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Consider the brief description of Target’s stakeholder relationships and combine that information with your experience shopping in a Target store. How might Target’s stakeholders, in particular its employees, customers, local communities, and suppliers, influence the manager’s decisions about building competitive advantage in the analysis stage of the AFI framework? How might Target gather information from its stakeholders to inspire a better customer experience in the formulation stage in order to differentiate? Or in order to lower costs? Brainstorm by jotting down as many ideas as you can think of about how key stakeholders may affect or be affected by the implementation stage. |
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BP’s experience in the Gulf of Mexico has made it the poster company for how not to manage stakeholder relationships effectively (see Strategy Highlight 1.2). What advice would you give to BP’s managers to help them continue to rebuild stakeholder relationships in the gulf region and beyond? How can BP repair its damaged reputation? Brainstorm ways that top management might leverage the experience gained by reactions in the gulf and use that knowledge to motivate local managers and employees in other locales to build stakeholder relationships proactively so that BP avoids this type of negative publicity. |
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As noted in the chapter, research found that firm effects are more important than industry effects. What does this mean? Can you think of situations where this might not be true? Explain. MATERIAL FOR QUESTION 1 If any stakeholder withholds participation in the firm’s exchange relationships, it can negatively affect firm performance. The aerospace company Boeing, for example, has a long history of acrimonious labor relations, leading to walk-outs and strikes. This in turn has not only delayed production of airplanes but also raised costs. Borrowers who purchased subprime mortgages are stakeholders (in this case, customers) of financial institutions. When they defaulted in large numbers, they threatened the survival of these financial institutions and, ultimately, of the entire financial system. Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage.26 The unit of analysis is the web of exchange relationships a firm has with its stakeholders (see Exhibit 1.2). Stakeholder strategy allows firms to analyze and manage how various external and internal stakeholders interact to jointly create and trade value.27 A core tenet of stakeholder strategy is that a single-minded focus on shareholders alone exposes a firm to undue risks. Simply putting shareholder interest above all else can undermine economic performance and even threaten the very survival of the enterprise. The strategist, therefore, must understand the complex web of exchange relationships among different stakeholders. With that understanding, the firm can proactively shape the various relationships to maximize the joint value created and manage the distribution of this larger pie in a fair and transparent manner. Effective stakeholder management exemplifies how managers can act to improve firm performance, thereby enhancing the firm’s competitive advantage and the likelihood of its continued survival.28 Page 15 Target Corporation has gathered numerous awards that reflect its strong relationship with its stakeholders. It has been named on lists such as best places to work, most admired companies, most ethical companies, best in class for corporate governance, and grassroots innovation. Since its founding, Target has contributed 5 percent of its profits to education, the arts, and social services in the communities in which it operates and reached the milestone of contributing $4 million per week in 2012. To demonstrate its commitment to minorities and women, Target launched a program to bring minority- and women-owned businesses into its supply chain. Volunteerism and corporate giving strengthen the relationship Target has with its employees, consumers, local communities, and suppliers. These actions, along with many others, can help Target gain competitive advantage as a retailer as long as the benefits Target accrues from its stakeholder strategy exceed the costs of such programs.29 Strategy scholars have provided several arguments as to why effective stakeholder management can benefit firm performance:30
STAKEHOLDER IMPACT ANALYSISThe key challenge of stakeholder strategy is to effectively balance the needs of various stakeholders. The firm needs to ensure that its primary stakeholders—the firm’s shareholders and other investors—achieve their objectives. At the same time, the firm needs to recognize and address the concerns of other stakeholders—employees, suppliers, and customers—in an ethical and fair manner, so that they too are satisfied. This all sounds good in theory, but how can managers go about this in practice? Stakeholder impact analysis provides a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders. This tool helps the firm achieve a competitive advantage while acting as a good corporate citizen. Stakeholder impact analysis takes managers through a five-step process of recognizing stakeholders’ claims. In each step, managers must pay particular attention to three important stakeholder attributes: power, legitimacy, and urgency.32
A stakeholder has a legitimate claim when it is perceived to be legally valid or otherwise appropriate. A stakeholder has an urgent claim when it requires a company’s immediate attention and response. FOR QUESTION 2 BP “Grossly Negligent” in Gulf of Mexico Disaster On April 20, 2010, an explosion occurred on BP’s Deepwater Horizon oil drilling rig off the Louisiana coastline, killing 11 workers. The subsequent oil spill continued unabated for over three months. It released an estimated 5 million barrels of crude oil into the Gulf of Mexico, causing the largest environmental disaster in U.S. history. Two BP employees even faced manslaughter charges. The cleanup alone cost BP $14 billion. Because of the company’s haphazard handling of the crisis, Tony Hayward, BP’s CEO at the time, was fired. Technical problems aside, many experts argued that BP’s problems were systemic, because management had repeatedly failed to put an adequate safety culture in place. In 2005, for example, BP experienced a catastrophic accident at a Texas oil refinery, which killed 15 workers. A year later, a leaking BP pipeline caused the largest oil spill ever on Alaska’s North Slope. BP’s strategic focus on cost reductions, initiated a few years earlier, may have significantly compromised safety across the board. In a fall 2014 ruling, a federal judge declared that BP’s measures to cut costs despite safety risks “evince an extreme deviation from the standard of care and a conscious disregard of known risks.”44 In the aftermath of the gulf oil spill, BP faced thousands of claims by many small business owners in the tourism and seafood industries. These business owners were not powerful individually, and pursuing valid legal claims meant facing protracted and expensive court proceedings. As a collective organized in a potential class-action lawsuit, however, they were powerful. Moreover, their claims were backed by the U.S. government, which has the power to withdraw BP’s business license or cancel current permits and withhold future ones. Collectively, the small business owners along the Gulf Coast became powerful BP stakeholders, with a legitimate claim that needed to be addressed. In response, BP agreed to pay over $25 billion to settle their claims and cover other litigation costs. Moreover, claiming that BP displayed a “lack of business integrity” in handling the gulf oil spill, the Environmental Protection Agency (EPA) banned BP from any new contracts with the U.S. government. If the EPA decision stands, the ban would put BP at a major competitive disadvantage. It would be unable to acquire new leases for oil field exploration in the United States, or to continue as a major supplier of refined fuel to the armed forces.46 |
