Dancing with Names: The Dynamics of Perceptual Creativity in Diversification

This paper brings the discussion of diversification into the symbolic-cognitive realm by examining how sub-category dynamics can be managed to enhance expert audiences’ creativity perception of the diversifier, or what we call perceptual creativity. We argue that when a parent firm’s tradeoff between legitimacy and distinctiveness in labeling offspring surprises industry experts, the perceived creativity in strategic decision- making creates a halo effect around the firm’s core business output. To test our argument, we identify two mutually exclusive and collectively exhaustive semantic strategies: semantic autonomy, which refers to disaffiliating the parent’s and the offspring’s names for intra-category differentiation, and semantic seeding, or affiliating the names for legitimacy spillover. Using unique panel data of high-end global fashion houses between 1998 and 2010, we find that a moderate amount of semantic autonomy enhances the perceptual creativity of the parent’s core business output (an inverte...