Exploring Markets

A Very Brief Introduction

Stefan Kühl

• Publisher: Organizational Dialogue Press
• Year: 2017
• ISBN:
  9780999147955
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Organizations construct their environments themselves. From the bewildering, chaotic array of impressions, they take those bits of information that enable them to produce such a view of the environment – one that makes it possible for them to operate in the environment with relative confidence. Thus, contrary to what traditional market research suggests, organizations do not respond objectively to existing environmental conditions, but invent, construct and create their realities themselves. The goal of exploring the environment – or, more specifically, exploring markets – is to influence this construction process through re-framing, de-generalization and hypothesis formation and thus to allow organizations to discover unusual things.

1.
Observing the Environment

Every organization needs to gather information about its environment. Companies need to get an impression of what their customers want, which strategies their competitors are employing and how political regulations are changing. Government departments need to adapt to the different ways organizations respond to their laws and regulations as well as to the different responses these laws and regulations trigger among lobbying organizations. Political parties need to understand what makes their potential voters tick and how they are viewed in relation to other parties.

But what exactly is an organization’s “environment”? How does this environment evolve and what mechanisms do organizations use to observe their environment?

1.1 An Organization’s Environment

Whether they take the form of groups, families, movements or organizations, systems describe everything they cannot attribute to themselves as their environment. For a gang of teenagers hanging out at the street corner, the environment can be a rival gang hanging out at the next street corner. For families, it can be the school where their children are educated. For social movements, it can be the policy, economic system or branch of science that they are protesting. For organizations, it can be the customers to which they want to sell their products and services.

But it is possible that the environment defined by a system does not see itself as this system’s environment. As Niklas Luhmann observed, a company might imagine that it has “customers,” even though the people thus described would hardly “label themselves or even want to be addressed” as customers of this particular company. Porsche drivers, owners of luxury cell phones and purchasers of prestigious designer handbags who define their identities based on their role as consumers are the exception that proves the rule (Luhmann 2000, 239).

What an organization attributes to its environment and what it attributes to itself is often quite arbitrary. Oil companies can operate gas stations on their own. If this is the case, the buildings and the equipment belong to the oil company, it hires the workers and it records the income and expenses in its books. However, it can also have independent tenants operate the service stations. Even if the oil company can contractually require the tenants to purchase, at inflated prices, a specified quantity of its own gas and its own products for the gas station shop, the oil company nevertheless represents the environment of the gas station (seen here as an organization itself) or a part of this environment. If, in response to pressure from the oil company, a tenant operates just within or even outside the bounds of the law by employing workers off the books or remaining open longer than mandatory closing times, the oil companies can always claim they have nothing to do with it.

Like all other systems, organizations have no choice but to observe only a part of their environment because this environment is far more complex than the systems themselves. And because every organization needs to cope with the complexity of its environment, it has no choice but to work with simplifications and omissions when observing its environment (Luhmann 1995, 181ff.). In this way, like all other systems, organizations convince themselves of the relevance of only a very small cross-section of what is theoretically part of their environment. The rest is just noise to them. An ice cream company views, as its environment, the purchasers of its products, the suppliers of raw materials, the logistics companies that transport its goods, as well as its competitors—but not necessarily an army of children fighting in East Congo, a Russian expedition to the Antarctic or members of a movement protesting unaffordable housing in Israel.

It is often arbitrary which parts of the environment are perceived by organizations. Sometimes new employees, due to their previous professional activities, bring fresh perspectives to the organization that were not considered relevant before. Sometimes, to everyone’s surprise, the introduction of new communication channels leads to new aspects of the environment becoming suddenly relevant to the organization. There is an aspect of uncertainty, relativity, even arbitrariness surrounding the simplifications and omissions made by organizations when observing their environment.

Especially over the last century, organizations have developed a variety of mechanisms to help them grasp their environment in a more systematic way. At some point, companies began methodically studying market and consumer research, employing trend researchers and performing competitor analysis. Associations were formed to monitor political changes and to communicate these changes in an easily comprehensible form to member organizations in the business world, the academic community, the mass media and the healthcare system. Political parties began commissioning polling companies to determine their voters’ opinions and to learn how they could best distinguish themselves from other parties. Under the heading of quality management, even public administrations, universities and prisons began measuring “customer” satisfaction.

The background was that organizations had increasingly gained the impression that their environment had become a black box whose content was largely unknown. In their opinion, between what they produced and what their environment was willing to purchase, there existed “gulfs,” “divides” and even “mountains” that they could only overcome with the help of “guides” and “scouts.”

1.2. Alignment with Similar Organizations
in the Same Field

Individuals play an important role in many organizations’ environments. Hospitals, for example, do not treat families, groups of people or organizations, but individual patients. As a rule, in an election, political parties receive votes not from organized groups of voters or from families, but from individual voters. And in most cases, companies sell their products and services not to groups, families or protest movements, but to individual customers.

Often, though, the environment observed by organizations consists primarily of other organizations. Organizational fields (previously called “organizational sets”) emerge when organizations exchange information, concepts, people, services and goods (for more on early approaches to determining organizational fields, see Evan 1966, 318ff.). Organizations adapt to their environment by engaging in such exchanges or simply by observing other organizations that are relevant to them. In many cases, such adaptation processes are reinforced by the fact that organizations in the same field are dependent on professional organizations such as medical and bar associations or on regulatory authorities (see DiMaggio/Powell 1983, 148f.).

Organizations in the same organizational field can be similar—for example, they may produce the same product or compete in the same market. But they can also differ in quite significant ways. One example is an IT firm that caters to the banking industry. Although it might not resemble banks in terms of its structure, it nevertheless helps shape the industry in which banks operate. Another example is regulatory authorities in the pharmaceutical industry. Their main point of reference is the government, but they nevertheless influence the organizational field of pharmaceutical companies, which is more heavily geared toward the private economy.

Traditional market research literature is based on the assumption that, when developing new products or services, organizations are guided by end user needs. The premise is that companies “explore” their customers’ needs and tailor their product innovations to them. Political parties listen to their constituencies and modify their platforms in response to the feedback.

However, organizational research has shown that when observing the environment, many organizations are not guided by the market, but by competitors in the same organizational field (see White 1981, 517ff.). We know from studies on sectors as diverse as the hospitality industry (Lant/Baum 1995), mechanical engineering (Heidenreich/Schmidt 1992) and development aid (Kühl 2009) that innovations are not usuall...

Table of contents

• Title
• Imprint
• Contents
• Foreword: Market Exploration Instead of Market Research
• 1. Observing the Environment
• 2. Beyond the Objectivist View—the Cognitive Turn
• 3. Approaches to Exploration
• 4. Options for Constructing Reality—Conclusion
• Bibliography