Click here for the article of the Financial Times, June 10 2009.
Last week, US President Obama defended government intervention in GM, the ailing automotive giant, as the company was filing for Chapter 11 bankruptcy protection. The US Government plans to own a 60 per cent stake in the company, something inconceivable in the past three decades.
Given the protagonist role of governments in business today and the foreseeable structural and cultural changes of the management landscape, business schools must adjust and explore a new paradigm for their relationship with government.
As governments become pivotal players in the economy not only as regulators, suppliers or customers, but also as shareholders and investors, entities such as public-private partnerships may well offer opportunities for research, teaching and consultancy and possibly suitable careers for MBA graduates.
It is interesting to note that the widespread management tool designed by Professor Michael Porter, called “The Five Forces that Shape Competition,” (taught in many business schools) depicting the major agents that determine a sector’s profitability, such as suppliers or new entrants, did not count the government among them. However, the circumstances of the present crisis anticipate a more intense interaction and greater overlapping between companies and governments, a blurred frontier between what is public good and what is private interest.
Historically, American and European business schools have put a different emphasis on stakeholders in strategy formulation and decision-making. Two decades ago, references to stakeholders in the US were discredited as borderline communist; the only relevant constituency for managers was shareholders. Conversely, European business schools have developed out of a very different management culture, open to a wider array of stakeholder groups beyond shareholders.
For example, the European business environment is characteristically regulated and governments have a decisive presence. Often as major shareholders in big companies but also through other instances such as awarding licenses, fixing tariffs, pre-emptively approving mergers or acquisitions or keeping various other prerogatives over companies’ decisions. For example, in Germany the law determines that unions should have a representative in public companies’ boards. In France the word “dirigisme” is often heard amongst French managers, referring to government’s strong interventions in the market.
There are some advantages for business schools in this new world of the resurrected “visible hand”. Firstly, civil servants, public administrators and politicians could become an increasingly relevant applicant pool for degree and custom programmes. Given the participation of governments in business through bail outs and regulation, government workers such as civil servants will need to update their knowledge and skills to run and understand these new functions effectively.
One area of big potential development is public entrepreneurship that is, preparing public officers with the mindset of creating value for citizens. Equipping public servants with an entrepreneurial, innovative mindset should help them to identify and create opportunities, a more proactive approach rather than just administering public resources. In fact, most management ideas and techniques can be translated into government practices, something that explains the growth of MPA (Master in Public Administration) programmes in recent years.
Second, CEOs and managers should realise the increasing importance of nurturing creative relations with governments and other stakeholders at large. A recent study at IE showed that CEOs at leading Spanish companies dedicate more than 60 per cent of their time to dealing with their company stakeholders - governments, media and opinion makers, unions, customer associations, NGOs and professional networks. The spheres of the private and the public are blurred and the profile of managers is becoming closer to that of politicians.
New frameworks are being researched by business schools to look at how to manage a broader array of stakeholders and create competitive advantage through these relationships. At some institutions one such area of research is described as non-market strategy. This calls for corporations to look beyond the traditional confines of the market (competitors, price etc) and find opportunities through interaction with groups such as government, regulators, NGO’s, the media and reshape markets in their favour. A number of corporations do this well, with a strong ability to manage these interactions, but many others are going to have to develop these attributes very quickly.
Yet business schools must not only research and teach these new approaches but practice them as well, as the management education sector faces greater scrutiny from a wider group of stakeholders than at any time in its history.
Santiago Iñiguez de Onzono is dean of IE Business School.