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Summary Nonmarket strategic management
- Instelling
- Radboud Universiteit Nijmegen (RU)
Summary of the book for the course Strategy and Non-Market Strategy. Summary includes pictures from the book.
[Meer zien]Voorbeeld 3 van de 26 pagina's
Voorbeeld 3 van de 26 pagina's
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Voorbeeld van de inhoud
CH1 Genesis of the nonmarket fieldIntroduction
Four main perspectives provide an adequate overture for the nonmarket concept.
Neoclassical economists
According to this perspective, nonmarket forces regulate exchanges between economic actors
outside the market system. Neoclassical economics focused on the determination of prices, outputs,
and income distributions in markets by means of supply and demand. According to this perspective,
market institutions and firms were hereby separated from nonmarket institutions and the
relationship between firms and markets was explained by either exogenizing nonmarket factors or by
neutralizing their effects altogether. Analyzed from a transaction cost economics perspective, higher
hierarchies (i.e. institutions) complement or often intervene where market mechanisms fail to
manage transactions within or between organizations. A main line of criticism of this perspective is
that it is deficient in considering the implications of political, social and legal factors on market
mechanisms or economic activity.
Organization theory
This stream commenced to regard nonmarket matters as various factors which do permeate
economic exchanges of individual firms, as well as intra-organizational and inter-organizational
collaborations. The organizational theory perspective regards nonmarket mechanisms as cooperating
with market endeavours. Organization theory presumes that there are issues regarding exchanges
that cannot be completely foreseen or regulated by market mechanisms or transaction costs
economics which are both rationally bounded. This led to the need for nonmarket exchange
mechanisms, around two elements. First, nonmarket exchange mechanisms became necessary for
improving the efficiency of market exchange mechanisms as they are plagued by information
asymmetry, property rights, etc. This constituted the crucial moment for nonmarket appearance and
normative rules. The main critique of this perspective is that it neglects to consider social aspects'
involvement in market activities or exchanges, and it overlooks the informal and formal aspects of
economic activity or market mechanisms. Another point of criticism is the utilization of economic and
sociologic terms which is far from consistent in the literature related to this perspective, leading to
treacherous analogies.
Political theory
Political mechanisms complement the nonmarket field by discussing 'voice' mechanisms, referring to
politics. It adds to the organization theory stream which considers hierarchies as solving market
failures. In this case organizations used 'voice' mechanisms to appeal to higher hierarchies or
institutions. Society's welfare would be optimized only when all organizations (mainly of market
nature) compete among themselves. Nonmarket 'voice' repairs market failure or inefficient market
mechanisms and political mechanisms complement the nonmarket environment as related to power.
The coercive use of power by political institutions strongly differs from the nonmarket concept in the
previous perspective, where it is regarded as a cooperative and normative mechanism used by
institutions capable of resolving conflicts (regulatory institutions).
Sociology
According to functional sociologists economical factors, normative rules and voice mechanisms are
not enough for societies to survive. For survival, in addition, societies need social integration, social
institutions, collective interests, and motivating values. Nonmarket aspects are regarded as often
conflicting with interdependent market ones. From this perspective nonmarket institutions were
regarded as generating wealth, power, solidarity, and social order. Social institutions were regarded
,as rules and regulations insuring social welfare and buffering the society from possible consequences
of market failures.
Sociologists use the term 'social institutions' to refer to complex social forms that reproduce
themselves such as governments, the family, human languages etc. 'A complex of positions, roles,
norms and values lodged in particular types of social structures and organizing relatively stable
patterns of human activity with respect to fundamental problems in producing life-sustaining
resources, in reproducing individuals, and in sustaining viable societal structures within a given
environment. The main social institutions are organizations such as interest groups and the media.
The nonmarket concept
The economic subsystem is mainly enacted through market institutions and organizations. In this
context, nonmarket refers to exogenous non-economic subsystems, institutions and organizations -
political, social, and cultural - and to their distinct functions, issues and interactions with market
ones. The nonmarket environment refers to:
• Values expressing the purposive pursuit of public interests
• Internal and external interchange mechanisms of coercion and cooperation that complement
and balance competition in a reciprocal manner at various levels of interaction
• Relationships among market and nonmarket organizations resting principally on their actors'
sovereignty rights; and
• The conflictual integration in the light of their failures of society's economic, political, social,
and cultural organizations.
The nonmarket environment has two functions. It often supports transactions in the market
environment, but transactions in the nonmarket environment also focus on non-economical benefits.
The first main difference is that transactions in the nonmarket environment can be better seen as
interactions than physical transactions. Another main difference is that transactions in which the
actors are restricted to the market environment typically produce private benefits. Nonmarkets are
far less uniform and predictable than markets. Money has three functions. The first function is
exchange mechanism. The other two functions of money are a unit of accounting, and a store of
value. At the heart of nonmarket exchanges is not money but information.
Nonmarket environment issues, interests and values should be integrated with the company's values
and goals, in particular if the goal is long-term performance and sustainable competitive advantages.
This is known as creating shared value. Porter and Kramer defined the concept of shared value as
'policies and operating practices that enhance the competitiveness of a company while
simultaneously advancing the economic and social conditions in the communities in which it
operates. Shared value creation focuses on identifying and expanding the connections between
societal and economic progress.' The difference with corporate social responsibility is that it has
generally more a short-term orientation. CSR programmes focus mostly on reputation and have only
a limited connection to the business, making them hard to justify and maintain over the long run.
, Concluding remarks
The nonmarket environment should not be underestimated by organizations since this environment
influences the market transactions of organizations. The sustainability of an organization's
competitive advantage also depends on its ability to manage the influences coming from the
nonmarket environment.
CH2 Advancing the nonmarket environment
Institutions
Actors create institutions through a history of negotiations that lead to shared typifications of
generalized expectations and interpretations of behavior. Institutions are the rules of the game in a
society or, more formally, are the humanly devised constraints that shape human interaction.
Constraints are defines as formal rules and informal restraints. Informal constraints are more a result
of tradition and cultural tradition while formal institutions serve to solve the problem of trust and
protection. Institutions are categorized into three pillars: the regulative, normative and cognitive
pillar.
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