EAD5963 MANAGING FOR STAKEHOLDERS Session #14 Formulating Strategies for Stakeholders (Chapter 5) Freeman, R. E. (1984) Strategies For Assessing a Managing Organizational Stakeholders – Savage et al (1991)

Formulating Strategies for Stakeholders Source: Hitt, Ireland, Hoskinsson (2005)

Formulating Strategies for Stakeholders

Formulating Strategies for Stakeholders

Formulating Strategies for Stakeholders Source: Porter's Five Forces Source: mmu-strategic-management.blogspot.com

Formulating Strategies for Stakeholders

Relative cooperation potential Relative competitive threat 1 Organization-centric Strategic/ instrumental Strategic Management: Freeman (1984) High Low High Relative cooperation potential Swing (Change the rules) Offensive (Exploit) Defensive (Defend) Hold (Hold current position) Low Relative competitive threat Generic Stakeholder Strategy (Freeman, 1984)

1 Strategic Management: Freeman (1984) Offensive Strategies Organization-centric Strategic/ instrumental Strategic Management: Freeman (1984) Offensive Strategies Defensive Strategies Should be adopted if a stakeholder group has relatively high cooperative potential and relatively low competitive threat in order to bring about stakeholder’s cooperative potential. Examples: Attempts to change stakeholder objectives or perceptions, or to link the program to others that the stakeholder views more favorable. Should be adopted if a stakeholder group has a relatively high competitive threat and relatively low cooperative potential to prevent competitive threat on the part of these stakeholder. Example: Reinforcing current beliefs about the firm, maintaining existing programs, letting the stakeholder drive the transformation process.

1 Strategic Management: Freeman (1984) Swing Strategies Organization-centric Strategic/ instrumental Strategic Management: Freeman (1984) Swing Strategies Hold Strategies Should be adopted if a stakeholder group has relatively high cooperative potential and competitive threat. Examples: Changing some of the following - the rules, the decision forum, transaction process. Should be adopted if a stakeholder group has a relatively low competitive threat and cooperative potential to continue current strategic programs and maintain the current stakeholder position. Example: Doing nothing and monitoring existing programs

Analytic Stakeholder Theory All stakeholder theory that is not strictly normative. Types: 1st: Primarily organization-centric, stakeholder-centric or focus on organization-stakeholder relation 2nd: Within the above categories, they are strategic/instrumental or descriptive/positive. Descriptive Stakeholders are defined as to whether they are affected by the firm and/or can potentially affect the firm. Instrumental Stakeholders are defined by the need of management to take them into consideration when trying to achieve their goals.

Analytic Stakeholder Theories Focus along the organization-stakeholder continuum Organization -centric Focusing on the organization-stakeholder relation Stakeholder-Centric Analytic Category Strategic/ Instrumental Freeman (1984) Savage et al. (1991) Clarkson (1995) Jones (1995) Mitchell, Agle, and Wood (1997) Rowley (1997) Friedman and Miles (2002) Frooman (1999) Rowley and Moldoveanu (2003) Descriptive /Positive Hill and Jones (1992) PART 1 PART 2 PART 3

Analytic Stakeholder Theories Organizational-centric Strategic / Instrumental Freeman (1984) Savage et al. (1991) Clarkson (1995) Jones (1995) Mitchell, Agle & Wood (1997) Rowley (1997) Organization–stakeholder relation, in which the corporation occupies a central position and has direct connections to all stakeholders

1 Strategic Management: Freeman (1984) Organization-centric Strategic/ instrumental Strategic Management: Freeman (1984) Focuses on the relative power of stakeholders and their potential to cooperate or threaten corporate strategy. Suggests that the success of particular strategic programs can be affected by a stakeholder’s potential for change and its relative power. Management can seek strategic guidance by examining the relative competitive threat and relative cooperative potential of each stakeholder and classifying the stakeholder accordingly. 4 strategies are distinguished:

Potential for cooperation 2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Savage et al. (1991) build on Freeman’s model using the same constructs: stakeholder capacity and willingness to threaten or cooperate with the corporation. Potential for threat High Low High Stakeholder Type 4 Mixed blessing Strategy: Collaborate Stakeholder Type 1 Supportive Strategy: involve Stakeholder Type 3 Non-supportive Strategy: Defend Stakeholder Type 2 Marginal Strategy: Monitor Potential for cooperation Low

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Type 1 Stakeholders: Low potential for threat and a high potential for cooperation. Corresponds to Freeman’s ‘offensive’ category and associated strategy of exploitation. Consider ‘supportive’ stakeholders as the ‘ideal type’ and include the board of trustees, managers, employees, and parent companies. This category can include suppliers, service providers, and non-profit organizations. Both models agree on a strategy of involvement, although Freeman explicitly states ‘exploitation’, indicating a greater power distribution in favor of the organization.

Strategy 1: Involve the Supportive Stakeholder By involving supportive stakeholders in relevant issues, executives can maximally encourage cooperative potential. By implementing participative management techniques, decentralizing authority to middle managers, or increasing decision-making participation of these stakeholders

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Type 2 stakeholders: Low potential for threat and a low potential for cooperation. Are marginal: They are unconcerned about their stake in the business as they have a low potential for threat or cooperation. This corresponds to Freeman’s ‘hold’ quadrant. Examples: Consumer interest groups, professional associations for employees, and shareholders. Both models suggest a monitoring strategy as certain issues could cause these stakeholders to change category, increasing their potential threat.

Strategy 2: Monitor the Marginal Stakeholder Monitoring helps manage marginal stakeholders whose potential for both threat and cooperation is low. By recognizing that these stakeholders’ interests are narrow and issue specific, executives can minimize the organization’s expenditure of resource. Only if the issues involved in the decisions are likely to be salient to those stakeholders should the organization act to increase their support or to deflect their opposition.

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Type 3 stakeholders: Non-supportive, with a high potential for threat and a low potential for cooperation. These stakeholders are the most distressing for corporations, such as competitors, unions, the media, and government.

Strategy 3: Defend against the Nonsupportive Stakeholder The defense strategy tries to reduce the dependence that forms the basic for the stakeholders’ interest in the organization The connection of stakeholder management to broader strategic management is very clear, involving many traditional marketing and strategic notions for handling competitors. Executives should always try to find ways to change the status of key stakeholders.

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Type 4 stakeholders: Mixed blessing, with high potential for threat and high potential for cooperation. This includes employees in short supply, clients, and organizations with complimentary products and services. Both models suggest a defensive strategy. However, the strategic advice differs: Savage et al. suggest collaboration whereas Freeman suggests changing the rules Both approaches have the same end in sight: To enhance the potential for cooperation and reduce the potential for threat.

Strategy 4: Collaborate with the Mixed Blessing Stakeholder If business executives maximize the stakeholders’ cooperation, potentially threatening stakeholders will find it more difficult to oppose the organization. Effective collaboration may well determine the long- term stakeholder-organization relationship. If this type of stakeholder is not properly managed through using a collaborative strategy, it can easily become a nonsupportive stakeholder.

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) The power of threat is determined by resource dependence, the stakeholder’s ability to form coalitions, and relevance of the threat to a particular issue. Examining the quality and durability of the organization– stakeholder relationship can help in assessing the potential for threat. The potential to cooperate is partially determined by the stakeholder’s capacity to expand its interdependence with the organization: the greater the dependence, the greater the willingness to cooperate.

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) Willingness to cooperate can also be affected by the business environment. Managers need to continually assess stakeholder interests, capabilities and needs, as stakeholder engagement tends to be issue-specific. Consequently, managers cannot expect a previously supportive stakeholder to be cooperative on future issues.

Clarifying Management’s Stake in Stakeholder Management Analyzing stakeholders’ stakes and power Identifying stakeholders’ critical dimensions Finding ways to facilitate managers’ abilities to challenge their own assumptions Examining how managers may effectively negotiate with stakeholders Handling conflicting demands from equally powerful key stakeholders Creating and assessing strategies to enhance cooperation with stakeholders

Case Study: From Conflict to Co-Operation

2 Organization-centric Strategic/ instrumental Strategies for Assessing and Managing Stakeholders: Savage et al. (1991) High Low Collaborate with the Mixed Blessing Stakeholder Involve the Supportive Stakeholder Defend against the Nonsupportive Stakeholder Monitor the Marginal Stakeholder Potential for cooperation High Low Potential for threat

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