Conformity and Differentiation

Conformity and differentiation are strategies that organizations pursue to improve key organizational outcomes. Conformity implies behaving in accordance with a set of norms, standards, or policies, while differentiation means to stand out as different from others with respect to certain attributes. Both strategies emerge from different theoretical positions, are selected on the basis of different strategic considerations, and are generally assumed to have different effects on reputation. This entry discusses conformity and differentiation’s linkages to reputation and legitimacy and the balancing of conformity and differentiation in reputation matters.

Conformity

The standard approach to conformity found in the early institutional literature in organizational analysis described conformity as a nonstrategic response to institutional pressures. According to this perspective, organizations operate in institutional environments characterized by strong pressures and logics that prescribe appropriate ways of organizing and managing. The pressures are rule-like requirements to which organizations must conform if they are to receive support and legitimacy. Organizations are believed to conform to these pressures either because they are legally forced or feel they have a moral obligation to do so or because shared conceptions and cognitive frames induce them to imitate their environments. Organizations become progressively similar to one another over time as they conform to the same pressures.

Later research in institutional theory, resource dependency theory, and strategy disciplines has emphasized how conformity can be a strategic choice. Organizations selectively conform to some requirements but not to others. In general, strategic conformity is valued because of its beneficial effects on legitimacy. Organizations risk being perceived as “misfits” if they act outside the range of acceptability that exists within a given field or industry. However, strategic conformity is only one of many possible strategies that may be pursued to handle the requirements of complex environments. The choice of conforming depends on a number of factors: (a) the intensity of conformity pressures under which the organization operates; (b) the extent to which these pressures can be defied, altered, or conformed to partially; (c) the prospect of accruing or losing legitimacy benefits; and (d) whether there are successful and legitimate “benchmark” strategies available that can be imitated.

Conformity and Reputation

The potential association between conformity and reputation has received considerably less scholarly attention in comparison with the associations that are assumed to exist between conformity and legitimacy. While conformity and legitimacy are interlinked concepts in the sense that similarity with others is a requirement for legitimacy, reputation is usually associated with differentiation. There are, however, several important reasons why conformity and reputation ought to be jointly considered. First, it could be argued that conformity with industry standards and rule-like expectations is a requirement for a favorable reputation. Nonconforming organizations jeopardize their legitimacy and face greater difficulties than conforming organizations in acquiring resources and being associated with positive attributes. The potential for attracting resources and building and maintaining a strong reputation is greater if the legitimacy of the organization cannot be questioned. Second, conformity may have a positive effect on reputation depending on the strength of the organization’s reputation. Imitating the common strategies of the industry has been shown to give reputational awards for organizations whose reputation is weak. Conversely, imitation is not likely to be a viable strategy for reinforcing reputation further for those organizations whose reputation is already strong. Third, reputation management sometimes involves the joint efforts of multiple members of a field or industry to build or protect a shared reputation. If the reputation of one organization depends on the reputation and actions of others, the members of the industry benefit from working collectively to build a shared (similar) reputation rather than pursuing their own (differentiated) competitive strategies.

Differentiation

Differentiation is highlighted as a strategic concern of importance in several literatures, including strategy, marketing, branding, and corporate reputation. A common theme is the need for competitive advantage. Although conformity generates legitimacy, it can be expected to result in higher rivalry because similar organizations compete for the same resources. Higher rivalry leads to reduced performance. Conversely, differentiation reduces rivalry over the same resources. This leads to fewer competitors and increased performance.

Companies that successfully pursue a differentiation strategy offer services or features that are valued by customers and not easily imitated by competitors. By being unique, an organization is assumed to hold competitive advantage, enjoy loyal customers, and have the privilege of charging premium prices. Choosing to differentiate depends on whether the organization has or is able to acquire resources that are relatively rare, valuable, unique, and inimitable. These resources could include unique technical expertise, competencies, knowledge, intellectual capital, and patents. A strong reputation may also serve as a strategic resource in this sense because it takes time to build up, is based on unique interactions between the organization and its customers, is not easily substituted with something else, and therefore is very difficult for competitors to imitate.

Differentiation and Reputation

Reputation dynamics involve comparisons among organizations on various attributes. As a result, any two organizations that are compared are not likely to have the exact same reputation. Even if both are seen as legitimate, one of them is likely to have a more favorable reputation than the other. An organization’s ability to create differentiation is assumed to be a key factor influencing the strength of its reputation. Differentiation is thus a key aspect of reputation management.

Reputation management literature borrows from the strategic management discipline in its emphasis on strategic positioning and unique core competencies as the basis for competitive advantage. Any organization that wants to be associated with a reputation for being or doing something unique must think strategically about its unique characteristics and competencies, critically considering how these attributes could form the basis for a unique reputation relative to its competitors. This basis is sometimes referred to as the reputation platform. For practitioners, specifying this platform represents the first step of a reputation management process. It defines the “essence” of the organization and provides answers to the fundamental questions of who we are, what is our business, what makes us different, and how we create value. In the ideal reputation management process, the platform is reflected consistently everywhere in the organization, including production, services, and strategic decisions about acquisitions, as well as strategies for human resources, branding, and communication. This is done in such a way that everything an organization does and says is aimed at highlighting the uniqueness of the organization, consistently reproducing a unique reputation over time and resulting in competitive advantage.

Successful differentiation results in perceived uniqueness even when the services and physical products offered by an organization have the same features as those of competitors. For this reason, rhetoric plays a central role in creating differentiation: Organizations make verbal claims of being unique with reference to their values, identities, or cultures and of providing unique products or services. Slogans, taglines, brand messages, logos, and corporate stories are common means of conveying distinctiveness. Some of the world’s most well-reputed companies have slogans that reflect not only their desired reputation but also how they claim to be different from competitors (e.g., British Petroleum, which seeks to differentiate itself from other oil and gas producers through its “Beyond Petroleum” tagline, and Avis, which seeks to stand out by saying, “We try harder”).

Balancing Conformity and Differentiation

Although differentiation is key to generating competitive advantage, too much differentiation can cause legitimacy problems. A delicate balance between conformity and differentiation arises: Competitive logics, which compel an organization to distinguish itself from competitors and build a unique reputation, conflict with institutional logics, which require an organization to conform and maintain legitimacy. Every organization in search of a favorable reputation must determine to what extent it is to its benefit to differentiate and in which way. It must also determine to what extent conformity is in its interest and to which norms and pressures it should conform. Subsequently, it must try to manage these contradictory concerns and possibly strike a balance or a trade-off between them.

The conflicting requirements of conformity and differentiation imply a tension between legitimacy and reputation. While reputation inspires differentiation, legitimacy requires conformity. How organizations manage this tension could potentially determine their fate. A common view among scholars is that organizations can exist without a strong reputation as long as their legitimacy is not compromised. A unique reputation can differentiate between organizations and make legitimate organizations better, but it is unlikely to repair a fundamental problem of legitimacy. From this perspective, conformity and legitimacy are more important concerns than differentiation and reputation.

However, organizations operating in competitive environments need to manage both concerns. Studies analyzing the strategies for dealing with these conflicting requirements suggest ways of combining and balancing them. Strategic balance theory highlights the benefits of moderate rather than maximum differentiation for organizational performance. The strategic balance proposition, for which empirical support has been found, states that moderately differentiated organizations have higher performance than highly differentiated or highly conforming organizations. This means that organizations should seek as much differentiation as possible, also in the form of a unique reputation, but without exceeding a limit beyond which their legitimacy will suffer. A certain amount of conformity is necessary to preserve organizational legitimacy. Too much conformity, however, can be assumed to hinder competitive advantage.

A social identity perspective can also enrich our understanding of the balance between conformity and differentiation requirements. According to this perspective, an organization acquires legitimacy by making itself known as a particular type of organization. This allows for customers, investors, and third-party evaluators to recognize it and develop specific expectations of performance and outputs that are normally associated with this type of organization. The expectations encompass both minimum and ideal standards. Organizations handle the tension between conformity and differentiation by adhering to both standards at the same time. For example, a social entity that defines itself as an accounting firm must respect the minimum requirements for legitimate membership within that category, such as certification and specialized education. On the other hand, the firm must meet the ideal standards for excellence that exist for this particular category of firms to achieve a distinguished reputation among its peers. A unique reputation attained through these ideal standards is desirable but is not a critical factor for survival. This is in contrast to the minimum requirements, which must be respected. However, by adhering to both standards, the organization enables itself to be similar and different at the same time, securing both legitimacy and a unique reputation.