Marketing Concept - The St. Gallen Management Approach

1.3.3 Environments and sustainability

Today, sustainability is always, explicitly or implicitly, the subject and aim of the enterprise. Sustainable development can be defined as development “that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland report, 1987, 24). Sustainable development is thus characterized by not using more resources than are generated or can be regenerated (cf. also Ekardt, 2011; Schmidheiny, 1992). Sustainability in this sense is an intergenerational concept. It is about future generations not having less but, ideally, more resources and courses of action available to them. In terms of a triple bottom line (cf. Savitz & Weber, 2006, 177), sustainability is mainly applied to the three main environmental spheres: economy, society and nature.

In assessing entrepreneurial projects, one often has to weigh competing interests. For example, for the extension of a production center a loss of resources has to be accepted (e.g. land needed for the expansion) to create values in the economic environment (increased value creation) and in the area of the social environment (additional professional and cultural opportunities for employees and the region). This weighing of interests between the different environmental spheres is not least the public and governmental responsibility and is also influenced by culturally shaped values and norms (cf. Fig. 8 and i.a. the Brundtland report) (Hauff, 1987). This balancing of interests is a complex problem in that there are interactions between the effects. For example, a positive impact on the economic environment (level of income) can lead to an improvement in the natural environment (greater willingness to consume more expensive, environmentally sound products). Systemic (network) analyses are therefore important.

Socially responsible leadership (or, often, CSR, Corporate Social Responsibility) can be defined as sustainable management with the objective of a balance between the value demands of internal and external stakeholders in the context of an increasingly global and networked stakeholder society (cf. also Maak, 2007, 329-243; Pless & Maak, 2008, 236). Socially responsible leadership, meaning acting in a responsible [34] manner, presupposes that the effects of an enterprise’s actions on different environmental areas are recognized, assessed in a general way and lead to action consequences.

Fig. 8: Triple bottom line

1.3.4 Structuring forces

Management in the sense of reflexive design praxis traditionally refers to three meaning horizons: normative, strategic and operational (cf. Fig. 9; Bleicher, 1994, 43 et seq.). Each of these horizons has a different depth of environmental analysis, a different time horizon and organizational responsibility (it is about different “ranges” of potentials, about objectives and also accountability).

[35] Fig. 9: Contents of the three meaning horizons

(sources: Bieger, 2007, 61; enhanced according to Espejo, Schuhmann, Schwaninger & Bilello, 1996, 230; Pümpin & Prange, 1991; Schwaninger, 1990, 50)

Normative management deals with questions of the long-term purpose that the enterprise should fulfill in society and the economy, i.e. with vision and mission, norms and values or the identity that should shape activities undertaken in the enterprise (cf. Bleicher, 2004, 157 et seq.). In the sense of governance, it is also a matter of regulating responsibility and working methods between the various management levels. Owners are responsible for the definition of governance in the sense of an owner strategy or the board of directors. The decisions of normative management are often summarized in a mission statement. The objective is to ensure the long-term legitimacy of the enterprise, i.e. that it is still regarded as necessary and sensible by the relevant stakeholders and can therefore survive. Normative management thus requires an intensive dialogue with the stakeholders.

[36] Strategic management is often shaped at the intersection of the board of directors and the executive board. There are differences depending on a country’s corporate governance tradition (cf. also Berger & Steger, 1998, 137; Hill, 1985). In Germany, the supervisory board is traditionally not an organizing body that influences the strategy or takes an active part in discussions. In this system (a two-tier corporate-governance system) with a categorical division between supervision and management, it is mostly the executive board that shapes strategy. In Switzerland, by contrast, the board of directors is responsible for enterprise management and thus for strategy (one-tier system). It can delegate tasks to the executive board, but it has clearly defined inalienable responsibilities that include shaping strategy.

The preservation of an enterprise’s competitive advantage and viability is the objective of every enterprise strategy. Therefore, it concentrates on securing and developing profit potentials. These can exist in the form of resources (e.g. core competencies) in the sense of an inside-out perspective, or in the form of external resources that are exploited in the environment (e.g. positive image of a well-established brand) in the sense of an outside-in perspective.

The actors on every level of an enterprise deal with operational management. Its objective is economic viability or securing a sufficient value creation. Success and liquidity, or cash flow, along with, depending on the role, sub-targets such as optimizing share prices, are the target indicators of this. Important planning tools include budget planning and process management, for example, for optimum management of service provision or production, as well as marketing plans for the ideal application and coordination of marketing tools.

1.3.5 Business processes in the St. Gallen Management Model

An enterprise is defined as a “purpose-oriented”, “socio-technical” system that produces goods and services for third parties in exchange for remuneration (cf. also Rüegg-Stürm, 2003, 20 et seq.; based on Ulrich, Hill & Fehlbaum, 1994, 20 et seq.). People, as part of the enterprise system, use machines to produce goods and services in a process and market them to create added value, which is then available to compensate [37] stakeholders for their cooperation or resources they provided. Without business processes, the enterprise does not create added value and thus cannot compensate its stakeholders or motivate them to contribute further. This is why several authors call business processes primary processes (cf. i.a. Porter, 1986, 62). Organizational value creation is the central design focus of management in praxis (Rüegg-Stürm & Grand, 2015, 114). Providing infrastructure, personnel or finances enables and supports business processes and can be understood as support processes (cf. Fig. 10).

Fig. 10: Primary processes or business processes, according to Porter

(source: based on Porter, 1986, 62)

A business process can be defined as “a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer” (Hammer & Champy, 1995, 50). The input is derived directly from the supplier or from the wholesale market; the output is delivered to markets or directly to customers. In the process, it is especially important not to miss important developments and changes, which is why management should always keep an eye on secondary procurement and sales markets. In the Läderach example, one has to consider the raw materials markets for chocolate as an influencing factor and the specialty retailers’ customers, such as buyers of chocolates, as the customers of the customers (cf. Fig. 11).

[38] Fig. 11: Business processes and markets

As mentioned above, business processes within cross-company value-creation networks and through new forms of customer integration (e.g. within the framework of long-term customer relationships for integrated services such as mobility solutions) are further developed into business models.

1.4 Objectives of business processes

As primary processes, business processes contribute substantially to the success and, ultimately, the survival of an enterprise. Correspondingly, contributions to business processes’ objectives can be structured by the different meaning horizons of management.

On the normative level, this raises the question of what meaning the goods and services of an enterprise have for society. If goods and services provided by business processes are no longer seen as meaningful, the enterprise loses its legitimacy and thus stakeholder support or governmental concessions. In Switzerland, for example, there is the case of a theme park whose main attraction was an aquarium. A public and political debate about keeping sea animals in those kinds of parks arose after the death of two dolphins. During the debate, the attraction and education benefit was graded lower than the values of animal welfare, so tighter regulations were enacted. This led to a ban on keeping dolphins in captivity. The enterprise had to accept a governmental prohibition of part of its activities due to the loss of perceived legitimacy.

[39] On the normative level, primary value creation (meaning goods and services rendered, such as produced foods or, for a political party, enforcing common interests) and additional value creation (e.g. an organization’s contribution to a location’s image) must be considered.

The strategic level is about the contributions of business processes to developing resources, such as generating new competencies (internal resources) or opening and securing market positions, in the form of image in target markets (external resources), for example.

The operational level is concerned with objectives that manifest themselves in fiscal parameters. The basis for an enterprise’s or an organization’s profits is that customer value is created, which leads to the customer’s willingness to pay for the goods and services, and thus to enterprise profits. These can be direct reimbursements in the form of sales revenue or indirect reimbursements in the form of subsidies for a public service (e.g. with public transit).

The demand-specific customer value can be defined as the relative perceived value of a product or service compared to the relative perceived cost of a product or service from the customer’s perspective (Woodruff, 1997, 142) (cf. Fig. 12).

Fig. 12: Perceived customer value

(source: based i.a. on Matzler, 2000)

[40] The customer benefit results from a juxtaposition of needs or expectations and the meeting of those expectations through a product or service. Quality results from this juxtaposition (Seghezzi, Fahrni & Hermann, 2007, 33 et seq.). There is high quality if individual expectations are met or exceeded, which, according to the concept of confirmation, leads to customer satisfaction (cf. Doenges, 1982). In turn, the customer assesses customer satisfaction by comparing it to the expected satisfaction provided by alternative offers. From this, relative (meaning compared to alternatives) perceived customer satisfaction follows. For customer cost, the material cost (e.g. purchase price) and the intangible cost (e.g. waiting time) have to be considered.

The relative perceived customer benefit leads to so-called behavioral outcomes (cf. also Bagozzi, Dholakia & Basuroy, 2003, 273). These include willingness to pay and other behaviors and actions like recommendations, customer loyalty and repeat purchases or readiness to complain.

From the enterprise’s point of view, customer value is determined by the turnover achievable from them or the value of the positive behavioral outcomes deducting the customer-specific costs, e.g. market-cultivation costs (customer equity, cf. also Rust, Lemon & Zeithaml, 2004, 110; Tomczak, Kuss & Reinecke, 2007, 109-127; Kumar & George, 2007). Enterprises with a well-engineered database of customers, such as airlines with frequent-flyer programs, calculate the expected future customer value this way (Customer Lifetime Value: discounted future revenues or profit margins). The value of the customers has a direct effect on the enterprise value via “profitability links” (cf. Fig. 13). Customers are then categorized according to their customer value. So-called “A Customers” with high customer value are nurtured more intensely, for example, with status or rewards provided by airlines.

[41] Fig. 13: Conceptual relation between customer value, value creation and enterprise value; as an example of a profitability link according to Larivière, 2008

An enterprise’s value creation generated within the framework of business processes is necessary to reimburse the different stakeholders (investors, employees, government via taxes, etc.) for their cooperation or the resources they provide as well as to earn means to support ongoing development. The continuing cooperation of the stakeholders and thus the survival of the enterprise cannot be assured without the value creation generated through business processes. The distribution of value creation also mirrors the importance of the resources and stakeholders for the specific business process. If, for example, a certain category of manpower or capital (e.g. equity capital) is in short supply, its share of an enterprise’s value creation increases in the competition for these resources.

Value creation can be defined as the difference between the value of the input and the value of the output of business processes (cf. Porter, 1986, 19 & 74). Clearly, the intermediate consumption cost is deduced from the turnover. The net value creation is determined by deducing the [42] necessary depreciations, which corresponds to the “consumption” of capital goods (cf. Fig. 14). In simplified terms, the sum of all value creation of every enterprise in a country is equivalent to the gross domestic product according to the national account (production account).

Fig. 14: Calculation of value creation

As mentioned before, stakeholders calculate the value of an enterprise from their perspective, thus from their potential added-value shares. Therefore, shareholders measure the enterprise value by the total cash value of future dividends (or the achievable discounted free cash flow). The amount of value creation mainly depends on an enterprise’s ability to maximize customers’ willingness to pay for its output through its quality, its image and the sensible integration into a general problem solution (effectiveness: doing the right things) and to produce goods and services cost effectively (efficiency: doing things right) (cf. also Drucker, 1974).

1.5 Structure of business processes

Physical products like chocolate truffles or services like air transport are created within the scope of service-provision processes. These are supported by customer processes and service-innovation processes. In a market economy, the mere provision of a service is not enough. As part of [43] the customer processes, the goods and services created have to be delivered to customers, advertised to them or rooted as brands to their thinking and their consciousness. In dynamic competition, even service provision and marketing in the form of customer processes are not enough. Goods and services have to be constantly renewed just like service-provision processes and marketing processes. This is the task of innovation processes (cf. Fig. 15).

Fig. 15: Structure of business processes

1.5.1 Service-provision processes

The objective of service-provision processes is to provide the actual services of an enterprise. A service that is suited to satisfying needs and producing a benefit for customers can be defined as a product (Hill, 1985, 111; Kotler, 1982, 20 et seq.). Service-provision processes can be depicted as value-creation chains (cf. Österle, 1995, 21 and Fig. 16; Osterloh & Frost, 1996, 28 et seq.). Every stage of the value-creation chain produces added value independently. Within the scope of purchasing, for example, one should aim for a favorable mix of input factors in comparison to competitors through optimum terms of purchase and delivery. Processing is about the most cost-effective transformation of input factors into output that meets the target groups’ demands.

[44] The differentiation of the stages is due to technical conditions. They can also be split off, meaning performed by other enterprises (outsourcing) (cf. also Williamson, 1996, 34 et seq.). It is possible, for example, to delegate purchasing to specialized purchasing enterprises, or semi-finished products can be bought from intermediate goods suppliers and a processing stage is avoided.

There are transaction interfaces between the stages of the value-creation chain where products or services are committed from one technically defined “processing stage” to the next. If the product or service comes from another enterprise, a contract is necessary to secure the transaction. Therefore, transactions often work via a market with standardized contracts. Accordingly, transaction costs arise for negotiating, executing and reviewing such transactions (cf. i.a. Williamson, 1998).

Fig. 16: Service-provision process as a value-creation chain

A service-provision process or a value-creation chain looks fundamentally different depending on whether the service is a physical product or a service. With a physical product, starting products such as cocoa are physically changed (transformed to chocolate). A transformation takes place.

Services are performed on or for an object. This can be a car during repair or the customer herself with personal services, for example with medical care (cf. also Fig. 17). In the value-creation chain of a service chain, service-provision stages take the place of “processing stages” (cf. Lehmann, 1993, 57). In traveling, these can include getting information before the journey, booking the journey, physical transport, i.e. traveling itself, and check-in, food and drink at the destination, etc. (cf. Fig. 18).

[45] Fig. 17: Business process: goods and services

Fig. 18: Service chain in incoming tourism

(source: Bieger & Schallhart, 1996/97, 47)

Value-creation chains or service chains are changed by technological development. Two developments in particular can be observed:

– Technical redesign or even omission of entire value-creation stages. In book production, for example, modern data processing, new printing technologies and automated processing allow concepts such as “print on demand”. The value-creation stages of typesetting, printing, bookbinding, warehousing and distribution are thus replaced.

– Breaking down value-creation chains through IT platforms. Fixed value-creation chains such as tour operations in the travel sector are unbundled by the possibility for customers to book partial services such as hotels or flights directly on Internet platforms.

This development is described as disruption of business processes (cf. Bower & Christensen, 1995). It leads to new phenomena such as business migration (enterprises from other industries break into industries traditionally controlled by certain enterprises, e.g. when IT companies start to develop electric vehicles), new forms of work (when drivers are no longer permanently hired, as at Uber, but offer their services as enterprises of their own) or economic effects such as better use of capital (when homeowners offer rooms on Airbnb).

[46]