GLOBAL INDUSTRY MODELS
Global industry models recognize the added complexity when moving from operating in one country to operating in many countries. One of the key challenges is assessing the need and opportunity for global integration across geographic contexts versus the need for local responsiveness. At the extremes, a high need for global integration leads to a global model, where there are economies of scale to keep prices low and customers accept stan-dardized products; whereas, a high need for local responsiveness generates a multidomestic model, where the products are locally tailored and the benefits of being local outweigh the added costs for customers. Of course, many firms seek to have the benefits of both with a transnational model; however, such a model leads to many challenges in determining which aspects of the strategy and organization are global and which are customized to the local market.
Yip and Coundouriotis present a framework for analyzing the global nature of an industry.25 They suggest that viewing industries as either global or not is an oversimplifi-cation. Their framework encourages examination of each aspect of an industry to assess its global orientation. For example, supply may be global, while marketing may be multilocal or multidomestic.
STAKEHOLDER ANALYSIS
As we will discuss in Chapter 5, analysis of customers and competitors is a critical element of environment analysis. However, there are many and varied stakeholders that warrant consideration, and often little guidance on how to carry out an analysis of stakeholder interests. Although not necessarily the case, stakeholder analysis is often associated with corporate social responsibility (CSR). Porter and Kramer argue that CSR can be a source of competitive advantage.26 While we will revisit this topic in Chapter 7 when we discuss management preferences, in this chapter we present a basic framework for stakeholder analysis arising from the work of Mitchell, Agle, and Wood.27 Before you can determine the roles that various stakeholders might play, it is important to identify them, define their interests, and understand how those interests may relate to your strategy.
Identify Stakeholders There are many possible stakeholders that need to be consid-ered. Externally, stakeholders include customers, competitors, suppliers, the community, government, and a variety of interest groups. Internally, you need to consider employees, unions, the management team, investors, and shareholders. At the outset, stakeholders should be broadly defined to incorporate any individual or group who has an interest in the firm’s strategy.
Define Stakeholder Interests For each stakeholder group, identify the particular needs of the group by addressing the following questions: What would be “best” for each stakeholder group? Could you possibly deliver this? At what expense?
Attempt to identify alliances and commonalities amongst the stakeholder groups.
The following questions may be helpful: Do some stakeholder interests align? What are the dominant or recurring positions taken?
Porter and Kramer suggest using the value chain shown in Figure 4.2 to help iden-tify stakeholder interests. For example, with respect to the support activities in the value chain, Procurement focuses attention on the supply chain practices that may reveal issues around child labour, bribery, utilization of natural resources or problems with materi-als such as lead paint. Human Resource Management focuses attention on employment practices and issues such as compensation, safe working conditions, and discrimination.
Examining the primary activities such as Outbound Logistics may reveal issues with trans-portation and packaging whereas Service may point to issues with customer privacy or disposal of obsolete products.28
Keep in mind that your strategy may have many externalities, which are the spill-over effects of your strategy on society. It is these externalities that draw in many stakehold-ers who are affected by the spillover effects. Undstakehold-erstanding the role of the organization in the overall ecosystem helps in identifying and defining stakeholder interests. “Given the gargantuan size of many of today’s multinationals, even the smallest decision, or non-decisions, add up. UPS recently decided to stop printing paper labels and sticking them to packages; instead it designed a device to stamp shipping information directly on boxes.
That will save at least 1,338 tons of paper per year”.29 Whereas once it was difficult to measure externalities, today the sophistication of doing so is staggering. Take, for exam-ple, scorecard.org in the United States. By inserting your zipcode you can identify the worst polluters in your area and are given options for taking actions such as sending a fax to the company.30 There are an increasing number of measures and indexes of CSR that make it extremely difficult for firms to avoid facing the externalities of their strategies.
Compare Strategy to Stakeholders’ Interests Having identified the stake-holders and their interests, compare the stakeholder interests to the strategy. The follow-ing questions may be helpful:
1. What are the likely consequences of your actions?
2. What reactions will the stakeholders have?
3. What is your personal feeling about the issue?
4. How do you weigh the positions of others?
5. How do you set priorities? What are the effects?
6. Are you prepared to defend your decision?
7. Can you justify your action to others?
Considering how stakeholder interests relate to the strategy may reveal important insights about how to better create, capture and distribute value. For example, Whole Foods has aligned its value proposition with customer needs in a socially desirable way.
Many companies have realigned their core activities in ways that are both socially respon-sible and deliver better value.
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Take Action to Align Strategy and Stakeholder Interests Given the pre-vious analysis, assess whether the strategic choice benefits each stakeholder. If not, assess whether the stakeholder can be brought on side, and how. If it is not possible to align the stakeholder interests with the strategy, assess whether and how you can deal with it. Harrison and St. John provide a list of tactics for managing and partnering with external stakeholders.31 Porter and Kramer suggest prioritizing social issues into three buckets: 1) Generic Social Issues that do not significantly affect a company’s operations, 2) Value Chain Social Impacts that have a significant affect on a company, and 3) Social Dimensions of Competitive Context that have a significant impact on the underlying drivers of a company’s competitiveness.32 For example, they point out that supporting a dance company is likely a generic social issue of a utility company but may be central to the competitive context of a company like American Express, which is heavily invested in the entertainment sector. They conclude that no company can deal with all of the social issues it faces and therefore it is necessary to prioritize and address those that intersect most squarely with its strategy, thus making CSR more strategic than simply responsive.
Mitchell, Agle, and Wood provide a stakeholder typology based on three key attri-butes of the stakeholder: 1) the stakeholder’s power to influence the firm, 2) the legitimacy of the stakeholder’s relationship with the firm, and 3) the urgency of the stakeholder’s claim on the firm, as depicted in Figure 4.5. In the long-standing debate about who should
Figure 4.5 Stakeholder Typology
Source: Reprinted with the permission of Academy of Management Review. Mitchell, R.K.; Agle, B.R. and Donna J. Wood,
“Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts”
The Academy of Management Review, vol. 22, no. 4 1997, p. 874.
1
be considered a stakeholder, they clearly state that anyone without power, legitimacy, or urgency is not a stakeholder. Stakeholders possessing only one of the three attributes will have low salience with management, those possessing any two of the three will have mod-erate salience, and stakeholders possessing all three will have high salience.
We find their framework helpful in being able to classify stakeholders based on the three attributes, and in identifying implications for management. “Dormant stake-holders (1)”, possessing only power as an attribute, have low salience but considerable potential to add to it with either legitimacy or urgency. Mitchell, Agle, and Wood provide the example of employees who have been fired or laid off and have exercised coercive power as in the case of the shootings by the ex-U.S. mail employee; utilitarian power in the case of wrongful dismissal suits; and symbolic power in the case of employ-ees who have invoked the media to support their cause. Examples of “discretionary stakeholders (2)” are beneficiaries of corporate philanthropy. They have neither power nor urgency, but invoke legitimacy. In contrast, “demanding stakeholders (3)” present a sense of urgency through their demands, but have no legitimacy or power. They present more of a nuisance or bother to management, but are not particularly dangerous unless they gain power or legitimacy.
Stakeholders who possess two of the three attributes fall into a class of “expectant stakeholders”. “Dominant stakeholders (4)” have both legitimacy and power and tend to have formal mechanisms to exercise them such as corporate boards of directors and public affairs departments. “Dangerous stakeholders (5)” have power and urgency but no legiti-macy. Often desperate moves such as wildcat strikes, employee sabotage, and political terrorism are characteristic of their position. While “dependent stakeholders (6)” do not possess power, they have legitimacy and urgency as was found in the case of the oil spill from the Exxon Valdez.
“Definitive stakeholders (7)” possess all three attributes. When dominant stakehold-ers press an urgent claim, they move into the definitive stakeholder category, which is often seen when significant shareholders demand action to rectify a situation.
It may also be important for firm managers to consider a stakeholder’s influence with another stakeholder. For example, a demanding stakeholder (high urgency, low power, and legitimacy) may not be able to influence the firm directly, but may be able to influ-ence the firm indirectly by acting against the firm’s customers or by lobbying regula-tors who then act directly on the firm. When environmentalists began acting against MacMillan Bloedel’s logging operations in British Columbia, senior managers ignored them. When the same environmentalists boycotted MacMillan Bloedel’s customers, how-ever, the company was forced to take action to respond to their demands.
In summary, a key aspect of the environment analysis is to take stock of stakeholder interests to assess their alignment with the strategy. Overall, it is critical to assess whether the strategy is the right strategy given the assessment of what needs to be done, and what the company can do. Few strategies achieve a perfect or comfortable alignment. When stakeholder interests cannot be fully aligned, the critical question is whether the firm can live with the choice and manage stakeholders in the process.
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