Guru on the Radar: David Bach's Nonmarket Strategy

What’s the basic argument behind nonmarket strategy?
Increasingly competitive advantage can be built or lost outside of markets. That means there are huge opportunities for companies here but also immense dangers to anyone focused purely on the market side.

Is this a new thing?
Nonmarket forces have always been a part of the business world. But, in the main, companies have not given these matters much thought. They took the nonmarket environment for granted, as something that was given. It wasn’t seen as part of the playing field.

Firms ought to apply the same rigour to the formulation and implementation of nonmarket strategy as they do to the formulation and implementation of their regular market strategy. But this alone is insufficient. Firms then must integrate market and nonmarket strategies to make sure they are consistent and coherent. We are increasingly seeing that firms can create — or lose — competitive advantage in the nonmarket environment.

What has changed?
More actors are now affecting a company’s destiny. Think of how comments on an Internet blog can impact a company’s stock price. There are more regulatory agencies established by governments. Then, too, there are more NGOs and many of these can have an impact on your business.  We live in a 24-hour news cycle; so, when, say, headlines emerge about potentially harmful toys made in China, companies across the world have to be ready to respond immediately.

Who excels at nonmarket strategy?
 I’d cite BP. Sensing a change in its nonmarket environment — in this case, a growing concern about global warming and the future of the climate — BP decided to turn what would undoubtedly become a major challenge into an opportunity and a source of differentiation. BP was the first major oil company to publicly acknowledge the reality of global warming and to take steps to curb CO2 emissions. This nonmarket repositioning is now driving much of BP’s overall strategy as the company has become the world’s largest producer of solar energy. A new slogan — “beyond petroleum” — sums up the new strategy.

To BP, this repositioning is not simply a matter of corporate social responsibility. It is rather a comprehensive strategy to anticipate nonmarket change and to manage the risk and possible regulatory fallout from this change proactively. BP has turned what would have been a major political challenge into a potential source of competitive advantage. It now consciously manages relations with political and social actors and tries to strike the same chord in its market and nonmarket communication.

Is the nonmarket message now more readily understood?
Yes. More and more companies are realising the importance of nonmarket challenges and are beginning to manage nonmarket issues proactively. In primary and consumer goods markets in particular, market competition has intensified with privatisation, globalisation and shortened product life cycles. Nonmarket differentiation, therefore, offers tremendous opportunities for competitive advantage. I am convinced that nonmarket management — the conscious exploitation of opportunities in the firm’s political and social environment — will be a defining feature of global competition over the next decades. So far, much of our research has focused on the nonmarket activities of firms in developed economies. But it’s clear that there is probably as much, or even more, potential in developing countries and emerging markets.

Many managers are uncomfortable straying into politics because they feel they don’t have any tools for it. Nonmarket strategy, we think, gives managers the kind of tools they need to build competitive advantage wherever they can find it — within markets and beyond.

Author and consultant Des Dearlove is co-creator of the Thinkers 50