MAY 2014
Professor Steven Callander
Faculty E228
Tel: (650) 736 2867
sjc@stanford.edu
Office hours: Thursday 3:30pm-5:30pm or
by appointment
Assistant: Stacy Diaz
Faculty E224
Tel: (650) 723 1120
Diaz_Stacy@gsb.stanford.edu
POLECON 230 – STRATEGY BEYOND THE MARKET
The performance of business is determined by more than interactions with customers and
competitors in the marketplace. Equally important to firm performance are factors beyond the
market environment. These factors can be thought of as forming the “rules of the game” for
market competition. The purpose of this class is to gain an understanding and appreciation for
what goes on beyond the market and to develop tools and frameworks with which to analyze it.
The “rules of the game” that emerge from beyond the market shape market competition and the
opportunities that are available to firms. For example, the rules governing protection of
intellectual property impact the advantages to “innovating” firms versus firms that are “fast
followers,” whereas trade restrictions, antitrust regulations, or rules governing mergers and
acquisitions determine industry structure and competitiveness. These rules, and in many cases
their enforcement, are not fixed, well-defined constraints, but are determined, implemented, and
interpreted by legislatures, government administrative agencies, judicial institutions, public
sentiment, and ethical consensus. The resolution of ambiguity and the direction of change is
neither exogenous nor divorced from strategic considerations. Rather, the process involves
interest groups interacting within a system of institutions that includes but is not limited to the
various branches of government, the media, and nongovernmental organizations. Both
competitive advantage and industry profitability are affected by this interaction. Therefore,
business strategies often must include actions to influence the outcome of the beyond market
process. The analysis and development of successful strategies to shape the rules of the game to
an organization’s advantage constitute the domain of strategy beyond the market.
The business environment beyond the market includes a broader range of interests, issues, and
institutions than does the market environment. These players and features cannot be successfully
analyzed with the traditional concepts of competitive advantage. For example, regulatory costs or
public subsidies can help or hurt all players in an industry, creating common interests among
what are otherwise market rivals. Navigating between competing and common interests
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frequently creates challenging strategic problems for managers and consultants that requires a
new set of tools. This need is particularly acute when a firm implements an innovative strategy,
operates in a rapidly evolving industry, or targets new markets in the global economy. Such is
the case in deregulating industries (telecommunications or energy) where one set of rules is
effectively being substituted for another, in e-commerce where important rules (e.g., on the
protection of intellectual property and on domestic and international rules with respect to privacy
or sales practices) appear open to change, or within the biotech and pharmaceutical industry
where rapid innovation may clash with ethical concerns, questions about patients’ well-being, or
about a certain technology or its distribution.
In addressing the beyond-market environment the class will adopt the point of view of managers,
consultants, and entrepreneurs. The primary objectives are to examine typical issues, to develop
a set of conceptual frameworks for analyzing beyond-market threats and opportunities, and to
practice forming effective strategies for managing in the entirety of the business environment
(market and beyond market). The concepts, skills, and analytical tools that students will learn in
the course rest upon a foundation of economic principles, political analysis, and, to a lesser
extent, social psychology and law. They identify patterns of behavior and outcomes, ways of
thinking about those patterns and outcomes, methods of analysis that facilitate understanding and
prediction, and, ultimately, the shaping of strategies to improve business performance.
The frameworks and insights we develop are applicable globally, in a variety of governmental,
regulatory or social settings. Our focus will be on developing the central questions that must be
asked and answered to formulate a beyond-market strategy. The questions we ask are common
across countries and cultures; it is only the answers that may differ depending on the particular
institutional context. Accordingly, we will consider a diverse set of cases and problems from the
U.S. as well as other countries, although our focus will primarily fall on the U.S. given the length
of the class. Student input on how the analysis of the environment beyond the market varies
across countries is welcome.
The intention is that by the end of the class you will be able to develop and apply integrated
strategies that address market and beyond-market considerations. This requires analysis of the
component parts of the business environment that is beyond the market. In each session we will
examine a component of the environment and focus on developing the optimal tactics at each
stage. At several points throughout the quarter we will aggregate this tactical knowledge, piece it
together, and develop an integrated strategy for a particular firm.
COURSE MATERIALS
1. Business and its Environment (BIE), (7th edition, Prentice-Hall, 2012) by David P. Baron.
This book was written specifically for the beyond markets class at Stanford and has been
adopted by several other leading business schools.
2. The class Coursework site. Readings listed in the syllabus will be posted to the coursework
site (in the “Materials” subfolder). I’ll also post additional readings and references that
emerge as well as class announcements and updates (important announcements will also be
emailed).
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COURSE REQUIREMENTS AND GRADING
The course requirements are mastery of the content of the readings, constructive contributions to
class discussions and activities, two study group-level exercises, and the final examination.
Grades will be assigned as a weighted average of three equal components – class participation,
group work, and the final examination. The final exam will be an in-class, open book, open notes
exam on Saturday, June 7, 9am-12pm.
CLASS SESSIONS
Class sessions will be conducted on a lecture/case-discussion basis. A typical session will be
based on the discussion of a case that exemplifies a particular aspect of the environment beyond
the market. It may also include a lecture that addresses a conceptual approach or develops an
issue, provides a setting for the topic being addressed, or integrates the class discussion and the
subject matter.
As such, you are expected to attend and be well prepared for every class session. If you must
miss a class, please send me a note prior to class. Absences are otherwise regarded as unexcused
and will be reflected negatively in your class participation grade. You may not make up for
absences by attending a different section of the class.
Copies of the day’s slides will be posted to coursework no later than 5pm on the day of the class.
Laptop Policy: I see no reason to have a laptop open during class other than to take notes. If you
wish to use a laptop for this reason, let me know and you should sit in the back row. Otherwise,
laptop use is not permitted in the classroom.
STUDY GROUPS
It is advantageous to meet as a group and discuss cases prior to class. Unless you are asked to
prepare a presentation, reaching a consensus is a subordinate purpose of meeting. The main
purposes of group preparation are to review and clarify readings, and to share and challenge
individual analyses of the case.
You are welcome to form study groups of your own choosing. Each group should contain 4-6
members. You will work in these groups for two class exercises. Groups must be formed shortly
after the first class session. The first assignment is due by the beginning of the second session.
Submit group information by 5pm on Wednesday, May 7, via email to my assistant
(Diaz_Stacy@gsb.stanford.edu).
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COURSE OUTLINE
SESSION 1 – MONDAY, MAY 5: INTRODUCTION TO STRATEGY BEYOND THE MARKET
This session introduces the concept of strategy beyond the market and its integration with market
strategy. We will walk through an example of a beyond market strategy to give an overview of
the importance and possibility that exists beyond the market. This session will also introduce the
two fundamental frameworks that we will use throughout the quarter: The “4 I’s” framework and
the “Issue Life-Cycle” framework.
Reading:
BIE pp. 1-16
The Master Switch: The Rise and Fall of Information Empires. Tim Wu.
Chapters 9 & 10 (p. 125-135 & 136-156).
Nb. Tim Wu refers to the “Kronos Effect” in corporate competition (he defines the term in an
earlier chapter). Kronos was the second ruler of the universe, according to Greek mythology. He
learned from the Delphic oracle that one of his children would dethrone him. Prudently, Kronos
proceeded to eat all of his children.
Required Task:
You are required to complete a short survey before the beginning of
today’s session (the survey will take only 5-10 minutes). You will receive
an email invitation and link to the survey several days before class begins.
SESSION 2 – FRIDAY, MAY 9: INFORMATION BEYOND THE MARKET: POLITICIAN’S INCENTIVES
AND INFORMATION FRAMING
“The Customer is King!” is a standard cliché in the business environment. As a result, firms
invest considerable resources and exhibit a relentless focus on communicating with their
customers. In contrast, a different focus is required beyond the market environment as business
fortunes are determined largely by non-customers. Non-customers differ from customers in many
ways. Non-customers include those who are indifferent to your products and unaware of your
firm, as well as those who openly despise you. Managing successfully beyond the market
environment requires that you learn how to communicate with non-customers and to understand
the role of information in determining the “rules of the game.” We will focus on techniques that
will enable you to leverage information processing to gain public and political support.
During the session we will discuss a variety of contexts and cases. General background
knowledge is sufficient.
Reading:
BIE pp. 52-62.
Assignment: An assignment is due today (it will be distributed at the end of the first class
session). You are to complete the assignment in subgroups of size 2-3 (by
breaking your study group into two).
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SESSION 3 – MONDAY, MAY 12: BUSINESS INNOVATION AND BEYOND MARKET CONSTRAINTS
A frequent attitude in Silicon Valley – and the entrepreneurial community generally – is that the
quality of the idea will take care of itself and that the government is irrelevant (not to mention
stuffy and bureaucratic). Time and time again this attitude has been proven wrong. Yet the
attitude persists. The rules of the game for a market are often set before the market even exists.
Understanding the rules that are in place and designing a business plan that takes them into
account is an important part of business innovation. We’ll explore these lessons through the
strategy pursued by Uber and the ongoing evolution of their business model. We’ll also review
the salutary experience of Prosper Marketplace, an innovator in the peer-to-peer lending
business, in preparation for Session 5.
Cases:
Readings:
Uber: 21st Century Technology Confronts 20th Century Regulation
Re-read Master Switch!
SESSION 4 – FRIDAY, MAY 16: INCENTIVES, COSTS, AND THE ORGANIZATION OF INTERESTS
Laws are byproducts of competing interests. Throughout the world democratic political systems
rely upon elected parliamentary or legislative bodies to pass laws, and on bureaucratic agencies
to implement, interpret, and enforce these laws. This session focuses on competing interests as
inputs in the policymaking process. A variety of different interests may become active on an
issue, and the session focuses on predicting the intensity and likely impact of interest group
activity. (Reference material on the U.S. government is provided in BIE, p. 175-180.)
The session begins the process of unlocking the “black box” of government by taking into
account the workings of policymaking institutions.
Case:
SOPA: The Media Industry Fights Online Copyright Infringement.
Reading:
BIE Chapter 6.
Assignment: In groups, submit a completed Distributive Politics Spreadsheet for the SOPA
case. Justify your (important) decisions on a separate page.
SESSION 5 – MONDAY, MAY 19: LEGISLATIVE STRATEGY
This session drills down into the study of legislatures. The focus is on concepts and methods of
analysis pertaining to agenda setting, pivotal voters, building majorities, and predicting outcomes
in majority rule institutions. This session explores the distinctiveness of the U.S. political system.
We will discuss these concepts in the context of health care reform in the United States in 20092010.
Case:
Reading:
Health Care 2010.
BIE Chapters 7 and 8.
“The Leader as Lobbyist.” Ginger Graham, Harvard Business Review, June 2001.
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SESSION 6 – FRIDAY, MAY 23: WHEN GOVERNMENTS COMPETE
By now in your MBA you have most likely heard many times that business strategy is global. In
this session we ask the question: Does beyond market strategy also need to be global? The
answer: Yes, but not as much. The differences in political institutions and preferences across
countries call for beyond-market strategies to be tailored to particular constituencies. This often
necessitates “multi-domestic” rather than truly global strategies. Nevertheless, in some markets
the global reach of products creates an interdependence of political decisions, to the point that
governments compete to shape global markets. To explore these issues we will return to the issue
of carried interest in the US and UK and, time permitting, the evolving shape of the internet
gambling market. This session will also wrap-up the class, bringing together our accumulated
knowledge and frameworks into a unified understanding of the beyond market environment.
Cases:
Carried Interest (primary)
Internet Gambling
** MONDAY, MAY 26: No class (Memorial Day)
SESSION 7 – WEDNESDAY, MAY 28: SHAPING MARKETS FOR GOOD
GUEST SPEAKER – BART HOULAHAN, CO-FOUNDER OF B-CORPORATION
In your travels you may have heard the pithy directive: “Change lives. Change organizations.
Change the world.” To that we need to add: “Change Markets.” Non-profit organizations are not
immune from beyond market forces. B-Corporation is one such non-profit that is explicitly
attempting to shape markets to achieve their socially desirable objectives. As such, beyond
market considerations were an integral component of their founding strategy. In this session we
will explore how social objectives mesh with the beyond market environment, being led by one
of the founders of B-Corporation, Bart Houlahan.
Background case:
Background reading:
B Lab: Building a New Sector of the Economy.
“Strategy and Society: The Link Between Competitive Advantage
and Corporate Social Responsibility.” Michael Porter and Mark
Kramer, Harvard Business Review, December 2006.
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SESSION 8 – FRIDAY, MAY 30: INTEGRATED STRATEGY
The purpose of this session is to put together the pieces covered to this point. We will devote our
time to analyzing the economics of the airline industry and how it is shaped by a particular piece
of legislation. The assignment calls for the development of an integrated strategy, requiring the
development of standard financial analysis subject to a political constraint.
Case:
Lobbying For Love? Southwest Airlines and the Wright Amendment.
(Case + Excel file – coursework).
Assignment: Using the tools and frameworks developed in Sessions 1-7, combined with
standard financial analysis, develop an integrated strategy for Southwest airlines.
Be sure to use the provided data (excel file) to fully support your position.
Submissions -- excluding figures, spreadsheets, and attachments – should not
exceed two pages. I will select one group (or more) at random to present their
analysis to the class.
SESSION 9 – MONDAY, JUNE 2: GUEST SPEAKER – CHRIS LARSEN, FOUNDER AND FORMER
CEO OF PROSPER MARKETPLACE; CURRENT CEO OF RIPPLE.
We will have a visit from Chris Larsen. Chris is the founder and former CEO of Prosper
Marketplace, and the current CEO of Ripple, an internet protocol for making financial
transactions.
Case:
Explore:
Prosper Marketplace.
https://ripple.com/
SATURDAY, JUNE 7: EXAM, 9AM-12PM.
In class exam on all assigned material. Open book, open notes, closed outside sources of
information (i.e., the internet, cell phones, etc.).
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