funds over 12 years highlighted a trend whereby atypical hedge funds were more likely to choose names that unambiguously associated them with a known investment strategy-for instance, choosing the name "Apex Global Macro Capital" over simply "Apex Capital." Importantly, name selection proved to be economically significant. For example, among atypical hedge funds, those with unambiguous names grew faster than those without. Furthermore, while being atypical increased the level of disinvestment during the recent financial crisis, having an unambiguous name reversed this effect. Organizational names play an important communication role with consumers, which, while highly symbolic, may also help resolve the dual organizational need to both conform to consumer expectations and differentiate from market competitors.
Research Summary This study investigates the relationships between consumer income, consumer education, and firms' propensities to span multiple market categories. Despite their positive correlation, I theorize contrasting effects of income and education on firms' variety‐enhancing spanning. Specifically, I propose that the strong purchasing power of high‐income communities should reduce the need for firms to operate in multiple categories, but culturally omnivorous preferences among educated elites should encourage firms' spanning. Analyses of 6,072 restaurants in a metropolitan area and a large‐scale survey offer support for these predictions. Education, though not income, has a further positive effect on firms' atypicality‐enhancing spanning. This study contributes to category and management research by focusing on audience heterogeneity as important antecedents of firms' action and explicating the multifaceted nature of spanning. Managerial Summary This study examines how restaurants decide their culinary categories and menus depending on residents' income and education levels of a city they are located in. I find restaurants in higher‐income communities tend to be more specialized in a single or fewer categories while those in lower‐income communities are more likely to diversify into multiple categories to reach a broader customer base. By comparison, restaurants in more educated communities tend to diversify into multiple categories and provide fusion food because educated cultural omnivores like to explore novelty. These findings imply that retail firms should consider the separate effects of income and education levels of target consumers in determining their business scope and product portfolio.
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