Industry's Business

In his new book, Economics Fr. McGowan says companies ignore social and political issues at their peril

By Sandra Howe
Staff Writer

Changing social values, public skepticism toward corporate behavior and government regulation have drastically altered the industrial marketplace, says part-time faculty member Richard McGowan, SJ (Economics), and managers must assess these factors' impact on a company's success or failure as they would any economic indicator.

In his new book, Industry as a Player in the Political and Social Arena: Defining the Competitive Environment , Fr. McGowan offers a model by which managers can address the political and social issues affecting their industries. Relating the experiences of the beer, cigarette, banking and chemical industries, he shows how activism has changed the rules by which firms in each of these fields compete. Companies which invest in monitoring and understanding these processes, Fr. McGowan said, can use this knowledge in developing effective business strategies.

Part-time faculty member Richard McGowan, SJ (Economics)-- "If [business people] can learn to play by the new rules using government and social policy as competitive tools against other firms their companies can significantly improve their competitive positioning within the economy." (Photo by Gary Gilbert)

"Business people have traditionally been trained to evaluate the economic environments that face their firms," said Fr. McGowan, who wrote the book with Boston University Professor of Management Policy John Mahon. "But if they can learn to play by the new rules - using government and social policy as competitive tools against other firms - their companies can significantly improve their competitive positioning within the economy, because it is often the government that determines the very structure of the industry."

The traditional model for management, Fr. McGowan said, focuses more on elements like customers, suppliers, substitute products and new entrants, and tends to ignore government and public policy matters. But in the authors' model, managers also scrutinize key political and social issues, the individuals, groups and firms that influence them, and the factors which inhibit or promote involvement in these issues. Those who do not, he said, can miss important trends that may threaten their existence.

Cigarette manufacturers, for example, initially tried to turn the controversy over smoking-related health issues into a debate over smokers' rights, Fr. McGowan noted. But the growing evidence on the effects of second-hand smoke sparked such wide concern it rendered their strategy ineffective. Cigarette firms failed to resolve these issues and as government has exerted more of a presence in the controversy, the industry's sole recourse has been to emphasize its economic contribution of keeping tobacco farmers in business and providing jobs, he said.

"When the industry confronted the issue of smoking and health," Fr. McGowan said, "it was relatively easy to gauge the shift in concern for the health and safety of the non-smoker long before that particular issue was ever raised. Yet the industry seemed unprepared for this shift and has lost control over the situation."

By contrast, Fr. McGowan said, the beer industry has paid far more heed to such trends and is enjoying success. Companies focused less on competing with one another than on differentiating beer from other alcoholic products, he said, and have addressed social issues like drunk driving. The public has therefore come to see beer as a "good" form of alcohol, he said, and the industry enjoys a generally more positive relationship with government than tobacco firms.

Still, the industry will face several dilemmas in the near future, Fr. McGowan pointed out, such as whether to join forces with the rest of the alcohol industry in battling restrictions on advertising and promotions, and how to deter underage drinking. This will entail frequent interactions with government, especially at the state level, he said, and with groups that espouse a moderation theme instead of a prohibitionist mentality.

Other cases Industry as a Player explores include the dilemma over deregulating the banking industry, and how the chemical industry handles the issue of risk to neighbors of toxic waste sites.

"There isn't an industry around that we couldn't have put in the book," Fr. McGowan said. "Each industry has particular issues they have to deal with and in these can be found the seeds for subsequent areas of contention."

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