Procuring professional services : the effect of corporate reputation on business-to-business buying behavior towards NASCENT professional services firms

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I. Cover page

 

THESIS 

INDIVIDUAL RESEARCH PROJECT

PROCURING PROFESSIONAL SERVICES:  

THE EFFECT OF CORPORATE REPUTATION ON  

BUSINESS-TO-BUSINESS BUYING BEHAVIOR TOWARDS

NASCENT PROFESSIONAL SERVICES FIRMS

Date of submission: 30-1-2017  UvA identification number: 11184000

Student name: Antoine Bernard Christian (A.B.C.) Lauwerijssen  Academic supervisor University of Amsterdam: Dr. Karin Venetis 

University of Amsterdam  

MSc in Business Administration, Marketing Track

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II. Statement of originality

This document is written by Student Twan Lauwerijssen who declares to take full responsibility for the contents of this document. 

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. 

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

III. Confidentiality of the thesis

The present thesis is permanently embargoed. It contains confidential data of various organizations. It is not permitted to publish or reproduce this thesis – in whole or in part – without the express consent of the author. This thesis may only be made available to correctors and members of the examining committee. 

UvA agrees and undertakes to permanently maintain secrecy with respect to the thesis and all other information obtained and to use such only for advising on and evaluating Mr. Twan Lauwerijssen his thesis.

Access to the thesis and other information obtained may be granted only to college staff that requires this information for advising on and evaluating the thesis and who are themselves obliged to maintain

confidentiality.

 

IV. Acknowledgement

I should like to acknowledge my thesis coach Dr. Karin Venetis for her tutorship throughout the development of my thesis, she dedicated her time, expertise, and was particularly supportive by providing me with insight and information regarding the professional services sector. Also Dr. Sjaña Holloway who was particularly helpful by suggesting how to shape my thesis and get it structured on paper. Further, special thanks go out to many marketing- and industry professionals that inspired me throughout the thesis process. Finally, thank you to all friends and family who were encouraging during challenging times and were always available to reflect with me on critical points to come up with suggestive thesis improvements.

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V. Abstract

Traditionally, unlike consumer markets, organizational purchase decisions are made by a highly qualified buying center within a formalized procurement process based on rational factors. However, less rational factors like corporate reputations play a crucial role particularly in dynamic risk environments such as the professional services firm (PSF) sector. However, research is scarce on this specific field of business-to-business research. Moreover, existing PSF studies have primarily been focused on well established firms, whilst nowadays reputation research is more interesting to study from a nascent firms’ perspective. Because, these nascent, flexible and fast-moving entrants increasingly threaten — and sometimes even outperforms — established industry players. Therefore, this thesis explores how nascent PSFs manage to attract clients whilst lacking reputational resources.

The proposed theory extends research on corporate reputation by identifying different antecedents and related types of reputational constructs, and highlights the complex and non-deterministic nature of business-to-business procurement processes in this particular context. Related working propositions are examined mainly in an explorative manner in the marketing communications industry by examining how and why corporate reputation influences advertisers when considering partnerships with (nascent) advertising agencies. Ten Dutch marketing directors amongst the top 50 largest spending advertisers are sampled who recently initiated a formalized procurement process. This hard-to-access population was sampled through purposive self-selection sampling, interviewed using semi-structured qualitative interviewing techniques, and transcriptions were thematically analyzed using open-, axial-, and selective coding procedures.

Empirical findings suggest that: nascent PSFs can convince skeptical stakeholders that they fit with the industry norms and rules by utilizing uncertainty-reduction activities to compete with well-established firms; and/or that clients have the intrinsic motivation to proactively select nascent PSFs on the basis of its superior social ties; and/or that clients first evaluate the legitimacy and status of potential PSFs and these constructs differ from reputational evaluation which increases nascent PSF selection. Overall, findings suggest that reputation resides with the founding PSF partners, as these experts have substantial experience and/or understand client opportunities better than well-established PSFs. These and other conclusions corroborates and builds on prior research, and can be generalized mainly to similar buying situations in the PSF sector. 

Keywords: Corporate Reputation; Corporate Status; Corporate Legitimacy; Buying Center;

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VI. Executive summary

In a business-to-business context, the true qualities of organizations are often absent which makes the evaluation rely on indirect indicators of these qualities to reduce business risk and uncertainty, that is: corporate reputation (Fombrun & Shanley, 1990; Chandler et al., 2013). A favorable corporate reputation could create a competitive advantage and increases an organizations’ performance, survival chances, and business development (Fombrun & Shanley, 1996; Fombrun & Van Riel, 2004). From an academic

perspective however, unlike consumer research, reputation research on business-to-business settings still remains in its infancy (Walsch et al., 2015). Moreover, scholars (Greenwood et al., 2005; Walsch et al., 2015; Barnett & Pollock, 2012) recognize that reputation research is lacking in industries that rely on it most: the professional services sector. It is essential to this sector as professional services are perceived as a totally different purchasing situation compared to other business-to-business purchases, as it involves: higher levels of risk (West, 1997); something intangible which makes it hard to evaluate on purely rational criteria

(Nachum, 1996); and the services are often used to solve complex business issues which makes potential return on investment hard to evaluate (Sonmez & Moorhouse, 2010).

In the professional services sector, the accountancy-, consulting-, legal-, and architectural industries alone generated revenues of 1.6 trillion U.S. dollars and employed 15 million people globally in the year 2013 (Empson et al., 2015). Furthermore, professional services industries of all sorts are experiencing a vast growth in startup firms (Empson et al., 2015). However, existing reputation studies on professional services firms (PSFs) have primarily been focused on large established firms, whilst this thesis contends that

reputation research is more interesting to study from the perspective of newly emerging PSFs. Over the past decade, these new, flexible and fast-moving PSFs increasingly threaten established industry players

(Rugman, Verbeke & Nguyen, 2011), gain significant competitive advantage (Nordenflyght, 2010), and sometimes even outperform existing competition (Gompers & Lerner, 2001). Moreover, the corporate reputation of nascent PSFs depends on delivering high-quality services, but these firms need reputation to attract clients to deliver services in the first place (Lee, Pollock & Jin, 2011; Williamson, 2000; Pollock, Porac, & Wade, 2004). Therefore, investigating how nascent PSFs break this vicious circle by generating reputation early in an organizations’ life is considered by this thesis as fundamental to reputation- and management research. Thus, the following central focus question can be formulated: How do nascent professional services firms manage to attract clients whilst lacking reputational resources?

Corporate reputation is defined as “a relatively stable, issue specific, aggregate perceptual representation of a company’s past actions and future prospects compared against some standard.” (Walker, 2010) Although this definition highlights the paradoxical nature of this thesis as nascent PSFs do not have a pre-existing

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track-record, the literature review provided other perspectives on corporate reputation to possibly explain how nascent organizations break the vicious reputation cycle. On a more superficial level, scholars recognize that the corporate reputation of PSFs can be qualified in two respects, that is: the collective reputations of the firm itself and the reputation of the service provider interacting with clients (Ebbers & Wijnberg, 2010). Therefore, given that nascent PSFs are characterized by the people delivering the service (Sonmez & Moorhouse, 2010; Nordenflycht, 2010), reliance on executive reputation could explain how nascent firms manage to attract clients. Thus, executive reputation is one of the constructs taken into account by this thesis.

However, researchers argue that exploring corporate- and executive reputation alone might be a too simplistic view, as recently founded organizations signal other quality concepts such as corporate status (Stern et al., 2011). Corporate status is “an organizations’ position in a hierarchical order that reflects some diffuse sense of better or worse that is indirectly tied to past behaviors, but is more directly tied to the pattern of relations and affiliations in which the actor does and does not choose to engage.” (Poldony, 2005) The difference between the two constructs is that reputation is derived from the economic notion of perceived quality of current services based on the quality of past services, whereas status is used with a reference to the notion of rank or prominence which is not based on past performance (Rindova et al., 2005; Washington & Zajac, 2005). Therefore, given that the past performance of nascent PSFs is thin, corporate status could be an alternative for corporate reputation in explaining how nascent firms manage to attract clients by simply signaling (other) closely related (reputational) signals.

Moreover, how the constructs of corporate reputation and corporate status come together whilst evaluating organizations is investigated by some scholars. For example, Jensen and Roy (2008) found a sequential decision-making perspective that status is used to arrive at a “long-list” of alternative exchange partners which is then followed by corporate reputation to fine-tune the choice. Moreover, Bitektine (2011) complemented the research of Jensen and Roy (2008) and found that corporate legitimacy precedes corporate status in the sequential process of exchange partner selection. Corporate legitimacy is defined as “A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.” (Suchman,1995)

Considering the corporate legitimacy construct and its potential role in explaining how nascent PSFs manage to attract clients whilst lacking reputational resources, these insights suggest that when stakeholders assess and compare organizations, then legitimacy may develop from comparisons between organizations that engender appreciation, admiration, trust and respect of one company over another and so build reputation (Suchman,1995; Rindova & Fombrun 1999). As this thesis seeks to contribute to organizational- and

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management research by exploring the reputational beliefs rendered by decision-makers with respect to the social properties of nascent PSFs, it is worthwhile to include these related constructs that might influence this decision-making process.

Another possible alternative in explaining how nascent PSFs manage to attract clients is examining the phenomenon from the reputation-holders’- as opposed to the beholders’ point of view. Insights from this perspective lends support to the notion that the stakeholders’ uncertainty and risk perception can be reduced by the holder through the utilization uncertainty-reduction activities, these are:

reputation-borrowing (Pollock & Jin, 2011), reputation-building (Petkova, Rindova & Gupta, 2008); and reputation by endowment (Pollock, Fund & Baker, 2009). In other words, insights as such suggest that nascent PSFs could convince potential skeptical clients by utilizing various uncertainty-reduction strategies. However, although these studies demonstrate that a new organization can utilize strategies to persuade various stakeholder groups, little is known about how stakeholders process such signals and come to shared beliefs that an organization possesses a desirable set of (reputational) qualities. Moreover, none of these studies focused on clients evaluating nascent PSFs in particular. Therefore, the possibility that nascent PSFs are able to alter their reputation through uncertainty-reduction activities are considered whilst exploring the central focus question.

Throughout the literature study, four propositions have been formulated for primary research. As this thesis investigated an under-explored phenomenon at a particular point in time, by asking ‘why' and ‘how’

organizations make decisions, it made this thesis a cross sectional exploratory study. From the deductive-inductive theory perspective, Grounded Theory is applied as this thesis started with an initial conceptual framework, and theory is further build throughout the research process resulting in a new conceptual model. Because corporate reputation and related constructs are not objectively given and measurable, and literature is scarce on nascent PSF evaluation, a qualitative methodology is used instead of a quantitative approach. Furthermore, these constructs are heavily influenced by the context of information exchange, including the attitudes of the decision-makers, previous interactions, and characteristics of the business environment. Therefore, a qualitative approach was deemed as an effective way to allow rich insights to emerge whilst exploring the central focus question and related working propositions.

The context within which the central focus question and propositions were investigated is the Marketing Communications Industry (MCI). The purpose of the MCI is to enable advertisers to communicate effectively and efficiently with their target audiences to acquire sustainable competitive advantage (Fill, 2011, p. 165). The focus of this thesis is on the business relationship between the advertising agency and the advertiser, as

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essentially the advertiser is the client of an advertising agency as it appoints an agency to provide professional services. In the context of this study, this meant that (nascent) agencies are the reputation-holder, and the advertiser is the reputation-beholder or evaluator. In-depth face-to-face and telephone interviews are conducted with ten Marketing Directors for at least 40 minutes, these participants initiated a tender-process recently to employ a (nascent) advertising agency. Due to the competitive realities of the MCI, the marketing director is constantly forced to develop new relationships with its advertising agencies and in the meantime, extend existing relationships. Therefore, the individual most likely to provide detailed and rich insights into the selection process of (nascent) advertising agencies is considered to be the marketing director. Through purposive self-selecting sampling, this hard-to-access population was sampled until data saturation point was reached. Based on other qualitative studies on PSFs (Turnbull, 2014; West, 1997; Farell & Schroder, 1996), this point of meaningful data was reached around eight in-depth semi-structured qualitative interviews. The interview transcripts were thematically analyzed using open-, axial- and selective coding, whereas the translated verbatim quotes were send to the participants to check for factual accuracy and meaning.

Empirical findings on the investigated working propositions suggest that nascent PSFs can convince skeptical stakeholders that they fit with the industry norms and rules by utilizing uncertainty-reduction

activities to compete with well-established firms, and/or that clients have the intrinsic motivation to proactively select a nascent PSF on the basis of its superior social ties. The importance of these findings are that it corroborates prior research that not only nascent organizations but also nascent PSFs in particular utilize reputational strategies to convince various stakeholder groups. Thus, also in a business-to-business professional services context, decision-makers form perceptions on positive signals which ultimately constitute the evaluative dimensions of reputation. This thesis contends that PSFs benefit most of all business-to-business and business-to-consumer situations through the utilization of uncertainty-reduction activities because of: the intangibility of the services; the degree of uncertainty; and amount of risk involved. Additional significant findings are the strong internal motives of clients to hire nascent PSFs. Not only are nascent PSFs perceived as being more dedicated, strategic, and creative in providing client solutions, but also capable in bundling capabilities with other PSFs for individual client needs. In other words, nascent PSFs are chosen because of its dedicated teams and greater degree of open-sourcing of talent and

capability. However, decision-makers do not only have to know about the nascent PSF existence, and being convinced of its capability to deliver services of certain value and quality, but also have the need to perceive a fully developed functional structure so it assures decision-makers that the nascent firm is indeed a “real organization” that fits with industry practices.

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Thus, where historically business was straightforward as clients hired PSFs to create solutions for problems in a rather stable environment, nowadays clients seek radically different ways from PSF support groups to maintain competitive advantage in high-velocity environments. On the one hand, well-established firms are needed for capacity and scope, whilst nascent firms are defending their competitive positions by staying relative agile and doing innovative advancements by specializing in particular fields of interest. Thus, some clients will build a combination of nascent and well-established PSFs around them in a flexible network, and orchestrates the activities themselves, whereas others reject risk by assigning a leading PSF with a bunch of nascent PSFs attached to it. The central focus question is answered satisfactory as this thesis provided insight into issues like, why a nascent PSFs happens to be selected and what these firms can do to become selected. The findings of this qualitative study can be tested by further research through a quantitative methodology across PSF industries and beyond geographical boundaries by numerical data. The same methodology can be used to measure the factors that explain the varying effectiveness of: different reputation-building strategies; and/or the special skills and capabilities needed for the implementation of a reputation-building strategies by nascent entrepreneurial firms; and/or the different functional backgrounds and industries of the founders that affect their reputation-building strategies. In terms of further qualitative research, researchers can complement this study by investigating: how these (nascent) PSF support groups are/can be structured and utilized by clients in efficient ways and how nascent firms can increase their stake in this network; and/or why some entrepreneurs engage in reputation-building efforts earlier than others in the industry; and/or investigate what the role of reputation is in relationship- maintenance and -termination decision-making processes towards nascent and/or established firms.

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VII.

Chapter 1: Theoretical introduction

When an organization succeeds to implement a strategy of value creation that is not possessed by others in the market place or industry it achieves a competitive advantage (Porter, 1996). The theory of strategic management suggests that a favorable corporate reputation can create a competitive advantage and increases an organizations’ competitive performance, survival chances, and business development

(Fombrun & Shanley, 1996; Fombrun & Van Riel, 2004). Scholars identify corporate reputation as a strategic intangible asset particularly valuable from a reputation-holders’ point of view (Barney, 1996; Grant, 1991; Rindova et al., 2006). The reputation-holder might utilize various uncertainty-reduction activities in order to attract stakeholders, particularly organizations that are in its infancy to influence the formation of reputational beliefs by the beholder (Lee, Pollock & Jin, 2011; Petkova, Rindova & Gupta, 2008; Pollock, Fund & Baker, 2009). This thesis aims to look at corporate reputation when the reputation-holder is judged by an external decision-maker to enter a business relationship.

The knowledge-based economy is characterized by high-velocity environments in which intellectual strategic decision are made at a fast pace by skilled professionals to reach organizational goals (Stern, Dukerich, & Zajac, 2014; Andersen & Sørensen, 1999). In order sustain strategic goals in environments as such, it increasingly calls for constant network collaboration, configuration, and partner evaluation (Andersen & Sørensen, 1999; Stern, Dukerich, & Zajac, 2014). One instance of coupled business networks concerns the employment of professional services firms (PSFs). Pre-existing external points of reference for evaluating collaborative PSFs about the true qualities are often absent, which makes organizations rely on other indirect indicators of these qualities (Fombrun & Shanley, 1990). Corporate reputation is defined as one of the main indirect indicators to reduce business risk and uncertainty (Fombrun & Shanley, 1990; Chandler et al., 2013; Fombrun & Van Riel, 2006). Therefore, researchers note that investigating reputation within the professional services sector is vital because reputation serves as a social signal in a client market that is known for its uncertainty, risk, and information asymmetry (Greenwood, Parkash, & Deephouse, 2005; Walsch et al., 2015; Barnett & Pollock, 2012). However, to date, not much reputation research is done in a business-to-business context (Walsch et al., 2015), let alone what the reputational effects are whilst clients evaluate PSFs as a potential exchange partner.

In the 90s, the PSFs sector has emerged as one of the most significant, rapidly growing, and profitable sectors in the global economy (Nordenflyght, 2010). The accountancy-, consulting-, legal-, and architectural industries alone generated revenues of 1.6 trillion U.S. dollars and employed 15 million people globally in the year 2013 (Empson et al., 2015). Despite of the significance of this sector, reputation research on PSFs have until recently remained very much in the shadows (Barnett & Pollock, 2012). Moreover, existing reputation

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studies on PSFs have primarily been focused on well-established firms, whilst reputation research might be more interesting to study from a recently founded PSFs’ perspective. Because, these new, flexible and fast-moving entrants increasingly threaten established industry players and sometimes even outperform existing competition (Rugman, Verbeke & Nguyen 2010; Nordenflyght, 2010; Gompers & Lerner, 2001). Investigating how reputation is managed by nascent PSFs is important because its reputation depends on delivering high-quality services, but these organizations need reputation to attract stakeholders to deliver services in the first place (Lee, Pollock & Jin, 2011; Williamson, 2000; Pollock, Porac, & Wade, 2004). Therefore, investigating how nascent PSFs break this vicious circle by generating reputation early in an organizations’ life is considered by this thesis as fundamental to reputation- and management research, yet few studies have addressed this question directly.

Corporate reputation is defined as “a relatively stable, issue specific, aggregate perceptual representation of a company’s past actions and future prospects compared against some standard.” (Walker, 2010) Although this definition highlights the paradoxical nature of this thesis as nascent PSFs do not have a pre-existing track-record, the literature review provided other perspectives on corporate reputation to possibly explain how nascent organizations break their vicious reputation cycle. On a more superficial level, scholars recognize that the corporate reputation of PSFs can be qualified in two respects, that is: the collective reputations of the firm itself and the reputation of the service provider interacting with clients (Ebbers & Wijnberg, 2010). Therefore, given that nascent PSFs are characterized by the people delivering the service (Sonmez & Moorhouse, 2010; Nordenflycht, 2010), reliance on executive reputation could explain how nascent firms manage to attract clients. Additionally, corporate reputation is considered as a dynamic multidimensional construct formed by an organizations’ past actions, whilst having a few closely related constructs such as e.g. ‘corporate identity’ and ‘corporate status’ (Fombrun & Shanley, 1990; Dollinger et al., 1997). Insights as such suggest that exploring corporate reputation can be a complex exercise. Furthermore, corporate reputation contains a variety of different underlying dimensions and attributes, and can be

categorized in three groups: functional reputation (e.g., competence and success factors), expressive reputation (e.g., attractiveness and uniqueness factors), and social reputation (e.g., integrity and

responsibility factors) (Fombrun & Van Riel, 1997; Abrahamson & Fombrun; Eisenegger 2008). Within these categories, each dimension has a variety of attributes that are helpful for operationalization, yet there is no validated research to date on the underlying attributes and dimensions that come into play when nascent PSFs are evaluated by potential clients. This lack of measurement scales might explain the slow uptake of literature on reputational studies from a business-to-business professional services perspective, and/or the amount of qualitative studies on recently founded organizations.

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A few qualitative studies attempted to explain how startup firms manage to attract clients whilst lacking reputational resources. For example, researchers argue that exploring corporate reputation in the context of recently founded organizations might be a too simplistic view, as these organizations signal other quality concepts such as status (Stern et al., 2011). Similarly, other scholars found that nascent firms could rely on corporate status and legitimacy as indirect indicators of quality as these constructs are more easier “earned”| than reputation (Poldony, 2006; Washington & Zajac, 2005; Bitektine, 2011). Moreover, researchers found a sequential decision-making perspective that a new organization must first be seen as a legitimate market participant before stakeholders begin to evaluate the firm in terms on status beliefs (Jensen & Roy, 2008). As this thesis seeks to contribute to organizational- and management research by exploring the reputational beliefs rendered by decision-makers with respect to the social properties of nascent PSFs, it is worthwhile to include related constructs that might influence this decision-making process.

Another possible alternative in explaining how nascent PSFs manage to attract clients is examining the phenomenon from the reputation-holders’- as opposed to the beholders’ point of view. Insights from this perspective lends support to the notion that the stakeholders uncertainty and risk perceptions can be reduced by the holder through the utilization uncertainty-reduction activities, these are: reputation-borrowing (i.e. through affiliations with established industry players) (Gulati & Higgins, 2003; Lee, Pollock & Jin, 2011; Pollock et al. 2010, Reuber & Fisher, 2005; Pollock & Gulati, 2007; Stuart, 2000; Stuart, Hoang & Hybels, 1999), reputation-building (i.e. changing the attitude of stakeholders by coherent and consistent positive signals) (Fisher & Reuber, 2007; Petkova, Rindova & Gupta, 2008; Rao, 1994; Rindova, Petkova & Kotha, 2007); and reputation-by-endowment (i.e. reputation given by the employees, founders, and/or celebrity CEO) (Beckman, Burton & O’Reilly, 2007; Beckman & Burton, 2008; Pollock, Fund & Baker, 2009). However, although these studies demonstrate that a new organization can utilize strategies to persuade various stakeholder groups, little is known about how stakeholders process such signals and come to shared beliefs that an organization possesses a desirable set of (reputational) qualities. Moreover, none of these studies focused on clients evaluating nascent PSFs in particular. Therefore, the possibility that nascent PSFs are able to proactively alter their reputation through uncertainty-reduction activities will be considered whilst exploring the central focus question.

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Concluding, along with the increasing complexity of conducting business in the knowledge-abased economy, the issue of corporate reputation in relation to inter-organizational collaboration grows in importance. The importance of a favorable corporate reputation arises from the fact that it signals value and trust regarding a PSFs’ competence at times when there is information asymmetry, risk, and uncertainty. However, corporate reputation and related constructs are not objectively given and measurable, as these concepts are heavily influenced by the context of information exchange, including: the attitudes of the decision-makers; previous interactions; and characteristics of the business environment. Therefore, given the limited insights on how nascent PSFs accumulate reputation early in its life, the following central focus question (CFQ) is formulated: ’How do nascent professional services firms manage to attract clients whilst lacking reputational resources?’. In order to make this CFQ manageable for literature study, the following set of research subquestions are formulated:  

1) How are organizational decisions made, and what type of collaboration networks are possible between clients and nascent professional services firms? 

2) What is corporate reputation, and to what extent do clients rely on different reputational dimensions whilst evaluation nascent professional services firms? 

3) To what extent can nascent professional services firms alter their reputation in order to be perceived as reputable by potential clients?

4) How does corporate legitimacy and -status increases the chances of nascent professional services firms in being selected by clients?

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Chapter 2: Literature review

This thesis seeks to contribute to organizational-, reputation- and management research by exploring corporate reputation that organizational decision-makers can render with respect to the social properties of recently founded professional services firms (PSFs). In other words, this thesis aims to answer the

formulated central focus question: ‘How do nascent professional services firms manage to attract clients whilst lacking reputational resources?’. The first part of this chapter sets the context of this study as it describes PSFs, its importance to other clients, the types of organizational relationships that exists between the two, and how buying or collaboration decisions are made. The literature review continuous by exploring the limited corporate reputation domain in an organizational collaboration context. The third part explores reputation strategies that nascent PSFs might utilize to attract various stakeholders, whereas the last section explores the corporate- legitimacy and -status constructs. A related working proposition is presented in each section, which eventually leads to a literature conclusion at the end of the chapter for primary research.

2.1. Interorganizational collaboration with professional services firms

This section starts by exploring the subquestion ‘How are organizational decisions made, and what type of collaboration networks are possible between clients and nascent PSFs?’. In contrast to generic services such as cleaning and secretarial services, PSFs includes far higher purchasing risks and costs and are typically characterized by having substantial indirect effects on the functioning of other organizations (West, 1997; Nachum, 1996; Sonmez & Moorhouse, 2010). Nordenflycht (2010) identified three characteristics that differentiates PSFs from generic services, these are: knowledge intensity, low capital intensity, and

professionalized workforce. Similarly, Sonmez and Moorhouse (2010) highlight that PSFs solve complex business issues and realize value opportunities through a mastered expertise. However, because various PSFs are defined by these characteristics (e.g., accounting, legal, consultancy, and advertising), it makes PSFs a large and heterogenous group and limits the ability to generalize (Nachum, 1996). Thus, not only will the decision-making towards PSFs be different than generic services, also within the professional services sector the decision-making could vary considerably.

2.1.1. Types of networks and relationships with (nascent) professional services firms The form of relationship between organizations follows from the type of network by which these

organizations are defined (Hooley, 2012, p. 424). The work of Cravens et al. (1996) is broadly accepted by other scholars, and identifies four types of networks based on the intensity of the environmental vitality and whether relationships are collaborative or transactional. Within these networks, various types of relationships are possible with PSFs. ’Outsourcing’ is described as an arm’s length relationship where an organization simply purchases services from a partner as the alternative to buying them internally (Hooley et al.,2012, p.

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425), whereas ‘partnerships’ involve a close relationship with combined capabilities to increases ones value creation (Lambert, Emmelhainzm, & Gardner, 1996; Taylor, 2005). There are opposing stances in the literature on which forms of networks and relationships are applicable to PSFs (e.g., Hooley et al.,2012, p. 425; Lambert et. al.1996; Taylor, 2005) due to the heterogenous nature of the PSF sector.

2.1.2. Organizational decision-making towards (nascent) professional services firms selection  Many characteristics associated with consumer decision-making can be observed in organizations as well (Fill, 2011, p. 67-79). However, organizational decision-makers make more complex decisions that contribute to corporate objectives (Jobber & Lancaster, 2012, p. 104-110). Various researchers aimed to make

organizational decision-making understandable by illustrating how the groups of variables relate and influence each other. Adapting Fisher's (1976) decision-making theory, which have been validated widely (e.g., Jobber & Lancaster, 2012, p. 104-110; Fill, 2011, p. 77-79; Solomon et al., 2012, p. 194-195), the sets of interrelated variables can be classified in three broad elements: process, structure, and content.

Firstly, the process element describes the ‘how’ factor which refers to the procedure or process used to make the actual decision (Fill, 2011, p. 77-79). There are a broad number of ways in which the decision-making process itself may be conceptualized, but essentially the decision-makers move from a position of being unaware of the problem to being convinced that a PSFs’ services are the most appropriate to the clients’ needs (Jobber & lancaster, 2012, p. 75). Secondly, the structure element refers to the ‘who’ factor and involves a selected group of individuals that are dedicated to make a decision through a systematic process (Solomon et al., 2012, p. 194-195). However, leading organizational behavior scholars recognize that group behavior is actual individual behavior as only an individual as a member of a group can analyze a situation and make a decision (Webster & Wind, 1972). Additionally, scholars are of the opinion that an individual cannot make decisions value free, because he/she is bounded by the ability to process all the information (March, 1978; Shavit & Adam, 2011). Moreover, intuitive decision-making is described as a third type of decision-making that builds on the notion that a manager makes decisions on the basis of experience, feelings, thinking, subconscious processing and social judgements (Smith & Shefy, 2007; Evans, 2010). Lastly, the ‘content’ element describes factors that influence the individual in the decision-making process (Jobber & Lancaster, 2012, p. 104-110). Although there are numerous factors that might influence the decision-making process, the scope of this thesis is on reputational- and related factors when clients select nascent PSFs for collaboration.

Concluding, nascent PSFs, and PSFs in general, have substantial indirect effects on the functioning of clients. Through their delivery of intermediate services, PSFs provide customized solutions through an

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experienced workforce to solve complex business issues. This large and heterogeneous group of PSFs operating in different industries and environmental vitality, results in various types of relationship networks. Regardless of the type of PSF, collaborative network, or preferred relationship, three broad decision-making elements are needed to make the procurement decision. Important findings are that a sequential decision-making process exists in which organizational decision-makers rely on corporate reputation. It is expected that the type of network and relationship aimed for by clients influences also the degree to which there will be relied on reputational factors. In other words, the task situation of the client is likely to affect the degree of risk and thus the amount of reliance on reputational signals. However, uncertainties derive from how these findings apply to nascent PSFs in particular. Therefore, the first working proposition is formulated as follows: '1) Clients with a relatively high task importance are less likely to select nascent professional services firms to collaborate with.’. Exploring this working proposition might confirm or otherwise reject the assumption whether nascent firms truly outperforms well established competition at the same collaborative level.

2.2. Corporate reputation

This section investigates the ‘content element’ of the decision-making process — that is — corporate reputation by answering the subquestion: ‘What is corporate reputation, and to what extent do clients rely on different reputational dimensions whilst evaluation nascent PSFs?’. It was found that the word reputation originates from the Old French noun ‘reputer’, or directly from Latin ‘reputationem’, which means ‘thinking over’ or ‘reflect upon’ (Fombrun & Van Riel, 1997; Barnett, Jermier, & Lafferty, 2006). Bevis (1967) defines reputation as “The net result of the interaction of all the experiences, impressions, beliefs, feelings and knowledge that people have.” (as cited by Fombrun & Van Riel, 1997). In this sense, people as well all businesses have reputations. Within the marketing domain, Fombrun and Rindova (1996) define brand reputation as “a collective representation of a brand’s past actions and results that describes the brand’s ability to deliver valued outcomes to multiple stakeholders.’’ Others define brand reputation as “consumer’s subjective evaluation of the perceived quality of the brand.” (Rhee & Haunschild, 2006). Whilst some marketing practitioners confusional use corporate reputation, brand image and brand identity as synonyms (Chun, 2005), other scholars illustrate that reputation clearly differs from these other constructs even though some underlying dimensions overlap (Walker, 2010; Duncan & Mariarty, 1997; Duncan & Mariarty, 1997). Concluding, reputation is defined as a collective representation of a brand’s past actions based on subjective evaluation of the perceived qualities of a brand. However, scholars have contending stances whilst

investigating e.g. reputation, brand image and brand identity which challenges the factual accuracy of reputational findings. This discussion on ‘reputation’ will inevitably migrates to ‘corporate reputation’ in the business-to-business context, because business evaluations are proven to be more thorough and complex than consumer evaluation.

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2.2.1. Corporate reputation

Corporate reputation is seen as one of the most vital intangible organizational assets, as it enables organizations to: find financial investors and charge premium prices (Fombrun & Shanley, 1990); attract talented employees from the labor market (Hannon & Milkovich, 1996); and accelerate access to particular markets (Rindova, Greenbaum & Martin, 2015). The most widely accepted definition on corporate reputation is “a collective representation of a firm’s past actions and results that describe the firm’s ability to deliver valued outcomes to multiple stakeholders.”(Fombrun, 1996) A more recent definition by Walker (2010) is also well recognized: “corporate reputation is a relatively stable, issue specific aggregate perceptual

representation of a company’s past actions and future prospects compared against some standard.” Although there is an overall lack of reputation research in a business-to-business context, it can be concluded that corporate reputation is: based on the aggregate perception of stakeholders; comparative; favorable or unfavorable; relatively stable and enduring; and issue/stakeholder specific (Walker, 2010; Fombrun, 1996). Particularly the findings of Rindova et al. (2015) suggest that corporate reputation is a valuable asset for an organization to quickly go to market, which confirms the suspicion that reputation is the main factor behind the success of nascent PSFs.

Barnett and Pollock (2012) confirms the observation that there is no consensus building amongst scholars when it comes to corporate reputation and related constructs. This because several theoretical frameworks have driven the conceptual thinking on corporate reputation, these are: Institutional Theory (Suchman, 1995), Agenda-Setting Theory (Wartick, 2002), Stakeholder Theory (Freeman, 1984), Signaling Theory (Weigelt & Camerer, 1988), Identity Theory (Albert & Whetten, 1985), Resource Based Theory (Barney, 1996), Game Theory (Milgrom & Roberts, 1982), and Social Construction Theory (Rindova & Fombrun, 1999). In the context of PSFs, researchers particularly note the importance of signaling theory (Glucker & Armbruster, 2003; Barnett & Pollock, 2012). The notion of signaling theory is the efforts companies make to influence their stakeholders to build rapport and trust for their initiatives and interests (Barnett & Pollock, 2012). In contrast to the lack of consensus on conceptual thinking on corporate reputation, scholars do agree that corporate reputation evaluation is influenced by three key sources: 1) personal experiences by the beholder; 3) communication by the reputation holder; and 3) influential coverage from objective third-parties (Hatch 2005; Keller, 1998; Barnett et al., 2006; Fombrun, 1996; Klewes & Wreschniok, 2009).

2.2.2. Dimensions of corporate reputation

When it comes to the underlying dimensions of corporate reputation, a discrepancy exists between the theoretical perspective and its operationalization because the aggregated perception of al stakeholders

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cannot be measured in a single paper alone. Therefore, researchers (Walker, 2010; Barnett et al., 2006; Lewellyn, 2002) suggest that corporate reputation must always be specified to a specific issue- and stakeholder group before the underlying dimensions can be explored. Moreover, scholars argue that specifying the stakeholder group and issue will also help to bring clarity to other closely related constructs such as corporate identity and corporate brand image (Lewellyn, 2002). Nonetheless, in general, the

underlying dimensions of corporate reputation can be categorized in three groups (Eisenegger, 2008), these are 1) ’functional reputation’ relates to the performance goals of the organization based on a set of cognitive and rational objective factors such as ‘products and services’, ‘innovation’, and ‘financial performance’; 2) ’expressive reputation’ refers to the emotional attractiveness of organizations’ character and according to how unique they appear based on ‘emotional appeal’ and ‘vision and leadership’; and 3) ‘social reputation’ describes to what extent organizations are responsible based on ethical social norms such as ‘corporate governance’, and ’workplace and ‘citizenship’ (Fombrun & Van Riel, 1997; Abrahamson & Fombrun). Each dimension has a variety of attributes that are helpful for operationalization, however reputation studies must always be issue- and stakeholder specific. Therefore, these dimensions may not reflect the decision-makers perception when deciding to collaborate with recently founded professional service firms. In the context of this thesis, the first scale developed to measure clients’ reputational perceptions towards PSFs is developed by Walsch, Beatty and Holloway (2015).

2.2.3. The importance of corporate reputation to (nascent) professional services firms

The PSF sector is a sector where corporate reputation is of significant importance (Walsch et al., 2015; Barnett & Pollock, 2012). A favorable reputation is needed for the long-term success of PSFs because it reduces information asymmetries, and allows these firms to build strong and enduring social networks with clients to “secure” future projects (Starbuck, 1992; Greenwood et al., 2005). Additionally, the judgment about customized-knowledge-production-quality will require more than technical- and product quality features (Walsch et al., 2015; Greenwood et al., 2005). For that reason, business economics call the services of knowledge-based organizations “credence goods”, meaning that these goods are also bought on faith or belief — in other words — on reputation (Feser & Proeger, 2015). The construct of corporate reputation of a PSFs can be qualified in two respects, the reputation of the service provider at the forefront of the service firm interacting with clients, and the collective reputations of the service firm itself (Wijnberg, 2010; Gardner, Anand & Morris, 2008). Thus, it is expected that personal experience and competence is one of the most significant sources of corporate reputation to nascent PSFs, since much of the work is embedded in the professional staff and delivered through interaction with clients.

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2.2.4. Executive reputation

It is hard to isolate executive reputation from the collective reputation of PSFs because a spillover-effect occurs (Keller, 1998). For a number of reasons, evaluating the qualities of an executive is difficult at any given point in time. Firstly, executive reputation is loosely coupled with organizational performance unlike the collective organizational reputation (March 1978). Secondly, organizational performance is a team-effort, thus most performances are not owing to executive quality (Hambrick & Mason, 1984). Third, scholars suggest that executives may have only a limited impact on the actual organization-level outcomes as the successes may be attributable to past decisions made by former executives (Pfeffer & Salancik, 1978). However a decision-maker may not consider these reasons and attribute these successes to the nascent PSF executives.

Concluding, the slow uptake of reputation studies is due to the variety of theoretical frameworks that have driven corporate reputation so far, and scholars may not distinguish corporate reputation from corporate identity and corporate image clearly. Based on an extensive corporate reputation review of 48 articles and books, Barnet et al. (2006) illustrates that the construct of ‘corporate reputation’ clearly follows from

‘corporate image’ and ‘corporate identity’ whilst having similar antecedents. Still, in terms of antecedents and underlying dimensions, it remains unclear which reputational dimensions are decisive when nascent PSFs are evaluated. It is expected that executive reputation is most decisive for nascent PSFs in being selected because executives operate at the forefront of the organization and build reputation through social

interaction and expressive signals. Moreover, since nascent PSFs by definition lack a performance track-record and tangible products and services, it is expected that nascent PSFs benefit from expressive- and social- reputational dimensions primarily. Therefore the second working proposition is formulated as follows: ‘2) ‘Clients rely more heavily on expressive- and social- reputational dimensions than on functional

reputational dimensions whilst evaluating nascent professional services firms.’. Exploring this working proposition will provide a further understanding of the sources, antecedents, and underlying dimensions of corporate reputation and related forms of social judgements that organizational decision-makers could render with respect to the social properties of nascent PSFs.

2.3. Corporate reputational strategies

This section explores the reputational signals that nascent PSFs could utilize to influence the decision-makers perception by answering the subquestion: ‘To what extent can nascent professional services firms alter their reputation in order to be perceived as reputable by potential clients?’. In the context of recently founded organizations, scholars found three reputational strategies that these organizations utilize to attract stakeholders, these are: reputation-borrowing (Pollock et al. 2010, Reuber & Fisher 2005; Stuart, Hoang &

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Hybels, 1999), reputation-building (Fisher & Reuber, 2007; Petkova, Rindova & Gupta, 2008; Rao, 1994); and reputation endowment (Beckman, Burton, & O’Reilly, 2007; Beckman & Burton, 2008; Pollock, Fund & Baker, 2009). These reputational strategies will be explored in-depth in the upcoming paragraphs.

2.3.1. Reputation-borrowing strategies

Nascent organizations that affiliate with established organizations refers to the reputation-borrowing strategy. Reputation-borrowing might stem from alliance partners (Gulati & Higgins, 2003; Stuart et al., 1999),

customers or clients (Reuber & Fischer, 2005), capital investors (Lee et al., 2011; Pollock et al. 2010), and investment banks (Pollock et al., 2010). When reputation is borrowed, a reputation spillover effect occurs between the two actors (Lee et al., 2011). From the reputation beholder point of view, prestigious affiliations are perceived as knowledgeable and capable for evaluating a nascent organizations’ qualities and potential (Gulati & Higgins, 2003; Stuart, 2000). For example, Stuart et al. (1999) found that biotechnology start-ups with high reputable partners receive higher market valuations from the market. Additionally, the findings of Gulati and Higgins (2003) suggests that endorsements by different third parties signals different reputational values. Other studies complemented this research and found that effects of industry specializations and geographic proximity are independent of reputation, and affiliation with prestigious customers are important under high purchase complexity (Reuber & Fisher 2005).

2.3.2. Reputation-building strategies

Reputation-building studies recognize that most organizational strategies used by established organizations do not apply to recently founded organizations (Petkova et al., 2008; Rindova et al., 2007). Nascent

organizations proactively change the attitude of stakeholders by coherent and consistent positive signals, such as: victories in industry contests (Rao, 1994); product awards (Reuber & Fisher, 2007); innovations (Rindova et al., 2007); investments in human capital (Petkova et al., 2008); and symbolic activities (Petkova, Ringdove, Gupta, 2008). Through these visible actions, a recently founded organization can signal quality and potential to various stakeholders and by doing so establish credibility (Petkova et al., 2008; Rao, 1994). The reputation-building perspective attributes a major role to objective third parties, such as the media and industry analysts, who bring nascent organizations to the focal attention of large stakeholder audiences (Kennedy, 2008).

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2.3.3. The reputation-by-endowment strategies

Reputation-endowment is seen as a nascent firms’ access to resources through the experience and reputation given by the employees, founders, or (celebrity) CEO (Beckman et al., 2007; Sanders & Boivie, 2004). Reputation-endowment reduces uncertainty by ensuring that the organization possesses the

necessary expertise, work experience, and entrepreneurial successes (Pollock et al., 2009). Furthermore, it was found that high performing new firms are characterized by broadly experienced (Sanders & Boivie, 2004), functional diversified (Beckman et al., 2007), and charismatic leadership (Burton, Sorensen & Beckham, 2002). However, despite much progress, reputation-by-endowment studies remains in the early stages and makes it particularly hard to draw conclusions on nascent PSFs. Particularly because a nascent organization is often started by multiple individuals with different accumulated reputations, it makes it difficult and arbitrary to determine whose reputation the firm represents (Petkova, 2006). Nonetheless, reputation-by-endowment appears to be an effective strategy to apply by nascent PSFs as these firms are characterized by a professional workforce that hold strong personal networks (Gardner et al. 2008; Malhorta et al. 2010). Moreover, as scholars point out, clients can be seen as both external and internal stakeholders as they can both create and evaluate reputational signals whist interaction with PSFs during the decision-making process (Gray & Balmer, 1998; Glucker & Armbruster, 2003). This makes reputation-by-endowment strategies

particularly hard to measure.

Concluding, the emerging studies on reputational strategies clearly illustrates how nascent organizations break their vicious reputation cycle by changing stakeholder perceptions. Reputation-borrowing is properly named after the strategy when nascent firms affiliate with prestigious industry player, whereas reputation-building strategies is characterized by changing the attitude of stakeholders by coherent and consistent positive signals. Thirdly, reputation-by-endowment is seen as a new firms’ access to resources through the experience and reputation given by the employees, founders, or (celebrity) CEO. Additionally, it was found that endorsements by different third parties provides different reputational values for the nascent firms, and affiliation with prestigious customers regardless of industry specialization and geographic proximity are important under high purchase complexity. However, it remains unclear which strategies are utilized by nascent PSFs and how the results of these strategies truly influence client perceptions. Considering the importance of individual employees to PSFs, and the high degree of uncertainty when collaborating with nascent PSFs, it is expected that reputation endowment strategies are most influential of the three. Thus, the third working proposition is formulated as: ‘3) Clients are primarily persuaded by endowment- rather than reputation-borrowing- and building strategies whilst evaluating nascent PSFs.’. Exploring this working proposition will provide more insight into issues like, why a nascent PSFs happens to be selected and, more importantly, what exactly such a PSF can do to become selected have received little attention.

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2.4. Corporate reputation, status, and legitimacy

This section explores how related types of social judgement influences the decision-making process of clients by answering the subquestion: ‘How does corporate legitimacy and -status increases the chances of nascent PSFs in being selected by clients?’. The previous sections on reputational strategies provided some insights into related forms of social judgement linked to corporate reputation, as for example Stern et al. (2011) agree that solely exploring corporate reputation in the context of nascent organizations is a too simplistic view on the performance of these firms. Additionally, Barnett et al. (2006) illustrate that the corporate reputation construct clearly follows from other constructs whilst also having similar antecedents and overlapping underlying dimensions with closely related constructs. This makes it worthwhile to dedicate the remainder of this literature review to exploring what the independent and interdependent effects of these constructs are on the decision-making process towards nascent PSFs. 

2.4.1. Corporate status

The concept of status originates back to the work of Max Weber, who defined status as “an effective claim to social esteem in terms of positive and negative privileges.” (Weber, 1956) Weber (1956) made a clear distinction between class and status as he explained that people could have a high social status despite being in a low economic class or vice versa. A more recent and well recognized definition on status is that of Washington and Zajac (2005): “status is socially constructed, intersubjectively agreed-upon and accepted ordering or ranking of individuals in a social system.” According to Burris (2004), a characteristic of status structuring is the ‘mechanism of social closure’, which means that an actor's performance on a given status level is not a guarantee to enter a higher status group. Rather, the status position of an actor is established through behavioral “negotiations” with other actors (Berger et al., 1998). Thus, status is socially constructed and often negotiated by actors before acceptance is achieved towards a certain or rank or level.

Similar to social status, organizational scholars see corporate status as socially and culturally determined rather than economically (Elsbach & Kramer, 1996; Podolny, 1994). Jensen and Roy (2008) define corporate status as “prestige accorded firms because of the hierarchical position they occupy in a social structure.” Likewise, Bothner, Coward, and Lee (2010) define status as “a zero-sum intangible asset possessed by social actors insofar as they are highly regarded by highly-regarded others.” A more comprehensive

definition on status is that of Poldony (2005) as he hold status as “an organizations’ position in a hierarchical order that reflects some diffuse sense of better or worse that is indirectly tied to past behaviors, but is more directly tied to the pattern of relations and affiliations in which the actor does and does not choose to

engage.” Essentially, what these definitions suggest is that status could be considered as: 1) the outcome of the relations and associations organizations have with other firms (Poldony, 2005); 2) a zero-sum game

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meaning that one organization cannot increase its status without one or more other actors losing status (Bothner, at al., 2010); and 3) that high status organizations are likely to collaborate with other high status organizations (Jensen and Roy, 2008). 

A common theme in the literature is that corporate status is determined by the network position and the patterns of associations a firm has with other high-status organizations (Dimoc, Shepherd & Sutcliffe, 2006; Washington & Zajac, 2005). For example, Washington and Zajac (2005) investigated the pattern of

associations in the form of the number of games a sports team played against high- and low status opponents, and found that playing against high-status opponents is likely to increase a sports team status and hence its probability to being invited to a higher league. Additionally, Stern et al. (2014) found that an organizations’ status is not only dependent on the associations with similar organizations, but also on close ties with a high-status organization from a totally different industry — such as customers or clients. In the context of this thesis, these findings suggests that a high-status or reputable client would indeed increase a recently founded PSFs’ reputation. Moreover, these findings are in line with the reputation-borrowing phenomenon that is focused on reputation creation through alliances. This confirms the importance of including the construct of status in the context of this study.  

A few studies were found that focused on corporate status and its effects on business performance, dedication, and relationship effort. Castekkucci and Ertug (2010) found that when the status difference between two partners increases, the lower-status partner provides greater effort and increased performance. Similarly, Hsu (2004) found that organizations that have secured affiliations to high status organizations are likely to work hard to maintain their relationships. Moreover, Hsu (2004) discovered that recently founded organizations are both more likely to accept offers by reputable others, and also accept these offers at a discount on their valuation. These findings suggest that there might be motives for clients to collaborate with recently founded PSFs as opposed to well-established firms. However, this topic has not previously been addressed in the context of PSFs in particular. Therefore, in addition to the proactive efforts of nascent PSFs to change the reputation perceptions of clients, clients might also have an internal motive to proactively approach organizations as such. These findings give a more holistic view on the evaluating process of clients when choosing to employ a nascent PSF.

In line with Fisher's (1976) decision-making theory, Jensen and Roy’s (2008) study found a sequential decision-making perspective that status is used to arrive at a “long-list” of alternatives, which is then followed by corporate reputation to fine-tune the choice. Moreover, Bitektine (2011) complemented their research and found that corporate legitimacy precedes corporate status in the same sequential process. This is in line with

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an earlier finding by Rao (1994), as this scholar argues that a new firm has to be seen as legitimate market participant before stakeholders begin to evaluate it and develop reputational beliefs. These findings confirms the suspension that corporate- reputation, status, and legitimacy are closely related.  

Concluding, some researchers treat reputation and status as two separate constructs, others see status as a form of corporate reputation. Like reputation, corporate status is indirectly tied to past behaviors and an indirect indicator for quality, but status is more directly tied to the pattern of relations and affiliation in which the organization does or does not choose to engage in. As reputation is based on the quality of past products, status is often used with a reference to the sociological notion of social rank or prominence which is not based on past performance. Another interesting finding is that a sequential process decision-making process exists in which status and reputation follow each other, together with corporate legitimacy. It is interesting to speculate that this specific sequential process also hold in the decision-making process towards nascent PSFs, as a nascent PSFs could easier obtain status than reputation. Thus, a working proposition will be formulated in the next paragraph when corporate legitimacy is explored.

2.4.2. Corporate Legitimacy

Legitimacy has traditionally been defined as an evaluative judgement of a person, organization, or institution based on the actors conformity to social norms, values, as well as compliance with legal requirements (Suchman, 1995; Deephouse, 1996). The main leading theorist on corporate legitimacy is Suchman (1995), and also his encompassing definition is used by many: “Legitimacy is a generalized perception or

assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.” Researchers have explored various legitimacy types (Certo, 2003; Rao, Greve & Davis, 2001), and have developed various typologies (Deephouse 1996; Foreman & Whetten, 2002; Ruef & Scott, 1998; Suchman, 1995), which resulted in over twenty legitimacy types that fall under various typologies. Based on these types and typologies, it can be concluded that a central element of legitimacy is meeting and adhering to the expectations of a social system’s norms, values, rules, and definitions. A study by Foreman and Whetten (2002) found that if the business community

perceives a problem within an organization it can lead to industry speculations, which may magnify existing firm-specific uncertainties. Consequently, organizations establish new relationships, thus expanding their network, and by doing so signal to external constituents that firm-specific issues are being recognized and so maintain or regain legitimacy (Foreman & Whetten, 2002). In the context of this study, this could result in decision-makers asking other industry connections for referrals to nascent PSFs to reduce uncertainty and risk. On the other hand, nascent PSFs might build legitimacy by sharing successes in the industry to regain legitimacy, this would refer to brand-building strategies.

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Concluding, there are overlaps between the constructs of reputation, status, and legitimacy as researchers suggest that these forms of social judgement arise from common social comparison processes (e.g., Dutton & Dukerich. 1991; Rindova et al., 2006; King & Whetten, 2008). If status is viewed as the relative ranking of an organization in hierarchical order, then a PSF with a high status is more likely to engender respect, develop trust and become attractive to stakeholders. At the same time, a company that has a strong and favorable reputation is more likely to earn status over time (Abrahamson & Fombrun, 1994). A similar relationship binds the concept of reputation to the construct of legitimacy, as Rindova et al. (2006) suggest that legitimacy may develop from comparisons between organizations that engender appreciation,

admiration, trust and respect of one company over another and so build reputation. Thus, researchers theorize that reputation, status and legitimacy represent three distinct components of perceived quality that exert independent and interdependent effects on the decision-making process (Stern et al., 2011; Poldony, 1994; Jensen and Roy, 2008; Bitektine, 2011; Rao, 1994). Moreover, corporate reputation status and -legitimacy constructs come together in the form of a sequential process (Stern et al., 2011; Poldony, 1994; Jensen and Roy, 2008; Bitektine, 2011; Rao, 1994). However, this sequential process has not been addressed whilst clients evaluate nascent PSFs in particular. Therefore, the fourth and final working proposition is formulated as follows: ‘4) Nascent professional services firms must first be perceived as legitimate before clients begin to evaluate the firm on status- and subsequently on reputational beliefs.’ Investigating this working proposition will prove whether nascent PSFs might benefit from this sequential process as status is more easily earned than reputation, and to what extent legitimacy is helpful too.

2.5. Literature conclusion and conceptual model

This thesis seeks to contribute to organizational studies and management research by exploring corporate reputation and related forms of social judgements that organizational decision-makers can render with respect to the social properties of recently founded professional services firms (PSFs). The central focus question is formulated as follows: ‘How do nascent professional services firms manage to attract clients whilst lacking reputational resources?’ Based on this central focus question and related sub-questions, the literature study has given valuable insights and created a solid base to fill the remaining knowledge gaps through primary research.

The first subquestion was focused on ‘How are organizational decisions made, and what type of

collaboration networks are possible between clients and nascent PSFs?’. It was found that nascent PSFs and PSFs in general have substantial indirect effects on the functioning of clients through their delivery of intermediate services by providing customized solutions through an experienced workforce to solve complex

Procuring professional services : the effect of corporate reputation on business-to-business buying behavior towards NASCENT professional services firms

THESIS

INDIVIDUAL RESEARCH PROJECT

PROCURING PROFESSIONAL SERVICES:

THE EFFECT OF CORPORATE REPUTATION ON

BUSINESS-TO-BUSINESS BUYING BEHAVIOR TOWARDS

NASCENT PROFESSIONAL SERVICES FIRMS

University of Amsterdam

MSc in Business Administration, Marketing Track

II. Statement of originality

III. Confidentiality of the thesis

IV. Acknowledgement

V. Abstract

VI. Executive summary

Table of contents

Chapter 1: Theoretical introduction

Chapter 2: Literature review

2.1. Interorganizational collaboration with professional services firms

2.2. Corporate reputation

2.3. Corporate reputational strategies

2.4. Corporate reputation, status, and legitimacy

2.5. Literature conclusion and conceptual model

THESIS 

PROCURING PROFESSIONAL SERVICES:  

THE EFFECT OF CORPORATE REPUTATION ON  

University of Amsterdam  