Aligning for advantage : competitive strategies for the political and social arenas

257 Pages·2014·0.9 MB·English

by  Thomas C. Lawton

Aligning for Advantage

Aligning for Advantage
Competitive Strategies for the
Political and Social Arenas
Thomas C. Lawton, Jonathan P. Doh, and
Tazeeb Rajwani
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1
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To Katalin, Robin, and Carly

Preface
Samuel Johnson once noted that, “knowledge is of two kinds: we know a
subject ourselves, or we know where we can find information upon it.”1
Accumulating and utilizing information—facts, figures, and ideas—are essen-
tial to any strategic management process, allowing business leaders to answer
such questions as “What do our customers need?” and “What markets should
we be in?” Possessing the most robust, legitimate, and original information—
and doing so ahead of others—is key to gaining competitive advantage.
The same holds true in nonmarket settings, where social, political, regula-
tory, and cultural considerations constrain or facilitate business endeavors.2
In these contexts, the range and diversity of stakeholders and issues can be
daunting, even for the most seasoned managers. Despite this, businesspeople
routinely tackle challenges and opportunities that emanate from the politi-
cal and social environments in which they operate.3 Managers and entrepre-
neurs often view these interfaces as obstacles to be overcome rather than as
opportunities to leverage information, knowledge, and relationships to gain
competitive advantage.4 If managers do not fully understand the implications
of these contextual forces or appreciate how best to deal with their influence
and outcomes, they may respond with practices that are obsolete or ineffec-
tive. The result can be a corporate strategy that is no longer effectual in a com-
plex business environment in which subnational, national, supranational,
and nongovernmental actors and issues are increasingly important and even
vie with each other for authority and influence. For example, a U.S. company
doing business in Germany might have to understand and respond to regula-
tory demands from the European Union in Brussels, the federal government
in Berlin, and the provincial government in Munich. The company might
also need to consider the views and positions of nongovernmental organiza-
tions (NGOs) at all three levels and reconcile any variances in approach and
attitude. Local community groups and other stakeholders, such as employee
unions and trade councils, might also have to be considered. Therefore, as
Bach and Allen noted, if money is the currency of markets, information is the
currency of the nonmarket environment.5
In Aligning for Advantage, we advance a framework for aligning a com pany’s
business objectives and market positions with its political requirements
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Preface
and social obligations. Alignment is key, because companies are not sepa-
rate from, but embedded within, the political, social, and economic envi-
ronments in which they operate.6 As such, political and social strategies
must be aligned with overall corporate strategy to have an impact and be
successful.7 Our premise is that most companies should strive for a balanced
and mutually reinforcing approach to corporate strategy, political activity,
and social responsibility. In some cases, alignment may mean deep, strate-
gically embedded partnerships with governments, NGOs, or other stake-
holders. In others, alignment may take the form of looser, more ad hoc
collaborations with outside organizations and institutions. No matter what
the approach, however, the relationship between nonmarket and market
strategies should be conscious and deliberate, not accidental nor artificially
constructed. Truly aligned strategies seek to reconcile and modulate the
sometimes conflicting external demands that a company encounters in
a way that is appropriate for the firm’s geographic and market positions,
while at the same time leveraging the overall nonmarket strategy (NMS) as
a source of competitive advantage.
Consider these examples from three multinational enterprises (MNEs) illus-
trating the variety and complexity of interactions between firms and nonmar-
ket actors, and the various ways—defensive, proactive, and collaborative—that
firms respond to social and political pressures. After being accused by authori-
ties of allowing tainted products to be sold and receiving criticism for its water
resource practices generally, Coca-Cola developed an affirmative strategy to
encourage water conservation and efficiency practices in China and globally.
Organized partly through a partnership with the World Wildlife Fund (WWF),
Coca-Cola’s approach resulted in environmental sustainability benefits. But it
is equally valuable to the company’s market growth strategy in China, which
depends on a consistent, sanitary water supply. Similarly, DuPont turned its
environmental conservation and sustainability practices into market oppor-
tunities by developing products that conserve resources, save money, and pro-
tect against environmental threats. Also, Microsoft, after facing widespread
and rampant piracy of its products, partnered with the Chinese government
to promote licensed adoption of its products instead of pirated copies.
Aligning for Advantage starts from the premise that corporate political and
social activity needs to be synchronized with the business strategy process if
it is to add real value for companies. Furthermore, we argue that strategy for
industry and market competition and strategy for political and social con-
texts must be equally in tune with corporate vision, values, and objectives.
Research shows that the policy environment is a dynamic and self-renewing
system, populated by large and small companies, interest groups, and indi-
viduals striving to get their voices heard.8 In this world, companies—not gov-
ernment agencies, political parties, or social actors—are often center stage.
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Preface
However, as events such as the 2008–2012 global financial and economic cri-
ses illustrate, governments are resurgent and social actors within civil society
are also on the rise. In a world in which change is endemic, companies must
align strategies to take account of, and be ready for, any and all forces and
agents of change. Building on the view of companies as important political
actors,9 our central notion is that of strategic alignment: the organizational
process by which enterprises balance their political and social resources and
responsibilities with their business objectives to achieve industry and market
advantage.
Aligning for Advantage reveals that aligning market and nonmarket environ-
ments is a crucial determinant of corporate success.10 Some newer companies
such as Reddit, Sina Weibo, and Twitter have used their social influence to
gain an advantage over competitors, while established companies such as
Danone, Diageo, and PepsiCo have aligned their political and social resource
portfolio with their business objectives to create or enter new markets at
home and abroad, which has allowed them to sustain advantage. Of course,
for every example of strategic success there are examples of companies that
failed to adjust to political and social trends. The abortive GE-Honeywell
merger bid—shot down by European competition authorities in 2001—illus-
trates the downside of failing to align the business objectives and political
context of corporate strategy. In this case, the companies underestimated the
influence exerted by European Commission decisions on the corporate objec-
tives of U.S.-based companies.
When we refer to alignment, we have in mind two complementary ideas.
First, we explicitly argue for closer coordination between market and non-
market strategies. Secondly, we refer to alignment between those activities
and actions within the company that support and underpin strategy, and
the acknowledgement, assessment, and internalization of the external social
and political environment alongside those strategic processes and actions.
We believe that these two related forms of alignment constitute a form of
strategic fit between commercial and political/social strategy and between
internal and external factors and variables. The driving force that advances
and facilitates this alignment, however, must always be the corporate-level
vision and strategy of the firm itself, beginning with the senior executive
team. In other words, only when the value and logic of strategic alignment
between market and nonmarket—and internal and external environments—
are obvious and clear to senior management and only when it emanates
from the firm’s core vision and values can such alignment be achieved. This
process—together with the logic behind it—is the essence of this book.
Aligning for Advantage provides a strategic roadmap for enterprising leaders
who want to raise a business from a subordinate to a dominant market posi-
tion and for those who wish to retain a position of market prominence or
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