Reputation. It’s intangible, yet essential. It controls how people perceive you, but it’s mostly out of your control. It can take decades to build, yet can be destroyed in an instant.
Just ask Tiger Woods. Or Toyota, in the wake of the “unintended acceleration” deaths.
But what exactly is a reputation, and how can you make it work for you rather than against you?
Notre Dame management professors Emily Block and Michael Mannor recently studied psychological research to explain how people perceive an organization (or person) and how firms can manage that perception. Their article “The Path Dependence of Organizational Reputation: How Social Judgment Influences Assessments of Capability and Character,” which they co-wrote with Yuri Mishina of Imperial College Business School in London, recently appeared in the Strategic Management Journal.
Reputations are important, the authors argue, because an organization’s stakeholders—its customers, its suppliers, its investors and its employees—make decisions on the basis of their perception of the firm.
“In the absence of perfect information about a firm’s characteristics and future behavior, stakeholders use its reputations as a proxy in order to make decisions,” the authors write.
That wouldn’t be a problem if our perceptions always matched up with reality. Unfortunately, the authors cite previous research showing that the way we make judgments is, in part, determined by our inherent biases. That is, we tend to base perceptions on our pre-existing beliefs of what’s good or bad, trustworthy or dubious, or other categories of character qualities. Further, our biases tend to favor those who have established a track record for success, a phenomenon called the “Matthew effect” (a reference to Matthew 25:29, which says those who have much will gain even more, those who have little will lose even that).