As regards an organization, the market includes people serving a variety of cooperative and competitive roles. These people may be executives at rival firms or potential employees. Affecting these people and their relationship with an organization are a variety of socio-economic-cultural forces. For example, slow aggregate GDP growth leads to less hiring which drives wages down. Cultural norms with regards behavior between men and women, for example, has led to increased participation by women in the work force. A new state tax on internet sales may create an opportunity for an entrepreneurially minded bricks and mortar retailer in competition with an online store. Because people are constantly assessing the risks and opportunities in a dynamic environment, establishing a clear standard is the only way to track and manage interaction between them and an organization.
The market also includes suppliers and partners. Suppliers are differentiated from partners in that they provide the raw materials, unfinished goods, or labor required to create one unit of good or service to be sold. In other words, supplier costs reduce gross margins. By contrast, partners in the market may reduce net margins if investment by an organization is required or increase revenue if a partnership leads to new business. For example, outsourcing marketing or accounting would require an investment in a business service partner or securing a wholesale distribution partnership could lead to increased sales.
Finally, the market includes raw materials. Depending upon natural resource abundance and total market demand, these raw materials may be more or less expensive. Advances in extraction and processing technologies also impact the price of these raw materials. Competitors may try to hoard precious and scarce raw materials in an attempt to undermine an organizations’ viability or suppliers might threaten an organizations business model by suddenly raising prices when their supplier power allows.
To sum, the market in which organizations operate includes people, suppliers, partners and raw materials. Last time, we introduced the other market dimensions of capital and ideas. Next time, we’ll introduce the primary structure in the market and we’ll start to deconstruct it. Until then, I encourage you to thoroughly enjoy the scarcest of resources, life.