Strategy Non Market Environments

Strategic Management in Non-market Environments 05/11 – 06/11. Cheetah / Hyena video ? Analogues to business world o Make kill, but can you hold when scavengers come o Eat fast if you’re a cheetah ? Value Creation o Economic Activity ? Value Capture o Power, Leverage Companies you create (value you create) must be cognizant of game to come (value capture) Boeing ? Site distribution throughout US, most Congressional districts o Helps when applying / bidding for contracts o Decision making process in Congress ? If only worried about “capturing an antelope” (market environment), wouldn’t design locations for supply chain this way ?
Recognizing hyenas (non-market environment effects) o How to ensure capture value o Spread out across country (multiple congressional districts) o Helps with getting funding (congressionally directed contracts) ? GM locations are more concentrated o Operationally makes more sense, politics weren’t controlling decision making o However, when GM needs something from Government, may be in worse position than Boeing Wal-Mart ? Not in bigger cities o Local players (protected), politics can block entry o How negotiate, work around? Market vs.
Nonmarket Environment ? Market transactions are typically consensual and bilateral o Voluntary, fundamental 1:1 (bilateral negotiations between parties) ? Nonmarket transactions are rarely consensual and are almost always multilateral ? Market environment focuses on economics ? Nonmarket environment combines political science, psychology and ethics. Integrated, Managerial Strategy ? Goal as a Manager is to integrate Market and Non-market strategy Four I’s (way to analyze situation) ? Issues ? Interests ? Institutions ? Information Diebold Case ?

Risks (reputational, new technology) o Can we create Ballot Security service arm, to help solve problem and also create profitability for firm? ? Quality issues ? Communication / marketing plan ? Reach out to political parties, special interest groups ? Diebold should have known Bev Harris, taken her call ? Diebold files suit under DMCA (may not have been best idea in non-market environment) o Protecting access to information becomes worldwide cause ? Politics is unstable o Have to be farsighted o Can not be myopic, take short term view ? Pays to set the genda (want to be the one who makes theproposal) o Proposal helps define the winners and losers o Want to be the agenda setter Observations on Nonmarket Strategy & Analysis ? Issues generate nonmarket competition ? Market rivals can be nonmarket allies; coalitions can be effective ? Your choice of objectives determines who is aligned with and against you ? Alignments of interests are often issue-specific ? Business can represent those who would otherwise be unrepresented ? Institutional features matter; e. g. , Federal versus State jurisdiction ?
When attempting to stop an issue, proposing better alternatives is often effective o Bring other interests into play ? If there is a problem for you at the company level (e. g. , appearance of corruption), then form coalitions and work on behalf of coalition o J&J – partner with other pharmaceutical, healthcare orgs, activist groups (help assure people are not acting in corrupt fashion, but for greater public good) o Can expand to not just specific industry, but all businesses in area (e. g. , chamber of commerce), etc. ? When thinking about coalitions ask: who benefits from my success on this issue?
Goal of Course ? Don’t accept that rules are fixed (“rules are not fixed”) o But think about is there a way that we can change the rules to benefit the company o Don’t miss opportunity to change b/c have not considered ? Politics is about public good, but also fundamentally about “redistribution” o How can set strategy to affect positively for our organization ? Complication of Politics o People are motivated to go to voting booth on moral concerns along with economic o Sometimes issues that can be large motivators may not have as large an impact as other concerns
Luxury Tax Case ? 1990; Tax was introduced on luxury items o Huge political fight, tiny revenue generator (not important in context of trying to balance the federal budget) ? Why was the tax introduced if will not have large impact? ? May have just been for the perception; create impression that care about fairness in way that doesn’t create large new taxes for parties ? Core constituents feel that they “care about values they run on” ? May have been to help “reelection problem” ?
Opposed to tax: consumers of luxury goods, manufacturers of luxury items, retailers of foreign luxury items ? Supporters of Luxury Tax: foreign manufacturers of boats, people who don’t buy luxury items, domestic manufacturers of luxury cars, manufacturers of substitutes for luxury items, some NGOs (anti-fur, anti-diamong) o Not an accident that bill does not apply to GM (b/c GM was on committee working on bill) ? When make predictions in the political arena, are going to ask: o Who are important interest groups, who will have power on the issue ?
Large number of voters ? Wealth / contributions / participation of group ? Do you have connections with key members of Congress? ? Distribution of voters ? Ability to get media attention (celebrities, experts) ? Is the group organized? o Who has power, who has incentives? ? Can go a long way to making predictions once have the details of the situation ? What determines the incentives for action? o Magnitude of benefits will receive ? As a group ? As individuals (per capita) ? Substitutes and Opportunity cost ? How does this compare to other issues ?
Expected Return on Effort ? (how much work will take / what is expected impact) ? Potential reputational costs ? Luxury Tax Coalition ? Yachts – Not as many manufacturers, not as well distributed (concentrated in states like Rhode Island, smaller state) ? Foreign manufacturers are not voters – poor position when entering country ? Cross of manufacturers (Horizontal across Rent Chains) – Airplanes, Boats o Distributed Politics Spreadsheet, Cemex case ? ? ? See spreadsheet for Distributed Politics notes Modified Lowi Matrix Cemex case notes on handouts

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