Stakeholder Strategy: Profiting from Collaborative Business Relationships

Stakeholder Strategy: Profiting from Collaborative Business Relationships

by Ann Svendsen

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In today's networked, highly competitive, and global economy, value is created collaboratively between a company and its stakeholders — employees, investors, customers, suppliers, and communities. "The Stakeholder Strategy" presents a new approach to management that is focused on collaboration. It addresses concernes aobut the bottom line (can

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In today's networked, highly competitive, and global economy, value is created collaboratively between a company and its stakeholders — employees, investors, customers, suppliers, and communities. "The Stakeholder Strategy" presents a new approach to management that is focused on collaboration. It addresses concernes aobut the bottom line (can collaboration increase profits?) and societal pressures to improve overall quality of life. It also includes a practical step-by-step guide, which companies can use to forge a network of powerful and profitable collaborative stakeholder relationships.

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Berrett-Koehler Publishers, Inc.
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The Stakeholder Strategy

Profiting from Collaborative Business Relationships

Berrett-Koehler Publishers, Inc.

Copyright © 1998 Ann Svendsen
All right reserved.

ISBN: 978-1-57675-047-6

Chapter One

Why Build Collaborative Stakeholder Relationships?

To the extent the firm is able to recognize its interdependence, reflect upon the ethical standards appropriate to the situation, and react in a timely and responsive manner, it possesses a valuable, rare and nonsubstitutable strategic resource. —Reginald Litz, 1996

Companies across North America are taking seriously the notion that as paradoxical as it seems, one way to succeed in a highly competitive globalized economy is to cooperate. In an economy where companies need to persuade investors to hold their stock, employees to work cooperatively with others, customers to buy a broader array of their products and services, and contractors to maintain strong supply chains, collaborative stakeholder relationships are key.

Every company, whether large or small, has a unique set of stakeholders—most often including investors, employees, customers, suppliers, and communities. The term "stakeholders" refers to individuals or groups who can affect or are affected by a corporation's activities.

For most companies today, stakeholder relationships can have a significant impact on the bottom line. While companies could once manufacture an image and reputation through advertising and other media-based campaigns, in today's networked world, reputation depends on establishing the trust of key stakeholders. The pursuit of financial success at the expense of employees, the environment, local communities, or workers in a subcontractor's factory halfway around the globe is not only socially irresponsible but can result in shareholder losses rather than gains.

A growing number of business leaders are acknowledging the power of long-term, positive stakeholder relationships. One such business leader is John Browne, CEO of British Petroleum. In a recent Harvard Business Review article (September/October 1997), he talked about the importance of building mutually beneficial stakeholder relationships. He said, "You can't create an enduring business by viewing relationships as a bazaar activity—in which I try to get the best of you and you of me—or in which you pass off as much risk as you can to the other guy. Rather, we must view relationships as a coming together that allows us to do something no other two parties could do—something that makes the pie bigger and is to your advantage and to my advantage."

This is not to say that building stronger relationships with employees, customers, investors, suppliers, and communities is a panacea for all situations or all companies. Nor is building a network of reciprocal relationships simple. In most companies, competitive pressures keep all eyes focused on the short term, making it extremely difficult to bring longterm issues to the forefront. Traditional accounting systems based on financial measures of performance make it difficult to assess the impact of intangibles like relationships or reputation. And collaboration means letting go of control, which is always difficult for corporate managers schooled in the art of competition. However, despite these barriers, for many companies, stakeholder relationships do offer enormous untapped potential. For some, stakeholder relationships may even be a source of competitive advantage.

Stakeholder Collaboration versus Stakeholder Management

The theory of stakeholder management taught in most business schools today focuses on the mechanisms by which organizations understand and respond to the demands of their stakeholders. Theorists have argued that stakeholder relationships can be managed using techniques such as issue analysis, consultation, strategic communications, and formal contracts or agreements. Managers are seen as having the power to direct and control interactions between a corporation and its stakeholders.

The main purpose of stakeholder management is seen to be buffering the organization from the negative impacts of stakeholder activities. The job of a public affairs or community relations manager, for instance, is to anticipate how the company's activities will affect public stakeholders and minimize negative reactions by instituting "damage control."

Within this more traditional perspective, responsibilities for various stakeholder groups are assigned to separate divisions. The marketing department deals with customer relations, the human resource department deals with employees, the public affairs department deals with the media, the community relations department deals with local organizations, and the purchasing department handles contracts with suppliers. The relationships that develop between managers and stakeholders are shaped by the interests and values of the department managers rather than by the corporation's values and goals.

This "stakeholder management" approach has arisen out of the belief that corporations need to take steps to defend themselves from the demands of stakeholders. Part of the role of managers has been to act as a referee, deftly and diplomatically mediating between stakeholder demands and expectations in order to preserve goodwill toward the company, avoid public relations fiascoes, and maintain cost competitiveness.

Building Stakeholder Relationships

A collaborative approach to building stakeholder relationships, on the other hand, sees stakeholder relationships as being reciprocal, evolving, and mutually defined. The manager is not separate from the stakeholder relationship but is part of it. Thus the idea of "managing" relationships is not only untenable but is viewed as being counterproductive for both the corporation and its stakeholders in the long run.

A collaborative model also assumes that stakeholder relationships can be a source of opportunity and competitive advantage. Relationships can increase an organization's stability in a turbulent environment, enhance its control over changing circumstances, and expand its capacity rather than diminish it.

There are significant advantages to taking a more integrated, company-wide approach to identifying and building strategically important stakeholder relationships. In addition to increasing organizational effectiveness and consistency of response, this kind of holistic approach also allows an organization to build on the synergies that occur when positive relationships with one stakeholder group, such as a local community, start to have a beneficial impact on another stakeholder group, such as customers.

The following table summarizes the characteristics of the old and new approaches to corporate-stakeholder relations.

This book presents an integrated strategy for building a network of collaborative stakeholder relationships based on a fundamental shift in management philosophy and attention. A singular focus on the needs and interests of stockholders is replaced by a focus on understanding and balancing the interests of all of a company's key stakeholders. Through positive long-term relationships, companies identify "win-win-win" opportunities that serve the corporation as well as stakeholders and society.

The stakeholder strategy is based on the view that companies and society are interdependent. Therefore, business prosperity is linked to the well-being of local and global communities and all of a corporation's other key stakeholders, including employees, suppliers, and the natural environment. Within this context, relationships with stakeholders are as essential to a company's survival as air or water is to a human being's survival.

A company's relationship-building strategy is therefore seen as being inextricably linked to its mission, values, and goals. Given the strategic value assigned to the relationship-building function, employees are expected to act in concert with the corporation's social mission and goals and to identify opportunities that serve the corporation, its stakeholders, and society.

Stakeholder Collaboration on the Ground

Some corporations are already living a "new reality" of collaborative stakeholder relationships. They recognize that positive relationships with stakeholders can pay off. Stakeholder-responsive companies treat their employees and suppliers well, develop innovative products and services, take care of the environment, and contribute to causes that are important to the community. Many find that these stronger stakeholder relationships produce benefits ranging from increased customer loyalty to an improved reputation and a more motivated and committed work force.

However, for most companies, the attention of management has been focused on one stakeholder group at a time. Collaborative approaches are often confined to specific parts of an organization. For example, some companies have a participative and democratic approach to employee relations. Others have developed trust-based, highly interdependent relationships with their suppliers and customers. Rare is the company that adopts a comprehensive and strategic approach to relationship building that is governed both by deep social values and by a recognition of the importance of the bottom line.

A number of companies across North America are experimenting with collaboration in some parts of their businesses. If successful, many of these "test cases" will become prototypes for collaborative processes in other areas of these companies.

Case Study: Multistakeholder Collaboration Resolves Decades-Long Dispute BC Hydro, a utility company in British Columbia, Canada, recently sponsored a successful collaborative process with government regulators, community action groups, and First Nations (Native American) representatives to develop a new operating plan for a hydroelectric dam on the Allouette River in southwestern BC. The utility, which produces 90 percent of BC's electrical energy for 1.5 million residential, industrial, and commercial customers, did not enter the collaborative process willingly. BC Hydro had been fighting with the Allouette River Management Society, a group of concerned citizens, for more than forty years. When BC Hydro announced its plans to increase the generating capacity of the dam, the group threatened to take the utility to court. Nearby First Nations communities, an active group of naturalists, and regional, provincial, and federal government regulators were also concerned about impacts of the increased water flows on fish habitat, wildlife, and recreation and were prepared to take action. All of these stakeholders had different and conflicting interests. Under pressure, BC Hydro's multidisciplinary project team, which included engineers, environmental experts, and communications specialists, invited the stakeholders to participate in a collaborative process. For the first time, BC Hydro participated on the committee as an equal player. Over a period of eight months, the committee examined the current operation of the Allouette facility and identified alternatives that would better meet community and environmental needs. The committee began by developing joint objectives for water management—clearly setting out "what mattered." Government officials, BC Hydro staff, and independent consultants provided information and analysis. They created, evaluated, and re-created various alternatives for operating the facility. Eventually, after months of intense discussions and many rancorous, late night meetings, the stakeholder committee reached consensus on every major aspect of an operating plan. The benefits of this collaborative process are many. The utility lost some generating capacity but now has a plan that is supported by all of its stakeholders. The river is less prone to flooding and is producing more salmon. The process has also led to further joint ventures between BC Hydro and First Nations groups. BC Hydro is now using its Allouette River collaborative process as a model for other water-use planning projects. Furthermore, this process has begun to change the corporate mind-set at BC Hydro about how decisions should be made and who should be involved. Many of the members of the staff who participated in the project were initially very skeptical about the merits of a collaborative process that put BC Hydro on equal footing with the other stakeholders. Having been through the very difficult and time-consuming collaborative process, they believe the outcome was worth the effort. Case Study: Microsoft in Trouble with Stakeholders Recently, a number of companies have suffered from poor relationships with their stakeholders. Microsoft, one of the world's largest companies, is a case in point. Ironically, Microsoft has been also known as one of the best examples of a networked company— a company that thrives on its stakeholder relationships. That has certainly been the case until recently. Computer hardware and component manufacturers, software developers, and distributors have all collaborated to produce and sell computers that run Windows 95, Microsoft's operating system. However, as a result of negative publicity arising from its supposed ruthless treatment of suppliers and predatory actions toward competitors, Microsoft is now running into trouble with some of its other stakeholders—the public, investors, government regulators, and employees. There are more than one hundred anti–Bill Gates and Microsoft sites on the Internet. Company executives report they are having difficulty recruiting new highly skilled employees, and long-time employees are feeling disgruntled and defensive and less motivated to put in the long hours that have been the hallmark of Microsoft and other computer company cultures. As a Microsoft employee wrote recently in Microsoft's on-line public affairs magazine, "A few months ago, everyone I met seemed to think that working for Microsoft was a pretty cool thing to do. Now strangers treat us like we work for Phillip Morris." In this case, even though Microsoft has succeeded in developing a network of supplier relationships, the strength of those relationships has been undermined by alleged unethical business practices. Furthermore, Microsoft's poor relationships with subcontractors have cost the company the support of at least some of its employees and other key stakeholders. Case Study: The Body Shop Suffers from Poor Relationships The Body Shop is another example of a company that has suffered from the lack of solid stakeholder relationships. The Body Shop, one of the world's leading beauty- and bath-products companies, was enormously successful in the early 1990s, riding a wave of public support for its fair-trade and environmental policies. Its success was severely tested several years ago when a media article exposed inaccuracies in the company's environmental and social responsibility claims. The article and the tide of negative consumer and public opinion that followed had a drastic, if short-lived, impact on The Body Shop's stock prices. When The Body Shop carried out its first social and environment audit in 1995, partly in response to mounting consumer pressure, poor relationships with franchisees and employees also surfaced. Anita Roddick, the founder of The Body Shop, has said in the company's most recent audit report that these relationship problems must be addressed for the company to continue to grow. "We learned in our first social audit process that the overwhelming majority of people associated with our business believe firmly in The Body Shop ideals and our aspirations. We also discovered that a number of improvements were needed in our relationships with stakeholders." Dissatisfied staff and franchise owners, coupled with disenchanted consumers, can put a quick stop to growth and financial prosperity.


Excerpted from The Stakeholder Strategy by ANN SVENDSEN Copyright © 1998 by Ann Svendsen. Excerpted by permission of Berrett-Koehler Publishers, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Meet the Author

Svendsen is a consulting sociologist who helps companies and government agencies identify, understand, and work effectively with internal and external stakeholder groups.

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