resource based view of the firm: measures of reputation among health service-sector businesses

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Resource Based View of theFirm: Measures of ReputationAmong Health Service-SectorBusinessesAlan D. Smith aa Department of Management and Marketing , RobertMorris University , Pittsburgh, PAPublished online: 12 Dec 2008.

To cite this article: Alan D. Smith (2008) Resource Based View of the Firm: Measuresof Reputation Among Health Service-Sector Businesses, Health Marketing Quarterly,25:4, 361-382, DOI: 10.1080/07359680802135716

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Resource Based View of the Firm:Measures of Reputation AmongHealth Service-Sector Businesses

Alan D. Smith

ABSTRACT. Application of the strategic leverage of Resource BasedView of the Firm (RBV) directly advocates that a company’s competi-tive advantage is derived from its ability to assemble and exploit anappropriate combination of resources (both tangible and intangibleassets). The three companies that were selected were Pittsburgh-basedcompanies that were within relatively easy access, representing health-care service-related industries, and can be reviewed for the principlesof the RBV. The particular firms represented a variety of establish-ments and included Baptist Homes (a long-term care facility), Univer-sity of Pittsburgh Medical Center (UPMC) (a provider of hospital andother health services), and GlaxoSmithKline, Consumer Healthcare,North America (GSK-CHNA) (a global provider of healthcare pro-ducts and services). Through the case studies, it was found that notall intangible assets are strategic, and by extension, not all measuresof reputation are strategic either. For an intangible asset to beconsidered strategic, in this case reputation, it must be valuable, rare,imperfectly imitable, and non-substitutable.

Alan D. Smith is University Professor of Operations Management,Department of Management and Marketing, Robert Morris University,Pittsburgh, PA.

Address correspondence to Alan D. Smith, Department of Managementand Marketing, Robert Morris University, Pittsburgh, PA 15219-3099.E-mail: [email protected]

Health Marketing Quarterly, Vol. 25(4) 2008# 2008 by The Haworth Press. All rights reserved.

doi: 10.1080/07359680802135716 361

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KEYWORDS. Asset management, case study, resource based view ofthe firm, service marketing, service strategies, sustainable competitiveadvantage

INTRODUCTION

Resource Based View of the Firm

The Resource Based View of the Firm (RBV), as suggested byMichalisin, Smith and Kline (1997, 2000) and reinforced by Porter(1991, 1996) deals with the concept of bundling strategic assets thatare crucial determinants of sustainable competitive advantage andultimately firm performance. Strategic resources may be describedas tangible and intangible in nature and derive their value in manydifferent forms. According to the RBV, strategic assets are definedto be intangible in nature. Michalisin, Smith and Kline (1997,2000) illustrated that not all intangible assets are strategic assets,but tangible assets are generally not strategic in nature and asym-metrically transferable. However, it is demonstrated that companyreputation, product reputation, employee know-how and organiza-tional may be considered to be strategic assets.

Application of the RBV-based strategy also suggests that acompany’s competitive advantage derives from its ability to assembleand exploit an appropriate combination of resources. Resources areinputs into a firm’s production process and include both tangibleand intangible assets. Tangible assets refer to the capital of a firmand consist of items such as property, equipment and supplies. Theintangible assets of an organization comprise capabilities and rela-tionships within a firm and include employees, customer relation-ships, unique technologies, and intellectual property such aspatents, trademarks and brands. These elements define their businessin some way and add to its worth.

Resources that are ‘‘simultaneously valuable, rare, imperfectlyimitable, and nonsubstituable’’ are strategic assets to a firm (Michalisinet al. 2000, 93). A firm that owns or controls such strategic assets willhave the ability to attain a sustainable competitive advantage. For aresource to be a source of competitive advantage, it must be valuableor enable the creation of value. An ultimate qualification of value liesin the inability of competitors to duplicate resources.

362 HEALTH MARKETING QUARTERLY

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It is widely accepted that intangible assets possess the characteristicsof strategic assets and are, thus, major drivers of corporate value andgrowth. No two companies are alike because no two companies havethe same set of experiences, acquired the same assets and skills, or havethe same employee interaction. Due to this fact, intangible assetsare relatively hard to copy. Three resources have been identified asbeing most critical for a firm’s competitive advantage: reputation,employee know-how, and organizational culture. Of particular impor-tance is the significance of reputation as a strategic asset to this paper.

Reputation as a Strategic Service Marketing Asset

In general, reputation is based on perception by stakeholders aswell as those outside the company as to the firm’s overall quality withrespect to dealing with customers, employees, vendors, managementstyle, finances, and social responsibility (Smith 2002, 2003, 2006a).It is decidedly rare, not easily imitated, and lacks substitutes whichqualifies it as a strategic asset. Therefore, it will be positively associa-ted with future firm performance.

Know-how is the expertise that a firm’s employees have acquiredvia a combination of cognitive learning and experience. This is alsonot easily imitated, is very valuable and not substitutable. Know-how is often strengthened by the ownership of trademarks andpatents. It is an ongoing process that an organization continues tobuild on; however, the foundation for it must be in place. Therefore,know-how also qualifies as a strategic intangible asset and shouldpositively influence future firm performance.

Organizational culture, which is made up of the values, and beliefsthat influence the way a firm conducts business, is an ingrained wayof doing things that is embodied in all functions of the firm. A strongand positive organizational culture is valuable to the firm if it pos-sesses the following attributes: perceptions of quality, perceptionsof customer service, ability to manage change, ability to innovate,team-working ability and participative management style. Therefore,the firm’s culture will be valuable as well as rare to imitate. This isprimarily due to the fact that culture, like know-how, is shaped bythe officers, employees, and board members who are themselvesunique human beings.

Companies that capitalize on their intangible assets have theopportunity to increase shareholder returns. Applications of RBV

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have demonstrated that utilization of assets and capabilities affectscompany performance and ultimately is the reason why some compe-titors are more profitable than others; of which the concept of thefirm’s reputation plays a vital role in obtaining and maintaining thatcompetitive advantage. In any event, regardless of type of strategicassets involved, firms should thus focus on developing or obtainingvaluable resources and capabilities in order to create a competitiveadvantage that will allow the firm to earn above-average returnsthrough increased market share and profitability (Porter 1991,1996, 1999a, 1999b, 2001; Simeon 2001; Smith 2002, 2003).

To show that reputation was in fact a strategic asset, Michalisin,Smith, and Kline (2000), utilized survey data compiled by Fortunein their annual America’s Most Admired Corporations publication.The result being that companies with higher reputation survey scoresfinancially outperformed those with lower scores thus establishingthat reputation was indeed valuable. This value subsequently goes agreat distance to acquire new customers, retaining existing ones,acquire premium prices and profit margins, retain superior humanresources, access to capital markets, attract investors, as well as otherresources (Finch 1999; Firth and Krut 1991; Fleischer and Liker1992; Fiegenbaum and Thomas 2004; Smith 2006a, 2006b, 2006c;Synowka, Smith, and Manna 2006).

Strategic Forces Associated with Cost Dynamics ofHealthcare Industry

There are a number of strategic forces that are fueling the risingcost of healthcare in the U.S.; in particular these forces that areimpacting costs and how to maintain high quality continues to be atopic that is open to debate and discussion. Perhaps the major reasonwhy it is so difficult to identify those forces that are having thegreatest impact is due to the relative influence each of the key stake-holders, namely healthcare providers=facilities, insurance companies,consumers, and government agencies, place on varying degrees ofimportance that certain factors are within their control and=ormanageable. For example, the U.S. leads the industrialized worldin healthcare expenditures, with just over 15% of its GDP being spenton healthcare in 2003. Future projections of healthcare expendituresare even higher than today’s already troubling rates. The Centers forMedicare and Medicaid Services, a government agency in the U.S.,


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projects healthcare expenditures will reach nearly $3.5 trillion in2013, just over 18% of GDP (Smith and Correa 2005). The followingsections are a few of the major strategic forces that are having thegreatest impact on costs and, if not properly managed, the greatestimpact on the reputation of the healthcare stakeholder.

Technology

The explosion of new medical technologies that are less invasive,more accurate, and in frequently safer, has contributed significantlyto the increased costs of healthcare. The Centers for Medicare andMedicaid Services estimate technology will account for 25 to 33%of the growth in healthcare costs in the U.S. during the next decade(Smith and Correa 2005). These increases in costs can be attributedseveral factors, including development costs (drugs and technology),inappropriate use of new technology, and an increase in the numberof people utilizing the new technology. Higher research and develop-ment costs seem to be inherent in any new technology, but theefficiency created by using the new and improved technology cansometimes translate into an overall cost savings through operationaleffectiveness (Porter 1991, 1996). As the public becomes more edu-cated about their health and aware of the options available to themwith regards to their healthcare, they are requesting the newest andmost advanced medical testing and surgical procedures. These testsand procedures are more expensive and they are attracting morepeople who opt for more expensive treatments and=or elective sur-geries as part of their entitlement healthcare package. Interesting,there has been an increase in direct advertising from drug companiesto consumers causing an increase in consumer demand for name-brand drugs (Metzl 2007; Weech-Maldonado et al. 2004), resultingin increased consumer demand for more expensive drugs.

Litigation and Government Mandates

Litigation is another major strategic driving force, since in recentyears there has been an increase not only in the number of malprac-tice and class action suits being filed against medical professionals,but in the amount and frequency of awards resulting from those suitsas well. As a direct result, there has been significant increases in thecost of malpractice insurance (in fact, or example, there increases

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have been so large in some states that they are experiencing malprac-tice insurance crises that deter medical practitioners from these areas.Complicating matters even more is the fact that there are fewerinsurers offering malpractice insurance. According to data collectedby the National Association of Insurance Commissioners (NAIC),total medical malpractice premiums increased by 23% in 2002.Government mandates and regulation introduced involves specificbenefits that insurers are required to offer. There are more than1,500 existing mandates (Smith and Correa 2005), each additionalmandated benefit only adds to the costs of doing business forinsurers. Those costs are ultimately absorbed by the industry as awhole.

Facilities=Labor Costs

Facilities cost refers to the cost associated with hospitals and inparticular their costs of labor. The reason we are isolating labor costsas a factor of facilities costs is because labor costs represent 44% of ahospital’s direct costs of doing business (Smith and Correa 2005). Theshortage of medical professionals has contributed to this problem,since increased demand for such services results in increased wagesto compensate for overtime pay and to attract more professionalsinto the industry. These forces, coupled with increased consumerdemand, especially as a population becomes older, places great stresson an industry where the quality of service offerings and reasonablecost directly affects the strategic asset of reputation.

METHODOLOGY

As the previous studies reviewed on the RBV usually consideredFortune 500 companies, the author of the present study decided toreview measures of reputation outside of the Fortune 500 list forinclusion in the case studies. The three healthcare firms that wereselected were Pittsburgh-based or associated companies that werewithin relatively easy access and can be reviewed for the principlesof the RBV and provided an opportunity to review a variety ofservice-related firms that closely linked its strategy with its servicemarketing of reputation. The particular firms represented a varietyof establishments and included Baptist Homes – a long-term care


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facility, University of Pittsburgh Medical Center (UPMC) – aprovider of hospital and other health services, and GlaxoSmithKline,Consumer Healthcare, North America division (GSK-CHNA) – aglobal provider of healthcare products and services. While these busi-nesses are quite different in nature and scope, each face challenges inutilizing its reputation in a highly competitive environment, with sig-nificant consequences for getting it wrong. A combination of per-sonal interviews of upper to middle management, as well ascomments from convenient samples of employees were used to gatherperceptions of the accuracy of the various firms’ perceived reputationand associated intangible strategic assets that supports their effortsfor profitability and=or community acceptability. In addition, muchof the factual information were obtained either form managementor from the firms’ websites, or a combination of both sources.

With the rise of electronic marketplaces, it is becoming increasinglymore difficult for people to keep track of all that is offered in the mar-ketplace. In lieu of the rise of e-commerce, software agents are beingdeveloped that will interact and negotiate with other marketplaces onbehalf of their human principals. This will allow users to be present inmultiple markets while keeping track of changing offers, demands,and price situations. The agent, ‘‘will be able to enter into negotiationwith many potential trading partners at once, reach an acceptabledeal, and set up a contract in a matter of milliseconds’’ (Padovanet al. 2001, 1). Obviously, security, trust, and reputation of interact-ing agents are a concern in regards to agents having unknown ownerswhich is partially why the multi-agent system were developed.Software agents were utilized in deriving useful information for thefirs’ website and related electronically published materials.

CASE STUDIES OF SERVICE MARKETINGUSING REPUTATION

Baptist Homes

Reputation as it relates to long-term health care is often a cloudyconcept. One would think of an organization’s reputation as havinga direct tie to its product(s), first and foremost, as well as itsrelationships with its employees and within the community. Formost long-term care facilities, however, it can be said that although

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‘‘quality care’’ is used as a selling point for their services, the conceptis not well defined or supported in any great detail within their mar-keting strategies or as part of the reputation they wish to portray.Instead facilities tend to lean towards promoting amenities, location,atmosphere and occasionally staff, in great detail (Lash 2005; Lowe2003; McFadden, Towell, and Stock 2004.). Most facilities have theability to benchmark themselves in terms of state and federally man-dated quality indicators yet few if any choose to do so (Smith andCorrea 2006). It is interesting to consider why facilities choose toaddress their services in this manner, how they then develop a repu-tation for quality service, and whether or not reputation plays ascrucial a role as one might expect in long-term care.

Each facility is required by both Federal and State regulation tosubmit specific information on each resident; a minimum data set(MDS). The information submitted includes such items as develop-ment and occurrence of bed sores, ambulation, restraints, inconti-nence, falls, use of psychotropic drugs, as well as a myriad of otherideally avoidable medical conditions or techniques. The statisticscompiled from this information nationally, statewide and individu-ally are called ‘‘quality indicators’’ and they are used to report andbenchmark a facility’s performance. These indicators are posted onthe state health department’s website as well as the Center forMedicare and Medicaid Services’ (CMS) website.

One reason quality care is not routinely defined or supportedwithin a facility’s collaterals, media campaigns, or any other presen-tational form is because there is in fact no facility which can representitself as having total quality as defined by everyone’s, or even themajority’s, point of view. For instance, government agencies actuallyonly considers quality indicators unacceptable when a facility is sig-nificantly out of line with state and national averages. In theory then,if every resident in every facility in the nation fell, it would not cause aquality issue within any one facility as they would not be outside thenorm in terms of injuries that are routinely expected in this environ-ment. A reasonable person would, however, find this to be an indi-cation of poor quality. On-the-other-hand, a facility with no fallsmay have unacceptable restraint levels. Another person may find thisan indication of poor quality. This is not to say that quality indica-tors are not valuable indicators of performance, because they are,but this extreme example is used to illustrate how the definition ofquality might differ considerably from one point of view to another.


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U.S. Health Department surveys may also contribute to a distortedview of quality between facilities. Survey teams are generally com-prised of at least two RNs, one dietician, and one social worker.These teams stay at a facility for 4 to 5 days minimally once a yearand review policies, procedures, practices and medical records.Although the quality indicators will not catch a problem if everyoneis having the same problem, the U.S. Health Department surveyteams, in theory, should be able to detect the problem. If everyonein the facility fell because, for illustrative purposes, the purchasingagent got a deal on new and apparently inadequate slippers, thefacility is going to have a very large problem. A survey team hasthe ability to close a facility on the spot if they feel justified in doingso. Survey findings are also posted on the internet at both the stateDepartment of Health and CMS websites. Like quality indicatorsthe public has access to this information should they so choose.

Although leveraging the use of survey teams are a valuable tool forgovernmental agencies and the consumer they also create a problemin defining quality. It is no secret within long-term care that surveyresults often rely heavily on the surveyor’s mood, current workload,relationship with facility staff and home office politics (Lash 2005;Lowe 2003; McFadden, Towell, and Stock 2004.). Unfortunately,items that would be given the severest possible rating in one facilitywill be over-looked in another. A facility, which would have been sur-veyed by the same person thirty days earlier, would have ended upwith a ban on admissions, financial penalties and possible loss oflicensure, but was overlooked due to over scheduling and lack of per-sonal and related resources. Although this scenario sounds unbeliev-able, it is in fact common. Again, the definition of quality care isdiluted and distorted among facilities.

In essence, these two examples should provide reasonable assump-tions that quality care as defined by the government is an ever-changing concept. Add the viewpoints of family members, staff andthe media, and long-term care facilities are left dumbfounded as tohow to define quality. They, therefore, struggle when formallyattempting to develop a reputation associated with quality service.With an ever threatening regulatory environment, observinginsurance companies, a sometimes uninformed media, and increasedpublic awareness, long-term care facilities are very unlikely tomake any detailed public proclamations as to the quality of theirproduct.

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Instead facilities tend to publicly build their reputations based onamenities, location and community. Baptist Homes, for example,has been a member of the community for 95 years. The facility is pro-moted as ‘‘right next door’’ and community events are routinely heldon site. It actually has a very remarkable survey record and mostwould agree outstanding care, although like all facilities it has hadits bright an dark days. As with most facilities they rely on ‘‘word-of-mouth’’ to promote its reputation of quality care. Almost all ofBaptist’s residents are from the immediate area. Baptist relies on itsreputation as a member of the community both as a caregiver andemployer, not on a reputation for providing quality care; which isextremely important since not just at Baptist, but at all facilities, inthat the care provided can often be a matter of life and death. Finally,most potential customers would think that a long-term care facility’sreputation in terms of care would be of the utmost importance tothose leaving loved ones at the facility. Unfortunately, based onmany experiences (Lash 2005; Lowe 2003; McFadden, Towell, andStock 2004), convenient location is most often the deciding factorfor families.

For example, a family usually finds out that a loved one will haveto be placed in a nursing home with just twenty-four hours notice.Even though that person may only need to stay a day or two, the hos-pital typically is pressured to discharge the patient as immediately aspossible. Families are usually given a list of two or three alternativesand under stress pick the facility that will provide for easiest visi-tation. Families tend to feel that ‘‘they are all the same’’ and do littleif any research. When the families find out they’ve chosen the wrongplace it’s often too much of a burden to move.

In summary, although reputation is extremely important in long-term care, it may not be strongly rooted in a reputation for qualityservice, but instead in amenities and sense of community. The defi-nition of quality in this industry is ambiguous at best from the gov-ernment’s point of view and varies in great degree from person toperson. An attempt to define quality in any great detail by a facilitycan lead to many pitfalls; what they state is quality today, may not betomorrow. Facilities, instead, depend on favorable ‘‘word-of-mouth’’advertising in order to develop a reputation for quality care; allowingothers to define quality for them. Unfortunately, as with the facilitiesand its management, a reputation for quality service does not neces-sarily mean as much as it should to the consumer. Geographic


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location and convenience tends to be major deciding factor, whichmay lead to unfortunate circumstances. While Baptist Homes hasbeen able to maintain a favorable reputation for over 95 years, itmay be that that location and other related factors may prove tobe its strategic assets, not just the quality of its service and humanresources.

University of Pittsburgh Medical Center (UPMC)

With over 40,000 employees, 19 hospitals, a health plan, rehabili-tation facilities, long-term care facilities, cancer centers, doctorsoffices, (the list could go on), there are few people in Western Penn-sylvania that have not heard of the (UPMC). The management teamat UPMC traditionally has taken great pride in their reputation. Theywere recently ranked 13th in the nation out of 6,000 eligible hospitalsacross the county by U.S. News and World Report. In addition, theyreceived top rankings in various medical specialty areas including ear,nose, and throat, psychiatry, cancer, rheumatology, orthopedics,kidney disease, pediatrics, digestive disorder, respiratory disorders,gynecology, neurology and neurosurgery, geriatrics, rehabilitation,and urology.

How does UPMC strive to keep their reputation? The reputationat UPMC is certainly grounded in the quality its people, both incharacter and achievements. UPMC makes it known in their valuesthat their greatest asset is their people. The human intellect and cor-porate culture can not be duplicated elsewhere even though variouscompetitors have tried. From an inspection of their website, it is dif-ficult to deny the contribution to its reputation in the medical com-munity from people as Dr. Starzl, who performed the first livertransplant, or Dr. Fu, who pioneered surgeries that treat sports-related injuries. The professional intellect and its accomplishmentsfrom in human resources over the years have enabled UPMC tobranch out into all of the areas they are currently involved in today.

In addition to their traditional roles in the medical community,many employees participate in a program called Neighbor Link. Thisprogram solicits volunteers from partners in the area health system toparticipate in various functions throughout the community in thevenue of community service opportunities. Food drives, coats drivesin the winter, purchasing holiday gifts, and thanksgiving baskets forthose in need, purchasing school supplies for some of the city schools,

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walks to benefit many different groups, as well as the variousother sponsorships throughout the year are some of the events theyparticipate in.

In the last several years there have been several changes in thePittsburgh area health care arena. Recently Latrobe, Greensburg,and Frick Hospitals merged to form Excela Health. AlleghenyGeneral had to claim bankruptcy and eventually merged with WestPenn. Monsour Medical Center had to claim bankruptcy as well.In addition to difficult financial times these medical centers and otherhealth care providers were dealing with, there was the continuing bat-tle over malpractice costs and health care costs. Due to these difficult-ies and negative public coverage, one could assume that UPMCsstatus may be threatened as well. Management was a general desireto maintain a positive community image and not fall victim like muchof the area health providers through directly addressing difficult stra-tegic issues and increase operational effectiveness (Riketta 2005). It isobvious that few of its employees UPMC-related facilities wanted todeal with the same downward spinal that their competitors have fellvictim to, so it was primarily up to the human resources to avoid thesame situation.

In a service industry, it is generally difficult to separate the employ-ees and the customers’ needs. The way that both the employees andcustomers see a particular organization will have a tremendous influ-ence on whether or not people accept or reject it (Davies 2004).Especially in the health-care environment, it is extremely importantthat all stakeholders feel comfortable with the professional environ-ment that they find themselves in. Word-of-mouth adverting andreferral are extremely important marketing tools that are within thescope and control of management there is. The professional and con-sumer friendly images of a facility start with the people that workthere. If the staff that deal with the public are generally rude,impatient, and not understanding it gives the impression that theyare stressed and working under miserable working conditions thatresulted from management failure to provide the proper resourcesand corporate support, resulting in potential patients to generateexpectations of a miserable customer service experience.

In order to gauge the effectiveness of customer relation manage-ment (CRM) programs that are designed to reduce this negativeconsequence of poor customer expectations, patient satisfaction sur-veys are continually commission. N essence, there is really no other


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way to know the perceived reputation of nr organization if a metric isnot created, validated, and actually collected and measured it (Alsop2004; Smith 2007; Smith and Correa 2005; Smith and Manna 2005).Types of surveys used at UPMC generally focus on everything fromthe registration process and effectiveness of communication, to oper-ational aspects of clean room was clean and their meals were servicedat the proper temperature. There are over 140 different surveys circu-lating throughout the health system at UPMC. For example, on thesame line as the phantom shopper that goes into a clothing store togauge the employees, UPMC has phantom patients that call in. Theyare able to see how the patients are actually treated over the phoneand face-to-face, and how long it takes to schedule an appointment.

In light of the various scandals and bad press several medical orga-nizations have received over the years, UPMC is trying to anticipatethe impacts of future changes. For example, in 2002 the far-reachingSarbanes-Oxley Act was passed. Currently not-for-profit organiza-tions are not required to comply with this new regulation. In orderto show how committed they are to providing honest informationand tightening their internal controls, UPMC are trying to implementthe standards implicit in the legislation by the end of 2006 or early2007.

The strategic leveraging of reputation for an employee has at leasttwo professional levels (individual and departmental or divisionallevels of internal reputation within the organization). In an organiza-tion like UPMC, as with many larger organizations, there are variousdivisions. Due in part with the various issues that each division has todeal with, certain areas has a better reputation for operationalefficiency and effectiveness within the organization. Especially inthe accounting areas, there are various divisions that have higheremployee turn-over, partially due to the increased demands associa-ted with handling the specialized reporting requirements. Taken toa level further, the various divisional managers themselves havereputations, both in positive and negative images that motive orde-motivate employees’ productivity that are just as important andmonetary rewards.

From a customer viewpoint, it in necessary to prioritize what ispersonally important in terms of illness, associate type of medicalattention, and the actual treatments they receive? Equally importantis how the personal information on the customer’s bill and medicalrecords are confidentially handled. Are the office locations and hours

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convenient to the potential customers of to the organization alone?Are customer-support services available from the time of their sched-uled appointment until the time they pick up their prescription? Eachcustomer has potentially something that they personally expect forwhen it comes to formulating their opinion on an organization’sreputation that is line with the normally expectation that their peershave come to expect with an organization, as established throughword-of-mouth or through prior experiences. When personal inter-views were conducted of individuals in professional employment atUPMC, one can readily see how much of an impact their perceptionof reputation at the organization, division, and specific manager levelhas on their occupational expectations and output. The politics, mal-practice debates, and insurance costs tend to paint the healthcareindustry in a very uncaring and negative image when it comes to cus-tomer service. Unfortunately, many instances do occur that manage-ment fails to capitalize of the nature tendency of peoples’ desire toenter the health field is because they want to make a difference intheir customers’ lives. The attitudes of healthcare professionals reallymake a lasting impression on the patients’ defining of the perceivedreputation of the organization.

GlaxoSmithKline, Consumer Healthcare, North America

GlaxoSmithKline, Consumer Healthcare, North America division(GSK-CHNA) is headquartered in Moon Township, PA (located nearPittsburgh). GSK-CHNA has a product portfolio includes brandssuch as Tums, Aquafresh, OsCal, Citrucel, Nicorette, Nicoderm,and Commit Lozenges. Business continuity planning is primarily theresponsibility of the management team, however in order to makeany of their plans work, the senior management team holds‘‘myLearning’’ sessions on how all associates must execute contin-gency plans to minimize disruption of product and=or service flowsto the customer. These myLearning sessions are formalized trainingsessions that all associates are required to attend. The instructors pro-vide the basic framework of the plan: why it is important, who is incharge, and what associates should do in case of an event? However,the ‘‘how’’ is left open-ended, and the training sessions include brain-storming for possible ‘‘what-if’’ scenarios. As articulated by Pember(1996, p. 37), the planning focus should be on the ‘‘reduction of lossthrough proactive pre-loss planning, that is, risk minimization, rather


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than reactive, post-loss recovery.’’ Therefore, a good measure ofreputation enhancement is a firm’s ability to keep contingency planscurrent and simple to allow flexibility in response to need.

Over the past several years, GSK-CHNA has hosted a variety ofmyLearning sessions as a result of several different events. The seniormanagement team attempts to learn from past experiences and thenshare these experiences and lessons learned with their associates.‘‘Dramatic cases could be prevented if human operators and theirmanagers had been crisis prepared, that is, equipped to anticipate,respond to, and learn from their crisis experiences’’ (Pearson andMitroff 1993, 48). However one event was most significant andsevere. Senior management had skeletal plans in place, but found thatassociates and systems were not fully prepared to be flexible in theiractions and, therefore, failures took place.

This event was in summer of 2004, which resulted in a severe poweroutage in Ohio. The power plant that serviced GSK-CHNA-relatedservers and databases suffered an outage as road crews cut throughthe entire bundle of cable wires. GSK-CHNA had power in Pitts-burgh, but no access to any data. The data were backed up nightlyat headquarters, so the most recent Nielsen research data and shareddrives were updated and intact. The problem lied in the fact thatheadquarters was completely cut off from the warehouse data-management system. GSK-CHNA has four distribution centersacross the country: Fresno, CA, Memphis, TN, Hanover, PA, andFountain Inn, SC. Customers, who included major food and drugchains, drug wholesales, mass retailers, and club accounts, wereaccustomed to sending and receiving EDI-based (electronic datainterchange) orders 24=7. These orders are uploaded each hour andthe Customer Service Logistics Account Representatives processedthe orders in Pittsburgh. Quantities, stock, and pricing are all verifiedbefore orders are released from hold. Once an order was releasedfrom hold, it is sent electronically out to the various warehouses.The warehouse bundling team processes paperwork on their end toget the orders to the data center’s collection floor, picked, bundled,and onto the truck. Once the order is picked, an electronic invoiceis sent back to the customer. This all occurs within a 24-hour timeframe. When the road crews severed the cable bundle in Ohio – allEDI-based transactions stopped. Orders and invoices were lost andnever uploaded. All operations on each of the four data center’sfloors halted abruptly – GSK-CHNA was at a standstill and for three

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days. For these days, the company scrambled to work simultaneouslyon getting EDI-processing up and running again as well as workingorders the old-fashion way, via phone and fax. Within 24 hours thedata centers were able to start picking and bundling again; however,the loss in revenue occurred when customers would not accept man-ual invoices. The customers that did accept invoices via fax did notpay them on time, since their check payment systems were linkedto read only EDI-related data.

The loss of revenue was significant and senior management wererelieved that operations were back to pre-disaster times. Managementcreated a team to brainstorm ways to prevent such a halt in opera-tions in the future. As a result, all invoices are filmed onto microficheat the point of order release, and at the point of the order beingpicked. This way, microfiche files could be sent to the customers toprocess payment immediately, rather than being held up with manualinvoice translation. ‘‘Where vital records protection is part of abroader business continuity and disaster recovery plan, risk controlmeasures may also safeguard facilities, computer hardware and soft-ware, laboratory equipment, and other resources’’ (Saffady 2005, 62).Customer service departments also have backup methods on how toprocess the orders and work around the system to keep the pickingand bundling processes smooth at the data centers. Surely, no onecould have predicted that the mistake of road crews in Ohio wouldlead to loss in revenues in Pittsburgh.

This is a good example of how companies can try to control theirown destiny, but they should also get involved with the people andorganizations that they work with. They may have all the protectionmeasures in place, ‘‘but did anyone ever look at the backup organiza-tion to identity if they had a contingency plan if something happenedto them?’’ (Mitome and Speer 2001, 20). The issue at hand was not tothink of ways to prevent such a crisis from occurring, but how to betterprepare associates to brainstorm their way out of the situation quicklyand swiftly to keep such an event transparent to their customers.

GENERAL SUMMARY AND STRATEGICIMPLICATIONS

Reputation is one of a firm’s most important strategic assets. It isan intangible asset, though it can be quantitatively measured through


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customer satisfaction surveys and the number of awards achieved. Aswith all strategic assets, reputation must be consistently maintained.An organization’s activities must align with its good reputation toincrease customer satisfaction (O’Rourke 2004). It is vital that thebuilding and maintenance of a firm’s reputation be included in itsbusiness and strategic plans. It is also important to have an emerg-ency or contingency action plans in place in case an incident thatcould destroy reputation would occur. Michalisin, Kline and Smith(1997, 2000) presented empirical studies that were performed to testseveral hypotheses raised by the interpretation of the RBV. RBV stra-tegies may be defined as ‘‘owning or controlling strategic assets leadsto a sustainable competitive advantage’’ (Michalisin, Kline andSmith, 2000, p. 91). These strategic assets should be rare, intangibleand not imitable so in order to create a competitive advantage; thethree types of assets that RBV assets that fall into this categoryincluded employee know-how, organizational culture, and repu-tation. The basic assumptions are that the verifiable presence of thesethree classes of intangible assets would increase firm performanceover short, intermediate and long-term time horizons.

There were several obstacles in the identification and measurementof these assets. For example, Michalisin, Kline and Smith (2000)hypothesized that traces of these assets would be found in presentin the published communications from these firms. Therefore, theyused annual reports to discern elements of organizational culture,number of trademarks issued to identify employee know-how, andFortune magazine’s list of ‘‘America’s Most Admired Corporations’’to identify reputation. These elements were then correlated with Rela-tive Return on Equity (RRoe) to determine if a causal relationshipwas present. The negative relationship between organizational cultureand annual reports that was found is compelling, but also inherentlyintuitive. They found that in organizations in which the elements oforganizational culture (namely perceptions of quality, perceptionsof customer service, ability to manage change, ability to innovate,team working ability, and participative management style) are foundin higher numbers than other organizations, was actually indicativeof a lack of organizational culture. Unfortunately, these communica-tions are often used to ‘‘manage the perceptions of stakeholders’’(Michalisin, Kline, and Smith 2000, 100). Perceptions, not reality,are what they are referring to; what they are saying is that the morethe executives focus on the key components of organizational culture,

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the more they are trying to reassure stakeholders that they arepresent. And yet, if they were truly present, the need for the focuswould not be there. While it in commonsense that the elements of astrong organizational culture are a strategic asset, the more frequentthe traces’ of such an organizational culture the less likely they are, infact, present. This was validated by the empirical study that foundthere to be a negative correlation between the traces of organizationalculture and profitability.

The results of this study indicated that in the case of both repu-tation and employee know-how, a positive, statistically significantrelationship was present, and with the case of organizational culture,a negative relationship was evidenced due to the fact that the dataused for identifying organizational culture, such as annual reports,seemed to show that when organizational culture is mentioned, it istypically in organizations in which the culture is not present but man-agement feels that it should be. As evident in the case studies of thePittsburgh-area companies, a positive perceived culture often may belacking in the quality dimensions that management feels is present.

A reputation is particularly damaged when an incident occurs thatspecifically involves that firm’s primary activity, such as concernsabout the accounting firm Arthur Anderson’s ability to objectivelyaudit its consulting clients, or an inability to recover quickly duringa significant disruption of goods=services to the customer. To consist-ently build reputation as a strategic asset and not as a liability, man-agers may leverage the use of a strategy of Dynamic Exploitation ofExisting Assets (Goldberg, Cohen, and Fiegenbaum 2003). This is atactical response to potential problems, as they must be resolved inseconds, at least with the appropriate facial expressions. While thismay be a primary reputation-building strategy, other approachesmay be used. For example, with the Development of Core Competen-cies strategy (Goldberg, et al.), investment takes a long-term view.Following this strategy is useful in establishing or re-establishing aquality reputation in an area where negative publicity or prior actionshave tarnished the form’s existing reputation. It is an investment thatmust be given time and attention to fully bloom into the expectedresource.

According to Goldberg et al. (2003), the Image Management strat-egy is vital to a service entity, and requires much effort to build theintangible nature of the firm’s reputation through its products andservices. The Strategic Alliance reputation-building strategy, on the


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other hand, when specific brands of products are used on and sold tothe guests and the individual products have established their ownreputation that could be possibly shared by the host organization.Ultimately, a great reputation is a boon to any firm, as specificallyevidenced by the case studies of area firms in the present study.A solid reputation allows for more than just increased revenues, asit heartens investors, encourages suppliers to negotiate better creditterms on contracts, and helps recruit the best people.

Researchers studying the effects of intangible strategic assets, suchas reputation, must approach the effort with creativity that takes intoaccount the particular aspects of culture within the firm, as well aswithin the industry as a whole. Researchers faced with the essentialtask of trying to validate the intangible, invisible, heavily guardedqualities of employee know-how, reputation, and organizational cul-ture, they must develop unique methods of proving the existence ofthese ‘causes’ by isolating their ‘effects’. In doing so, researchers havenot simply provided a mathematical interpretation of these intangi-bles; they have provided the framework for individuals both insideand outside these organizations to assess the strategic positions oforganizations. Researchers need to create investigative tools to thosethat are more comfortable in dealing with strategic concepts thanstatistical analyses that are based on the evidence left behind by theseintangibles.

Too often in business research, the contributions of human inter-vention and guidance are ignored or overlooked for more empiricallybased studies. The case study approach used in the present study is anacceptable method to document the importance of reputation withinthe organizations studied, even though that there is no truly uniformdefinition of the term that can be applied to all types of businessenterprises.

In regards to the reputation of a firm, it can be seen that there are amultitude of measures that can be considered. These measures varyby industry, market, geographic location, and human resources avail-able. It is vital that the elements that contribute to those measures arethoroughly understood and that they are relevant to the industryunder consideration. The often-subjective responses that vary dueto differing points of view must also be considered.

For reputation to be considered a strategic asset with regards tothe RBV, the results of those measures must adhere to the rules forstrategic assets. Since not all intangible assets are strategic, then by

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extension, not all measures of reputation are strategic either. For anintangible asset to be considered strategic, in this case, reputation, itmust be valuable, rare, imperfectly imitable, and non-substitutable.Therefore, measures of reputation, such as high profile awards (suchas well known symbols of excellent as surveys completed by J.D.Power and Associates and professional trade organizations-sponsored events) possess value, are rare, and can be consideredimperfectly imitable, and non-substitutable. However, other mea-sures such as governmental measures of quality or home-growthassessments of quality assurances are not rare as competitors mayduplicate them. Also, care must be taken with benchmarking meth-ods as these may lead to homogenization among competitors andpotentially negate the any advantage currently enjoyed.

To illustrate a point from a more personal standpoint, the presentauthor recently taught a graduate-level operation management classat Kent State University during the fall term, 2006, and offered a‘‘what if’’ scenario to the students: namely how many would pay 4to 5 times the current tuition if they received their degrees from theUniversity of Chicago instead of Kent State University, even if thecurricula was identical and taught by the same instructors? The resultwas that the vast majority of students indicated that they wouldgladly pay the vastly enlarged sum for the same degree offered by amost prestigious university. Obviously reputation is a very powerfulstrategic asset that frequently transcends the more traditionalstrategic assets of capital and material assets.

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resource based view of the firm: measures of reputation among health service-sector businesses

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