CHAPTER 7
Stakeholders First, Strategy Second
by Graham Kenny
What stakeholders do you depend on for success?
When setting strategy, it might seem obvious that you’d need to ask this question. But most managers, even at the world’s largest companies, don’t think about it. Instead, they focus on a narrow set of key performance indicators and wade right into developing solutions that feed those metrics, burrowing deeper and deeper into the details. Very quickly they lose their “helicopter view” and get stuck in fix-it mode. Suggestions come one after another: Engage sales outlets. Devise an advertising program. Attract, retain, and develop capable people. Good stuff, perhaps, but how would you know if you haven’t defined a context for success?
Your organization or unit is completely dependent on others outside it for its good fortune. Without the support of stakeholders such as customers, suppliers, employees, and shareholders, for example, you have no organization. But you must identify those who are key to the long-term survival and prosperity of your organization—and then satisfy them.
Here, we should take a lesson from John Mackey, cofounder and co-CEO of Whole Foods Market. His company has annual sales of $9 billion and more than 300 stores. It dominates U.S. natural-foods retailing and has become an iconic brand. In a Harvard Business Review interview, Mackey describes what has brought success to Whole Foods. “Customers, employees, investors, suppliers, larger communities, and the environment are all interdependent,” he explains. “Management’s job at Whole Foods is to make sure that we hire good people, that they are well trained, and that they flourish in the workplace, because we found that when people are really happy in their jobs, they provide much higher degrees of service to the customers. Happy team members result in happy customers. Happy customers do more business with you. They become advocates for your enterprise, which results in happy investors. That is a win, win, win, win strategy.”1
It’s essential to think about who your stakeholders are before diving into strategy discussions. But simply identifying these groups or individuals is not enough. You must also think carefully about their wants and needs—as well as your own—to have a better understanding of how they align with your potential strategy.
Recognize What You Want from Your Stakeholders
When management teams begin to think about their key stakeholders, they often launch right into what they need to do for customers, for employees, and so on, without thinking first about what they want from them.
Why is sorting out the “from” so important? What an organization wants from each group of key stakeholders translates neatly into its objectives. For instance, sales and revenue growth will come from customers, productivity and innovation from employees, and quality goods and services at the right price from suppliers. What’s more, company law requires that boards, CEOs, and senior executives act in the best interests of the company. All decision making should stem from that mandate. Of course, this doesn’t preclude looking after customers’ and other stakeholders’ interests en route.
Although objectives and clear targets aren’t a substitute for strategy, you do need to design them, stakeholder group by stakeholder group, before you can develop a smart strategy for each group. (See the sidebar “Creating a Value Proposition for Stakeholder Groups.”) Other wise, any old strategy will do. Unfortunately, strategies are often created in a vacuum. They won’t be meaningful if you haven’t decided what you want them to achieve.
CREATING A VALUE PROPOSITION FOR STAKEHOLDER GROUPS
by Jack Springman
It’s helpful to create a value proposition for each stakeholder group you are targeting and detail how you will create value for that group. Typically there are three dimensions of value—financial (price, volume, margin, ROI, etc.), functional (increasing stakeholder’s productivity, providing choice or flexibility, being easy and convenient to do business with, and delivering speedy service), and emotional (providing security to generate trust and stimulating a feel-good factor). All of these can be offered in some form to each group.
This value creation for each stakeholder group needs to be balanced by what the business will gain in return—the value it will extract from the relationship. Determine what you are seeking from each stakeholder group, both financially and operationally (in terms of loyalty, referrals, prioritization, etc.).
Knowing what value you want to offer, and what you hope to get in return, will allow you to identify what stakeholder-facing capabilities you need in order to execute. Compare the capabilities you need with those that you already have to highlight any gaps. You’ll have to fill those gaps in through organizational redesign, training, process development, systems implementation, and cultural change.
Track the costs and benefits associated with each value proposition, including the investment necessary to complete the initiatives required to fill the capability gaps you’ve identified. Use this information to create a profit model to manage the inevitable trade-offs among your stakeholder groups. You may not be able to afford all the things you would like to do, but the profit model becomes the means for managing competing interests and the returns provided to each stakeholder group—the output being your financial returns (which are central to the value proposition to shareholders).
Finally, you need to determine a set of key performance indicators. These should track how effectively your business is creating value for each stakeholder group and how well you’re capturing value in return. This will enable you to develop a stakeholder scorecard that provides a 360-degree view of performance.
Defining the value created for and from each stakeholder group adds perspective, ensuring that you look at your business from all angles. And by focusing on value creation for all your different stakeholders, you will be a creating a business that is more sustainable—in all senses of the word.
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Jack Springman is a consultant specializing in growth strategies and the author of Elusive Growth: Why Prevailing Practices in Strategy, Marketing, and Management Education Are the Problem, Not the Solution.
Adapted from “Implementing a Stakeholder Strategy” on hbr.org, July 28, 2011.
Recognize What Your Stakeholders Want from You
When management teams delve too quickly into problem solving, they make assumptions. They think they already know what’s good for their stakeholders. As a result, their companies end up with products and services that don’t sell.
When you articulate what key stakeholders want, you’re defining what I call “strategic factors.” (They’re not the same as “critical success factors”—a term you might already use. Those are generated by your management team, whereas strategic factors come from your stakeholders.) Strategic factors bring an external perspective. They are those few things that you must excel at if you are to achieve a competitive advantage and, simultaneously, meet your corporate objectives.
Here’s a list of strategic factors from a company that manages a port and aims to attract as many ship operators as possible:
- Port capability (suitability for a ship’s size and freight)
- Freight availability (to pick up on the return leg)
- Congestion (speed of unloading and turnaround time in the port)
- Location (which affects “steaming time,” or time between destinations)
- Price (port charges for docking and remaining moored)
Note how these are defined from a stakeholder’s point of view, not from management’s. If you’re not sure of them (that’s the norm), interview your stakeholders to better understand their stories and needs.
Before diving into strategy and writing your strategic plan, thoughtfully consider who your strategy serves—and what you’d like from these individuals in return. By identifying your stakeholders, you can define a clearer strategy and objectives for your organization, so you can get the buy-in and support your plans deserve.
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Graham Kenny, CEO of Strategic Factors, is a recognized expert in strategy. He is passionate about helping managers, executives, and boards create successful organizations in the private, public, and not-for-profit sectors. He does this through seminars and workshops on strategy and performance measurement; through keynote speaking; by working with managers to develop their business strategy and performance scorecards; and by publishing books, articles, and manuals. You can connect to or follow him on LinkedIn.
NOTE
1. Justin Fox, “What Is It That Only I Can Do?” Harvard Business Review, January–February 2011 (product #R1101J).
Adapted from “A List of Goals Is Not a Strategy” on hbr.org, November 19, 2014 (product #H01P99).