The cultural side of value creation

The question of how organizations create value has become a central question for understanding inter-firm competition and performance differentials (e.g. Coff, 2010; Lepak et al., 2007; Makadok and Coff, 2002; Nickerson et al., 2007). Much of the work on the topic emphasizes the importance of technological innovation for improving operational efficiency and/or product functionality (Adner and Kapoor, 2010; Brown and Eisenhardt, 1995; Tushman and Anderson, 1986). Accordingly, much of the work in the area has focused on understanding the development of technological capabilities (Helfat and Raubitschek, 2000) and the dynamics of competition among different technologies (Henderson and Clark, 1990; Tushman and Anderson, 1986). Whereas this line of research has contributed greatly to our understanding of value creation through technology performance improvement, it has also left unexplored the strategies for differentiating products on the basis of their cultural significance. Yet, research in a wide variety of disciplines, ranging from anthropology, to cultural sociology, and consumer behaviour, shows that consumers value products not only for their functional and technical performance, but also for their cultural meanings. The infusion of products with cultural meanings enables consumers to use these products to make statements about their personal and social identity and status. It is therefore well understood that consumers derive value not only from what products do (functional value), but also from what they signify in a given social group (symbolic value). Importantly, consumers pay premium prices for products that enable them to signal status and identity (Lawrence and Phillips, 2002; Ravasi and Rindova, 2008). While strategy scholars recognize that product meanings are a source of differentiation and generate price premiums (Porter, 1980), they also tend to view the activities that generate them – e.g. branding – as a part of the marketing strategy of the firm. More generally, strategy research has been criticized for its reluctance to delve into the demand side of value creation (see Priem, 2007). Rooted in disciplinary assumptions about atomistic consumers with idiosyncratic preferences, strategy researchers view demand as largely exogenous (Frenzen et al., 1994) and ignore its cultural embeddedness in social conventions that define the cultural meanings of objects and shape 452824 SOQ10310.1177/1476127012452824Ravasi et al.Strategic Organization 2012