Read the book: «Marketing Concept - The St. Gallen Management Approach»
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[2][3]Thomas Bieger
Marketing Concept – The St. Gallen Management Approach
Haupt Verlag
[4]Prof. Dr. Thomas Bieger is a full professor of Business Administration specializing in Tourism since 1999 and director of the Institute for Systemic Management and Public Governance at the University of St. Gallen. He was Secretary General of the AIEST (International Association of Scientific Experts in Tourism), and he is the chairman of CEMS (Global Alliance in Management Education). He held several guest Professorships at the University of Innsbruck and the Vienna University of Economics and Business. He also taught at the Simon Fraser University, Vancouver, at the Università della Svizzera italiana in Lugano and as William Fraser Fellow at the University of Otago, Dunedin/New Zealand. From 2003 until 2005 he served as a Dean of the Faculty of Management at the University of St. Gallen. From 2005 until 2010 he was Vice President, since February 1st 2011 he is President of the University of St. Gallen.
1st edition: 2015
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[5]Preface
The St. Gallen Management Model created a comprehensive orientation framework for the management of companies and organizations of all kinds. Business processes play a special role in the model. They enable the real core function that justifies the existence of a company or organization, which is to deliver goods and services to third parties, usually for money.
This book is guided by the St. Gallen Management Model and, therefore, focuses on business processes. It also follows the approach of the marketing concept as an overall planning-and-designing approach, not just for marketing, but for all business functions. The content of this book thus offers an introduction to marketing as well as the design of business processes as a whole.
The book addresses two targets and thus two target groups: To begin with, it serves as a basis for the introduction to business administration as part of the Marketing Management curriculum during the Assessment Year at the University of St. Gallen. It covers the subject areas of marketing, performance and innovation.
At the same time, it is designed to appeal to the public at large as a basic text for study or practice. It serves as an introduction to or an update of knowledge in the areas of marketing and performance/performance process, while also presenting the marketing concept as a pragmatic thought-and-action approach used by generations of (marketing) managers.
The outline of the book follows the usual structure of a marketing concept and is also the basis for the division into six lecture blocks at the University of St. Gallen:
| 1. | Business Processes and Marketing Concept within the St. Gallen Management Model — an Introduction |
| 2. | Market Analysis — from a Static to a Dynamic Point of View |
| 3. | Marketing Strategy — from Market Segmentation to Positioning Strategy |
| 4. | [6] Marketing Tool Application 1: Product Design and Performance |
| 5. | Marketing Tool Application 2: Pricing, Promotion and Distribution |
| 6. | Innovation and Controlling — Meta Processes of Business Activity |
As a topical guide for decision makers and as teaching material on a university level, the book’s aim is not maximum depth and the transfer of detailed knowledge. Rather, the goal is contextual knowledge and new perspectives in thinking. As a textbook, it primarily points out the key sources.
At the same time, the integrative approach cultivated at the University of St. Gallen will be taken into account. This results from a focus on the St. Gallen Management Model as well as from methodically including the approach of networked thinking in the market-analysis section and by cross-referencing other disciplines, especially economics and law.
In part, this book is based on principles, concepts and text blocks of the book “Einführung in die Managementlehre” by Dubs, Euler, Rüegg-Stürm and Wyss (2009), which was used previously as a textbook at the University of St. Gallen and to which the author also contributed. The following authors also worked on the previous book in the area of business processes: Günther Schuh, Thomas Friedli, Torsten Tomczak, Fritz Fahrni and Sven Reinecke.
I want to thank Mrs. Margareta Brugger for transcribing the manuscript, student assistant Jessica Schulten-Baumer for revising and editing the text, and my wife Barbara for critical reading. I also thank Samuel Heer for his valuable support, not only in revising this book but also in our efforts to offer actual and method-oriented lectures on the assessment level of the University of St. Gallen. I also thank my colleagues o. Univ. Prof. Dr. Johannes Rüegg-Stürm and assistant professor Dr. Simon Grand for stimulating discussions, the good cooperation, and many valuable inputs.
| May 2015 | Thomas Bieger |
[7]Contents
Preface
Table of Figures
| 1 | Business processes and marketing concept within the St. Gallen Management Model — an introduction | |||
| 1.1 | Case study LÄDERACH | |||
| 1.2 | Value-creation processes, companies and management | |||
| 1.3 | Embedding business processes into the St. Gallen Management Model | |||
| 1.3.1 | Stakeholders | |||
| 1.3.2 | Environmental spheres | |||
| 1.3.3 | Environments and sustainability | |||
| 1.3.4 | Horizons of meaning | |||
| 1.3.5 | Business processes within the St. Gallen Management Model | |||
| 1.4 | Objectives of business processes | |||
| 1.5 | Structure of business processes | |||
| 1.5.1 | Performance processes | |||
| 1.5.2 | Customer processes | |||
| 1.5.3 | Innovation processes | |||
| 1.6 | The marketing approach for the management of business processes | |||
| 1.6.1 | Development of marketing | |||
| 6.1.2 | Marketing concept | |||
| 2 | Market analysis as the basis for market-oriented business management | |||
| 2.1 | Case study MAMMUT | |||
| 2.2 | Customer behavior and markets | |||
| 2.2.1 | Definition and role of markets | |||
| 2.2.2 | Players and market types | |||
| [8]2.2.3 | Motives, needs, benefit and demand | |||
| 2.3 | Market research objectives and data generation | |||
| 2.3.1 | Identifying market sizes, needs and decision-making | |||
| 2.3.2 | Supply-and-demand trends | |||
| 2.4 | SWOT analysis as a synthesis of market analysis | |||
| 3 | Marketing strategy — from market segmentation to a positioning strategy | |||
| 3.1 | Case study JURA | |||
| 3.2 | Marketing objectives | |||
| 3.2.1 | Corporate objectives and marketing objectives | |||
| 3.2.2 | Interaction of marketing objectives | |||
| 3.3 | From market segmentation to a positioning strategy | |||
| 3.3.1 | Segmentation criteria and segmentation level | |||
| 3.3.2 | Choice of target market | |||
| 3.3.3 | Positioning | |||
| 3.4 | From customer processes to tool strategy | |||
| 3.4.1 | Determinants of tool application | |||
| 3.4.2 | Focus on marketing tool application in the marketing mix | |||
| 4 | Product design and performance | |||
| 4.1 | Case study STADLER RAIL AG | |||
| 4.2 | Product design | |||
| 4.3 | Performance provision — physical product | |||
| 4.3.1 | Basic structure of the performance process | |||
| 4.3.2 | Strategic decisions | |||
| 4.3.3 | Operational decisions | |||
| 4.4 | Performance provision — services | |||
| 4.4.1 | Characteristic features of services | |||
| 4.4.2 | Performance design and control of the service process | |||
| 4.4.3 | From service chain to service blueprint | |||
| 5 | Marketing tool application | |||
| 5.1 | Case study JUNGFRAUBAHN | |||
| 5.2 | Pricing policy | |||
| 5.2.1 | Neoclassic pricing model | |||
| 5.2.2 | Behavioral-science pricing models | |||
| 5.2.3 | Functions of pricing | |||
| [9]5.3 | Distribution policy | |||
| 5.3.1 | Functions of distribution | |||
| 5.3.2 | Distribution design | |||
| 5.4 | Communication | |||
| 5.4.1 | Role and function of communication | |||
| 5.4.2 | Organizational scopes of communication | |||
| 5.4.3 | Communication change | |||
| 5.5 | Marketing mix | |||
| 5.5.1 | Objectives of the marketing mix | |||
| 5.5.2 | Planning the marketing mix | |||
| 6 | Controlling and innovation | |||
| 6.1 | Case study SWISS web portal | |||
| 6.2 | Marketing controlling | |||
| 6.2.1 | Development of a controlling concept | |||
| 6.2.2 | Characteristics of marketing controlling | |||
| 6.2.3 | Contribution accounting | |||
| 6.3 | Innovation | |||
| 6.3.1 | Functions, roles and tools of innovation | |||
| 6.3.2 | Return on innovation | |||
| 6.3.3 | Innovation in models | |||
| 6.3.4 | Innovation’s directions of impact | |||
Bibliography
Alphabetical index
[10][11]Table of Figures
| Fig. 1: | Example of a value chain |
| Fig. 2: | Value-creation network and meta-system |
| Fig. 3: | Transaction interface and company |
| Fig. 4: | Management cycle according to Fayol |
| Fig. 5: | 4th generation of the St. Gallen Management Model |
| Fig. 6: | Stakeholders of a company |
| Fig. 7: | St Galler Management model with environmental spheres |
| Fig. 8: | Triple bottom line |
| Fig. 9: | Contents of the three horizons of meaning |
| Fig. 10: | Primary processes or business processes, according to Porter |
| Fig. 11: | Business processes and markets |
| Fig. 12: | Perceived customer value |
| Fig. 13: | Conceptual relation between customer value, added value and company value |
| Fig. 14: | Calculation of added value |
| Fig. 15: | Structure of business processes |
| Fig. 16: | Performance process as an added-value chain |
| Fig. 17: | Business process: goods and services |
| Fig. 18: | Service chain in incoming tourism |
| Fig. 19: | The customer buying cycle |
| Fig. 20: | Brand equity according to Interbrand — the ten most valuable brands in 2014 |
| Fig. 21: | Five-phase product life-cycle model |
| Fig. 22: | Possible roles of companies in a value chain |
| Fig. 23: | Development of marketing |
| Fig. 24: | Marketing concept |
| Fig. 25: | Customer system |
| Fig. 26: | Benefits of long-term customer commitment |
| Fig. 27: | Transaction relationships in e-commerce |
| Fig. 28: | Composition of demand |
| Fig. 29: | Purchase decision for holiday travels |
| [12]Fig. 30: | SOR behavioral model |
| Fig. 31: | Theory of planned behavior |
| Fig. 32: | Market sizes |
| Fig. 33: | Importance of specific information sources in tourism |
| Fig. 34: | Travel motivation (1+ overnights) |
| Fig. 35: | Types of trends |
| Fig. 36: | Development of trends |
| Fig. 37: | Systematic analysis of new trends using the example of scooters |
| Fig. 38: | Example of a simplified tourism system and its dynamics |
| Fig. 39: | Market analysis as part of the marketing concept |
| Fig. 40: | Matrix of a SWOT analysis |
| Fig. 41: | Strength and weakness analysis of a typical Swiss destination |
| Fig. 42: | Demand trends and opportunities and threats deduced from them for a Swiss destination |
| Fig. 43: | Marketing strategy within the marketing concept |
| Fig. 44: | Goal hierarchy in marketing (exemplary) |
| Fig. 45: | From market segmentation to differentiation |
| Fig. 46: | Optimal segmentation |
| Fig. 47: | Multi-stage market segmentation for the skiing market |
| Fig. 48: | Statistical market segmentation by motives with the help of cluster analyses |
| Fig. 49: | Ways of illustrating brand positioning |
| Fig. 50: | Industry environment conditions and basic strategies for customer acquisition |
| Fig. 51: | Why customer retention pays off |
| Fig. 52: | Customer retention’s main tasks |
| Fig. 53: | Overview of marketing tools |
| Fig. 54: | Detailed planning of a marketing mix — marketing plan |
| Fig. 55: | From customer value to value of the customer |
| Fig. 56: | Conception levels for the product |
| Fig. 57: | Goods and services typology |
| Fig. 58: | Alternative decisions depending on program policy |
| Fig. 59: | Basic structure of the physical performance process |
| Fig. 60: | Basic structure of performance process |
| Fig. 61: | Conflicting priorities of strategic management in the vertical business area |
| Fig. 62: | Types of business |
| Fig. 63: | Characteristic features of services |
| Fig. 64: | Demarcation between service and material good |
| [13]Fig. 65: | Service chain in incoming tourism — destination point of view |
| Fig. 66: | Individual service chain |
| Fig. 67: | Service chain in outgoing tourism — perspective travel as a whole and travel agency |
| Fig. 68: | Concept of a service chain from a customer’s perspective |
| Fig. 69: | Demand curve as an aggregation of individual preferences |
| Fig. 70: | Price effect elasticities |
| Fig. 71: | Assimilation contrast theory |
| Fig. 72: | Price determination |
| Fig. 73: | Yield management systems |
| Fig. 74: | Yield management for booking systems |
| Fig. 75: | Strategic distribution |
| Fig. 76: | Example: Sales channel in tourism |
| Fig. 77: | Distribution system |
| Fig. 78: | Development prospects in distribution |
| Fig. 79: | General communication process and marketing communication process |
| Fig. 80: | Communication organization |
| Fig. 81: | Communication tools |
| Fig. 82: | Examples for tool goals in marketing |
| Fig. 83: | Detailed planning marketing mix — marketing plan |
| Fig. 84: | Marketing mix within the buying cycle |
| Fig. 85: | Management function according to Fayol |
| Fig. 86: | Possible indicators for measuring marketing’s success during a relaunch |
| Fig. 87: | Goal hierarchy and controlling |
| Fig. 88: | Product-specific multi-level contribution-accounting analysis |
| Fig. 89: | SWISS INTERNATIONAL AIR LINES controlling structure |
| Fig. 90: | Return on investment between the poles of innovation push and pull |
| Fig. 91: | The innovation process |
| Fig. 92: | Required innovation according to industry and goods |
| Fig. 93: | Innovation cube for the classification of strategic directions of impact |
| Fig. 94: | Marketing concept |
| [14][15]1 | Business processes and marketing concept within the St. Gallen Management Model — an introduction |
| 1.1 | Case study LÄDERACH |
LÄDERACH — Chocolatier Suisse
| ■ | From an expert for specialty retailers and high-quality catering to a consumer brand |
The LÄDERACH company dates back to a bakery founded in 1926 in Netztal, Canton of Glarus, by Rudolph Läderach Sr. In 1962, Rudolf Läderach Jr. start- ed a business as a chocolatier in Glarus. The young company achieved a breakthrough with a patented invention for manufacturing thin-walled choc- olate truffles (hollow spheres). This invention simplified manufacturing of chocolate truffles as a semi-finished product for high-quality catering busi- nesses and specialty shops, while also improving product quality. Ten years later, the foundation of CÜNFISEUR LÄDERACH GMBH & CO KG in Germany was the first step abroad. Also, the company launched an export business.
By 2004, under the next generation of leadership with Jürg Läderach, the company had developed into a strong B2B brand: trade with specialty retail- ers and catering businesses. Questions arose about whether the company should and could establish a second business focus as a consumer brand and whether it could sustain the B2B trade in the long run. The following fictional management dialogue, which could have taken place in 2003, presents es- sential aspects of this decision:
Managing director:
“We have largely reached the saturation point with our current market position in the B2B sector. We face cutthroat competition with some other suppliers of semi-finished chocolate products. We supply premium semi-finished products, especially our widely popular, high-quality thin-walled truffle-shells to specialist retailers like confectioners and to catering businesses. They refine our products and turn them into “their own” truffles and desserts. Meanwhile, the consumer market is gradually consolidating. More and more confectioners are being acquired or are merging to form bigger companies.
[16]Hotels are integrating themselves into hotel chains that run central purchasing departments. On the other end of our value chain, there are increasingly larger suppliers of cocoa raw products, like BARRY CALLEBAUT, who steadily consolidate and gain market influence. The cocoa harvests are increasingly bought up by international trading houses and are becoming more and more a plaything for commodity speculators. Hemmed in between cocoa suppliers and specialist retailers, we are faced with dwindling margins. In the longer term, stagnating sales and dwindling margins threaten the development of our company. We have to create a second mainstay.”
Marketing director:
“This is exactly the development I have warned against for years. Whoever has direct access to the end customer is in the stronger position. Eventually, the consumer decides what to buy. We will no longer be replaceable and we can demand a reasonable price for the quality we deliver only when we are a firmly established consumer brand. Committed, satisfied and loyal customers for whom we create a real value are our most important assets, virtually our customer equity.”
Production manager:
“The establishment of a second mainstay with a line of products directly addressing the end customer also means extending the value chain. We would have to reorganize production to make more ready-made end products like chocolates. This entails a massive increase in investment. Besides, I want to curb the marketing director’s euphoria a little. The end-customer market is a mature market. In an increasingly consolidating specialist retail situation, we are competing against established chocolate brands. Getting shelf space at traditional food retailers like COOP and MIËROS is a big challenge for sales and marketing.”
Finance manager:
“As finance manager, I certainly see the imperative to establish a business area in which we have larger margin flexibility. Conversely, the production manager has already noted the big investments required to extend manufacturing capabilities, on the one hand, and to establish the required reputation as a strong brand and build distribution channels, on the other. But I want to mention another aspect: if we extend the value chain and reach the end-customer market virtually around our buyers of today, we will compete with our existing clients. This could be damaging to the loyalty of today’s customers and put additional pressure on our established mainstay.”
[17]Managing director:
“Ladies and gentlemen, I see your concerns from a broader perspective. To successfully lead our company into the next generation, I want to develop a second mainstay. I see this as a necessary step to maintain our ground in a continuously consolidating market, characterized by bigger companies, and to achieve the necessary margins, while maximizing our traditional core competencies in processing chocolate. I, therefore, want our marketing director to develop a marketing concept for entering the end-customer market, and I want the production manager to outline the consequences in regard to our performance concept and the necessary innovations.”
The LÄDERACH company did indeed take the step onto the consumer market in 2004 by acquiring MERKUR CONFISERIE AG. At the time, MERKUR CONFISERIE AG operated a network of 41 specialty shops throughout Switzerland. Thus, LÄDERACH was able to reach end customers directly via a strong and well-established retailer and implement an effective distribution concept. Gradually, the MERKUR shops were repositioned as LÄDERACH chocolate boutiques, whereby the LÄDERACH brand was positioned successfully with consumers through branded stores. At the same time, performance processes were changed. For example, the company opened a new distribution-and-service center in Bilten, Canton of Glarus, in 2006, and opened a chocolate factory in Bilten in 2012. In 2012, the company also presented itself with an integrated value chain that spanned manufacturing of semi-finished and consumer products, and distributing consumer products to the end customer. It presented itself as a strong brand with clearly defined business-and-competency areas. LÄDER-ACH’s management is already transitioning into the hands of the next generation, with Elias Läderach as a confectioner entering the product development of the family business, and Johannes Läderach joining the company after completing his master’s degree at HSG in 2011.
For consideration:
| 1. | How is LÄDERACH embedded in the “chocolate” value-adding process? |
| 2. | How can the company’s “limit” in the value chain be explained? |
| 3. | What are the most important corporate objectives from the owner’s point of view? |
| 4. | What are the most important premises for the company’s survival and for reaching the owner’s objectives? |
| [18]5. | What are the characteristics of the existing B2B strategy, in particular the most important key points regarding target market, strategic resources and cooperation? |
| 6. | What are the most important opportunities and risks of changing the strategy by establishing a second mainstay? |
| 7. | What does the company’s value chain look like with the old and with the new strategy? |
| 8. | What are the most important issues that have to be addressed when changing the strategy? |
| 1.2 | Value-creation processes, companies and management |
Generating benefit is the objective of every human effort. Benefit can be defined as “a good’s ability to satisfy a specific need of the consumer” (Suchanek, Lin-Hi & Piekenbrock, 2015). For example, one chops wood and lights a fire to satisfy the need for warmth.
An object’s value is defined by the benefit expected to stream from it. Thus, value is defined as “the expression of a product’s importance for satisfying the subjective needs” (Suchanek, Lin-Hi & Piekenbrock, 2015). If someone chops more wood than he actually needs for his fire and makes a woodpile, he creates economic value. He can use the wood later for cooking or heating, or sell it. More complex products or services require more processing stages. Chocolate products, for example, require the production of cocoa, transport to a producing country, roasting / melting / conching as the actual chocolate production, finishing in the sense of converting it into the final shape (i.e. bar of chocolate), packaging, transport and sale. Those procedures are called the value added chain (or process) (compare Gutenberg, 1971). Every element of a value chain can be subdivided into individual activities, e.g. soil cultivation, planting cocoa trees, harvesting.
Fig. 1: Example of a value chain
(Source: the author)
[19]Such value-creation processes must be performed based on a division of labor and often are spread geographically, because of the necessary resources or competencies. Cocoa production requires a tropical climate; chocolate production requires milk and machinery.
Such a value-creation process based on a division of labor must be organized (compare Weick, 1979: Organization as a process of continuous organizing), because a value-creation process that yields sensible, useful products must be created from a system. This means a “set of organized elements with qualities linked by relations” (Suchanek, Lin-Hi & Piekenbrock, 2015), such as different cocoa producers, milk producers, means of transport etc. The organization’s objective is a lasting, stable, efficient and cooperative integration and coordination of the labor services provided.(compare Rüegg-Stürm & Grand, 2015, 74 et seqq.).
This requires a “meta-system” of communication, events, decisions and actions (see also Rüegg-Stürm & Grand, 2014, 78).
Fig. 2: Value-creation network and meta-system
(Source: the author)
There are interfaces, frequently technical transitions, between the individual value-creation stages. For example, different machines are necessary for chocolate production and packaging. Different people or organizations perform these activities — transaction interfaces arise that incur costs. Transaction costs can be defined as costs that arise from using the market (compare Williamson & Masten, 1995, 233 et seqq., see also section 2.2.1).
[20]How a value chain is divided between organizations and how extensive the value-creation of a company is, or how much of the value chain it covers, depends mostly on the relationship between transaction and organization costs (compare Crew, 1975; Coase, 1937: Theory of the Firm). A Swiss chocolate producer would save transaction costs if it also owned plantations, but organization costs, such as costs for managing and controlling business units with different production logic overseas, would increase.
Fig. 3: Transaction interface and company
(Source: the author)
Companies and other productive organizations, such as public administrations, churches and associations, can be defined as socio-technical systems that provide goods and services for third parties (compare Rüegg-Stürm, 2003, 20 et seq.). In this sense, they are purpose-oriented and create added value that arises from the difference between their input and output. A chocolate producer creates additional value on pure cocoa, a specific contribution to the entire value chain (see also Rüegg-Stürm & Grand, 2014, 79).
As mentioned before, companies, but also entire value chains, must be organized, meaning deliberately shaped. This is included in the general term “managing”. The traditional notion of “managing” is expressed in the management cycle defined by Fayol.
[21]
Fig. 4: Management cycle according to Fayol
(Source: Fayol, 1929, 34 et seqq.)
“Preview and planning” as an analysis is the basis for organization, management and coordination, followed by controlling. That way, a process with analysis and goal setting arises. To reach those goals or to overcome “gaps” between the status quo and goals, measures are taken, their effect is controlled and this can lead to new goals. There is a mechanistic understanding behind this notion of management, e.g.:
| – | that a clear picture exists of the initial analysis. However, data allow only an approximate understanding of social phenomena like market acceptance of a company. A positivistic approach (the belief that everything can be measured objectively, compare Spoun, 2011, 61 et seq.) does not do justice to the complex reality of social systems such as companies. Therefore, the prevalent paradigm or basic model in social sciences is constructivism. According to this, there is no objective world, but people “construct” their own “reality” (for example, via prejudices and rumors) together with other people in a process of communication (compare Eberle, 1984). |
| – | that there are clear goals. Often, there are different goals among departments and stakeholders in a company. Also, one often cannot set definitive goals, because the future is uncertain. |
| – | that measures can be enforced easily. Often, measures must be negotiated and cannot be dictated, even in hierarchies. |
That is why in the first generation of the St. Gallen Management Model, management was described as shaping, leading and developing social systems (Ulrich & Krieg, 1972). The fourth generation understands management as a reflective shaping practice (compare Rüegg-Stürm & [22]Grand, 2015). It is necessary to reach common views, to agree on goals and achieve conviction about the necessity of measures.
A company acts in an environment. This includes the economic context (supplier relations, demand, markets), the social / political context (local culture, political interests, legal framework resulting from it) and the natural context (natural resources, location etc.). In the St. Gallen Management Model, environment is understood as “the possibility and survival space pertinent to an organization” (compare Rüegg-Stürm & Grand, 2015). In this, a company must develop its organization-specific resource configuration. In a biotech company, for example, this includes access to a regional university and a relationship with a supplier network that facilitates access to new technologies.
Since the environment changes constantly, e.g. customers’ needs, management has to solve a twofold problem: on one hand, it must create a certain value as well and cheaply as possible, i.e. effectively and efficiently, which requires standardization and stabilization. On the other, it must constantly react to changes in the environment and remake itself, which requires differentiation and disrupting routines. This often generates conflict: a statically efficient company that makes the best chocolate today can be dynamically inefficient, if it misses trends.
Environment also includes stakeholders. A company can survive only if it is legitimized by all stakeholders and is considered attractive, so that they continue to support the company. If, for example, investors loose faith in a company and withdraw their money, the company fails or is sold to a new owner. Companies that damage their employees’ trust have trouble recruiting on the job market and may even face a strike. Obviously, a company without customers cannot generate revenue.
As previously mentioned, a company is always subject to new challenges through changes in its different environmental spheres and stakeholders. Legal circumstances, for example, can alter the resources of a company if properties it owns get designated for building through a change in zoning and thus become more valuable. A societal change in values can lower demand for products or even label them as ethically questionable — something that is the case today with drink and tobacco, which were still widely accepted in the 1960s. Or the globalization of markets leads to new competitors and a company has to reposition itself.
Thus, corporate management constantly faces new challenges and has to communicate, reflect, convince, stabilize, intervene and make decisions in a stream of events. In the example above, the Läderach company is confronted with the consolidation and focusing processes of the[23] customer market and specialty retailers and thus faces increased pressure on margins. Decision imperatives about strategic focus, markets, products and methods of manufacturing follow from this. Therefore it needs decision routines, for example in a business meeting, as described above. The bases for the decision capacity are legitimacy of the deciding bodies and reliability of resources such as information.
| 1.3 | Embedding business processes into the St. Gallen Management Model |
Management models are developed to organize those complex relationships, present them neatly and give all actors involved in corporate decision-making an orientation framework. Basically, a model can be thought of as a simplified image of a complex reality (Gomez, 1981, 87; Schwaninger, 2009, 53). A management model realizes management processes systematically and lets management become a “criticizable and optimizable reality” (Rüegg-Stürm & Grand, 2013, 4). It presents a frame of reference for reflection and is a basis for the conceptual exchange, for example in management teams. It offers structures and perspectives as an orientation in management practice and thus strengthens an organization’s ability to act and its viability (Rüegg-Stürm & Grand, 2013, 2 et seqq.).
Every model shows only one detail of reality from a specific perspective. A model is like a map that can only be appreciated through simplification and abstraction, which provides an overview. A hiking map has different elements than a sectional chart. In this sense, the St. Gallen Management Model is a formal orientation model with the main objective of offering company decision-makers an orientation in their work, and “a letter case for the meaningful”. It thus promotes the “process of collective expectation building and understanding toward the current situation and possible future development perspectives” (Rüegg-Stürm & Grand, 2013, 7; Ulrich, 1968; on St. Gallen Management Model compare Bleicher, 1991, 302 et seqq.; Rüegg-Stürm, 2003; Rüegg-Stürm & Grand, 2013; see also Ulrich, 1968; on business models compare Bartak, Little, Manzano & Sheahan, 2012, 121).
Managing challenges change, driven particularly by socio-economic developments like deregulation and the opening of markets, but also by technological developments that enable new forms of the division of labor. Today, companies and are becoming increasingly large and business models more specialized (Bieger, Knyphausen-Aufsess & Krys,[24] 2011, 14 et seqq.). Therefore, maintaining the decision-making ability and the balance between integration (e.g. focusing the strategy on common strengths) and differentiation (e.g. developing decentralized platforms as entrepreneurial, further differentiation of operating procedures in the ongoing advance of division of labor) thus becomes more difficult and more important. Also, companies frequently reconfigure themselves along the value chain, so in the age of flexible outsourcing, a dynamic understanding of company limits is necessary. That is why the fourth generation of the St. Gallen Management Model emphasizes those topics (Rüegg-Stürm & Grand, 2015). The reflective shaping of collective value-creation systems based on the division of labor has priority (see Figure 5).
Fig. 5: 4th generation of the St. Gallen Management Model
(Source: Rüegg-Stürm & Grand, 2015)
Specifically, the fourth-generation model includes three key categories: environment (understood as a possibility space), organization (as a value-creation system) and management (as a reflective shaping practice).
[25]The following introduction to market-oriented management of a company is guided by the fourth generation of the St. Gallen Management Model. The environment is in the fore, with a focus on stakeholders such as intermediate and customer markets, and the organization of the value-creation system with customer processes, performance processes and innovation processes.
| 1.3.1 | Stakeholders |
A company (as a purposeful, productive social system; compare Ulrich, 1968) can only exist if all of the relevant stakeholders cooperate. They form a primary orientation framework for management and were therefore depicted in the outer circle in several generations of the St. Gallen Management Model (compare Bleicher, 1994; Rüegg-Stürm, 2003). In the fourth generation, stakeholders are understood as “organization-relevant representatives of different environmental spheres or discourses” (compare Rüegg-Stürm & Grand, 2014, 56).
In a company like Läderach, important stakeholders are mainly employees, who often have a long-standing relationship with the company and who are integral to its core competency; suppliers such as cocoa producers, and customers, which, under the original strategy means catering businesses and specialty retailers. In addition, enterprises depend on investors, like third-party shareholders or banks. For the construction of new manufacturing plants they need the state’s approval, which is why relationships with the state, as well as the media and non-government-organizations (NGOs) such as environmental groups are important. Competitors play a role as competitors and/or cooperation partners. Coopetition describes a situation where a company cooperates with another even though they compete on other markets at the same time (compare Padula & Dagnino, 2007, 36 et seq.). For example, it would be coopetition if LÄDERACH cooperated with a manufacturer of semi-finished products in the chocolate industry by jointly influencing state regulation through an industry organization, while at the same time competing with that company in the customer market.
As a company’s core group, management has the responsibility to ensure the company’s cohesion or the cohesion of the different stakeholders and their continuing participation in the company (see Figure 6; compare Rüegg-Stürm, 2009, 70) to ensure access to the different environments’ potentials, for example, to technology via suppliers. In return for their continued participation in the company, management can offer stakeholders the opportunity to share in:
| [26]– | Added value (for example, wages for employees, interest for investors, membership fees in NGOs, dividends for shareholders, taxes for the state) |
| – | The image (for example, if a company contributes to the appeal of a location as a brand) or |
| – | The continued development of the company and the expertise exchange (for example, if a joint-research center for the industry is run with a competitor) |
Fig. 6: Stakeholders of a company
As previously mentioned, stakeholders have different relevance depending on the context. In a growth phase, employees or the human-resource market have priority; in a start-up phase, it is rather the customer market.
| 1.3.2 | Environmental spheres |
In the fourth generation of the St. Gallen Management Model, environment is understood as the “possibility and environmental space pertinent to an organization” (compare Rüegg-Stürm & Grand, 2015). The natural environment, the social environment and the economic environment are classic environmental spheres (compare Bleicher, 1994; see also the three dimensions of sustainability, inter alia in the Brundtland report, Hauff, 1987a; Littig & Griessler, 2004). Recently, important subsets of those environmental spheres have differentiated or strengthened; for example, the areas of politics and law as part of the social environment.[27] Technology and the normative environment in the form of ethics have developed into separate environmental spheres. Science, markets and public are important intersecting areas of the traditional three environmental spheres (compare Rüegg-Stürm, 2003, 27).
A company, or any organization, has to exploit relevant organization-specific resource configurations from the environment as a possibility space and deduce entrepreneurial possibilities and potentials from it (compare Rüegg-Stürm & Grand, 2015; 2014, 42; Teece, Pisano & Shuen, 1997; Shane, 2003; Conner & Prahalad, 1996). In the natural environment, a hotel’s panoramic location can be a resource that creates potentials to attract tourists from overseas. In the economic environment, loyal and happy customers are a resource that includes the potential for continuing purchases or word-of-mouth advertising.
An environment analysis (see also opportunities / risks analysis, section 2.4) is generally geared to identifying potentials, but also risks (e.g. emergence of a new competitor) in the different environmental spheres. The environments have varying relevance, according to context and the company’s problem or objective. A market-oriented management is concerned primarily with the economic environment, especially demand-driven markets and supplier markets.
Fig. 7: St Galler Management model with environmental spheres
(Source: Dubs, Euler, Rüegg-Stürm & Wyss, 2009, 70)
| [28]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). A sustainable development is thus characterized by not using more resources than it generates or which can be regenerated (see 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 (compare 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 added value) 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 (also see Figure 8 and inter alia Brundtland report; Hauff, 1987b). Social responsible leadership (often also CSR, Corporate Social Responsability) 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 (see also Maak, 2007, 329-243; Pless & Maak, 2008, 236). Social responsible leadership, meaning responsible acting, presupposes that the effects of a company’s actions on different environmental areas are recognized, assessed in a general way and lead to action consequences.
Fig. 8: Triple bottom line
| [29]1.3.4 | Horizons of meaning |
Management in the sense of a reflective shaping practice traditionally refers to three horizons of meaning (see also the third generation St. Gallen Management Model in Figure 7): the normative, strategic and operational horizons of meaning (see Figure 9; Bleicher, 1994, 43 et seqq.) Each of these levels has another depth of environment analysis (it is about other “ranges” of the potentials, about objectives and also about responsibility).
Fig. 9: Contents of the three horizons of meaning
(Bieger, 2007, 61; enhanced according to Espejo, Schuhmann, Schwaninger & Bilello, 1996, 230; Pümpin & Prange, 1991; Schwaninger, 1990, 50)
Normative management concerns itself with questions of long-term corporate objectives, values and norms that should inform actions in a company and with the underlying objective, which it is supposed to achieve in society and in the economy (compare Bleicher, 2004, 157 et seqq.) The owner, in the sense of an owner-strategy or the board of directors, is responsible for that. The decisions of normative management are often subsumed under a so-called mission statement. Its objective is[30] securing the long-term legitimacy of the enterprise, meaning the relevant stakeholders continue to view it as necessary and useful, so it can stay in business.
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 (see 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 company 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 a company’s competitive edge and viability is the objective of every corporate 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 a company deal with operational management. Its objective is economic viability or securing a sufficient added value. Success and liquidity, or cash flow, along with, depending on the role, sub-targets such as optimizing stock, are the target indicators of this. Important planning tools include budget planning and process management, for example, for optimum management of performance or production, as well as marketing plans for the ideal application and the coordination of marketing tools.
| 1.3.5 | Business processes within the St. Gallen Management Model |
A company can be defined as a “purposeful”, “socio-technical” system that produces goods and services for third parties for money (compare Rüegg-Stürm, 2003, 20 et seq.; based on Ulrich, Hill & Fehlbaum, 1994, 20 et seqq.). People, as part of the company system, produce goods and services with machines in a process, and market them to create added value, which is then available to compensate stakeholders for their cooperation or resources they provided. Without business processes, the[31] company 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 (compare inter alia Porter, 1986, 62). Organizational value creation is the central shaping focus of management in practice (Rüegg-Stürm & Grand, 2015). Providing infrastructure, personnel or finances enables and supports business processes and can be understood as support processes (see Figure 10). So in the Management Model, business processes are presented as a connection between suppliers/partners and customers (see Figure 7).
Fig. 10: Primary processes or business processes, according to Porter
(Source: based on Porter, 1986, 62)
A 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 markets and secondary sales markets. In the Läderach example above, one has to consider the raw materials markets for chocolate as an influencing factor, and the specialty retailers’ customers, such as buyers of chocolates, virtually as the customers of the customers (see Figure 11).
[32]
Fig. 11: Business process and markets
| 1.4 | Objectives of business processes |
As primary processes, business processes contribute substantially to the success and, ultimately, the survival of a company. Correspondingly, contributions to business processes’ objectives can be structured by management’s different levels of meaning.
On the normative level, this raises the question of what meaning the goods and services of a company have for society. If goods and services provided by business processes are no longer seen as meaningful, the company 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 a dolphinarium. A public and political debate about keeping sea animals in those kinds 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 company had to accept a governmental prohibition of part of its activities due to the loss of perceived legitimacy.
On the normative level, primary added value (meaning goods and services rendered, such as produced foods or, for a political party, enforcing common interests) and additional added value (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.
[33]The operational level is concerned with objectives that manifest themselves in fiscal parameters. The basis for a company’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 company profits. These can be direct reimbursements in the form of sales revenue or indirect reimbursements in the form of subsidies for a public service, for example.
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 (see Figure 12 and Woodruff, 1997, 142).
Fig. 12: Perceived customer value
(Source: based inter alia on Matzler, 2000)
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 the individual expectations are met or exceeded, which, according to the concept of confirmation, leads to customer satisfaction (compare 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.
[34]The relative perceived customer benefit leads to so-called behavioral outcomes (compare 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 company’s point of view, customers’ 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, compare Rust, Lemon & Zeithaml, 2004, 110; Tomczak, Kuss & Reinecke, 2007, 109-127). Companies with a well-engineered database for their customers, such as airlines with frequent-flyer programs, calculate the expected future customer value this way. Customers are then categorized according to their customer value. So-called “A customers” with high customer value are nurtured more intensely, for example, with so-called status or gold cards issued by airlines.
If one deducts the cost for the input factors (intermediate consumption) from the total customers’ sales revenue, one gets the added value of a company. From the added value one can then deduce the company value (see Figure 13).
Fig. 13: Conceptual relation between customer value, added value and company value
[35]A company’s added value generated within the frame of business processes is necessary to reimburse the different stakeholders (investors, employees, the state via taxes, etc.) for their cooperation or resources they provide. Business processes are thus the direct main purpose of the “purposeful socio-technical system” company. The continuing cooperation of the stakeholders and thus the survival of the company cannot be assured without the added value generated through business processes. The distribution of added value also mirrors the importance of the resources and stakeholders. If, for example, a certain category of manpower or capital (e.g. equity capital) is in short supply, its share of a company’s added value increases in the competition for these resources.
Added value can be defined as the difference between the value of the input and the value of the output of business processes (compare Porter, 1986, 19 & 74). Clearly, the intermediate consumption cost is deduced from the turnover. The net added value is determined by deducing the necessary depreciations (see Figure 14). In simplified terms, the sum of all added value of every company in a country is equivalent to the gross domestic product according to the national account (production account).
Fig. 14: Calculation of added value
As mentioned before, stakeholders calculate the value of a company from their perspective, thus from their potential added-value shares. Therefore, shareholders measure the company value by the total cash value of future dividends (or the achievable discounted free cash flow).
The amount of added value mainly depends on a company’s ability to maximize the customers’ willingness to pay for its output by 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; see also Drucker, 1974).
| [36]1.5 | Structure of business processes |
Physical products like chocolate spheres or services like air transport are created within the scope of the performance process. Those performance processes are supported by customer processes and innovation processes. In a market economy, mere performance is not enough. The created goods and services have to be delivered to the customers, advertised to them or rooted as brands to their thinking and their consciousness. In a dynamic competition, even performance and marketing in the form of customer processes are not enough. Goods and services have to be constantly renewed just like performance processes and marketing processes. This is the task of innovation processes (see Figure 15).
Fig. 15: Structure of business processes
| 1.5.1 | Performance processes |
The objective of performance processes is to provide the actual products of a company. A product can be defined as a performance that is geared for satisfying needs and produces a benefit for customers (Hill, 1985, 111; Kotler, 1982, 20 et seq.). Performance processes can be depicted as so-called added-value chains (see Figure 16; Österle, 1995, 21; Osterloh & Frost, 1996, 28 et seqq.). Every stage of the added-value chain creates added value independently. Within the scope of purchasing, for example, one should aim at a favorable mix of input factors in comparison to competitors through optimum terms of purchase and delivery. Processing[37] is about the most cost-effective transformation of input factors into output that meets the target groups’ demands.
This is the case, for instance, if a chocolatier like Läderach can buy particularly cheap raw materials. During processing stage 1, the chocolate ball forms are produced and then filled in processing stage 2. The filled balls are wrapped attractively and then delivered to shops and end customers as quickly as possible, while retaining quality, by output logistics.
The differentiation of the stages is due to technical conditions. They can also be split off, meaning performed by other companies (outsourcing; see also Williamson, 1996, 34 et seqq.). It is possible, for example, to delegate purchasing to specialized purchasing companies, or semi-finished products can be bought from intermediate goods suppliers and processing stage 1 is avoided.
There are so-called transaction interfaces between the stages of the added-value chain where products or services are committed from one technically defined “processing stage” to the next. If the product or service comes from another company, a contract is necessary to secure the transaction spot. Therefore, transactions often work via a market with standardized contracts. Accordingly, so-called transaction costs arise for negotiating, executing and reviewing such transactions (compare inter alia Williamson, 1998).
Fig. 16: Performance process as an added-value chain
A performance process or an added-value chain looks fundamentally different depending on whether the performance 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 the car during car repair or the customer himself with personal services, for example with medical care (also see Figure 17). In the added-value chain of a service chain, performance stages take the place of “processing stages” (compare Lehmann, 1993, 57). In traveling, these can include[38] getting information before the journey, booking the journey, physical transport, i.e. traveling itself, and check-in, catering at the destination etc. (see Figure 18).
Fig. 17: Business process: goods and services
Fig. 18: Service chain in incoming tourism
(Source: Bieger & Schallhart, 1996/97, 47)
| 1.5.2 | Customer processes |
The objective of customer processes is the long-term creation of customer value. It is not about making short-term profit based on selling in the sense of transactional marketing (Belz, 2002, 119). Instead, it is about the long-term satisfaction of customer needs in a longer-term customer process in the sense of relational marketing.
Customer processes can be divided into the sub-processes branding or reputation processes, customer acquisition and customer retention. Customers acquisition and customer retention are “rolling” processes over time. From the customer’s point of view, the customer process becomes an actual buying cycle (see Figure 19).
[39] 
Fig. 19: The customer buying cycle
(Source: enhanced according to Dittrich, 2002, 140; following Mauch, 1990, 16)
| a) | The reputation or branding process is an overlaying process radiating to the public at large via the entire buying cycle with its contact, evaluation, purchase, use and repeat-purchase stages. |
Often, in the management of marketing tools (for example, when designing advertising), we differentiate between image or brand effect and tactical sales effect. Even though the targeting of the two forms of marketing tool application is different, they influence each other. Tactical, short-term measures also have an effect on the long-term image. It is important to keep the brand attractive for important customers at all times. A chocolate manufacturer like Läderach, for example, has to bring the brand up to date and make it relevant even for committed customers who always buy presents in its shop.
A brand can be defined as a symbol or a name that has a monopoly position for a specific use in the consumer’s mind (Domizlaff, 1992, 60; Woodruff, 1997, 139). “Brands are notions in the stakeholders’ minds that assume an identification and differentiation function and influence the decision behavior.” (Esch, 2010, 20).
Brand-name products are products the consumer spontaneously connects with a particular need. Brands have to be created through winning the customer’s trust and through long-term[40] oriented marketing. They have to be cultivated continually and recharged like a battery. A clear positioning and long-term oriented, integrated marketing are requirements for a brand (compare Domizlaff, 1992, 75 et seqq.; Kotler & Keller, 2012, 296 et seqq.).
A brand is made up of a logo or trademark, a brand claim and brand content (quality or value charge). According to Aaker (1992), the value contribution of a brand consists of a “unique set of associations” with functional and emotional components, which are strengthened by the interaction between the consumer and the brand by developing a definite brand identity (Aaker, 1992, 35). As per Aaker, a brand’s design is the result of brand essence (the brand’s substance; for example, a luxury brand), the core brand identity (for example, reliability) and the extended brand identity (for example, a particular lifestyle). The sum of the advantages and disadvantages of those brand associations is the market value. Important determinants include (Aaker, 1992, 31):
| – | Brand awareness |
| – | Brand loyalty |
| – | Assumed or perceived quality |
| – | Brand associations |
| – | Brand availability |
| – | Perceived purchase risk |
| – | Brand satisfaction |
| – | Other brand assets like patents, trademarks, channel relationships etc. |
A brand’s strength is measured by two dimensions: brand awareness and brand profile (compare Kotler & Keller, 2012, 265 et seqq.). Esch (2010, 10) cites Coca-Cola’s brand strength as an example. While PEPSI was judged more favorably than Coca-Cola in a blind taste test, this assessment changed when the brand was identified. It is not the taste that is experienced differently, but the happiness associated with the brand that influences taste perception (Esch, 2010, 10).
The free sample has ended.
