In the last lesson, we introduced a framework for the analysis of nonmarket issues.
- Define the issue. A specific one-dimensional issue.
- Collect background on issue. Document key terms and concepts, historical context, status, and timeline.
- Identify and profile stakeholders. Name of stakeholder (firm, association, group, or individual), type of organization, and mission. Establish initial position on the issue and explain benefits stakeholder expects to realize from taking this position on this issue.
- Assess demand for and supply of non-market action across stakeholders. For each stakeholder, evaluate demand for nonmarket action (available substitutes, aggregate benefits, per capita benefits), and supply for nonmarket activities (effectiveness and cost of organizing).
- Predict amount of nonmarket action that a stakeholder can be expected to take. This is established by weighing the demand (benefits) of taking action with the supply (resources required) to take action. The greater the benefits, the more likelihood of taking action. The greater the cost (and considering available resources), the less likelihood of taking action.
In part 1 of the RPS case study, we accomplished steps 1 and 2. At the the end of this lesson, the case study will continue through steps 3, 4, and 5. We will illustrate how the framework is used to present a summary of an issue and the positions of stakeholders. This information (the outcome of nonmarket analysis) is used as the basis for forming a nonmarket strategy.
An effective business strategy is an integrated strategy that guides a firm’s actions in both market and nonmarket environments.
“When a firm chooses a market strategy, that strategy competes with the strategies of other participants in the market. Similarly, when a firm chooses a nonmarket strategy, that strategy competes with the strategies of others, including other firms, interest groups, and activists. That competition shapes the nonmarket environment and often the market environment as well. The nonmarket environment thus should be thought of as competitive, as is the market environment. Nonmarket competition focuses on specific issues, such as a bill to increase fuel economy standards, as well as on broader issues, such as open access to the Internet” (Baron, 2010, p. 36).
Market strategies position a firm to be competitive in the market place; to take advantage of market opportunities. Nonmarket strategies, on the other hand, work to shape the market environment in which a firm does business (the marketplace). For example, nonmarket strategies may affect regulation and public opinion.
In a market, firms compete with other firms. In the nonmarket environment, however, there are many other players. Motivated by self-interest or broader concerns, these other players may include individuals, activists, unions, advocacy groups, and non-government organizations (NGOs). We’ll refer to these nonmarket players collectively as interest groups.
Both firms and interests groups have nonmarket strategies. A nonmarket strategy addresses the issues on the agenda of a firm or interest group. The strategy has objectives and a plan of action that takes into account the strategies of all stakeholders engaged on an issue. This includes the strategies of those aligned with and opposed to the objectives of the firm or interest group developing the strategy.
So, the nonmarket environment includes both firms and interest groups competing for advantage on issues. When this competition takes place in the context of the institution of government, it is called public politics. When the competition between firms and other stakeholders takes place outside of the context of the institution of government, it is called private politics.
This lesson and the next lesson are about nonmarket strategy. In this lesson, we focus on public politics. The next lesson will address private politics.