mgmgt 490 Individual Reflection Paper

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 1

Introduction to Stakeholder Strategy

By DJC1970 (Own work) [Public domain], via Wikimedia Commons

By ChadPerez49 (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Whole Foods Market, Inc. Awards and Honors

• FORTUNE – World’s Most Admired Companies

• FORTUNE – 100 Best Companies to Work For

• Ethisphere Institute – World’s Most Ethical Companies

• National Retail Federation – Retailer of the Year

• International Association of Culinary Professionals – Culinary Youth Advocate of the Year

• Scientific American magazine – Top 25 Green Energy Leaders

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 2

Whole Foods Market, Inc.

Values

Opportunities Capabilities

Valuable

Competitive

Position

Creating Value…

Creating Value for Stakeholders

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 3

Values

Opportunities Capabilities

Valuable

Competitive

Position

Creating Value…

Creating Value… for Whom?

GOVERNMENT

COMMUNITIES CUSTOMERS

FINANCIERS EMPLOYEES

SUPPLIERS

THE FIRM

Secondary

Stakeholders

Primary

Stakeholders

Stakeholders

• Key Stakeholders

 Investors

 Employees

 Customers

 Suppliers

 Community

• Secondary Stakeholders

 Special interest groups

 NGOs

 Governments

 Etc.

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 4

Aligning Key Stakeholders

Stakeholders

• Key Stakeholders

 Investors

 Employees

 Customers

 Suppliers

 Community

• Secondary Stakeholders

 Special interest groups

 NGOs

 Governments

 Etc.

Stakeholder Analysis

Issue Employees Customers Government Community Shareholders

Product

Safety 3 1 1 1 3

Job

Fulfillment 1 5 5 3 5

Financial

Returns 3 5 5 5 1

Impact on

Environment 3 3 1 1 5

1 – Critical importance to stakeholder

3 = Somewhat important to stakeholder

5 = Not very important to stakeholder

Stakeholder Issues Matrix

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 5

Stakeholder Analysis

Potential

Action

Employees Customers Government Community Shareholders

Alternative #1 ? ? ? ? ?

Alternative #2 ? ? ? ? ?

Alternative #3 ? ? ? ? ?

Alternative #4 ? ? ? ? ?

Stakeholder Impact Matrix

Aligning Secondary Stakeholders

Stakeholders

• Key Stakeholders

 Investors

 Employees

 Customers

 Suppliers

 Community

• Secondary Stakeholders

 Special interest groups

 NGOs

 Governments

 Etc.

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 6

Institutional Pressures

• Various stakeholders (often secondary

ones) can bring institutional pressure

to bear on a firm, influencing its

strategy and performance.

• Key questions:

 When will stakeholders take action

against firms?

 When will these actions be effective?

 How can and should a firm adapt to

these opportunities and threats?

Institutional Pressures

• Institutional pressure emanates from

active (typically organized) groups of

stakeholders – e.g., advocacy groups,

unions, governments, NGOs, etc.

• Why effective stakeholder

management is important:

 Secondary stakeholders can influence

the competitive environment

 Pressures pose significant threats and

opportunities for firms

Institutional Pressures

• Can come from:

 Media (negative press coverage)

 Governments (regulations, laws, policy)

 NGOs (activist social organizations)

• Sometimes unfair/unreasonable

targeting

• Oftentimes a signal of a larger

stakeholder management issue

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 7

Sources of Institutional Pressure

• Political actors may have self-interested

motives to act against firms.

• Stakeholders may act (or call for action)

against firms in response to:

 Normative conflict (conflicts with norms and

beliefs)

 Distributional conflict (often market failure)

− Abuse of market power

− Existence of negative externalities

− Markets for common goods and public goods

− Capitalizing on information asymmetries

Sources of Institutional Pressure

Sources of Institutional Pressure

• Political actors may have self-interested

motives to act against firms.

• Stakeholders may act (or call for action)

against firms in response to:

 Normative conflict (conflicts with norms and

beliefs)

 Distributional conflict (often market failure)

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 8

Normative Conflict

• Definition

 Norms are a society’s accepted, established

beliefs about how things should be done

• Issue

 Firm actions and government policies that conflict

with norms may create negative public sentiment

and adverse political pressure

• Examples

 Child labor, privatization, unionization

• Solutions

 Public education campaigns, enfranchisement,

business model adaptation

Distributional Conflict: Market Power

• Definition

 Market power is the ability to price above

competitive levels

• Issue

 Firms may capture consumer surplus at the

expense of general welfare

• Examples

 Collusion, cartels, predatory pricing

• Solutions

 Regulation, M&A approval, antitrust lawsuits

Distributional Conflict: Negative Externalities

• Definition

 Negative externalities are costs imposed on one

stakeholder by the actions of a second without

compensation

• Issue

 Firms lack market incentives to reduce these costs

• Examples

 Noise, air and water pollution

• Solutions

 Regulations (taxes and fees), lawsuits, assigning

property rights, stakeholders force internalization

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 9

Distributional Conflict: Common Goods

• Definition

 Common goods are those resources to which

everyone has free access, and more for one

consumer means less for others

• Issue

 The tragedy of the commons: firms/individuals

may over-consume common goods

• Examples

 Fisheries, oil fields, water tables, spectrum

• Solutions

 Grant monopoly over resource, government

regulation, self-regulation

Distributional Conflict: Information Asymmetries

• Definition

 Information asymmetries (when one party knows more than another) may create a “market for lemons” or principal-agent problems

• Issue

 Increases transaction costs to the point where economic exchange may not take place

• Examples

 Used cars, organic foods, share value, labor practices

• Solutions

 Reporting, standards and labels (both public and private)

Institutional (Non-Market) Strategies

• Lobby government against and for regulation

 Trade associations

• Pursue recourse through the courts

 Patent infringement, contract disputes

• Try case in the court of public opinion

 Public relations, both information dissemination

and rhetorical strategies

• Negotiate with stakeholders

• Address stakeholders’ concerns or “self-regulate”

 Proactive environmental actions, business model

adaptation

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 10

Value Creation and Your Values

Strategy and Ethics

• Institutional/non-market strategies can

seem overly instrumental

• Also important to think beyond the

immediate financial impact of effective

stakeholder management

• Seeing stakeholders as ends, and not

just means to profits

• Value creation involves values

• How do you want to lead or manage?

Values

Opportunities Capabilities

Valuable

Competitive

Position

Creating Value for Stakeholders

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 11

Module Lessons

Module Lessons

• The purpose of a business organization

involves creating value for the key

stakeholders of that business.

• Different types of stakeholders seek

different types of value.

• Effective organizations align the

interests, as best they can, of the firm’s

key stakeholders.

Module Lessons

• Effective business strategy should

carefully consider the impact of a

firm’s decisions or actions on various

stakeholders.

• This analysis can point the way to

effective strategic actions.

• Secondary stakeholders cannot (and

should not) be ignored.

Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course. Please do not share or distribute them.

9/24/2015

Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy. 12

Module Lessons

• Although stakeholder pressure may

result from political motivations, it

often reflects an underlying normative

or distributional problem.

• Stakeholder management is a way of

thinking about ethical considerations

in an organization’s strategy.