Nonmarket Strategy? It’s a Whole New Ballgame

From the Gridiron to the Pitch

Introduction

(Note: A later version of this article was published with co-author David Bach in the Winter 2021 issue of the Rotman Management Journal)

Nonmarket strategy is about influencing the rules of the game. Markets don’t exist in a vacuum. They are embedded in webs of market-shaping rules, norms, and institutions. Leading firms have long sought to influence the nonmarket environment, traditionally by gaining political influence through lobbying, campaign contributions, and trade associations. But executives who limit nonmarket strategies to the old playbook are getting themselves in trouble. The recent dust up between ride-sharing services Uber and Lfyt shows why.

In early December 2016 Travis Kalanick, CEO of the start-up Uber, made what looked like a savvy political move by joining President-elect Donald Trump’s newly formed business advisory board. Much of Uber’s success had come from an aggressive nonmarket strategy built on an army of lobbyists and lawyers prying open local markets while simultaneously frustrating regulatory efforts to protect government-sanctioned taxi monopolies. Uber had recently doubled down on its political strategy, tripling its lobbying spend to well over $1 million. With the Uber CEO now having direct access to President Trump and senior members of his pro-business administration, the company’s nonmarket strategy looked destined to clear the path for further rapid growth. But Uber’s aggressive use of the old political playbook was about to blow up.

Trouble started with the very announcement of Kalanick’s appointment to the President’s Council. In the charged post-election atmosphere, anti-Trump activists blocked Uber’s San Francisco headquarters and employees were warned not to come to work that morning. Alongside the external protesters, internal dissent arose as well. One respected Uber executive penned an email critical of the new administration that quickly circulated throughout the company. These events, to an observant CEO, could have signaled something was amiss with Uber’s cultivated political advantages. Yet Kalanick cast stakeholders’ sentiments aside in a message to employees saying:

“our political party is called the Urban Mobility Party… we’ll partner with anyone in the world as long they’re about making transportation in cities better…”

As a strategy it was pragmatically, and self-servingly, aimed at senior government officials — the epitome of the old playbook.

But five days later, President Trump’s immigration ban blocking travelers from seven predominantly Muslim countries undid Uber’s strategy. Immediately following the announcement, crowds formed at major US airports to protest the policy. In New York, in solidarity with the protesters, taxi drivers at JFK mounted a boycott through social media using the hashtag #MuslimBan. Within an hour, Uber tweeted that it had turned off surge pricing, something the Twittersphere interpreted as an attempt to break the taxi strike and cynically gain market share. Inflaming matters further, Uber’s actions were lauded by the controversial Trump advisor Roger Stone in a tweet saying:

“@Uber stepping up in a big way for American people during the manufactured outrage against @POTUS. Unions don’t dictate the rules anymore.”

In short order, #DeleteUber was trending in a viral social media revolt. Uber managers tried to calm the storm, but found themselves instead having to defend Kalanick’s participation in Trump’s advisory council.

In the midst of the kerfuffle, Uber’s competitor Lyft released a statement entitled “Defending Our Values” saying:

“Banning people of a particular faith or creed, race or identity, sexuality or ethnicity, from entering the U.S. is antithetical to both Lyft’s and our nation’s core values. We stand firmly against these actions, and will not be silent on issues that threaten the values of our community.”

The post was signed by Lyft’s founders and included a $1 million donation to the American Civil Liberties Union. Before long, downloads of Lyft’s ridesharing app surpassed Uber in the Apple Store for the first time. Uber tried again to respond, releasing statements from Kalanick denouncing the ban as “unjust” and pledging a $3 million “legal defense fund” to assist impacted drivers. The company even modified is default message to anyone trying to delete the app. The standard “You’re a valued customer so we’re sad to see you go” was followed by “We wanted to let you know that Uber shares your views on the immigration ban.” But it was too little too late. On February 3, in the wake of the disaster, Kalanick sent a message to Uber employees saying he was quitting the President’s council.

If Uber was the loser in this round of nonmarket strategy, its smaller competitor Lyft was a winner. Lyft has seen double-digit advances in market share, gains taken from Uber, which saw corresponding double-digit declines in major markets across the country. The company further capitalized by reading the political sentiments of its customers. Less than two months after the incident, Lyft introduced a new opt-in feature that allows customers to round up their fare and donate the difference to a cause of their choice, from the ACLU to supporting veterans or the World Wildlife Fund.

Uber exemplifies the nonmarket dilemmas facing executives today. Society has historically looked to governments to resolve emerging social and environmental problems by setting the rules and regulations for business. But starting with the Reagan-era deregulation wave of the 1980s, and accelerating with the rise of the Internet and economic globalization in the 1990s and 2000s, we have witnessed a shift from “government” to “governance” as rule- and norm-setting authority has become fragmented and contested. Today, the rules governing market competition are as likely to be set by the US Congress as they are by voluntary standards established through organizations like the Roundtable on Sustainable Palm Oil (RSPO) or the Electronic Industry Citizenship Coalition (EICC). In fact, as the case of Uber and Lyft illustrates, de-facto rules can even emerge out of a high-profile twitter spat. This diffusion of rule-making across multiple arenas poses enormous challenges for managers. The dynamics of formal government-led rule-making and those in informal alternative arenas could not be more different. In fact, it’s as different as American football and European soccer.

The Gridiron versus The Pitch

While the objective of American football and European soccer is the same — to score the most goals– the games are vastly different.

American football is played on the Gridiron as a highly-structured contest with specialist players, clearly-defined roles, and carefully-rehearsed plays. Key decisions are made on the sideline by the head coach who can call a time-out to reassess or change up players. Effective teams strategically slice up their opponents with pre-designed plays, exploiting weaknesses previously identified by scouts. The rules of the game are so plentiful and complex that only the real experts know them all.

European soccer, in contrast, is played on the Pitch. The game is fluid and continuous with teams moving from offense to defense within seconds. Instead of specialists, every team member attacks, defends, passes, blocks and tries to score. On the Pitch, the players are on their own with no time outs to recover. They, not the coaches, make the decisions. The best teams use finesse to outplay their opponents, rather than overpowering them with brute force. And the basic rules are so simple that anybody can play.

For most businesses, the nonmarket environment has traditionally resembled the Gridiron. Drawing on their vast resources, firms like ExxonMobil, Boeing and GE send in their specialists — lobbyists, public relations professionals, government affairs experts, and lawyers — to advance a preferred public policy or prevent regulations deemed harmful to the bottom line. Businesses will also work collectively through industry associations, like the Chamber of Commerce or the Pharmaceutical Research and Manufacturers of America (PhRMA), to ensure sector interests are represented in the halls of government.

The Gridiron as a nonmarket arena is not going away — in fact it’s even enjoying a bit of a renaissance in the Trump era — which is why so many CEOs, including Uber’s Kalanick, initially flocked to the Administration’s business advisory councils. But in the last decade, it has lost its monopoly on structuring market rules. Instead, the Pitch has emerged as an alternative and increasingly important arena. Here, companies like Walmart, Unilever, Patagonia and Ikea engage with a cast of stakeholders — community groups, environmental NGOs, activists and non-profits — to collaboratively forge business norms that address pressing social and environmental issues, concerns that were once the sole responsibility of regulators. Play on the Pitch is ongoing and more fluid, with leadership and the locus of norm setting varying across issues and regions.

Why would companies like Unilever, Walmart and Patagonia step up to solve environmental or social problems when most executives have long expected governments to do so? They are responding to an array of forces driving rule making and the locus of influence off the Gridiron and onto the Pitch. Among these are the emergence of big global issues — think climate change, inequality, food security, public health — for which no single government has authority to regulate. In the absence of government action, citizens across countries instead look to business to step in. Millennials especially, as both customers and employees, expect brands to reflect their values and to take action. For millennials, quite simply, if a business can make a difference, it should. Global digital networks are also increasing both the public’s awareness of global issues and the transparency with which they can judge business’ response. This complex set of drivers has forced companies to engage with communities, activists, nonprofits and academics in tackling the world’s sustainability challenges. Executives are finding that Pitch participation is no longer an option.

For now, and into the foreseeable future, the two arenas will co-exist, something that complicates nonmarket strategy. The Pitch and the Gridiron so far have operated largely in isolation of each other with companies expressing this division organizationally through functional silos like Government Relations/Public Affairs and CSR/Sustainability Departments. But as the Uber example shows, the barrier between the two arenas is blurring and the game can move unexpectedly from one arena to the other. Kalanick and Uber were advantaged when the government was the locus of rule-making authority. But Lyft took advantage of a shift towards social media and public opinion, to gain the upper hand on its larger competitor.

Nonmarket success in the future will demand greater managerial sophistication, something that begins with understanding the different approaches to handling nonmarket concerns.

The New Playing Field of Nonmarket Strategy

Research suggests that different companies excel on the Gridiron or the Pitch, and that only a small number appear to be mastering both at the same time. Figure 1 captures four types of companies identified:

Football Pros

Football Pros master the Gridiron. They excel in the sometime byzantine rules of formal politics, know which legislators on which committee to lobby, can mobilize allies and assemble coalitions, and understand just what kind of information will sway decision-makers.

ExxonMobil is a classic Football Pro. The company’s dominance of US energy policy led Steve Coll, Pulitzer Prize winning author of Private Empire: ExxonMobil and American Power to state, “we do have an ‘energy policy,’ it’s just being directed by ExxonMobil, not Washington, DC.” In 2001, for example, when Vice President Dick Cheney led a task force to review US energy policy, his first corporate meeting was with Exxon’s chief Washington-based lobbyist. The resulting policy, not surprisingly, closely reflected the interests of Exxon and other fossil fuel producers. One hallmark of Football Pros is that they actively safeguard policy achievements. After Democrats took control of Congress in 2006, Exxon quickly shifted its focus to the other end of Pennsylvania Avenue, quadrupling its lobbying budget to $29 million in an effort to thwart climate change legislation.

Returns on lobbying are notoriously difficult to measure, but evidence suggests that mastery of the Gridiron can be incredibly lucrative. One University of Kansas study found that lobbying for corporate tax holidays produces a 22,000% return on the investment in influencing legislation. Measuring returns on lobbying indirectly, another study found that the biggest lobbying spenders outperformed the S&P eighteen years running. Indeed, lobbying can produce very tangible benefits. Much of Uber’s success has come through effective lobbying to open markets. When the Virginia commissioner of Motor Vehicles shut Uber down in 2014, for instance, the company dispatched lobbyists to the Richmond state capital to meet with the governor. Within 48 hours Uber was back in business.

Soccer Pros

Play on the multi-stakeholder Pitch is very different from the highly-structured world of the Gridiron. Unilever and Patagonia, for example, spend less on formal lobbying, instead developing deep expertise in working with a broad array of stakeholders to shape market and industry rules. Unilever CEO Paul Polman, as chairman of the influential World Business Council for Sustainable Development (WBCSD) and advocate for the UN’s Sustainable Development Goals (SDGs), has shaped rules, best practices, and expectations for his industry and beyond. By taking public positions on issues such as climate change and human rights, and working with community and NGO stakeholders, he has also given Unilever a unique market identity with customers and partners, a marked change from the past when the company’s reputation was driven primarily through portfolio brands such as Dove and Lipton.

Or consider apparel-maker Patagonia, a company well known for its environmentally responsible manufacturing practices. On Black Friday 2011, the company famously ran ads encouraging customers not to buy a new jacket to call attention to its Common Threads Initiative of Reduce, Repair, Reuse, Recycle for its clothing line. But the Patagonia has not shied away from advocating for environmental issues on the Pitch. In 1988, acting more like an activist group than a for-profit enterprise, Patagonia began a national advocacy campaign to protect California’s Yosemite Valley from commercial and urban development. Fast-forward, and today Patagonia is aligned with more a dozen activist stakeholder groups working to preserve public lands across the US, corporate activism that resonates with Patagonia’s outdoor enthusiast customers. As the Trump Administration has begun reversing Obama Administration protections of national monuments, Patagonia CEO, and activist-in-chief Rose Marcario, has vowed that the company would “take every step necessary, including legal action, to defend our most treasured public landscapes from coast to coast.”

(Political) Amateurs

Most athletes are amateurs, so the use of the term here is not pejorative. The truth is, most CEOs have their hands full running their business. Few have time to engage in Gridiron or Pitch rule-setting. That is especially true for the small and medium-sized enterprises (SME) that form the backbone of most economies. And yet, even Amateurs will benefit from understanding the logic of the two arenas.

The typical way smaller companies engage the Gridiron is via trade associations such as PhRMA, the Chamber of Commerce, or the National Association of Homebuilders. Many of these associations are Football Pros and exist precisely to navigate complex political rulemaking for their members. They enable smaller firms to bundle their resources and amplify political clout. In effect, smaller firms are outsourcing their nonmarket strategy to associations.

But smaller firms can similarly engage on the Pitch. An growing constellation of multistakholder groups have emerged to tackle sustainability concerns in a range of industries. The Sustainability Consortium, for example, establishes environmental standards for supply chains, and includes more than one hundred consumer goods companies and suppliers, many of which are SME. New mulitstakeholder collaborations like these are proliferating. In November 2017 alone, eight energy companies agreed to tackle industry methane emissions, ten car companies partnered to address ethical and environmental issuers around raw material sourcing, 23 companies committed to collaborate with NGOs to slow deforestation in Brazil, and over 200 companies and NGOs created the Apparel Impact Institute to reduce the environmental footprint of apparel and footwear. Small firms that engage in groups like these can magnify their visibility with customers and gain positive recognition from influential nonmarket stakeholders.

Aligned — the Two-Sport Athlete

It is the rare athlete — Jim Thorpe, Deion Sanders, Bo Jackson, Lolo Jones — who masters more than one professional sport. This is because the skills for success are not readily transferable. Likewise, because the Pitch and the Gridiron are so different, companies have separate government affairs and stakeholder engagement functions with teams of professionals whose training is very different and who rarely interact. But as more issues move to the Pitch, leading companies are recognizing that effective nonmarket strategy requires an integration and coordination among these different functions.

There are some standout examples of companies aligning their Gridiron and Pitch efforts. Beautycounter, for example, is a cosmetics company whose goal is to provide customers with safer cosmetics that are free of hazardous chemicals. The company has engaged on the Pitch with a range of nonmarket organizations, such as the nonprofit Environmental Working Group and the Environmental Defense Fund, to set standards for toxin free cosmetics. However, in 2014, after the European Union had restricted the use of over 1,400 chemicals in beauty products whereas the US had regulated a paltry 11, Beautycounter engaged on the Gridiron by launching a traditional advocacy and lobby campaign in Washington to strengthen US regulations.

If Beautycounter started its nonmarket efforts on the Pitch and later embraced the Gridiron, the reverse is true for Walmart. Until the 2000s, the company did not have a Washington, DC office, no permanent lobbyists, and a miniscule government affairs team — despite being already the largest private employer in the country. Confronted with a growing list of nonmarket controversies — from unpaid overtime, withholding employee benefits, environment damage, and destroying small Main Street businesses — the company decided to engage politically. “Over the years, we have thought that we could sit in Bentonville, take care of customers, take care of associates and the world would leave us alone. It just doesn’t work that way anymore,” then-CEO H. Scott Lee, Jr. told a Goldman Sachs retail conference in 2004.

In addition to staffing up in Washington and lobbying hard on key issues, however, the company also embraced the Pitch, particularly by working collaboratively to set environmental product standards for the consumer goods industry. In 2009, it was Walmart that founded the Sustainability Consortium as a multi-stakeholder collaborative of manufacturers, retailers, NGOs, community groups and universities. While Walmart was the driving founder, the Consortium is administered by Arizona State University and University of Arkansas. Typical of the Pitch, work is structured so that no single member can dominate discussions or decisions, with all findings shared transparently and vetted with stakeholders. Walmart implements the Consortium’s findings through its Sustainability Index, which sets environmental performance expectations for 700 product categories stocked on Walmart shelves. Illustrating the rising power of the Pitch, one executive told me, “Next to Walmart, the US EPA is nothing.”

More than most companies, Starbucks has managed to blend nonmarket strategy on the Gridiron and the Pitch. At the height of the controversy over President Trump’s travel ban, for example, then CEO Howard Schultz announced Starbucks would hire 10,000 refugees to work in its stores around the world. Conservative critics called on customers to boycott Starbucks, charging the company was putting the needs of refugees over deserving citizens like US veterans. This, however, played right into Starbucks’ mastery of the Pitch. Starbucks had in fact previously hired 10,000 veterans and they now came to the Starbucks’ defense, rebutting the company’s critics. Similarly, in 2014, when the company announced it would cover employees’ tuition to earn an online college degree through Arizona State University, Schultz was not only joined by ASU President Michael Crow but also by Arne Duncan, then the US Secretary of Education. In so publicly announcing a new employee benefit, the company effectively positioned itself on a critical public policy issue and also countered criticisms that Starbucks’ barristas embody pervasive underemployment.

However, the company’s public embrace of progressive positions does not mean it shies away from hardnosed lobbying on the Gridiron. In 2004, when Congress debated a law offering tax breaks to manufacturing companies, company lobbyists convinced the Senate Finance Committee that brewing espressos should count as manufacturing. The result was the “Starbucks footnote,” a law that saved the company more than $88 million over the following decade.

Towards a New Playbook

Future nonmarket success will hinge on a company’s ability to align their Pitch and Gridiron activities. Companies can do so by first aligning internally, ensuring actions taken by their CSR, stakeholder, government affairs, and public relations functions are coherent and mutually supportive. Once the organizational structure is in place, companies can begin to align externally, building nonmarket strategies that transparently and synergistically coordinate multistakeholder Pitch actions and with Gridiron political activities.

Align Internally
Building the organizational competencies needed to align nonmarket strategies requires bringing CSR and Public Affairs teams together to coordinate actions. Since these functions usually occupy similar levels on the corporate hierarchy, it falls to the CEO, supported by the board of directors, to mandate coordination. Harvard Professor Robert Eccles has long advocated for boards of directors to articulate the stakeholder interests and material concerns management should prioritize, an approach we agree with. The board’s guidance should also inform the CEO’s efforts to align its Gridiron and Pitch activities.

This type of senior executive leadership over nonmarket efforts coincides with the growing trend towards “CEO activism” on social issues. From Merck CEO’s public criticism of Trump’s travel ban to Microsoft’s president speaking up in support of DREAMers, executives are increasingly taking a stance on public issues. While millennial employees are cheering on their vociferous CEOs, companies need to exercise caution. In the past decade, CEOs have been losing credibility with the public. Across 28 countries, Edelman finds that only 37 percent of respondents view CEOs as very or extremely trustworthy. In fact, many respondents view non-C-suite employees as more credible than their senior executive bosses. Thus, part of the internal alignment effort is ensuring that employees from all levels the org chart are informed and can speak to the organization’s non-market commitments and positions.

With a CEO mandate, Public Affairs and CSR teams can begin their coordination efforts by developing a comprehensive inventory of the issues, stakeholder groups, collaborations and political concerns affecting the company’s ability to create value. The effort should focus on revealing and addressing any current or potential conflicts that arise from divergent Pitch and Gridiron activities while also identifying opportunities for synergistic nonmarket engagements. Starbucks’ public embrace of affordable college and giving Secretary Duncan a prominent platform, for example, earned the company political capital with Democratic Congressmen who care about the issue as well as education nonprofits and millenials struggling to deal with the rising costs of higher education.

Align Externally
Cynicism and mistrust are hallmarks of our time. Critics can pounce at the first whiff of hypocrisy making inconsistent positions on public issues a potential minefield for companies. Corporate stances on climate change, for example, have become an area of increasing scrutiny that is tripping many companies up. Nestlé, Philips, Shell and Vodafone, for example, have all signed declarations calling for major CO2 emissions reductions by 2020. Many have also made corporate commitments to reduce their own emissions, acts that have positioned them as Pitch leaders. However, they are also members of Business Europe, the EU’s equivalent of the US Chamber of Commerce, which has lobbied against strong climate enforcement in Europe. The inconsistency between these stances has not gone unnoticed by climate activists who are pressuring these companies to confront the apparent hypocrisy. Unilever has already responded to the pressure by publicly withdrawing from Business Europe saying they prefer working with “likeminded” organizations to drive green policies, a position that clearly aligns with the company’s highly publicized Sustainable Living Plan.

The furniture manufacture IKEA is also stand-out in aligning Pitch and Gridiron activities in the area of climate change. The company has long worked with NGOs on the Pitch, engaging with the environmental nonprofit World Wide Fund for Nature (WWF) on cotton production, conservation and forestry projects, in addition to climate. The company has also worked to reduce the climate footprint along its full value chain, engaging suppliers in energy efficiency projects while also working with customers to raise climate awareness and help them become more sustainable at home.

Actions like these have made IKEA a Pitch leader, but in 2014 the company took its climate convictions to the Washington DC Gridiron, joining a group of like-minded companies in lobbying members of congress to support clean energy financing legislation. The company’s CEO Peter Agnefjäll and Chief Sustainability Officer Steve Howard also joined People’s Climate March in New York to rally support for international climate policy. The CSO explains, “business can do a lot with the current regulations in place. But we also need strong policy leadership in order for us and others to accelerate innovation, and that is one of the reasons we are here in New York: to ask for stronger policy.” And don’t think IKEA climate position is all altruism; the company’s Products for a More Sustainable Life at Home line is a billion dollar business.

Carmaker Tesla has also found alignment between the Gridiron and the Pitch a powerful mix. The company’s mission is to “accelerate the world’s transition to sustainable energy” through disruptive technologies like electric vehicles, a stance that has made Tesla a Pitch darling. Meanwhile, on the Gridiron, Tesla has argued that traditional third-party car dealers are ill-suited to selling a disruptive product and has employed an aggressive lobbying, legal, and public relations strategy to change US franchise laws that ban car manufacturers from selling directly to consumers. These efforts have been synergistically supported by Tesla owners’ clubs along with environmental groups that have backed up CEO Elon Musk’s claim about the product’s distinctiveness and need for integrated sales channels. In a similar way, the disruptive home-sharing platform Airbnb has very synergistically deployed its “hosts” as a political force in tax and regulatory disputes in New York and other jurisdictions.

Tackling the Nonmarket Dilemmas Ahead

Germany’s national soccer team is widely seen to have won the 2014 World Cup because of an innovative strategy that systematized and choreographed team strategy. Coaches employed pre-rehearsed plays while simultaneously leveraging big data analytics to scout opponents’ weaknesses. In other words, the German team excelled by bringing a dose of American football into European soccer.

Similarly, two-sport corporate athletes can benefit by synergizing their Pitch and Gridiron strategies. Today the head of BCG’s Henderson Institute riffs on Milton Friedman, “The Business of Business is no longer just Business.” Propelled by global dilemmas, gridlocked governments, always-on communications, and values-driven millennials, the Pitch is challenging the Gridiron’s monopoly on structuring the political activities of firms. While rule-making in areas such as taxation or trade will continue to occur mainly on the Gridiron, de-facto rules for a growing number of issues will emanate from the Pitch. This gives two-sport athletes — firms that can advance their agendas in both arenas — a competitive advantage. As challenges multiply, companies and their leaders are going to have to hone their playbooks.