Organizational Identity and Strategy

In this reflection, I elaborate on Zuckerman (2000) and Carroll and Swaminathan (2000) and how both these papers highlight the importance of a salient, distinctive, and carefully coordinated identity for organizations. The unifying theme is their unequivocal emphasis on consistent organizational identity as a key driver for better performance, prolonged survival, and improved long-term prospects. A closer inspection of the articles, however, reveals subtle differences in how they invoke identity as a construct. To give an example, while Carroll and Swaminathan (2000) dig into the oppositional benefits of organizational identity to make a case for specialty breweries and their sustained emergence and expansion in a deeply consolidated market, Zuckerman (2000) focuses more on appositional features of identity by explaining why firms de-diversify themselves to fit into established market categories and norms.

Carroll and Swaminathan (2000) reconcile a seemingly counter-intuitive trend where a number of small-sized firms emerge and proliferate in markets that are highly consolidated and marked by a few big players – such as the US brewing industry. The authors argue that it is not uncommon for small-scale specialty businesses to emerge and coexist alongside large incumbents because of their ability to cater to a relatively niche market segment by satisfying a differentiated set of customer needs. As a result, the market stands effectively “partitioned” between generalists and specialists1. The organizational identity becomes increasingly central to the longevity and success of the latter because it allows them to convey more effectively what is really so distinctive about them that sets them apart from the mass production juggernauts and their cookie-cutter approach to business. Given this context, let us analyze how identity stirs action and the role commitment plays in the process.

• From an identity perspective, specialists are able to carve out a niche and potentially succeed in an intensely contested market because of their clearer self-concept – reflected in their narrower focus and distilled understanding of who they are and what they signify. The only way for them to survive and thrive is through differentiation, i.e. forging a distinct product identity and committing to it such that it is not easily substituted for something else in the market. Thus, identity becomes a critical resource for specialty brewers to protect their turf and withstand the competition.

• Interestingly, the product identity in the case of cultural goods such as beer is deeply tied to organizational identity. As noted by Carroll and Swaminathan (2000), organizational form is a key antecedent to the perceived authenticity of the product and given the broader setup, there is no tangible benefit to creating the pretense of authenticity (such as through differentiated branding by big beer manufacturers and contract brewers) in the long run. What this means is that there is no authentic product identity without an authentic organizational identity.

To this extent, identity affects action in the sense that specialty brewers in their pursuit of sustained differentiation and authenticity have self-imposed limits that constrain the choice of identities available to them and also their ability to span or straddle across them. By committing to a business model that fundamentally leverages consumers’ trust and patronage and derives value from perceived authenticity and differentiation, specialty brewers effectively make a side bet that encourages them, and rightfully so, to stay committed to their overarching focus of prioritizing product depth over breadth and deliver an authentic experience to their clients2. From a generalizability standpoint, increased specialization or differentiation is particularly a rewarding strategy in cultural markets where consumption is hedonistic and has direct consequences for an individual’s status and self-concept. For utilitarian products, however, I do not expect these findings to extrapolate.

However, there are limits to such differentiation, as being too distinctive could be detrimental for organizations by making them too atypical and obscure for the audience to easily decipher and evaluate. In that vein, I discuss Zuckerman (2000) and how his work sheds light on penalties associated with the oppositional features of organizational identity. Of the dif- ferent factors considered, central to his explanation of the increased likelihood of corporate de-diversification as a measure to forge a more coherent identity is the security coverage mismatch defined as “the extent to which the analyst who specializes in an industry fails to cover the firm” (Zuckerman, 2000). A failure to obtain a valuation estimate by an analyst specializing in the corresponding industry highlights tension arising due to the inconsistency between firms’ private and public-self placements, i.e., a disjunction between how analysts and by extrapolation the broader investor community perceive the firm and how a firm sees itself.

Further, given financial markets represent a highly regulated setting that promotes a standardized exchange among its various participants, there is little room for firms to resolve such inconsistency unless they willingly converge to shared norms and standards. As a result, organizations are predisposed to de-diversify when encountered with increased security coverage mismatch such that they can be slotted into well-defined industry and product categories and therefore achieve consistency between internal and external perceptions of self. Most importantly, the paper underscores the appositional benefits of a carefully crafted organizational identity. Not only it helps an organization become legitimate in the eyes of its audience but also it aids social comparison, which is a must if an organization wants to be rightfully compared to its closest peers and enjoy the desired position or status amongst them. Such possibility is precluded when organizations fail to adhere to category systems that order the market