LIST OF ABBREVIATIONS
CHAPTER 1: INTRODUCTION
2.9. Absorptive Capacity Theory (ACT)
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mouth, user generated content and social commerce (Liang et al. 2011). These advantages allow organizations to improve their potential for value capture.
This study proposes that social media not only works for providing resources for the organization through customer contribution, but also as platform for value creation. The presented review emphasized the positive impact of social media on the value capture based on the interactive relationships between the business organization and its customers. Nevertheless, the presence, type and direction of the relationship between the social media and the value capture through social media based on the collaboration between business and customers has not been studies in the context of the UAE hotel industry. This leads to the identification of another research gap that can be addressed through the present research. Based on the findings drawn from the available literature basis, we can define another research proposition that social media is positively related to value capture through collaboration with customers.
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cannot be adequately put to an effective purpose (Zou, Guo & Guo 2016). Therefore, the focus of this section is to discuss the organization’s capability to integrate information at the time of value capture.
Therefore, the present section is aimed at providing a comprehensive understanding of ACT. The section is structured in conceptualization of ACT, the importance of internal and external factors of act in value capture, and the organization’s capability on acknowledging the value in co- creation.
2.9.1. ACT conceptualization
The present sub-section is focused on the concept of ACT, its importance and building blocks. The absorptive capacity concept is introduced by Cohen and Levinthal (1990, p.128) as” “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends”. This fundamental definition is detected in diverse works including the publications by Rumbaugh et al. (2012), Zou, Guo and Guo (2016), Butler and Ferlie (2019). With respect to the above definition of the absorptive capacity concept, ACT is presented as the theoretical branch aimed at the investigation of the absorptive capacity of a firm Cohen and Levinthal (1990). The importance of ACT theory is cited as where the organization can excel or fail to achieve the competitive edge sought through the use of SDL. Researchers have identified numerous criteria necessary for the fulfillment of objectives employing ACT. They include strategic innovation, the role of social media (Scuotto, Del Giudice & Carayannis 2016), and technological advancements (Roberts et al. 2012).
A majority of recent research regarding ACT has understandably focused on technological advancements as well as the role of social media in facilitating the integration between the
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participants, along with the development process within the organization. It has been noted that the increased use of new technologies allows the organization to boost their performance and productivity, as evidenced by Schlagwein and Hu (2018) who recognize the concept of international diffusion and linked it with internal validation through digital platforms. Supporting this validation process were three studies that focused on the assimilation process of technology as an external factor that impacts the organization and its performance (Cohen & Levinthal 1990).
This research was important to the development implications of technology on the value capture concept in that supported three qualifications important in the development of the ACT theory;
identification, assimilation and transformation. By 2002, research began re-conceptualizing ACT as a means of further facilitating the improved performance of the organization (Zahra & George 2002). The approach of Todorova (2007) to ACT combined the work from Cohen and Levinthal (1990) and Zahra and George (2002). The components of ACT remain the same (Cohen &
Levinthal (1990) and Zahra and George (2002) (recognize – assimilate – exploit). It also includes and highlight each component within the value capture framework. First, it is recognized the customer as the actor that produces the value of experience, thus posit knowledge activation. Next, further clarification of the social co-creation role as a platform which is triggered via the co- creation paradigm is needed. It is consistent with Bowman and Ambrossini (2000) studies, value capture established by economic factors and the perceived power relationship. Value capture is referred as “the appropriation and retention by the firm of payment made by customers in expectation of future value from consumption”, (Priem 2007).
Lane, Koka and Pathak (2006) undertook a systematic study of the diverse research works related to ACT finding that nearly 289 research papers had been published in 20 different journal articles showing that the interest in ACT and the organization was growing. The value capture topics
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collected from previously published literature focused on Value of Experience (VoE) are discussed below. The research work undertaken by Todorova (2007) has brought the ACT framework into the limelight. Reconceptualization and reintroduction are an important part of the ACT theory on the basis of the components mentioned by different authors. On the basis of the above studies, the customers are first studied as a producer of the value of experience and hence, they are regarded as the active participant of knowledge facilitators in the value process. This is followed by the role of social co-creation which is used as a platform for gathering information and using it in the transformation process. Bowman and Ambrossini (2000) mentioned that economic factors, as well as the power relationship, shared between the actors majorly impact the value capturing process.
The authors have further elaborated the concept of value capturing the retention process that is used by the organization.
Yet, because of the analysis undertaken by these authors, several concerns were uncovered related to the ACT approach, with several experts documenting how differences between internal as well as external factors could have a direct, negative, impact on the absorptive capacity of the organizations (Enkel, Groemminger & Heil 2017).
The constructs of the ACT have also been closely examined due to their 1) strategic role in the theoretical approach adopted by the organization in identifying the external factors that add to its knowledge, and 2) major role in accumulating as well as transforming the knowledge achieved in a manner that it can be utilized for the betterment of the organizations (Sun & Anderson 2008).
To further enhance the absorptive capacity of the organization, the application of this theory has been suggested using social media. Though, many studies have supported the fact that technology is one of the most important factors that impact the ACT, social media is also one of the new factors that help in developing a new business model. Therefore, it is believed that the different
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elements of ACT offer different outcomes. ACT’s main point is to fully understand the valuable new knowledge outside the organization through exploratory learning. “Thus, as long as learning involves new and external knowledge of the organization, the ability to absorb is the learning of the organization” (Sun & Anderson 2008). Figure 2.16 depicts the organizational use of social media with the integration of ACT.
Figure 2. 16: Organization uses of social media with integration of ACT (Schlagwein & Hu 2017, p. 200)
2.9.2. The Importance of Internal and External Factors of ACT in Value Capture:
The internal and external factors of ACT play a very important role in the development of co- creation within the organization. One of the most important tasks of the organizations is to collect the value from the customers with the help of the social platform. The external conditions include acquiring and assimilation whereas the internal conditions include transformation as well as exploitation.
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Many studies have been undertaken that distinguish ACT by these two internal and external components. We know that information technology is used by the organizations for enhancing their absorptive capacity for further development as well as for maintenance of the organization (Roberts et al. 2012). Even though many authors have claimed that ACT is generated by the organization as a result of the external conditions contributing to creating competitive advantage, others argue that the absorptive capacity is a result of the amalgamation of the internal and external conditions that facilitate social integration as well as innovation within the organization (Enkel, Groemminger & Heil 2017). Schlagwein and Hu (2017) support this statement with the help of empirical and theoretical studies undertaken by them. The absorptive capacity also enhances the innovation strategies adopted by the organization that facilitates the learning process and as a result it influences the capability of the organization. Therefore, the literature evidences that there are many different ways in which ACT can be utilized by the organization.
Social media integration is an important factor in ACT and is believed to offer valuable information that gives in-depth analysis on the use of social media in favor of the organization (Schlagwein & Hu 2017). According to Culnan, McHugh and Zubillaga (2010) social media implementation is an important strategy that can be adopted by the organization to develop the opportunities that are followed by the information gained from the customers. Co-creation encourages the organization to keep track of their customers and their activities that help in developing and managing the content of the organizational development. ACT can be the bridge for SDL. Absorptive capacity has the ability to obtain customer’s knowledge through digital platforms. Lane, Salk and Lyles (2001) build upon this concept of ACT to include cultural compatibility. There are three dimensions of ACT, and they are: identification, assimilation, and application. The first two dimensions are relational, while the third, application of ACT is mainly
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organizational. Whereby, SDL fall short of the specifics, as it pertains to the organization. ACT on the other hand, can be the bridge for our research of value co-creation and capture framework.
Limitated evidence is available on how the organization uses the value gained through social media in co-creation. Therefore, it is workt noting that ACT theory as well as SDL helps in value capturing by identifying the factors that facilitates value capturing.
2.9.3. Organization Capability on Acknowledging Value in Co Creation:
In order to capture value, it is first important to recognize the value, which is done with the help of value expectation studied through co-creation. Once customers start to interact with the organizations via social media platforms, they tend to share their ideas as well as experiences with the organization. Then, the social media manager recognizes this ideas and experiences on the basis of the co-creation ranks and also tries to identify that how well the social media platform has helped in receiving these ideas.
Research undertaken by Culnan, McHugh and Zubillaga (2010) illustrated the importance of Twitter and Facebook in Fortune 500 companies, and found that social media helps in enhancing the business value by facilitating the decision-making process, community building, as well as the absorptive capacity of the organization. Further, customers tend to record their value processing manually and in an unstructured manner. The organizations require these values in a more structured manner and hence, a report base is produced. The study thus focuses on the organizations’ capacity for capturing value from unstructured value, with co-creation coming into picture that helps in better collaboration between the customer and the organization (Culnan, McHugh & Zubillaga 2010). Recording the data collected through social media in a structured manner and continuous monitoring of this data are important suggestions that should be adopted
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2.9.3.1. Acquiring Value
The identification of value is followed by acquisition from a value experience and this is the main feature of ACT. Also, the information and ideas follow through the social media platform to the organizations if the customer has a registered account and through that account tries to connect with the organization. And from here, the organization collects and uses the information as and when required (Todorova 2007). This is supported by the work of Enkel, Groemminger and Heil (2017) who say that in order to gather external information collaboration needs to be developed.
Though a cluster of information is available through social media platforms, it is important to use co-creation to identify the relevant information and use it to the favor of the organization (Töytäri and Rajala 2015). The type of customer engagement is also crucial in this process as it influences the organizations’ value capturing activity. On the basis of the 2011 study conducted by IBM, the lowest customer engagement type identified was of engaged authors. This category of customer responded actively along with additional comments posted on their own post. The highest category identified was of the casual participant where customers responded occasionally (IBM 2011). This study was based on online platform and hence, can be used for online customer identification.
2.9.3.2. Absorb and Exploit Value of Experience into the Organization
Absorb here identifies the organization’s ability to detect information and then transform it in a meaningful manner. In order to achieve this, different processes are involved which is based on the organization’s co-creation strategy. The beneficial role of the social media interactions as a determinant of VCC and value capture are identified as an important factor for the creation of organizational strategy (Kuzgun & Asugman 2015). In this respect, Todorova (2007) has
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suggested analyzing the factors that facilitates correlation between assimilation and exploitation as an internal factor of ACT.
Customer relationship management is an alternative approach that has been suggested for enhancing the efficiency of the organization as this facilitates customer engagement. Though, this study limits the research work to co-creation. Experts have suggested that internal social media management should be adopted by the organization for identification and capturing of value as this helps in studying the unstructured value in easier manner (Culnan, McHugh & Zubillaga 2010).
The use of internal social media by the organizations has not been focused by experts. Wamba and Carter (2014) stated that once the organization is capable of identifying and assimilating the value many new opportunities can be grabbed by the organization. Here, ACT’s internal condition is utilized for evaluating and managing the value. Managerial role is of utmost importance here and Todorova (2007) has suggested certain managerial concerns impacting their role.
The first concern is regarding the failure in identifying the new knowledge that is required for further improvement Todorova (2007). The second concern is that in order to utilize the ACT theory at its best, it is important to use all its components and coordinate them. The third concern is related to the empirical study that should be conducted to enhance the efficiency of information absorbed externally. Therefore, the actions adopted by the organization influence the value capturing process to a great extent. So, many internal processes are required to be put in place so that the effectiveness and efficiency of the process is maintained. Like, the managers should decide over the level of customer engagement or the steps that are essential for absorbing the value, etc.
2.9.4. Summary and Research Gap - ACT
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The value capture informed by ACT relates to the relation between participation to obtain knowledge towards value creation and competitive advantage. The above study shows that the customer plays a very important role in the value capturing process as he/she is one of the active contributors in the co-creation process. Also, the customer is an active participant in all the processes that include creating, collaborating, as well as sharing relevant information, through the social media platform (Heinonen 2011). This means that whether it is an absorptive capacity theory or the dominant theory, the customer has always remained the main locus of the value-capturing process (Prahalad & Ramaswamy 2004). Prahalad and Ramaswamy (2004) acknowledge that SDL is the basis that forms the context of the theory of interaction, since SDL's definition of value creation differs from its definition, it is considered to use commodity-led logic. According to the SDL strategy, organizations cannot embed value in a product or distribution process, but rather create it with customers (Vargo & Lusch 2007). Prahalad and Ramaswamy (2004) proposed the DART model, which can be used to conceptualize the creation process and enhance understanding of customer behavior and cognitive processes. As a result, the model remains the most popular framework for guiding the creation of value scoundrels (Mazur & Zaborek 2014). It was, therefore, suggested that it was necessary to further explore the DART model, particularly in the area of conceptual and quantitative research (Mazur & Zaborek 2014). However, Ramaswamy and Ozcan (2018) cited a need for future research concerning the institutional arrangement of utilizing VCC applications based solely on digital interactions.
Also, it has been identified that the challenges related to the co-creation process is not identified easily as the value is continuously transferred from one actor to the other (Gustafsson, Kristensson
& Witell 2012). One of the most important facts that have been studied is that, if the competitors use these values and information in their favor, then there are very high chances that the value
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would be diminished. Therefore, this is an important challenge that should be taken care of by the organizations as this would directly impact the competitive role of the company in the market.
Hence, in order to manage this, it is important to reduce the gaps that have been identified after adopting the absorptive capacity theory. Furthermore, the identified beneficial role of the social media and the collaboration with customers for the VCC and value capture are creating new avenues for the development of organizational strategy (Kuzgun & Asugman 2015).
This finding opens the door for the definition of another proposition for the present research, related to the influence that the process of value capture through the social media platforms has on organizational strategy. This direction would contribute to filling the gap connected to the lack of empirical evidence created in the selected research context. After presenting an overview of concepts and the existing relations of VCC, the researcher in tends to extend and adapt the value co-creation concepts offered in SDL, ACT. Furthermore, the researcher will add the social media concepts with its sub-titles to provide a conceptual framework of value co-creation through social media.