We're talking about stakeholder strategy. And remember, the objective of an effective strategy is to create value. It's to find, and occupy, and defend a valuable competitive position that allows you to create that value. What I wanna focus on today is, who do we create that value for? Who benefits? There's a key idea in strategy which is, that a business firm operates within a context. There are a number of institutions and key parties, stakeholders that exist within that context and ultimately the purpose of the business is to create value for those stakeholders. Business is essentially about how those different parties, those different stakeholders, interact with one another in order to create value. Indeed, a business organization could literally be understood as a set of relationships between these different stakeholders. So to understand how these relationships work, is to understand business and a business organization. The job of an executive, or a manager, or leader is to shape these relationships. And to manage them in a way that, that value can be created ideally for all of them. So this is one way that we might depict a way that a firm might have a number of stakeholders which they need to worry about, and think about, and create value for. Let's focus on the Key Stakeholders. These ones that are in that inner circle. These are stakeholders like Investors, Employees, Customers, Suppliers and the Community. There's also Secondary Stakeholders like Special interest groups or NGOs or Governments. There's a lot of parties that can have an influence upon a firm. Let me focus for a moment on those key stakeholders. If the objective of a business organization is to create value for these key stakeholders, well we have to understand what sort of value these different stakeholder groups want. What is it that they're looking for out of the business organization? Well, if you think carefully about it, it becomes pretty clear that each of these different types of stakeholders, say, investors or employees or customers, are looking for a slightly different type of value creation. Employees might be looking for good pay and job security and a great place to work and some sort of a career path that's clear to them. So, that they know they can advance. They want a job where they can exercise autonomy and creativity. So, there's a long list of things that employees are looking for from that organization. On the other hand investors are looking perhaps for a financial return on their investment. Investors of course aren't all the same, some investors have different preferences, certain investors want to invest in certain types of businesses that operate in a certain type of way. So of course investor preferences can differ as well. Customers what are customers looking for? They're looking for essentially value for price. Or some sort of a value proposition that the firm is gonna provide in terms of its product or its service. Suppliers are looking for a certain type of value creation. They probably want some continuity, they want some reliability, they want some opportunity to grow their business along with yours. And of course the community. That's sort of a catch all. But we think here of essentially third parties to the business organizations operations. The community that an organizational location operates in. What economists would describe as externalities. But of course they aren't really external to the value creation process. They matter a great deal. So the point is, all of these parties are looking for a slightly different type of value creation. And so, therefore, the challenge, the strategist challenge here, the challenge for the leader or the manager, is to figure out how to create value for all of those stakeholders in a way that we can do it at the same time. So what type of a problem or a challenge is that? We, we might think of it as a prioritization problem. That's common. For people to think, well, who's the most important stakeholder? Who's the least? Of course the problem with that is, there are winners and there are losers and that's kind of the view that sees stakeholder management as a zero sum gain. We have to decide who we're gonna create value for and ignore others. So that's probably not the most effective way to think about managing for stakeholders. We might think of it instead as some sort of an optimization problem. Maybe a little bit more complicated than just a rank ordering, but how do we somehow create value for all of these parties at the same time. That's better, but again the risk with sort of an optimization approach is that you might tend to just create sort of mediocre value for all of those stakeholders, right? So there's another way to think about this and it's thinking of this as an alignment problem. Is there a way to align the interests of all these stakeholders so that we can create good value for our employees. As well as our customers. As well as our investors and suppliers and the community. Of course, that's a difficult thing to do, but attempting to align those interests certainly is a more effective strategy than just assuming it's a set of trade offs and we've got to choose winners and choose losers. So when it comes to managing key stakeholders, it's a matter of understanding, first of all, what it is that they're looking for? What's the type of value that we need to create for those different parties? Then it's a question of how are we gonna do that in a way that each of these processes of creating value for the different stakeholders is interconnected, and how can we align the interest of those stakeholders and get all of those objectives, moving in the same direction.
