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Joel Podolny moves status from sociological concept to marketplace

With a joint appointment to the Sociology Department in the Faculty of Arts and Sciences and the Harvard Business School, Joel Podolny is in an ideal position to apply the fundamentals of sociology on market dynamic. (Staff photo by Rose Lincoln)

As anyone who’s been to high school or negotiated office politics knows, status rules. It’s that invisible but palpable pecking order that dictates dating partners, cafeteria tables, and office cubicles. The geeks defer to the cool kids; the newly hired underlings imitate the bosses and other established, well-regarded workers.

Status, a central concept in the study of sociology, also has a bearing on the marketplace, says Joel Podolny ’86, Ph.D. ’91, who has studied the sociological concepts of status and networks in a variety of industries, from semiconductors to wine to auto racing. With a joint appointment to the Sociology Department in the Faculty of Arts and Sciences (FAS) and Harvard Business School (HBS), he is in an ideal position to apply the fundamentals of sociology on market dynamics, bridging the theoretical world of social science with the more practical realm of business.

“In the same way a familiarity with classic fundamental ideas in sociology provides the lens for looking at organizational phenomena, I find that being in a business school provides you with information and insights about the real world that you can then take back to those classic and fundamental ideas,” says Podolny, who joined the Harvard faculty in September as professor of sociology and professor of business administration.

“I’ve always been a strong believer that foundational knowledge is simultaneously the most relevant and applied of knowledge,” he adds, noting that “being at the intersection of two truly outstanding parts of the University is a really exciting place to be.”

Grape expectations

Although his research concerns status as it affects patent citations, venture capital firms, or the investment banking industry, Podolny insists that it’s the same principle that governs workplace politics or high school cliques.

“For me, the key aspect of status is that it’s grounded in the deference relations that play out in a particular context,” he says.

Yet one challenge to studying status and its impact on the marketplace is teasing apart status and quality: What if everyone defers to the captain of the football team because he truly does possess superior qualities?

“In social settings, it’s easier for us to believe it’s not about quality, but because of the way markets work, we think there’s a set of dynamics in markets that should lead people to want to know what the true quality is,” says Podolny.

So he turned to two industries where quality can be measured: wine making, with blind taste tests defining quality, and Formula One racing, in which quality is measured by performance.

Studying the California wine industry in the mid-1990s with a collaborator, Podolny learned that half the wine that uses the Napa appellation – generally regarded as the most prestigious in that region – came from wineries outside of Napa.

Wineries from lower-status regions, in other words, were purchasing grapes from Napa to gain status and, they hoped, a higher price for their product. Yet getting people to pay that higher price proved elusive.

“It’s almost a credibility story. Unless you are seen as a winery that has used the finest grapes from the finest regions, nobody is willing to pay for the quality that’s actually in the bottle,” says Podolny. “But that leads to a self-fulfilling prophecy. If nobody’s willing to pay for a high-quality bottle from a low-status vineyard, then the low status vineyard doesn’t buy the grapes that would lead to a high-quality bottle.”

Status dynamics, he found, are inherently conservative: high-status producers or businesses remain high status by investing in higher quality, which generates higher revenues.

Status begets status, sort of

But how, Podolny wondered, did innovation affect status? He and another collaborator sought the answer in another industry where status and quality were clear and measured: Formula One auto racing. He looked at the impact of innovation – in the form of a new engine supplier – on high-status and low-status teams.

Once they worked out the kinks of the new technology, high-status teams, Podolny found, could boost their performance with innovation. Yet the gains were short-lived.

“One of the liabilities with status is that it creates imitators,” he says. Other teams will embrace the innovation of the high-status teams and will make the same surges in performance. “The high-status team has to stay ahead of the curve,” he says. “There’s almost this musical chairs quality to it.”

Yet low-status teams are constantly playing catch-up. By the time they can afford or have access to technology such as a new engine supplier that might lead to a performance benefit, the higher-status teams have beat them.

Friends in low places

While it’s tempting to conclude that status is a signal of quality that creates a self-fulfilling prophecy and an inherent stability, Podolny cautions that it’s not so clear-cut. Yes, the stability to status dynamics allows high-status players to remain high-status and leaves low-status in the followers’ position, waiting for a high-status actor to slip.

But status is not simply about quality and reputation, he says, it’s also relational, which benefits low-status players.

“If status is a function of who you are connected to, there’s a limit on how much of the market the high-status players can take up and continue to be high-status,” says Podolny. “If they start moving into the lower-status niches, then they start undercutting their own status.”

This relational quality gives low-status players a beneficial niche, he says.

Straddling WJH, HBS

Podolny, who has a book contract with Princeton University Press to unite all his status research, returns to Harvard from the Graduate School of Business at Stanford University, where he spent 11 years. He was most recently the William R. Timkin Professor of Organizational Behavior and Strategic Management and senior associate dean for academic affairs.

Despite the theoretical, sometimes non-practical dimension to his work, Podolny straddles the Charles River comfortably, equally at home among the sociologists at William James Hall and the business leaders at HBS.

“There’s no business school in the world at which the actual impact of scholarship on management is as important as it is here. I believe that’s one of the things that makes this place great,” he says.

And while he admires those HBS colleagues who are able to develop pathbreaking ideas from grounded observation of managers in action, he believes that many of the fundamental concepts in sociology can be just as valuable.

“My value-added [at HBS] comes from not being as grounded in practice as some of my HBS colleagues,” he says. “Hopefully, my disciplinary background gives people some ways of looking at these organizational phenomena.”