How middle managers manage the political environment to achieve market goals: Insights from China's state‐owned enterprises
| Author | Quy Nguyen Huy,Yidi Guo,Zhixing Xiao |
| Published date | 01 March 2017 |
| DOI | http://doi.org/10.1002/smj.2515 |
| Date | 01 March 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 676–696 (2017)
Published online EarlyView 20 April 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2515
Received 3 September 2014;Final revision received28 January 2016
HOW MIDDLE MANAGERS MANAGE THE POLITICAL
ENVIRONMENT TO ACHIEVE MARKET GOALS:
INSIGHTS FROM CHINA’S STATE-OWNED
ENTERPRISES
YIDI GUO,1*QUY NGUYEN HUY,1and ZHIXING XIAO2
1Strategy Department, INSEAD, Singapore, Singapore
2Department of Management, Peking University HSBC Business School, Shenzhen,
P. R. China
Research summary: Although the middle management literature has identied various bridging
roles performed by middle managers in the market environment, it is relatively vague about
whether and how they manage the political environment to achieve market-related goals. In
an inductive eld study of four large state-owned enterprises based in mainland Communist
China, operational middle managers were found to take an active role in dealing with political
actors to achieve market efciency in their local environments, performing two distinct bridging
strategies.Our eld study suggests that middle managers are better equipped than their bosses (top
executives) as well as their subordinates (frontline employees) to perform the bridging function
between competing market and political imperatives in various local settings.
Managerial summary: For rms that operate in diverse geographies, it is challenging for a
handful of top executives to deal with numerous political actors. This burden could be shared
with operational middle managers, who play a bridging role by drawing on their operational
knowledge and local networks. Our research on middle managers who work under the scrutiny
of political actors in China found that they bridge market and political ideology by conveying
common features that seem legitimate to both. They also bridgemarket goals and political actors
with personal affect. Compared to top executives and frontline employees, middle managers have
unique advantages in performing these bridging functions. Firms can enhance their strategy
execution ability by training middle managers in dealing with political actors in diverse contexts.
Copyright © 2016 John Wiley & Sons, Ltd.
INTRODUCTION
The pivotal role of middle managers (MMs) has
received increasing scholarly attention. One of the
distinctive features of MMs— dened as “any man-
agers two levels below the CEO, and one level
above line workers and professionals” (Huy, 2001:
73)— is that they are both subordinates and supe-
riors (Dutton and Ashford, 1993). MMs serve as a
link between top managers and frontline employees
Keywords: strategy implementation; political environ-
ment; middle manager; state-owned enterprise; China
*Correspondence to: Yidi Guo. INSEAD, 1 Ayer Rajah Avenue,
Singapore, 138676. E-mail: yidi.guo@insead.edu
Copyright © 2016 John Wiley & Sons, Ltd.
in their daily work, transforming broad strategic
intentions into concrete operational practices and
vice versa (Floyd and Wooldridge,1992). They also
perform a pivotal bridging role connecting work
groups horizontally (Balogun and Johnson, 2004)
and interacting with external stakeholders such as
customers and suppliers (Rouleau, 2005).
Although widely recognized, MMs’ bridging role
is traditionally set within the market environment,
characterized by “interactions between rms and
other parties that are intermediated by markets
or private agreements” (Baron, 1995: 47)— those
“other parties” being customers, competitors, or
suppliers. The bulk of middle management studies
focus exclusively on the market setting, be it issues
How Middle Managers Manage the Political Environment 677
to do with customer demands (e.g., Wooldridge
and Floyd, 1990), market competition (e.g., Huy,
2011) or technological innovation (e.g., Taylor
and Helfat, 2009). In contrast, the rm’s political
environment—constituted by political actors such
as government ofcials and members of political
parties— is rarely considered in studies on MMs.
Decoupling market and political environments
may be problematic in some contexts to the extent
that the two are closely interrelated (Baron, 1995;
Oliver and Holzinger, 2008). Since the effect of
their actions in one environment can spill over to
the other, managers should be responsible for the
performance of their rms in both, particularly
in the prevailing context of increasing intensive
government intervention and rapid geographical
expansion. Understanding the interrelationship
between market goals and political pressures is
important because government intervention in
market transactions has become more pervasive
since the global nancial crisis in 2008 (Jeong and
Kim, 2010). Firms need to strategically manage
their interaction with political actors who wield
vital resources and have the potential to create
uncertainty around rms’ future growth or survival
(e.g., Holburn and Vanden Bergh, 2014). For rms
to stay in business, managers thus need to deal
with the tension between prot maximization in
the market and the interests of political actors.
Moreover, as the geographic scope of business
expands, rms are exposed to demands from various
local political parties and governmental institutions
(Sexty, 1980). Top management can be easily over-
whelmed by the range and complexity of political
matters and interactions with political actors in each
locality where the rm operates. Indeed, research on
multinationals suggests that the distinct nonmarket
environments of different host countries are noto-
riously difcult to manage (e.g., Zhang and Luo,
2013). One potential way to reduce the burden on
top managers is thus to share the task of dealing
with local political actors with MMs. The purpose
of this study, therefore, is to explore whether and
how MMs deal with the political environment to
achieve market efciencyby identifying the specic
actions they perform to address political matters that
also help advance the rm’s market interests.1
1Note that even though MMs’ salary and promotion are generally
aligned with the market efciency of the rm, they might vary
in their beliefs on some political matters. It is possible that some
political goals have intrinsic value to them. In some situations,
As theories of MMs’ political actions are lacking,
we carried out an inductive, qualitative study in an
“extreme” context in which political pressures were
signicant and easy to observe: China’sstate-owned
enterprises (SOEs). Our focus was on mature Chi-
nese SOEs that were no longer obedient servants
of the state, having developed core competencies
and nancial self-sufciency (Hafsi, Kiggundu, and
Jorgensen, 1987). Their primary goal was to make
a prot by selling products and services; their key
performance measures were market oriented, and
thus, they strove to innovate to enhance their com-
petitive advantage. These rms encountered erce
competition in the market and enjoyed few privi-
leges from the government in their everyday opera-
tions. Although they were comparable to rms in
the private sector in regard to their market orien-
tation, they remained under the close scrutiny of
the government and the Communist Party, which
appointed political representatives at various lev-
els of the hierarchy (e.g., top, middle management,
worker level) inside the SOEs. The close proximity
and distributed nature of this internal scrutiny made
it possible to detect any attempt to symbolically
conform to political pressures in pursuit of sub-
stantive market-oriented practices. Such so-called
“decoupling” has been widely documented as a
strategy performed by prot-pursuing rms encoun-
tering nonmarket institutional pressures (Meyer and
Rowan, 1977). Given the increasing intensity of
government intervention in market activities after
the nancial crisis, this stringent research context
could provide new insights about how organization
members deal with political actors when decoupling
through symbolic conformity appears to be difcult
or unrealistic.
We found that MMs acted as bridges in the
management of the political environment in two
respects. First, when facing conicting market and
political belief systems, MMs bridged the two and
minimized conict by identifying common prac-
tices to both, thanks to their knowledge of the
local situation. Second, they built bridges to indi-
vidual political actors on the forefront via personal
emotions and affective values. MMs had a dis-
tinct advantage over top managers in performing
their behaviors might be drivensolely by political goals. However,
in this study, we focus on those actions performed by MMs to
deal with political matters, and simultaneously benet the rm’s
market goals. Insights gained from this research focus could
provide guidance to prot-pursuing rms to handle their political
actors more effectively.
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 676–696 (2017)
DOI: 10.1002/smj
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