Overview of the 4-I's

Perhaps the most important distinction that Baron draws is that between the market and non-market components of businesses' environment. The former, he says,

... includes those interactions between firms, suppliers, and customers that are governed by markets or private agreements such as contracts. These transactions typically invole voluntary economic transactions and the exchange of property. [p.1]

The latter, we are told,

..includes the social, political, and legal arrangements that structure interactions outside of, but in conjunction with, markets and private agreements. (It) encompasses those interactions between the frm and individuals, interest groups, government entities, and the public that are intermediated not by markets but by public and private institutions. [p.2]

That the business environment has two distinct, yet related, components should not lead us to infer that firms are equal in either their understanding or management of it. Rather, the exact opposite is the case:

Some companies are successful in both their markets and in the social, poltical, legal environments in which they operate. ... Other companies that have had great success in their markets have stumbled with regard to the public or government. ... The problems encountered by Nike, Microsoft, and Citigroup emanated not from their market environments but from their non-market environments. That is, the problems resulted not from the public, interest groups, the legal system, and government. These companies underestimated the importance of the nonmarket environment and have regretted doing so. [p. 1]

But to underestimate is not necessarily the same as to be at the mercy of. As ever, managers have options. They have degrees of freedom, room to maneuver, discretion to act, if they will. As Baron puts it:

Firms have more control over their fate in their markets than they have in their non-market environment, but many successful companies have understood that if they do not manage their non-market environment it will manage them. Indeed, the long-run sustainabilty of competitive advantage requires managing effectively in the nonmarket environment. [p.1]

Thus, Baron sees two distinct realms within which firms determine their fate. One, the market environment, is filled with all actors and entities reified by Porter- substitutes and new entrants, buyer, suppliers, and rivals. The nonmarket environment, on the other hand, is host to a far greater number and variety of players, virtually none of whom are motivated by the pursuit of profit:

"Public institutions differ from markets because of the characteristics such as majority rule, due process, broad enfranshisement, collective action, and publicness. Activities in the nonmarket environment may be voluntary, as when firms cooperate with government officials, or involuntary, suh as.. when an activist group organizes a boycott of a firm's product. Effective management in the nonmarket environment has become a necessary condition for success just as has effective management in the market environment. [p.2]

What Baron doesn't say here is why it is that either so many firms misunderstand, underappreciate, or mismanage the nonmarket environment. He doesn't tell us why so many otherwise excellent firms get blindsided, sometimes repeatedly, by forces arising therefrom. That's not a criticism of his theory, however, just an observation. It's not clear to me that anyone knows with certainty. Like so many things in the social sciences, there are multiple and interacting factors at work simultaneously. That having been said, there is one factor that should be included among any accounting for this phenomenon- the state of strategic management education. In short, we as management educators simply don't teach this sort of thing as much as we should or could.

The overwhelming majority of management education is devoted to developing in our students the skills to, as Baron puts it, "anticipate and adapt to change, innovate through research and development, and develop new products and services." And that is exactly what we ought to be doing. Problem is, however, that we do so largely in the market context, leaving consideration of the nonmarket environment as an afterthought when we consider it all.

And it is not that strategy professors don't want to teach this material. We do. It's just that for decades, strategy research has focused so much energy on the question of whether the industry forces or firm-specific resources matter more, that institutional analysis has been left out or consigned to the margins of far too many strategy syllabae. Fortunately, the work of several scholars at and from UC Berkeley make this less the case with every passing year.

The upshot of all of this is that that small armies of future corporate leaders have been sent forth to do battle in the marketplace well-trained, to be sure, but myopically so. They've been well-instructed on how to ascertain and obtain the best positions on the competitive playing field, but not given as much insight as to who and what allow that field to exist in the first place. We're teaching them alot about the working of the invisible hand but relatively less about the two visible ones- the first attached to the long arm of the law, the second having bare knuckles sporting a tattoo that reads "politics", both possessing the power to drag real and perceived offenders before the court of public opinion.

The four I's framework is an admirable attempt to correct this oversight, to affect some corporate vision-correction and, as such, very worthy of being seen more often in the syllabae of strategic management educators everywhere.