School highlights key to business success

PUBLISHED : Saturday, 19 April, 2008, 12:00am
UPDATED : Saturday, 19 April, 2008, 12:00am


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When British Petroleum (BP) noticed a change in the wind 10 years ago - finite oil reserves and a greater international concern about the impact of global warming on the environment - its senior executives did not panic, they diversified.

BP recognised early on that the problem could be the use of fossil fuels and turned a green strategy into a publicity coup.

That strategy - Beyond Petroleum - was a marketing success as the-then chief executive John Browne made the company partially green - investing in wind and solar energy, and biofuels.

The strategy was publicly praised and gave the company much credibility, particularly when people began to see that it was not just words, but there was action behind it.

And BP was ahead of its peers - which unfortunately meant it had further to fall, when things went wrong.

BP is a favourite case study of David Bach, who researches and lectures on non-market strategy at the Instituto de Empresa (IE) Business School in Madrid, Spain.

There are few people of his ilk at business schools, although their numbers are increasing as non-market strategy - how companies need to go beyond their everyday business to the environment outside the market - becomes vital if corporations want to stay ahead.

BP paid attention to the environment outside its immediate business area. However, it led to criticism that the firm had put too many resources into its new environmental policies while neglecting its operations side.

Professor Bach is less critical. 'It was unfortunate that they neglected the operational nuts and bolts, and it forced the resignation of the forward-thinking CEO John Browne. Because BP started investing in market diversification [at a time when the environment was increasingly a matter of public concern] it had caused tremendous public good will,' he said.

But it also meant that when things went wrong, the criticism came thick and fast. The firm toned down its environmental rhetoric.

Professor Bach said it was imperative for businesses to pay attention and know about all non-market aspects such as laws, regulatory practices, public opinion and government. If they did not they could lose out.

Masters in Business Administration (MBA) courses touched on those subjects, said Professor Bach, but not nearly enough.

The emphasis is on consumers and competition, and not on the wider world outside, where if a firm does not keep its eyes open its reputation may be seriously damaged.

Professor Bach lectures alongside fellow non-market strategist David Allen at the IE Business School.

Other top business schools, including that at Stanford University, also have highly regarded non-market strategy researchers.

For example, there is David Baron, professor of political economy and strategy at the Stanford Graduate School of Business, or Daniel Diermeier, IBM distinguished professor of regulation and competitive practice at the Kellogg School of Management in the United States.

Both of these academics have been at the forefront of non-market strategy since the 1980s.

'There are a handful of business schools which have political scientists or political economists who have different roles depending on the programme,' Professor Bach said.

'I'm not the exception, but it's not the norm either. I think the number will increase because many of these issues will not go away as companies are dealing more with the challenges of regulation and public policy.

'There are several core functional areas of management that have to be covered in an MBA programme,' Professor Bach said.

'If you look at the top level of MBA programmes you are trying to educate the next level of leaders in private and public life and that means you have to be able to engage in difficult political and social questions that may go beyond the day-to-day running of the business unit.

'Those former students will need to have opinions, and need to be prepared to engage if necessary. And that's what's starting to happen at the top business schools now.

'They are starting to confront their students with the problems of global injustice and ethics in addition to the core nuts and bolts of management, marketing strategy and accounting.'

Professor Bach teaches non-market strategy through 20 components, part of this is case studies, such as BP, Starbucks and Mattel.

In the case of Starbucks, it is about how the corporation has proactively turned itself into the 'community coffee store on the corner'. With Mattel it is about an international debate regarding quality and standard of goods, and supply line issues following the recall of thousands of toys made in mainland factories.

While many MBA programmes touch on non-market issues, Professor Bach feels there is too much emphasis on consumers and competition and not enough on teaching students about the other side of the coin - ensuring that the company has the knowledge and the network to cope with a crisis, or to be ahead of the crisis.

While most large corporations had a legal team, he said most of the time it had a reactionary rather than a proactive role.

Professors Bach and Allen teach students about competition policy and corporate strategy, activists, boycotts and private politics, and the limits of profit maximisation, among other issues.

Some students head into the non-government organisation (NGO) side after the course, but many will have a better idea from inside corporations on how to monitor regulations - ensure that the company has, for example, observers and lobbyists present in Brussels for any change in European Union legislation.

The corporation case studies, on what is good, what is bad, and how to react when things go wrong, are some of the best lessons for the future business leaders in Professor Bach's classroom.

In the past two decades, NGOs have become increasingly important and many companies are now building relationships with the larger NGOs such as Oxfam.

Corporate social responsibility (CSR) was an aspect of non-market strategy, Professor Bach said, but it certainly was not all about altruism.

He teaches students about Starbucks. 'They don't just sell you an overpriced coffee, they sell you a community experience. For example, they will have book drives for local orphanages and elementary schools, or sponsor the breast cancer awareness march in the US.

'But it's not all altruism. It reinforces the notion that the Starbucks store on the corner is part of your community,' the professor said.

He warned students that corporate social responsibility was only a small part of non-market strategy.

'Corporate social responsibility largely operates in that vein [of the activities of Starbucks described above], but CSR is really about what companies can do to create social benefit that goes beyond the social welfare they would create or generate with their normal business activities.'

Professor Bach was last year chosen as a thinker to watch for the future in the Thinkers50 rankings by Suntop Media, which identifies the most influential living thinkers in the field of management.