The article’s argument is that employees, business partners and local communities are essential to strategy rather than obligations attached to it. Companies that integrate them meaningfully have enhanced their value rather than diluted it.
The authors find that strategies built around nontraditional stakeholders often produce creative solutions that also benefit customers and investors, either by expanding the addressable market or by improving competitive position.
Key findings
- Three developments have undermined the traditional approach to strategy. Technology has blurred the boundaries between industries, eroding the stable structure that a five forces analysis depends on.
- Financial capital is no longer the scarcest asset. Companies increasingly compete on customer attention, employee talent and intellectual property.
- Shareholder primacy, which rested on the importance of financial capital, has been challenged, and multiple stakeholders are now recognized as contributors to value creation.
- The stated commitment to customers is nearly universal, but the wider practice is rare. Ninety-six percent of survey respondents said the customer is at the heart of their strategy, while only 11 percent of companies take a comprehensive stakeholder perspective when developing it.
A different metaphor for the firm
Restricting strategy to customers alone is compared to completing a puzzle with pieces missing. Sustainable success cannot be reached while companies are treated simply as legal entities for generating excess returns on capital.
The authors reframe the shareholder versus stakeholder debate as a change of metaphor, from a linear mechanical model to a dynamic biological one. Employees, partners and communities are participants in an adaptive economic ecosystem rather than commodity inputs.
The biological analogy is precise. Where a food chain transfers energy, commerce transfers value between stakeholder groups, and that transfer is what makes a business ecosystem sustainable.
Value created with suppliers
The importance of suppliers is illustrated by a shortage of new cars caused by the auto industry’s inability to source semiconductor chips for functions from tire pressure monitoring to entertainment systems.
Retailers manage the same tension deliberately. One warehouse retailer classifies 75 percent of its range as triggers that members know they need, and 25 percent as treasures that delight them on quality and price.
Grocery chains create mutual benefit with small suppliers, trading shelf space for a reputation as a unique place to shop, and running teams that source novel items alongside conventional procurement.
In pharmaceuticals, a build-buy-partner strategy gave other developers access to drug development and commercialization capabilities and reimbursed much of their costs, accelerating their growth while opening new pipelines.
Value created with distributors
Channel management once required only the right financial incentives. Creating value now requires manufacturers to move from selling products through a distributor to delivering solutions using the distributor’s own experience and insight.
Large technology companies have invested in community platforms where developers, distributors and end users collaborate, and have supported distributors with services, forums and marketing tools rather than displacing them.
A building materials company formalized a network of hardware store owners in Latin America, giving them training, financing and branding support in return for wider coverage and more reliable distribution. It has grown past 2,000 locations.
Value created with communities
The authors are frank about scepticism. Nearly two years after the Business Roundtable’s revised declaration on corporate purpose, cynicism persists about whether companies’ deeds match their stated aspirations.
The counterexamples are specific. A steel company in Ecuador built a circular local economy by creating a market for scrap metal, and a company in Guatemala was founded to provide a livelihood for indigenous craftspeople and preserve their cultural heritage.
Others have invested in the cities they are based in, building a research and engineering campus in one and a technology hub in another, aiming to attract talent that would not otherwise have considered moving there.
In business-to-business markets the same logic holds. A spraying technology that cuts the use of certain herbicides by 75 percent benefits the farmer, the surrounding community and the environment at once.
What this does to the work of strategy
Meeting the needs of these constituencies created new markets and relationships and improved standing with customers, which the authors describe as improving fit to purpose, while sharpening distinctiveness, pricing power and cost position.
The conclusion redefines innovation. Identifying the full range of stakeholder groups you serve, and where and how to systematically improve the exchange of value with them, becomes the innovation task itself.
Scope and limitations
The article is the fourth in a series and applies a framework set out in earlier installments, and the authors disclose that one coauthor was directly involved in developing one of the strategies discussed.
Source
This page summarises Great Strategy Considers More Than Customers and Investors, by B. Tom Hunsaker, Jonathan Knowles, Russell Baris, Richard Ettenson, August 05, 2021.