Professor Daniel Diermeier explores the influence of political
factors on the business environment
an executive at a company that has to dispose of a potentially
hazardous material. You turn your best scientific and legal
minds loose on the problem. They draw up a plan that seems
environmentally, legally and financially sound. You give the
green light, and disposal gets under way. But your team failed
to take into account the influence of a local environmental
group. Suddenly you're in the middle of a political and public-relations
all your planning and research, did this happen?
Daniel Diermeier would say it's because you didn't scrutinize
the non-market issues surrounding your decision. The non-market
environment includes the public and political factors that
can affect a firm's profitability, including interest groups,
public sentiment and ethical consensus. Few managers have
received a thorough grounding in how to think strategically
about the non-market environment. That's something Diermeier
hopes to change, at least for Kellogg students.
base their business on their intuitions from competitive market
analysis, strategy and two-person negotiations," says
Diermeier, the IBM Professor of Regulation and Competitive
Practices. "But if you apply those concepts to the political
arena, it just doesn't work. And politics has tremendous bearing
on the outcome of business decisions.
example, strength in market environments may lead to vulnerability
in non-market environments. Market leaders are preferred targets
for political activists seeking media attention, even if their
business practices do not differ much from the industry standard."
interactions are based on agreements, such as between a buyer
and seller, or an employer and an employee. These situations
can be described with two-player models, Diermeier notes.
"But politics is different," he stresses. "There,
the majority rules, and you can be affected by a decision
even if you don't agree with it. That's why it's so important
to understand the power of coalitions."
can include lobbyists, alliances within political parties,
and activist groups that seek to change consumer behavior.
Diermeier develops models that help predict how these groups
will behave with regard to decisions that can affect an industry
or firm's profitability.
a former professor at the Stanford Graduate School of Business,
joined Kellogg in 1997. He has won a major teaching award
every year since then, most recently the 2000 Best Teacher
Award from Kellogg's IEMBA program at the WHU in Koblenz,
Germany. His work has appeared in the American Economic Review,
The American Political Science Review, and The Journal of
Economic Theory, among other publications.
is a pioneer in the relatively new field of political economy
and non-market analysis, which emerged with the recent development
of game-theory tools that can incorporate politics into models
of economic behavior. Leaders in ethically and politically
charged fields may well find such tools useful during the
next decade. Rapid advances in healthcare and bioengineered
foods, for example, are likely to inspire new legislation
that will impact entire industries.
is vital that managers take control of issues and incorporate
them into every aspect of business decision-making,"
Diermeier says. "Most damage occurs because non-market
issues are exclusively relegated to specialists like PR people
about the potential for negative media coverage, for regulatory
activity," he urges. "If you don't think about it
until the damage is done, it can be very expensive and extremely
difficult to regain control of the process."