business analysis
ELEVEN NN
model4forstep5---functionalstrategies-howemergingmarketfirmsmaybecomeglobalchampions.pptx1
FUNCTIONAL STRATEGIES: How emerging markets firms may become global champions with few resources
Vipin Gupta
Center for Global Management
California State University San Bernardino
WMW
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Contrasting approaches to functional strategies
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Market taking: The firms achieve social cost-effectiveness and cost leadership by trading low value resources, relationships, and routines.
Market seeking: The firms achieve private cost-effectiveness and differentiation by exchanging high value resources, relationships, and routines at their market taking values.
Market taking vs. Market seeking as a functional strategy in emerging markets
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The market taking approach works as a functional strategy when the customers wish to actualize their desires fast, and have the purchasing power to fulfill their wishes – this is true in mature and affluent markets where time is a precious commodity.
In emerging markets: Customers aspire for high values in market exchange, and use social exchange for low values. Therefore, the firms don’t capture value through market-taking approach in the emerging markets – except for servicing customers with purchasing power.
Market making as an alternative strategy
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Low value market taking is not aligned with the desired values within emerging markets
Market seeking pushes the firm into high value mature market solutions
Market making is about transforming low value market taking into desired value solutions
It is about recognizing stakeholders of low value resources, relationships and routines, and servicing their power to become responsible for the desired values
Typology of business functions and stakeholders
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Functions and Stakeholders for Technological resources, Organizational relationships, and Ecosystem routines
Technological resources and market stakeholders: investments (money), know-how (method), technology (machine)
Organizational relationships and network stakeholders: workforce (manpower), vendors (materials), and customers (marketing),
Ecosystem routines and regulation stakeholders: operations (manufacturing power), leadership (motivating power), and governance (manipulating power).
Technological Resources and Market Stakeholders
Money, Method and Machinery
investors, mentors, and partners
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Monetary Power and the Firm
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Seek responsible investors
Market taking budget-oriented investment strategy
Firms establish budgets based on standards and expectations high financial returns
Market seeking opportunity oriented investment strategy
Guided by patient capital or capital raised based on the reputation of the firm, and credibility of strategic intent high capital appreciation
Method Power and the firm
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Seek responsible mentors
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Market taking codification-oriented specialized knowledge management strategy
discovering useful specialized knowledge, encoding and storing that into shared repositories, and retrieval of specialized knowledge that others have contributed (Hansen, Nohria, & Tierney, 1999) without reinventing the wheel.
Market seeking– abstraction-oriented generalized knowledge management strategy
developing deep relations with – or even acquiring – entities, so that they are able to consider ways of adding greater value for the customer as they share and apply knowledge to a common context leadership in the form of first-mover advantage.
Machinery Power and the firm
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Seek responsible partners
Market taking process innovating technology and innovation management (TIM) strategy
seeks most efficient combination of capital and labor costs.
When the unit labor costs are high larger scale capital-intensive technology.
When the unit capital costs are high labor-intensive techniques that operate at smaller scale without diseconomies of scale.
Market seeking product-innovating TIM strategy
Intelligent machines help search, collate, and gather new intelligence, and to create innovative, differentiated products; and define micro-segments of customer bases, to offer special experience.
Organizational relationships and Network Stakeholders
Manpower, Material, and Marketing
Workforce, vendors, and customers
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Firm and the Manpower
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Make workforce responsible
Market taking low commitment human resource (HR) strategy
relies on freelance employees who bring transferable skills and experience with them. The emphasis is less on compensating employees for their commitment to learn, but for their demonstration of high performance and talent.
Market seeking
high commitment HR strategy
employees with firm desired customer and product-specific skills and knowledge are enhanced through continuous training and learning, well-established career paths, and performance appraisal and feedback systems
Firm and Material power
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Make vendors responsible
Market taking predictable supply chain strategy
suppliers are qualified based on their cost-effectiveness in offering supplies of rather standard specifications in sufficient volumes and with short lead times.
Market seeking responsive supply chain strategy
engages mutual co-development efforts on part of the firm and its vendors, to learn about one another and to align capability development efforts. E.g. locating suppliers on the customer premises for purchasing or manufacturing lines
Firm and Marketing Power
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Make customers responsible
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Market taking utilitarian customer relationship management (CRM) strategy
Firms offer their products on an as is basis, to address those needs of the customers that can be efficiently met with the resources available to the firm.
Market seeking interactive CRM strategy
Co-designing product experience based on an interactive communication with the customers
Ecosystem Routines and Regulation Stakeholders
Manufacturing Power, Motivating Power and Manipulating Power
Operations, leadership, and governance
(Supervisors, Leaders, and Community)
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Manufacturing Power
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Develop responsible supervisors
Market taking – machinery (asset) intensive operations strategy
efficient exploitation of machinery and infrastructure traded from the market for servicing customers with specific set of needs / solutions
Market seeking – method (service) intensive operations strategy
More than a technical process, flexibility emanates from an organic service-mindset, with service personalization using reconfigurable software-smart light assets.
Motivating Power
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Develop responsible leaders
Market taking – material-intensive transactional leadership
conditioning the rewards, such as compensation, bonus, and recognition of employees on the accomplishment of specific objectives using specific capital assets, with limited expectation for learning or local decision making.
Market seeking – manpower-intensive transformational leadership
offers freedom or autonomy for people to develop and refine their competencies and to invest in resources and technologies; working towards a long-term vision of better future, and inspiring and developing others to bring about change.
Manipulating Power
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Develop responsible community
Market taking -- money-intensive private governance strategy
In the agency theory, stakeholders are viewed as part of an environment that a firm should manipulate to assure cost savings, revenues, profits, and ultimately returns to stockholders.
In the trusteeship or stewardship theory, manipulating function is endogenous to the organization based on the intrinsic worth of the intents and moral commitments of relating with the stakeholders.
Market seeking – marketing-intensive social governance strategy
Implications for Further Research
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Barriers to market making in emerging markets
Culture of power distance: seeking high purchasing power consumers
Culture of uncertainty avoidance: responsible behaviors are not credible ex ante
Culture of group collectivism: taking responsibility in conflict with self-governance
Culture of low gender egalitarianism: responsibility taking devalued as women role
Implications for the Strategy Discipline: Firm as Responsible Assembler-Engager
| Traditional view of the firm | Alternative view of the firm |
| Mediates market of contesting stakeholder influences | Crafts community of engaged stakeholders |
| Issues of market failure and need for the central role of regulation and competitive corrections | Enables proficient exchange through self-regulation and adaptations to competitive servicing |
| Pressures for creative destruction | Opportunities for dynamic growth |
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| Traditional market mediation view of the firm – Firm takes responsibility for promoting its cause | Alternative community assembler-engager view of the firm – Firm makes stakeholders take responsibility for a cause |
| How value is conceived? – Cause Integrity | |
| Firm seeks cost-effective money for its cause | Investors offer working capital for a cause to the responsible firm |
| Firm seeks cost-effective method for its cause | Mentors offer working method for a cause to the responsible firm |
| Firm seeks cost-effective machinery for its cause | Partners offer working machinery for a cause to the responsible firm |
| How value is created? – Entity Integrity | |
| Firm creates cost-effective human resource system | Workforce learns the value of being responsible for the cause |
| Firm creates cost-effective supply chain system | Vendors learn the value of being responsible for the cause |
| Firm creates cost-effective marketing system | Customers learn the value of being responsible for the cause |
| How value is captured? – System Integrity | |
| Firm captures the value of cost-effective (market) operations engaged with its cause | Supervisors become engaged with operational responsibility for the community’s cause |
| Firm captures the value of cost-effective (organizational) leadership engaged with its cause | Leaders become engaged with leadership responsibility for the community’s cause |
| Firm captures the value of cost-effective (network) governance engaged with its cause | Community becomes engaged with governance responsibility for the common cause |
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Alternative ‘Market Making = Market Taking’ Pathways
| Excludes stakeholders from primary decision making | Includes stakeholders in primary decision making | |
| Markets | Descending market making value, Ascending market taking value | Ascending market making value, Ascending market taking value |
| Networks | Descending market making value, Constant market taking value | Ascending market making value, Constant market taking value |
| Regulations | Descending market making value, Descending market taking value | Ascending market making value, Descending market taking value |
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Why institutional mediation raises market taking value, and reduces market making value?
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Low cause integrity without system raises market taking value, due to escalating costs of sustaining within system cause integrity
Low entity integrity without system reduces market making value, due to diminishing opportunities for servicing high integrity within system entities
Low system integrity without system impedes exchange proficiency, precluding growth in absence of systemwide international regulatory reforms
