How to capitalize on the nonmarket sustainability advantage

Why does ‘nonmarket’ matter?

• Traditionally, the political, regulatory, legal, and wider social considerations that occur outside the market, but which have an impact on a business, have been grouped under the heading ‘nonmarket’.
• However, as regulations, public policies, activism, and social expectations increasingly affect markets, and as stakeholders influence one another in unpredictable ways, leading firms are increasingly focusing on the impact that the nonmarket domain has on the bottom line and integrating market and nonmarket strategy.

How do nonmarket factors affect businesses?

• Nonmarket factors profoundly shape most markets; not least by impacting market size as changing laws and social trends dramatically expand or contract markets – and even give birth to completely new ones.
• Industry structure and competitive dynamics are also key factors. Intellectual property rules, for instance, shape the power balance between incumbents and new entrants (witness the pharmaceutical industry’s ability to maintain high prices through patents).
• Nonmarket influences on cost structures can result from policies such as carbon taxes, minimum wage laws, and trade tariffs, all of which have major effects on firms’ cost structures.

How to develop a nonmarket strategy

• Analysis. This involves mapping both issues and stakeholders. Companies need to assess their stage of evolution, how they interact in different arenas (legislative, regulatory, public opinion), and the power balance between stakeholders.
• Define goals and pathways. The next step is to set clear goals, build influential coalitions, identify key influence pathways, and plan tactics. This includes setting market-related goals (shaping regulations, influencing standards), defining focal issues and geographic scope, building coalitions with partners (competitors, supply chain players, NGOs, governments), identifying influence paths to reach decision-makers, and choosing appropriate tactics (lobbying, public campaigns, participation in standards bodies).
• Capacity checks. These can help an organization build competencies in areas such as stakeholder engagement, policy analysis, and social innovation. This involves developing human capital through hiring experts, training staff, and cultivating an externally engaged culture.
• Feasibility checks. Check the ethics of proposed actions, anticipate responses, evaluate resource requirements, and plan for contingencies.
• Implementation. Finally, execute your strategy with agility and adaptability.