Reputation Rankings

A reputation ranking is a comparative ordering of organizations in a specified set, based on certain criteria decided by the ranking organization, and is publicly available to the external audiences of the organizations being ranked. Reputation rankings are a pervasive and increasingly prominent feature in a variety of organizational contexts and are an important aspect of an organization’s reputation. They are largely produced by media organizations and now constitute an important type of content for several magazines. For example, Fortune magazine alone publishes several rankings, including its most famous “Fortune 500” rankings of the largest companies, and also “America’s Most Admired Companies,” “The 100 Best Companies to Work For,” “Most Powerful Women,” and “40 under 40,” its ranking of the most influential businesspeople under the age of 40. Some organizational sectors have attracted more rankings than others have. For example, business schools are ranked by numerous organizations, including Business Week, The Financial Times, US News and World Report, Forbes, Princeton Review, and The Economist, just to name a few.

Reputation rankings are now a well-established element of the business environment and one that executives increasingly need to address as a strategic consideration. They can be seen as “report cards” that show organizations’ relative success in achieving performance standards decided by their stakeholders. The fundamental function of reputation rankings is to convey information—specifically, information about where an organization stands relative to its peers. As sources of information, these rankings affect the behavior of internal and external stakeholders. For example, organizations that fare well in reputation rankings can command higher prices for their products, attract better recruits, and have greater support from constituents than those that fare badly. This entry first looks at the effects of rankings and how stakeholders affect and are affected by rankings. It then examines the interaction between rankings and reputation, reputation’s relationship with organizational identity, the relationship between rankings and ratings, the criteria of reputation rankings, and rankings as social facts. Finally, it discusses the influence of reputation rankings, their significance and impact, and a few empirical findings about the factors contributing to reputation rankings and the effects of reputation rankings on organizational outcomes.

In addition to affecting external stakeholders, rankings can also affect organizational employees by providing bases for organizational members to interpret how external constituents view the organization. Performing well in reputation ranking is of particular importance to service firms. Their products are often credence goods, which are hard to measure using a performance scale, and rankings provide quantified information that can help stakeholders in making choices. Reputation rankings and organizational stakeholders are closely related—stakeholders produce, determine or influence, and use rankings.

As producers of reputation rankings, stakeholders impose their models of organizational performance on a set of organizations; these models may be different from those held by members of the organizations that the rankings involve. As participants in a web of relationships among organizational stakeholders, various stakeholders can determine or influence an organization’s rank in reputation rankings. As users of reputation rankings, stakeholders may utilize rankings as bases for allocating valued resources to organizations.

Whereas researchers and executives sometimes conflate organizational reputation with its position within a reputation ranking, the two are distinct constructs, and reputation rankings are rightly seen as components of an organization’s reputation. Reputation rankings are assessments by one or more stakeholders, which do factor into (and may reflect) but do not constitute overall organizational reputations. Whereas reputation rankings are transitory “snapshot pictures” presented by an evaluating organization, reputations are more dynamic, are an emergent property of the external context of a set of organizations, and exist in the collective minds of the entities that make up that context.

If we think of reputation rankings as static and reputations as dynamic, we observe that ranks in reputation rankings are in part based on reputation and then in turn affect reputation—that is, they reciprocally cause each other. Thus, its rank in a reputation ranking is one of the factors that go into making an organization’s reputation. It reflects an organization’s image(s) held by one or more stakeholders or constituents in its external environment. In turn, its reputation affects how an organization fares in reputation rankings.

Relationship With Organizational Identity

A reciprocal relationship also exists between an organization’s reputation and its identity. Indeed, an organization’s rank in a reputation ranking can be seen as an external indicator of its identity in the eyes of one or more stakeholders. Thus, reputation rankings have been argued to be identity defining in that they provide a reflection of an organization in the mirror of external opinion, which can be internalized by the organization. In addition, organizations may define a “possible self” or “future image” or “desired organizational image” using a reputation ranking as an anchor; that is, an organization’s definition of its possible self may include a certain rank in a reputation ranking (e.g., a “top 10 university”), which may then prompt the organization to take certain actions to achieve that possible self.

Researchers have noted that an important mechanism in defining an organization’s identity is a social comparison at the organizational level, and reputation rankings provide such comparisons. Thus, reputation rankings can provide bases for organizations to define or categorize themselves; that is, organizations can choose to include reputational rankings in their self-described organizational identities. When organizations use their performance in a reputation ranking as part of their identity definition, they seek to maintain or enhance their performance in the ranking, in order to maintain a positive organizational identity.

Ratings

Reputation rankings sometimes are confused with reputation ratings. The major point of difference between rankings and ratings is that rankings use a relative standard (i.e., they compare an organization, product, etc. with others—they use others as the reference point for comparison), whereas ratings use an absolute standard (i.e., they compare an organization, product, etc. with a scale specifying certain performance criteria—they use a preset performance index as the reference point). Changes in an organization’s rank in reputation rankings are the consequence of changes not only in its own performance on the set of criteria used by the rankings but also in the performance of other organizations on those criteria.

Criteria

The criteria used for ranking organizations are determined by the ranking organization, which most often is a media organization; these criteria are used as a measuring rod on organizations that are ranked. Changes in an organization’s rank in a ranking mainly depend on how well it performs on the ranking criteria relative to its peer organizations. The criteria may not focus on aspects of the organizations’ operations or outcomes that the organizations being ranked consider as central to their processes or products, and they are often contested as irrelevant, unfair, or inappropriate. Furthermore, the methodology used in the rankings, for instance, the surveys of alumni and administrators used in constructing business school rankings, is sometimes flawed in design or execution, and are often modified or changed in subsequent iterations of the rankings. Also, because they reflect the views of one or more constituents, the appropriateness of those constituents as judges of organizational performance is often debated. These concerns are not unique to reputation rankings but rather are similar to concerns raised in assessments of organizational reputation and of organizational effectiveness in general.

Nevertheless, ranking criteria represent templates that organizations must follow to enhance their reputational standing but that are outside their direct control. Thus, because they control the criteria used in their rankings, ranking organizations act as institutional intermediaries in the institutional context of a set of organizations, and they can shape the functioning of organizations by influencing their reputations. By circumscribing the range of actions that firms focus their energies on, ranking criteria can shape the paths organizations take in their growth and development. Furthermore, by focusing organizations’ attention in certain directions and thus prompting certain kinds of actions, rankings can also influence organizations’ subsequent identities.

Social Facts

Interestingly, whereas the inputs that go into producing a ranking are often highly subjective, the ranks of individual organizations in a ranking can take on a quasi-objective nature, making them a version of what are often called “social facts.” Thus, while it would be difficult to find clear distinctions between the fifth- and sixth-best places to work in the United States, potential employees who use the ranking are nonetheless likely to think of the organization ranked fifth as an objectively better place to work in than the one ranked sixth. Reputation rankings thus simplify complex combinations of factors that determine the quality of organizations, their products, and their functioning, and, in doing so, they provide a convenient shortcut to those interested in assessing and comparing organizations. As such, they are useful to organizations’ stakeholders as simplified measures of the complex constructs of organizational functioning and performance. Furthermore, reputation rankings highlight exemplars and role models in the form of top-ranking organizations after which other organizations can model their activities, and, in doing so, they define the success factors in a set of organizations.

Influence

While rankings could be seen as mere curiosities, what makes reputation rankings relevant to organizations is that because they are public, they can influence the thinking and actions of key constituents, such as customers and investors, on which the organizations depend for resources. For example, the reputation rankings of firms’ environmental performance are produced by social responsiveness–monitoring agencies; get disseminated to the news media, social investors, consumers, business subscribers, and other monitoring organizations; and in turn affect firms’ environmental practices.

To the extent that a ranking is seen as a valid and reliable indicator of an organization’s standing among a set of organizations by the key resource providers of the organization, the ranking has power over the organization in question. For example, based on their need to attract top accounting talent, large accounting firms often change policies and practices in response to drops in their standings in rankings of best places to work, which their potential employees use to decide which organization to work for. Similarly, business schools routinely make changes in practices and staff based on their performance in rankings, since students refer to the rankings as authoritative indicators of the relative positions of business schools. In fact, business schools have been found to make changes in conformity with the criteria used in business school rankings even when they do not believe the rankings to be valid, because of the likely impact of the rankings on key constituents such as potential students, recruiters, and donors. Indeed, there is evidence that changes in its rank directly affect the number of applicants to a business school.

Significance and Impact

The significance and impact of rankings derive in large part from several inherent characteristics of such rankings. The fact that they are comparative orderings implies that they provide information on the positional status of organizations relative to the other organizations in the set of organizations being ranked. Furthermore, this positional status is relative—unlike ratings, in which the performance of one organization does not affect the performance of others, rankings constitute a “zero-sum” assessment, and one organization’s climb in the ordering results in the decline of another. Rises in rank are seen as evidence of effective management by executives, and declines are often triggers for organizational action aimed at rectifying whatever is perceived as causing the decline. The organizations included in the set being ranked vary from those within the same industry in a specified geographic location (e.g., “The 100 Best Restaurants in Dallas” by D Magazine in Dallas, Texas) to those drawn from multiple industries and geographic locations (e.g., “The World’s Best Multinational Workplaces” by the Great Place to Work Institute).

Research Findings

Researchers have examined factors contributing to reputation rankings and the effects of reputation rankings on organizational outcomes. For example, performance in reputation rankings has been found to affect organizations’ financial performance, although in some studies, researchers have established a financial halo in reputation rankings, such that rankings may in some instances reflect prior financial performance. Not surprisingly, an organization’s visibility in the media, and in particular, the quantity, tone, and recency of media exposure, significantly affects its position in reputation rankings. Higher positions in reputation rankings have been found to provide strategic benefits to organizations, such as reducing their cost of capital and enhancing employee pride in the organization.

Whereas organizations may be able to influence their rankings, it is more likely that rankings influence organizations. Indeed, discrepancies between an organization’s position in reputation rankings and its managers’ perceptions of where it ought to be ranked have been found to lead to organizational changes to conform to the criteria used by the rankings. Thus, reputation rankings enable an external entity, often a media organization, to shape the functioning of a set of organizations simply by the act of ranking them in a status hierarchy based on certain criteria.