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. Much of the work on the topic emphasizes the importance of technological innovation for improving operational efficiency and/or product functionality . Accordingly, much of the work in the area has focused on understanding the development of technological capabilities and the dynamics of competition among different technologies. 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 behavior 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). While strategy scholars recognize that product meanings are a source of differentiation and generate price premia (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. Rooted in disciplinary assumptions about atomistic consumers with idiosyncratic preferences, strategy researchers view demand as largely exogenous and ignore its cultural embeddedness in social conventions that define the cultural meanings of objects and shape consumption choices. As a result, they have given limited attention to the question of how firms can strategically manage the symbolic value of their products. In this paper we propose a cultural perspective on value creation that can direct strategic organization research toward the systematic investigation of how producers engage with the cultural meaning systems that supply frameworks for interpretation and valuation of goods. To guide research in this direction we first discuss how products acquire cultural significance and then outline three core implications of these ideas for the strategy and organization of firms. First, we discuss how recognizing the cultural significance of products shifts attention from technological innovation that alters product functionality to cultural innovation that alters their cultural significance. Second, we explain the need to develop distinct cultural resources that enable firms to identify and exploit opportunities for cultural innovation. Third, we draw attention to the need for cultural intent defined as developing an explicit strategy for utilizing cultural resources to achieve specific cultural positioning for the firm’s products.