The Latins used the proverb “Homo faber fortunae suae”. That is, men are responsible for their fate. While I certainly respect the ancient culture of the Latin people, I would kindly advice Appius Claudius Caecus (supposedly the author of the quote) to be a bit less self-confident. Men (and women) are only partially responsible for their fate, and so are companies, even if sometimes we as teachers (I include myself in the critique) tend to ignore it. Companies typically perceive to be the sole – or most prominent – actors of their success but they ignore the myriad of actors operating within the same geographic area that can significantly affect their performance. I am talking about local governments, associations, unions, NGOs, media, companies that are not direct competitors, and so forth. These entities have a critical role that should never be neglected by managers; they shape the social, economic and cultural fabric of the area where companies operate.
How is that relevant to an MBA participant or a manager? To respond to this question I will pose more questions– Why do you think the most ambitious tech entrepreneurs aim to become relevant in Silicon Valley and not in London? Or why Portland, Oregon seems to be the capital of the hipster movement? My answer is simple; because the socio-economic fabric of the area where companies operate is critical to the success of these companies. Neglecting the socio-economic fabric can lead to the failure of your company.
There is more, the greater the scope of the goal pursued by an organisation, the more critical the role of the local fabric is. In my research, for example, I have focused on how organisations can tackle grand challenges- those problems that our societies have not yet managed to solve such as poverty, climate change, and inequalities. In a recent article, together with other three colleagues, we have shown how nonprofit organisations fighting against income inequalities need to operate in a local context where not only the competition but also the social, cultural and institutional factors are aligned, in order to effectively reduce income disparities. Combining multiple databases that capture the socio-economic fabric of 245 U.S. metropolitan areas over 6 years, we show that nonprofits are more effective at reducing income inequalities when they operate in communities with strong law enforcement capabilities, and less effective when they operate in politically conservative local contexts. We also found that nonprofits are less effective in demographically heterogeneous local contexts and when the government provides effective social policies, thus indicating a possible substitution effect between local governments and nonprofits.
This research shows that managers and entrepreneurs should be much more aware of the local fabric where they carry on their business and the dynamics occurring within such local fabric. The dynamics linking actors that do not engage in trades have been defined non-market strategies. Among these strategies, we include strategic alliances (both with other firms, with nonprofit organisations, and governments), lobbying activities, protests, interest groups, the creations of certification and so forth… Non-market strategies have determined the success of many of the biggest companies of our time, yet, curiously, business schools systematically and exclusively focus on market strategies, that is, all those relationships between companies and their immediate counterparts (customers, channels, competitors, suppliers) that are regulated by prices. Segmentation and disruptive innovation to gain a competitive advantage have become the buzzwords in most of the business schools around the globe (curiously showing very little segmentation and innovation!) and have vastly neglected the more intricate web of relationships that are so fundamental for their success, represented by non-market strategies.
My effort as a research and a teacher is to extend our knowledge of non-market strategies, particularly in the area of ecosystems for the creation of social value. I strongly believe that a manager needs to be aware of both the most relevant competitive strategies and how to use non-market strategies to shape the market environment around a business. Some of the questions that competent managers should be able to answer are: Do you know what are the local values of the area where you’re doing business and how these values affect yours and other firms? How open is the local government to the type of activities you are carrying out? Are there potential partners in your local areas that can help your company to increase the visibility and the success of your company? Are there entities, associations, or groups that may undermine your success? And what are the best ways to get them on your side? Mastering these questions means being truly on top of your strategy. Are you?
About the author:
Federica Massa-Saluzzo received her bachelor in Business Administration from Bocconi University, her PhD from IESE Business School, and her post-doc from the University of Bologna. She joined EADA in 2016 where she is a professor of strategic management. Before entering academia she worked as a strategy consultant. Her research examines how social value is created among stakeholders operating in the same ecosystem and has been published in top journals. Her research interests also include sustainable fashion and social innovation.