When affiliation works (and when it doesn't)

BEING RECOGNIZED AND ASSOCIATED WITH A HIGHLEVEL INCUMBENT IS A POSITIVE SIGN FOR THOSE ENTERING A SECTOR BECAUSE IT CERTIFIES ITS BASIC QUALITY. HOWEVER, THIS IS NOT THE CASE, FOR EXAMPLE, FOR NEW BANDS THAT PLAYS AS SUPPORT ACTS AT THE LIVE EVENTS OF ESTABLISHED ARTISTS. A STUDY EXPLAINS WHY

by Fabrizio Castellucci, associate professor at Department of management and technology

Newcomers in an industry often have trouble being taken seriously, or even noticed in the first place. This challenge, often referred to as the “liability of newness”, underscores the idea that to survive and thrive, new entrants must be recognized as legitimate by their stakeholders—employees, investors, customers, analysts, or simply followers. Network affiliations have been extensively investigated as a way for new entrants to overcome this “liability” as affiliations provide access to information, resources, and new knowledge. Furthermore, affiliations with high-status organizations have signaling value, functioning as endorsements to actors who need legitimacy, such as newly established organizations like startups. In other words, an affiliation between a new entrant and a high-status incumbent can work as an informational cue signaling stakeholders the underlying quality of the new entrant. Defined as the relative position of an actor in a socially constructed hierarchical order, status signals the perceived quality of a producer’s outcome with respect the competitor’s outcome.

Despite being socially constructed, meaning that the perceived quality might be very different from the actual quality, new entrants usually benefit from being affiliated with high-status incumbents. The implicit assumption here is that forming an affiliation is a deliberate act and, therefore, affiliations between high-status firms and new entrants will not materialize in the absence of a specific endorsement of the latter on the former’s part. Affiliations, however, are not necessarily the result of deliberate choices. Rather, affiliations can have tangible effects even if two actors are simply perceived as affiliates by an audience. When actors share a membership in a social group or jointly participate in common activities, and if this is visible to audiences, they will often be perceived as connected, even though their association might be unintentional, and their interactions limited. This is the case of bands who participate in the same live music performance: they are perceived by audiences as affiliate even though their participation in the performance is not determined by the choice of any band in the concert lineup.

According to popular belief, new bands should benefit from playing in the same live performance with a successful high-status band. Yet in those contexts, such as live performance, where entrants rely on attracting audience attention to acquire resources and must compete with their affiliates to do so, we argue and find support for the opposite. Because attention is a limited resource and because high-status affiliations tend to capture most of the audience’s attention, the amount of attention that audiences can allocate to any given entrant is dramatically reduced. In turn, the reduced allocation of attention to entrants is likely to translate into reduced engagement by the audience, hindering both the acquisition of resources and the development of a distinctive identity in the eyes of stakeholders, with detrimental effects on performance outcomes. By looking at a sample of new bands and their live performances, those performing with high-status bands are less likely to survive and tend to generate lower revenues.

If, on the one hand, high-status bands can still provide legitimacy to the new entrants, this effect would decline for older bands while the diversion of attention would still remain. Consistently we find that older new bands are less likely to survive and produce revenues if they perform live with high-status bands.