Perspectives from ISB

In an increasingly globalized world, the emerging markets are  banking on competitive advantage and technological innovation. Under the context of Management of Organizations (MGTO) in Term 3, the student community was interested to know the importance of the principles of Organizational Behavior applied to emerging markets. Prof Jim Schmidtke agreed to expound on this topic in an insightful article he provided, which is given below.

The Importance of Organizational Behavior in Emerging Markets

Dr James M Schmidtke

Organizations operating in emerging markets face many management challenges such as determining where to invest resources, which lines of business to pursue, and how to operate under difficult conditions often associated with emerging markets (e.g., underdeveloped infrastructure, political and economic instability, and weak institutions).  In these markets with often rapidly changing conditions, there may be a tendency to focus on the strategic process: defining an organization’s mission and objectives, performing a situational or SWAT analysis, formulating a strategy, implementing said strategy, and then controlling the process.  Further, the strategic process is cyclical in as much as it receives feedback from the external and internal organizational environments in terms of performance success, the organization must adapt to the feedback to survive, at a minimum, and flourish, in the ideal.

This focus on strategic management may lead some to question the importance of organizational behavior in such conditions.  I would argue that the strategic process will only be as effective as the human and social capital that supports it.  The effectiveness of human and social capital will be driven by many of the concepts we discuss in the MGTO course.  Although there are many aspects of organizational behavior that are important, I will focus on three concepts that are critical, which are covered in the MGTO course: decision-making, creativity/innovation, and networks.

The strategic process involves organizational members collecting and analyzing information and consequently making decisions based upon their analyses.  In an emerging market context, quickly changing conditions and limited availability of data may limit the ability of individuals to make good decisions.  These issues are further exacerbated by the need in such situations to make quick judgments. As discussed in the MGTO course, individuals are not always rational decision-makers.

They often use heuristics to make decisions in situations that require quick judgments.  An awareness of common decision biases will aid organizational members in developing mechanisms for reducing such biases.  For example, how information is framed in terms of gains or losses will affect individuals’ propensity toward risk.  Consequently, managers must consider data from both perspectives to calibrate the risk associated with the decisions they are taking.

Further, organizations need to consider the conditions under which it is preferable to have an individual make a decision and when a group should be convened.  If an organization creates a team to analyze and make strategic decision, it must consider the composition of the team and the process the team uses to make a decision as we know that those two factors can affect the accuracy and performance of the team.  Thus, to improve the strategic management process we must also enhance the decision-making process both at the individual and team level.

Emerging markets often present challenges that are different from those in developed economies and industries.  For companies entering into emerging markets, they may find that there past experiences in other markets or developed economies may not help them develop effective strategies in these new arenas.

Consequently, organizations must have members who can be creative and innovative.   As was the case with decision making, organizational behavior has identified factors and processes that are likely to increase the innovative process.  For example, as has been discussed in MGTO having members brainstorm individually before they meet as a group to discuss and develop innovative ideas results in a higher quantity and quality of ideas they gather as a group to brainstorm.  In addition, we know that group composition and group structure will also affect the creativity of a team.  Further, we know that there are certain types of processes that will help teams develop more creative solutions.

IDEO, an innovation and design firm founded in Palo Alto, has a process that has lead them to be one of the most innovative organizations in the world.  The method they use to innovate is based upon many of the concepts discussed in MGTO like composition, structure and process.  Thus, organizations that are trying to formulate innovative strategies or develop creative solutions to emerging market challenges must consider the underlying processes.

Finally, organizations operating in emerging markets must not only be concerned with their financial and human capital, they must also have an awareness of the social capital possessed by organizational members.  As has been discussed in MGTO social capital is critical to not only an individual’s professional success but studies have demonstrated the financial impact of social capital on firm profitability.  For example, an organization’s ability to develop and implement strategies that are financially successful will depend on the ability of organizational members’ to form relationships with important stakeholders such as communities, customers, suppliers, potential employees and shareholders.

In emerging markets this may be even more critical as the number of potential stakeholders in certain categories may be limited.  For example, in emerging market where there is a limited ability for the organization to acquire certain inputs (such as raw materials or skill sets), the organization will be more dependent on the social capital possessed by its members to obtain certain resources or a deal to procure those resources under terms beneficial to the organization.  In class, we have discussed how individuals have been able to negotiate deals based upon their personal connections that would not otherwise be possible.  For example, we discussed the case of Heidi Roizen, who, through her social contacts was able to influence Microsoft to continue working with the Apple operating platform in the mid-1990s.

Further, the social capital possessed by organizational members represents a distinct competitive advantage that cannot be replicated by other organizations.  Thus, organizations who hire individuals who either possess distinct social networks or have the skills and foresight to develop such networks will be critical to organizational success.

In conclusion, it is clear that organizational behavior principles will be critical to organizational success, particularly in emerging markets.  This success will depend on a company’s ability to successful design, execute and assess its strategy.  Underlying strategic success in emerging markets are the ability of organizational member’s to make decisions, innovate and build relationships.