Strategic Management in Non-market Environments

Analogues to the business world

• Make kill, but can you hold when scavengers come

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• Eat fast if you’re a cheetah Value Creation

Economic Activity

• Value Capture
• Power, Leverage Companies you create (the value you create) must be cognizant of the game to come (value capture)
• Boeing Site distribution throughout the US, most Congressional districts o Helps when applying/bidding for contracts
• 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)

How to ensure capture value o Spread out across the country (multiple congressional districts)

• Helps with getting funding (congressionally directed contracts)
• GM locations are more concentrated
• Operationally makes more sense, politics weren’t controlling decision making. However, when GM needs something from the government, it maybe in a worse position than Boeing Wal-Mart. Not in bigger cities o Local players (protected), politics can block entry.

Market vs. Nonmarket Environment

Market transactions are typically consensual and bilateral. Voluntary, fundamental 1:1 (bilateral negotiations between parties. Nonmarket transactions are rarely consensual and are almost always multilateral. The 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)

Can we create Ballot Security service arm, to help solve problems and also create profitability for the firm?

Quality issues

Communication/marketing plan Reach out to political parties, special interest groups Diebold should have known Bev Harris, taken her to call Diebold files suit under DMCA (may not have been the best idea in the non-market environment). Protecting access to information becomes a worldwide cause.

Politics is unstable

• Have to be farsighted
• Can not be myopic, take a short term view
• Pays to set the agenda (want to be the one who makes the proposal)
• The proposal helps define the winners and losers
• 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. Bring other interests into play. If there is a problem for you at the company level (e. g. , the 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 a corrupt fashion but for the greater public good) o Can expand to not just specific industry, but all businesses in the 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”). But think about is there a way that we can change the rules to benefit the company o Don’t miss the opportunity to change b/c have not considered it. Politics is about public good, but also fundamentally about “redistribution”. How can set a strategy to affect positively our organization?

Complication of Politics

People are motivated to go to the voting booths on moral concerns along with economics. 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 the context of trying to balance the federal budget)? Why was the tax introduced if will not have a large impact? It may have just been for the perception; create the impression that cares about fairness in the 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 the “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).

Not an accident that the bill does not apply to GM (b/c GM was on the committee working on bill). When making predictions in the political arena, are going to ask:

• 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? 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?
• The 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 the country
• Cross of manufacturers (Horizontal across Rent Chains) – Airplanes, Boats
• Distributed Politics Spreadsheet, Cemex case
• See spreadsheet for Distributed Politics notes Modified Lowi Matrix Cemex case notes on handouts

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