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Paper for the 5th LAEMOS Conference, 2014

A RECONCEPTUALIZATION OF BUSINESS VALUE: VALUE AND VALUES AS RECURSION

Rodrigo Magalhaes, PhD Kuwait-Maastricht Business School, Kuwait

Centre for Spatial and Organizational Dynamics, University of Algarve, Portugal Centre for Organization Design and Engineering, INOV, Lisbon, Portugal

rodrigo.magalhaes@inov.pt

ABSTRACT This paper is an attempt at providing a reasoned explanation about the conflicting forces of economic value and social and environmental values at play in every type of organization in the 21st century. Founded upon the notion of value-as-utility, it is proposed that economic value and social and environmental values have a recursive relationship working at the level of the individual stakeholder. The recursion is underpinned by another recursive relationship between two superordinate organizational aggregates: Service and Identity. The ultimate aim of Service is to enable economic exchanges that will benefit utility-seeking stakeholders. On the other hand, the role of Identity is to provide a background of yardsticks which enable stakeholders to form judgments and make choices about the company’s activities, including its services. The recursion between Service and Identity is driven by significance and meaning associated with utility in a manner similar to the mechanism of autonomous systems, responsible for the formation of cognition in living organisms. The paper concludes that in the future the trend will be for companies to pay much closer attention to their identities, thereby strengthening the heuristic rules that stakeholders follow in identifying and responding to perceived organizational challenges in their ongoing search for value-as-utility.

INTRODUCTION When we look at the macro trends that are shaping the organizational worlds of the future we see contradictory forces. We live in a world fuelled by ubiquitous, real-time data and information with ever faster enterprise LANs, telephony over IP data networks, mobile communications, and internet access unstoppably pushing towards more efficient production of goods and services. Such forces driven by technology and fostering ever more global trade converge to increase opportunities for the creation of more economic value. On the other hand, we hear about karma capitalism and other forces making companies consider the need to share the wealth and opportunities with the poverty-stricken parts of the world (Hammond and Prahalad, 2004). The trends pushing towards the creation of more economic value are the same as those proposing a re-think of capitalism as a basis for economic organization and raising awareness for the impacts on organizational life of the earth’s declining tolerance for the human species (March, 2007). Conversations about such trends are happening millions of times every day across social networks, and this is leading to the emergence of new attitudes and new values in the world’s organizational stakeholders. As societies grow to be more aware of the responsibilities of profit and non-profit organizations for the fate of the people and the planet, the pressure mounts for an

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acceptance of value creation as a multi-stakeholder issue, rather than just a shareholder problem (Edvardsson and Enquist, 2009). Beyond price, value can also be determined by exchange, production, labour or any other means which has merit in the eyes of the stakeholder. Such a perspective on value is known as value-as-utility, with “utility” being defined as value perceived by a stakeholder and reflecting his or her preferences for particular types of value. Stakeholder preferences arise from perceptions about how relationships or interactions with the firm may influence the utility the stakeholder receives (Harrison and Wicks, 2013). An important premise of stakeholder theory is that looking after the interests of the firm’s stakeholders is good for firm performance because it helps to focus on a number of dimensions other than economic performance. Together with social and environmental concerns, the creation of economic value makes up the so-called triple bottom line of sustainable development (Elkington, 1999). Sustainability is defined by the World Commission on Environment and Development as the need to ‘meet the needs of the present without compromising the ability of future generations to meet their own needs’ (United Nations Documents 1987, no page). Sustainability is then the overarching mission which legitimates the actions of organizations in the eyes of the public and contains the individual and collective values that inform many of the choices of organizational stakeholders. Companies that ignore their stakeholders’ apprehensions with regard to societal or environmental dimensions risk reducing the utility those stakeholders perceive from associating with the company. The cycle of causes and consequences between economic value creation and the social and individual values needed to support economic growth at the macro level of organizational activity has been widely discussed in the literature (Luo and Bhattacharya, 2006; Luo and Bhattacharya, 2009; Surroca et al, 2010; Waddock, 2008). However, there is a dearth of information about how business value and business values interact and shape each other at the micro level. This is a relevant research problem because it lies at the bottom of the dilemma between economic growth and social and environmental sustainability. The solution to such dilemma can only be found at the level of the individual stakeholder, given that the person who makes or influences decisions about making, buying or hiring a particular good or service is the same person who makes or influences decisions about social or environmental issues related to the making, buying or hiring of that good or service. In this paper we define value as utility as “anything that has the potential to be of worth to stakeholders” (Harrison and Wicks, 2013:100), while values of sustainability are defined as “values that help advance individual pursuits, generate practices that are mutually agreed upon, and ensure organizational sustainability (Florea et al, 2013: 396). Starting from such definitions, we propose that the link between utility-related value and sustainability-related values can be found in a recursive mechanism at play between two foundational forces in every organization: Service and Identity. The ultimate aim of Service is to enable economic exchanges that will benefit the parties involved, with such benefits being assessed by means of perceived utility. On the other hand, the role of Identity is to provide a background of yardsticks which enable stakeholders to form judgments and make choices about the company’s activities, including its services. Service and Identity structure and re-structure each other (Giddens, 1984) through a recursive cycle made of stakeholder perceptions.

Thus, we propose that Service and Identity are linked by a foundational cognitive mechanism which organizations share with all living beings, known as enactive cognition. Enactive cognition is a basic recursive function which enables any living

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organism to survive, grow and prosper (Varela, 1997). The remainder of the paper explores the concept of value, mainly from the point of view of stakeholder theory and examines the relationship between value for the business and values of stakeholders which, in the final analysis, also result in value for the business.

A STAKEHOLDER PERSPECTIVE ON BUSINESS VALUE

The idea of the creation of shareholder value as an essential concept of corporate governance and the final criterion for the success of managerial action has dominated much on the writing on strategy implementation and performance management (Bausch et al, 2009; Ittner et al, 2003; Kaplan and Norton, 1996; Rappaport, 1986). The emphasis on shareholder value has created the notion that value is solely about profitability and economic returns. Such position has been countered by stakeholder theory and the proposal that the firm’s performance must be defined as the total value created by the firm through its activities, with total value being defined as “the utility created for each of a firm’s legitimate stakeholders” (Freeman, 1984 cited by Harrison and Wicks, 2013: 102). The term “utility” is meant as the value that a stakeholder receives when engaging in any firm-related activity. With value being determined by price, labour, exchange or production, utility becomes the expression of the stakeholder’s preferences for a particular type of value (Harrison and Wicks, 2013). A central premise of stakeholder theory is that taking stakeholders’ interests into account helps firm performance by creating value along a number of dimensions, rather than just economic value. The interests of stakeholders can be defined in terms of the perceived utility they receive from their association with the firm. Harrison and Wicks (2013) suggest four types of perceived utility: 1) utility associated with goods and services, 2) utility associated with organizational justice, 3) utility from affiliation with the firm, and 4) utility associated with perceived opportunity costs. The first type – utility associated with goods and services provided by the firm – is the most obvious and although it refers mostly to customers, it is applicable to all the stakeholders. For example, suppliers give up a number of resources which go into the manufacturing of goods or services, in exchange for some form of payment. The utility associated with perceived organizational justice is very much connected with the previous type. Organizational justice is important to value creation because people value being treated fairly. For example, a supplier who is always paid within 30 days is likely to reciprocate by delivering the order in advance of what is contractually agreed. Moreover, the way a firm treats one stakeholder can influence the firm’s relationships with other stakeholders.

Utility from affiliating refers to the utility stakeholders receive from being affiliated to a particular organizations. Such utility occurs the organization embodies behaviors or values that are considered to be important for the individual stakeholder. For example, feelings of connectedness, esteem, and empowerment might be important for the employee of an organization. Utility from affiliation can also apply to membership in social networks and it may support cooperation and collective action that benefits all stakeholders involved. The three factors mentioned so far – utility from goods and services, organizational justice, affiliation – are interconnected. Perceived utility from goods and services influences not only perceptions of justice (particularly distributive justice) but also perceptions of utility from affiliation. Such overall perception of utility is weighted by the stakeholder with the utility she might expect to receive through an association with other firms for similar purposes, making her take a decision about

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which firm offers the best value. Hence, perceived opportunity costs are also a factor in establishing utility for the stakeholder.

IDENTITY AS THE LINK BETWEEN WHAT IS GOOD FOR THE STAKEHOLDER (UTILITY) AND WHAT IS RIGHT FOR THE COMPANY (SUSTAINABILITY) Stakeholder theory is often associated with Corporate Social Responsibility (CSR) and the Triple Bottom Line (TBL) approaches. In both cases, the emphasis is on companies taking into account social and environmental concerns alongside economic aims and objectives. The focus of CSR and TBL is different from the focus of stakeholder theory – while the former rely on relationships with the media and pressure groups, the latter emphasize the interactions of stakeholders with the company. In spite of this difference, CSR and TBL initiatives do play an important role in raising awareness and shaping the perceptions of stakeholders of individual companies. Perceptions of utility are created not only by the four types of functional and psychosocial drivers mentioned above, but also by values (Bhattacharya et al, 2009). Values are the final aim that companies target when planning CSR or TBL initiatives. They are driven by functional and psychosocial perceptions of utility, and they are the end-states that stakeholders achieve as a result of such initiatives. Values underlie and guide both personal and work behaviors and are defined as “end-states of existence that are preferable to the opposite mode or state” (Rokeach, 1973 cited by Florea et al, 2013: 395). Thus, the goal of sustainability depends to a large extent on the values of the people who work in organizations. Florea et al (2013) suggest a framework of individual values leading to sustainability-oriented practices that organizations should foster through their human resources function. Four individual values are proposed under the framework – altruism, empathy, positive norm of reciprocity, and private self-effacement. While the nurturing of values through the work of functional departments should be considered, we argue that the goal of sustainability is more likely to be achieved through the creation of organizational identity and identification. Identification with the organization was first conceptualized by Simon (1996: 44) as a cognitive and a motivational force that drives people to pursue organizational goals “at the expense of their own interests” and “to behave in a way that is altruistic from a personal standpoint”. Simon emphasizes that the key consequence of a personal identification with the organization is “a principal reason for carrying out economic activities in organizations rather than markets”. Identification is a circular process of identity formation that iterates between organizational sense-giving and individual identity enactment (Ashford et al, 2008). Hatch and Schultz (2000) suggest a multidisciplinary approach to link the concepts of identity, reputation and corporate identity. They propose that every organization has multiple images of identity, formed by tacit understandings sitting alongside overt forms of identity, i.e. artifacts. They define identity as the instrumental use of emergent cultural symbols or, in other words, as a text that is read in relation to the cultural context of the organization. The organization’s image, which includes the organization’s stances on sustainability, depends of two types of perception on the part of employees: (a) external image and (b) internal image. The external image summarizes the beliefs by organizational members about how external stakeholders, such as customers, suppliers and the general public perceive the organization (Dutton and Dukerich 1991; Dutton et al. 1994; Fuller et al. 2006). Thus, employees who are associated with a specific

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sustainability concern are likely to have stronger organizational identification if their organization is perceived as supporting similar concerns (Pratt, 1998). Similarly, the degree of identification with the organization depends on the organization’s internal image as perceived by employees. It should be noted, however, that for a variety of reasons perceived external image may not be the same as perceived internal image (Glavas and Godwin, 2013). Organizational identity has an important ethical component. Whenever organizational stakeholders take actions based on their perceptions of utility, they are making calls based on notions of ethics. Conventionally, ethics is taken to be the study of “the good”, which has been formalized into rules or codes. Unlike other disciplines such as medicine and law, in business and management organizations do not have explicit codes of ethics applicable across the board. The fundamental idea is that companies have a responsibility towards all individual and institutions that have a stake in them. The social contract that exists between the business and society is ruled on one hand by society’s rules (i.e. the legal system), and on the other hand by an ongoing negotiation between the two parties regarding the expectations that one party has of the other. While the first part of the contract is relatively straightforward, the second part is riddled with difficulties given the diffuse nature of the shared understandings of the issue at play (Williams and Aitken, 2011).

In order to face such difficulties a meta-ethical approach should be applied. By meta-ethical it is meant an approach which investigates the existence of ethical properties of action, rather than the prescription about how ethical decisions should be made or about the content of such decisions (Oliver et al, 2010). This is consistent with Stenberg’s (1998) balance theory of practical wisdom, where wisdom is defined as “the application of tacit knowledge, as mediated by values, toward the goal of achieving a common good” (Stenberg, 1998: 353). Wisdom is broader than ethics in the sense that it applies to any human problem involving a balance of intrapersonal, interpersonal, and extrapersonal interests mediated by ethical values. In attempting to achieve utility in their multifarious dealings with the company, organizational stakeholders are confronted with the need to balance among the various types of utility (or interests) at play. The yardstick for such balancing act is the “common good” or a “higher order organizational aggregate” that gives members of an organization a feeling a sense of belonging, identification or identity (Argote and Kane, 2009).

THE PROCESS OF FORMATION OF ORGANIZATIONAL IDENTITY

Stakeholder theory emphasizes that value creation must be seen from a multi-dimensional perspective; however it does not explain how stakeholder utility (and preferences) actually exert influence on value creation decisions with respect to principles of sustainability. We submit that the concept of identity provides an answer to such a question. Organizational identity is formed recursively by the emergent “identity understandings” that organizational members themselves generate and the identity claims made by the organization in projecting an identity to internal and external parties (Gioia et al, 2010). Such understandings constitute a powerful force pushing towards the convergence of values and ideals at work in all types of organizations.

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Organizational identity forms through a process gradually negotiated by organization members through their interactions with each other and with external stakeholders. It evolves through eight steps, which are summarized as follows (Gioia et al, 2010: 13):

1) Articulating a vision (composing and articulating ideals and goals by the leaders or founders)

2) Experiencing a meaning void (delineating boundaries and searching for a meaningful organizational identity)

3) Engaging in experiential contrasts (comparing past and present experiences) 4) Converging on a consensual identity (developing mutual conceptions about

who/what the organization is becoming) 5) Negotiating identity claims (sharing information and debating organizational

values) 6) Attaining optimal distinctiveness (being similar and being different) 7) Performing liminal actions (trying out behaviours and new ways of doing work) 8) Assimilating legitimizing feedback (receiving validation from external

stakeholders)

The process starts with organizational members (including external stakeholders) individually deciding the core attributes of who they want to be as an organization. In order to instill a consensual acceptance of such attributes, they need to make overt claims to each other and to outsiders. This leads to the last step in identity formation – being legitimized by valued audiences – the most important in explaining how stakeholder values exert pressure on value creation decisions. Organizations achieve legitimacy when their actions are perceived as “desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995 quoted by Gioia et al, 2010:28). Thus, once legitimization occurs, consensual understandings of the common good applicable to the firm are deepened, including a deeper understanding of the utility that stakeholders can legitimately expect to receive from their association with the firm.

SERVICE AS THE LOCUS OF STAKEHOLDER INTERESTS

Since the seminal writings of Adam Smith (1776) for explaining the creation of national wealth, economic science has been dominated by a manufacturing-based view which places products at the centre of wealth creation. This has traditionally led economists to treat value as the value added to final output and to ignore the knowledge and skills which need to be applied in the transformation of raw materials into useful products, as well as the actual utility as perceived by the consumer (Vargo and Lusch, 2004). The new perspective on service (the so-called service-dominant logic) points out that all economic exchange is based on service rather than “goods” (tangible output embedded with value). Goods are sometimes involved in this process in their role as appliances for service provision, but whether the service is provided directly or through a good, it is the knowledge and skills (competences) of the providers that represent the essential source of value creation, not the goods, which are just the conveyer of the service (Vargo and Lusch, 2004; 2008).

The service-dominant logic, inspired by the writings of 19th century economist Bastiat and early 20th century business economist Penrose, claim that the exchange of service is at the root of all economic activity. According to Bastiat (1860), the foundation of

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economic science are people who have “wants” and seek “satisfaction” for such wants, and although wants and their satisfaction are specific to each individual, the satisfaction of wants usually requires actions (services) provided by others. This leads to a definition of value (and value creation) focussed on the use that that someone gives to something (value-in-use), as opposed to the worth that someone is willing to pay for something (exchange value). Expressed differently, value can also be defined as “the comparative appreciation of reciprocal skills or services that are exchanged to obtain utility” (Vargo and Lusch, 2004: 7). As organizations grew in size, the skills-for-skills nature of exchange became masked. In a monetized society, money, goods, organizations and marketing systems have become exchange vehicles for the basic exchange of specialized skills between people.

The second influence of the service-dominant logic is Penrose (1959/1995) and the proposal that what makes a firm grow is the accumulated experience and knowledge from within (i.e. its resources) and not the price mechanism from the market. Two types of resources can be considered: operant and operand. The former are resources that can act on or in concert with other resources to provide benefit (create value), whereas operand resources are those which require action to create benefits. Operant resources are the skills and the knowledge, including the sharing of knowledge, which lead to the creation of competitive service. Thus, for the service-dominant logic service is the fundamental basis of exchange, which in turn is defined as the application of specialized skill(s) and knowledge. Service is exchanged for service (Vargo and Lusch, 2008; 2011) and value is co-created. It should be noted that value co-creation is not limited to the activities of a dyad in a service exchange; rather, it occurs through the integration of the company’s resources with those available from other service systems that can contribute to the company’s well-being. These systems include internal resources (e.g., own, employees), private resources (e.g., friends, stockholders), and market-facing resources (suppliers, other economic exchanges). The process continues as exchange occurs within the network and new knowledge and skills are generated (Vargo et al, 2008).

A SYSTEMIC LINK BETWEEN VALUE AND VALUES BEGINS TO EMERGE The stakeholder perspective on business value as utility discussed above gives us a picture of the firm as being placed at the center of a network of stakeholders whose behavior is influenced, in part, by the treatment other stakeholders receive from the firm (Harrison and Wicks, 2013: 107). Such a view of the firm is consistent with that of the service-dominant logic mentioned above, where service is presented as (1) the application of competences (knowledge and skills) by one party for the benefit of another; (2) a system of service-for-service exchange made up of a configuration of resources (including people, information, and technology) connected to other systems by value propositions (Vargo et al, 2008). Service ecosystems are made up of tiers of suppliers and customers from a first tier of direct interaction to various levels of secondary tiers of indirect interaction. They are defined as “a spontaneously sensing and responding spatial and temporal structure of largely loosely coupled, value-proposing social and economic actors interacting through institutions, technology, and language (Vargo and Lusch, 2011: 185). Service ecosystems are made up of heterogeneous stakeholders (employees, customers, suppliers) connected through value propositions and interacting to achieve shared goals. Given the primacy afforded to operant resources in the service-dominant logic, service

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ecosystems are seen as being composed of socio-economic actors, rather than physical goods. Actors interface with other actors, inside and outside the firm, and use their senses to determine how and when to respond or act. They use language, symbols and social institutions (such as monetary systems, law, etc) to make sense and regulate the interfacing and exchange (Vargo and Lusch, 2011). Service ecosystems are relatively self-contained and self-adjusting, constantly adapting to changing contextual requirements. Such contextual value creation can be seen as a permanent tendency of the system to increase its viability, that is, its survivability and well-being (Wieland et al, 2012).

An important component of this systemic approach is the view that all social and economic actors are essentially doing the same thing: creating value for themselves and others through reciprocal resource integration and service provision (Wieland et al, 2012). Hence, we assert that the mechanisms behind this new logic of value co-creation, service-for-service exchange and highly collaborative Actor-to-Actor (A2A) relationships are the same which will allow us to understand how utility moves from perceptions of economic value to perceptions of social and environmental values. We suggest that the missing link is the concept of identity. In other words, identity provides the contextual understandings that service-actors need in order to make judgments about utility. Moreover, we propose that the systemic links between Service and Identity are very similar in nature to the mechanism responsible for the formation of cognition in living organisms and which have been proposed by the enactive cognition school of thought (Varela, 1997; Varela et al, 1991). The next section of the paper contains a very brief introduction to enactive cognition, explaining how Service cause the emergence of a “web of significance” that shapes the perceptions of utility from the organization’s internal and external stakeholders, and ensures the continued generation of a (sustainability-oriented) identity.

ENACTIVE COGNITION AS THE BASIC MECHANISM UNDERPINNING THE RECURSION BETWEEN SERVICE AND IDENTITY Enacted cognition is the application of autopoiesis to cognitive science and artificial life. Autopoiesis is a Greek word, which means “self-production”. An autopoietic system is characterized as one that contains within its own boundaries the mechanisms and processes that enable it to produce and reproduce itself through closed organization processes of production (Maturana and Varela, 1980; 1987/1992). The aim of enacted cognition research is to explain the emergence of cognition at the level of simple organisms (Varela et al., 1991), as well as at the level of individuals and groups (Di Paolo et al, 2011; Froese and Di Paolo, 2011). For the proponents of the enacted approach, the term enactment is taken to mean interpretation or the act of bringing forth meaning from a background of understanding. Hence, knowledge (i.e. cognition) is the result of an ongoing interpretation that emerges from our ability to make sense of our world. The cornerstone of the enactive approach is the principle of autonomy. As Varela (1977; 1984) explains, the living being is a process of “being autonomous”, and self-production is the fundamental defining feature of such autonomy. In order to account for the autonomy of the living, two intertwined concepts are singled out: identity and domain of interactions. Such interlinkage and the phenomena that emerge from it are the basic foundation of the autonomy of living systems (see Figure 1).

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Figure 1

Varela (1997: 73) proposes that organisms are “fundamentally a process of constitution of an identity” and by identity he does not means a static structural description, but a unitary quality or a coherence of some kind, in a generalized sense. The organism’s identity is capable of generating interactions through the emergent outcomes of its operational closure, and given that operational closure is self-produced there is no need for a “central controller” in the process of identity constitution. Such emerging interactive capability and the domain of interactions it creates become “the source of informational, intentional or semantic values to all living organisms” (Ibid, p. 74). Thus, a domain of interactions is simultaneously the consequence of identity and the cause of the emergence of significance. Moreover, organisms do not passively receive information from their environments, rather they interpret such information. This means that organisms cast a “web of significance” on their world, an essential element in the regulation of the structural couplings between the organism and the environment. It is in this process of direct participation in the generation of meaning through their own action that organisms enact a world (Di Paolo et al, 2011).

The enactivist hypothesis has been taken up by researchers in the field of Artificial Life engaged in demonstrating that the work initiated by Varela can be naturally extended to encompass the development of the mind, as well as of social systems (De Jaegher and Di Paolo, 2007). The relationship between the enactive approach at its lowest levels (life) and at the highest level of social organization (institutions) is adequately described in the following quotations: “the life-support of agency that turns into the agency of life-support and “the substrate of the social is not just the space of meaning (communications, exchange) but also its inscription in living agencies, artefacts and oblique structuring of habits” (Di Paolo, 2009: 66). Building upon this logic, Magalhaes (2011) has proposed that organization design might usefully be conceptualized as a social cognition resulting from “the interplay between the habitual behaviour of its members, including its founder or its managers and a number of design rules rooted in the organization’s social history” (Ibid, p. 664).

VALUE-AS-UTILITY AS THE MEDIATOR IN THE RECURSION BETWEEN SERVICE AND IDENTITY As discussed above, the perspectives of stakeholder theory and of the service-dominant logic seem to converge on two important points: (1) stakeholders (or service-actors) interact in self-sustaining, service-oriented networks or ecosystems; (2) stakeholders are

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driven not only by the utility they receive from the firm but also by their ethical judgments regarding the treatment given by the firm to other stakeholders. On the basis of these observations we put forward a tentative explanation of the mechanisms that may lead value-as-utility to mediate between service and the emergence of a self-sustaining identity with strong sustainability-oriented values. Such mechanisms are based on the theory of (social) enactive cognition The social enactivist hypothesis is founded upon five tightly intertwined core conditions: autonomy, sensemaking, emergence, embodiment and experience. What this means is that for any organism to be able to know and to act in its environment, these five conditions must be present. Each is explained in turn and applied to our question about the mediating role of value-as-utility. Unlike the steps suggested by Gioia et al (2010) for the cycle of identity formation, the emergence of social cognition cannot be split up into neat sequential steps. The process is holistic with all the principles working simultaneously to produce collective perceptions. Only for purposes of description, we start with embodiment and experience.

For enacted social systems theory embodiment is expressed through coordination of interactions with a focus on understanding how the history of coordination might shape the patterns and internal structures of interactions (De Jaegher and Di Paolo, 2007: 490). Interactions and coordination of interactions are crucial in both processes – service and identity formation. Service ecosystems are made up of interacting actors and identity formation depends upon stakeholders interacting through overt (identity) claims made to each other and to outsiders (Gioia et al, 2010). Such continued embodied action will result in transformations in the stakeholders’ cognitive structures which are needed for adaptation and adjustments in a world of significance. These are the intermediate steps in the cycle of identity formation (Gioia et al, 2010) where experience gained through embodiment is continually being used by stakeholders in the search for better information about the choices that need to be made. As experience grows, the stakeholders’ notion of utility becomes more discriminating, leading to better choices. Experience and embodiment are glued together by sensemaking. Sensemaking is the process of direct participation of stakeholders in the generation of meaning through their own actions. The aim and direction of this process is the continued generation of the firm’s identity fuelled and shaped by perceptions of service and utility. In this manner, identity begins to cast a “web of significance” on the regulation of the couplings between the stakeholder and the company. The principle of emergence reinforces sensemaking as stakeholders make associations between cause and effect, while observing the consequences of new service initiatives on customer reaction or public opinion, for example. Emergence is about the formation of novel properties or processes as a consequence of the interaction of existing properties or processes (Di Paolo et al, 2011). Finally, the autonomy principle is applied, confirming the social nature of the recursive relationship between service and identity. The principle of autonomy is crucial in the sense that it establishes the independence of each stakeholder in determining utility. In cognitive enaction theory, autonomy recognizes the nature of perpetual flux which characterizes the sensorimotor couplings between perception and action. However, social enaction theory goes further and recognizes the role of the autonomous agent in constructing, organizing and maintaining such sensorimotor loops (Di Paolo et al, 2011). What this means is that, on one hand, internal stakeholders have the freedom to decide the core attributes of who they want to be as an organization. On the other hand, the principle of autonomy presupposes that

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internal and external stakeholders can take decisions and act on the basis of legitimizing feedback received from external parties.

CONCLUDING REMARKS Our aim in this paper was to contribute to the literature by proposing a reasoned solution to the dilemma posed by the conflicting forces of economic value on one side, and social and environmental values on the other side. Figure 2 contains a diagrammatic representation of the framework which sums up our proposals.

Figure 2

Founded upon the notion of value-as-utility, we propose that economic value and social and environmental values have a recursive relationship working at the level of the individual stakeholder. In taking decisions about either economic value or social and environmental values, stakeholders act on the basis of perceptions of utility which, in turn, take into account all aspects of the coupling between the stakeholder and the organization. Quite obviously, stakeholders will always opt for the choices which bring them the greatest amount of utility, and while such recursive relationship seems intuitive, the organizational mechanisms that underlie the recursion are not as clear. We have proposed that the recursion between value and values is underpinned by a virtual platform (Ciborra, 1996) made up of another recursion at work inside every organization between two superordinate organizational aggregates: Service and Identity. Service is the organizational junction where value is co-created through the interactions and exchanges of a network of resource-integrating and utility-seeking actors. This makes service a domain of interaction in the Varelian sense, simultaneously driving and being driven by the process of constitution of the organization’s identity. Service and identity interact and create meaning, and from this cycle of creation and sharing of meaning, perceptions emerge. This includes perceptions of value-as-utility by the organization’s stakeholders.

Given that service co-creation implies mutual dependence and reciprocal exchange, the utility-centered view of the organization gets drawn directly to the ethical behavior of the actors involved (Williams and Aitken, 2011). The self-maintaining loop of significance anchored on service practices and identity cognition is fuelled by a notion

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of common good, reflecting the ethical component of the organization’s identity. The common good includes image, reputation, customer and supplier relationships, level of red tape, transparency, ethical stance, social responsibility initiatives, etc. Given the level of information and awareness that stakeholders are subject to through conventional and social media, it stands to reason to conclude that in the future sustainability-oriented values will become powerful drivers of organization design (Parrish, 2010). The trend will be for companies to pay much closer attention to their identities, thereby strengthening the heuristic rules that stakeholders follow in identifying and responding to perceived organizational challenges in their continuing search for value-as-utility.

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