A new paper by Chunhu Jeon of Morgan State University, together with Jonathan Bundy and Wei Shen at Arizona State University, sheds light on this new reality. They highlight the ways that corporate behavior can be molded through creating ranking systems. Our study examines comprehensive, 18-year longitudinal data from South Korean multinational enterprises. It specifically looks at acquisition patterns and asset-based rankings from the years 2001 through 2018. Our key takeaway from the findings was that companies are very concerned with their absolute rankings. They’re acutely conscious of how they step up or down across multiple levels.
The researchers coined the term “tier-aspiration effect.” The comparative cost advantage This critical idea is a largely underappreciated insight for making sense of competitive behavior in international markets. This study provides a novel perspective for understanding how organizations respond to their standing in competitive hierarchies. It looks at public forms of sorting such as Fortune rankings and law school rankings.
Insights from the Study
Our analysis of the study’s model results shows that even the most responsive firms are highly sensitive to their rank tier placement and relative rank. Jeon knows that organizations don’t simply aim for the top spot. Instead, they try to see how they’re doing compared to their peers in their same tier. This sensitivity, in turn, can cause strategic decisions meant to boost their ranking position.
Bundy underlines the strong impact on firms based on their tiered status. This privileged status can define their strategic decisions and motivate their game-changing conduct. Together, these dynamics demonstrate that having a clear picture of your competitive landscape is critical. It’s as much about understanding what you can do, as it is about understanding how other people perceive those capabilities.
The researchers utilized extensive data from Korean multinational firms to explore these themes, providing a comprehensive overview of how ranking systems shape corporate strategies. By examining patterns over nearly two decades, the study captures shifts in behavior and decision-making processes influenced by external perceptions.
The Tier-Aspiration Effect
One of the most important contributions of this research is the discovery of the “tier-aspiration effect.” This idea is meant to capture the motivational impetus firms feel from their competitive position within their tier. For example, a firm that is consistently found at or near the top of its tier might pursue particularly aggressive strategies to hold on to or move up that ranking. At the same time, firms lower on the rung are usually adopting retrenchment maneuvers to reestablish their footing.
This Hawthorne effect is an extreme example that illustrates the power of social comparison as a corporate strategy in itself. As Jeon explains, firms react to the things that they are graded by. Similarly, they’re looking at how they compare to their competitors in the same or similar tiers. This drives a culture where resource-constrained organizations are incentivized to do more than just improve their competitive position passively.
The impact of this firms effect goes beyond the firm level, shaping market-wide conditions. Companies can make mergers and acquisitions or other strategic decisions inspired by their goals compared to tiered rankings. Knowing what drives this behavior will be key for stakeholders trying to anticipate the markets and shifts of the future.