SVM has also very powerful insights if you work for the government, armed forces, or nonprofit organizations by overcoming limitations of traditional strategic management.

What is the "capital" of a government agency, its main "resource?" It's "political capital," political support, a good image with the public, and the ability to satisfy voters and tax payers.

Political "profits" are driven by their "power," which is dependent upon how the agency satisfies its customers and how the government satisfies its voters. In this case the competition can be a previous government, the opposition, a potential new entrant, such as a future president, or can be other alternative uses of taxpayer money. The strength of such power, as in business, depends on the strength of resources. Political capital provides the authorities with the ability to manage the budget and the revenues of each government agency.

Innovation is also fueled by political capital in the form of budget allocations. An agency needs resources to take advantage of opportunities arising from changes in political events, regulations, economic situations, demand, technology, personalities, etc.

Similar to business, any organization can apply the triad resources-power-innovation to analyze the strategic environment, strategies, and financial results.


SVM is a new way of thinking about strategic management. It proposes a higher degree of simplicity (and simplicity leads to perfection, whereas atomization leads to confusion), critical thinking, and consistency. This approach helps to develop IC: individual knowledge (simplicity enables higher understanding), organizational knowledge (by sharing a common understanding and language), and relationships (by leading individuals and organizations to build trust based on clear values).

This chapter shows how SVM creates awareness that stock value maximization is behind most business dimensions. This would not be a problem for many, as long as such maximizing became a win-win situation for the other stakeholders, namely, for the rest of society. However, as we saw earlier, this is not always the case.

Strategic "values" management should lead to deeper reflections strongly connecting business with the society: what are our values (personal and business), what makes us happy, what type of world do we want for our children, how do we build integrity rewarding those that share our values? The divorce of society from business management should end.

Strategic "values" management should propose a wider and integrated view: ultimately, how do we build a better world, how do we develop business visions, missions, cultures, and goals, consistent with our personal values. How should customers, investors, or shareholders, reward firms that care for the society, that act with integrity, that do not abuse their market power, are sensible for the environment and for human resources, and have global funds that do not speculate?

This is a challenge, but, as Adam Smith proposed, we need to consistently improve what we have.


Literature Related to Market Power and Resources

The first aspect that is critical for the firm's economic performance is related to the ability of the firm to compete with other firms. There are two relatively well-differentiated bodies of research that examine the sources of a firm's success.

Industrial Organization (IO) theorists Brandenburger and Nalebuff, 1 Chamberlin,2 Coase,3 Dixit and Skeath,4 Penrose,5 Fudenberg and Ti-role,6 Nelson and Winter,7 and Martin8 believe that the economic performance of a firm depends on the industry structure. Bain,9 the father of IO thinking, demonstrated that the profitability of manufacturing sectors in which the eight largest firms concentrated 70 percent of their sales were twice as profitable as sectors with lower concentrations. He also showed that sectors with high entry barriers (cost advantages, product differentiation, or economies of scale) permitted the incumbent to charge higher prices than strictly competitive prices. Michael Porter10 integrated and popularized the rich research developed after Bain, proposing his five forces approach, which provides strong linkages between industry structure, firm strategy, and profitability. This view was followed by various extensions, the most critical of which incorporated game theory into IO. Interestingly, Porter's second book (Competitive Advantage)11 is somewhat of a betrayal of his original view, showing that what makes a firm more or less profitable is its own value chain (a firm's internal aspect) and how its value chain compares to competitors' value chains.

This second approach came to be defined as the resource view of the firm (RVF, Coase, Penrose, Teece,12 Rottemberg,13 Rumelt,14 Barney,15 Reve,16 Wernerfelt,17 Dierickx and Coolr,18 Garvin,19 Conner,20 Ghemawat,21 Peteraf,22 Hamel and Prahalad,23 Eisenhardt and Schoonhovern,24 and Priem and Butler).25 Here, it is not the industry structure but the ability of the firm to develop unique inimitable resources that drives competitive advantage.

Empirical research has produced mixed results. Schmalensee26 drilled down into the components of Bain's cross-sectional work, concluding that industry effects impact 75 percent of variance of ROA, corporate effects do not exist, and market share has a negligible impact. Rumelt found the opposite: business unit effects are six times larger than industry effects. Rumelt states, "business units differ from one another within industries a great deal more than industries differ from one another." Roquebert, Phillips, and Westfall27 tried to reconcile Rumelt and Schmalensee's findings, but ended up supporting Rumelt.

McGahan and Porter28 introduced corporate effects, which they found to be less influential than industry effects.

In the battle of ideas the RVF (the firm as responsible for the success) appears to be the winner and IO (the industry as responsible for success) is an outdated perspective. This author disagrees. This chapter incorporated a contingent approach: both industry and firm factors matter. It demonstrated that industry factors are critical for businesses characterized by low market power, whereas firm factors are critical in industries characterized by high market power.

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