New Models of Business in Society

Week 4: Creating Value for Stakeholders

Week 4: Creating Value for Stakeholders

4.1 The Emergence of a Stakeholder Approach to Business 4.2 Its Purpose not Profits 4.3 The Interconnection and No Tradeoff Principles 4.4 The Friction Principle 4.5 Conscious Capitalism 4.6 Employee Engagement 4.7 Examples of Creating Value for Stakeholders

4.1 The Emergence of a Stakeholder Approach to Business

Brief History of the Stakeholder Idea The definition of stakeholder
Any group or individual who can affect or be affected by the achievement of your purpose Sometimes its useful to think broadly, NGOs, governments, media, etc. Sometimes its useful to think more narrowly, just think about customers, suppliers, employees, financiers and communities (or society).

Stakeholder Theory: The Basics

All businesses create (or destroy) value for stakeholders. Successful businesses constantly find the intersection of stakeholder interests. Conflict can be used catalytically for value creation.

Stakeholder Theory: The Basics

We never trade off the interests of one versus the other continuously over time. We act with purpose that fulfills our commitment to stakeholders. We act with aspiration towards fulfilling our dreams and theirs.

Stakeholders consist of real people with names and faces and children. They are complex.
We need to generalize the marketing approach. We engage with both primary and secondary stakeholders.

We constantly monitor and redesign processes to make them better serve our stakeholders.
(c) 2010, R. Edward Freeman.

4.1 Engagement Question

Draw a stakeholder map for yourself. Who can affect or be affected by what you do? Do you have a purpose? [You can answer this for an organization you belong to or just for yourself.]

4.2 A Good Purpose Is:

An answer to a Why Question Inspiring Puts a stake in the ground Sets you apart, makes you distinct Sets the stage for value creation for stakeholders Makes you ask: Does Your Business Matter

Source: C. Montgomery, The Strategist, HBS Press. 2012.

4.2 A Good Purpose is NOT

We will provide branded products and services of superior quality and value that improve the lives of the worlds consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live to work and to prosper.
The best company in XYZ industry, specializing in satisfied customers
Source: C. Montgomery, The Strategist, HBS Press. 2012

4.2 Its Purpose not Profits

Southwest Airlines dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. www.southwest.com Nike To bring inspiration and innovation to every athlete in the world www.nike.com BMW: The only manufacturer of automobiles and motorcycles worldwide that concentrates entirely on premium standards and outstanding quality for all its brands and across all relevant segments.
www.bmw.group

4.2 Its Purpose not Profits

Microsoft At Microsoft, our mission and values are to help people and businesses throughout the world realize their full potential. www.microsoft.com National Audubon Society To conserve and restore natural ecosystems, focusing on birds, other wildlife, and their habitats for the benefit of humanity and the earths biological diversity.
www.audubon.org

Starbucks Coffee To inspire and nurture the human spirit one person, one cup and one neighborhood at a time www.starbucks.com

4.2 Engagement Question

Think about organizations of which you are a member:
Whats its purpose?
Does it inspire? What why question does it answer?

Does the purpose make the organization distinctive?

Think about an organization you know that doesnt seem very purpose driven. What are some its issues?

4.3 The Interconnection and the No Tradeoff Principles

Interconnection: Because Stakeholder interests go together over time, we need solutions to issues that satisfy multiple stakeholders simultaneously. Value creation for one stakeholder implies value creation for many, in successful companies. Win, win, win, win, win No Tradeoffs: We try to never trade off the interests of one stakeholder versus another continuously over time.
What happens when you do this?

How does making customers better off

4.3 Engagement Question

How do the no tradeoff and interconnection principles apply to how you spend your time? Do you constantly make tradeoffs, or look for ways for tradeoffs to disappear?

4.4 The Friction Principle

We need intensive communication and dialogue with stakeholdersnot just those who are friendly. Critics are a source of value creation. Friction among values, stakeholders, even time can be a source of value creation. The Friction Principle: Conflict between and among stakeholders, conflict around values, critics, even time horizons, can all be sources of value creation.

4.4 Examples of the Friction Principle

Tobacco Aetna McDonalds Amazon story Utilities listening to interveners Good management with respect to customers. How does a company deal with customers and employees who are difficult to satisfy?

4.4 What Makes a Company Successful

Customers whose lives are better because of your products and services Employees who are engaged Suppliers that make you better Communities that are supportive

4.4 What Makes a Company Successful

Managing multiple stakeholder relationships simultaneously:
Finding the intersection of stakeholder interests Avoiding Tradeoffs

Using the friction of conflicting interests and of critics to produce innovation Seeing business and ethics as necessarily connected

4.4 Engagement Question

Do you spend most of your time dealing with people who agree with you? How do you deal with your personal critics?

4.5 Conscious Capitalism

One way to put some of these ideas together has gelled under the rubric of Conscious Capitalism http://www.consciouscapitalism.org/ Four key principles that they argue are fundamental to running a great business:
Purpose greater than profits Multi-stakeholders without tradeoffs Conscious leadership Conscious and supportive culture

4.5 Conscious Capitalism

As businesses become more aware (more conscious) of their effects in society, they can consciously create more value for their stakeholders.

4.5 Engagement Question

How can the principles of conscious capitalism be applied in organizations that you are familiar with? What are the strengths and weaknesses?

4.6 Employee Engagement in the New Story

Puts together a comprehensive model of the role of business in society
Purpose greater than profits Multi-stakeholder View Conscious Leadership Conscious Culture

Lets focus on these last two principles for a few minutes. Many of these new story companies pay an enormous amount of attention to employees. Productive and happy employees who share your purpose will do great things for other stakeholders. Thats the idea.

4.6 Employee Engagement

CEOs tell how this works:
Gardner on CC and Employee Engagement Tindall on Engaging People

These ideas should come as no surprise. Lets see what the research says about thriving employees.

4.6 What are Thriving Employees?

Thriving employees are not just satisfied and productive but also engaged in creating the futurethe companys and their own. Thriving employees have a bit of an edgethey are highly energizedbut they know how to avoid burnout.

Source: Gretcher Spreitzer and Christine Porath, Creating Sustainable Performance, Harvard Business Review (January-February, 2012), p. 94.

4.6 Four Mechanisms Create the Conditions for Thriving Employees

1. 2. 3. 4.

Providing decision-making discretion Sharing information Minimalizing incivility Offering performance feedback

Source: Gretcher Spreitzer and Christine Porath, Creating Sustainable Performance, Harvard Business Review (January-February, 2012), p. 94.

4.6 Thriving Employees

Demonstrate 16% better overall performance (as reported by their managers) 125% less burnout (self-reported) Are 32% more committed to the organization Are 46% More Satisfied with their jobs

Source: Gretcher Spreitzer and Christine Porath, Creating Sustainable Performance, Harvard Business Review (January-February, 2012), p. 94.

4.6 Thriving Employees & Performance

Blue-collar workers who scored high on thriving performed 27% better overall than their lowerthriving colleagues. Thriving blue-collar workers were 53% more likely to experience positive career progression than other employees. White-collar workers who scored high on thriving performed 16% better overall than peers with lower scores.
Source: Gretcher Spreitzer and Christine Porath, Creating Sustainable Performance, Harvard Business Review (January-February, 2012), p. 96.

4.6 Engagement Question

Have you ever been a part of an organization where the employees were thriving, and you were thrilled to be a part of the organization? What did that feel like? Was there a negative to this organization?

4.7 Examples of Creating Value for Stakeholders

Whole Foods MarketJohn Mackey The Container StoreKip Tindall The Motley FoolTom Gardner

4.7 Engagement Question

What do you see as the main challenges for companies like Whole Foods, and other Conscious Capitalism companies?

Further Reading and Resources for Week 4

Conscious Capitalism: Liberating the Heroic Spirit of Business, by John Mackey, Rajendra S. Sisodia, Bill George Managing for Stakeholders: Survival, Reputation and Success, by Edward Freeman, Jeffrey Harrison and Andrew Wicks Managing for Stakeholders, Technical Note by Edward Freeman Videos about Stakeholder Theory: http://www.youtube.com/playlist?list=PL15B809B055A 2C795