Strategies for Managing Stakeholder Relationships - R. Edward Freeman

Summary

The transcript discusses the importance of companies defining their purpose and aligning it with stakeholder value creation. It outlines three strategies: focusing on a few key stakeholders like employees, customers, and shareholders; balancing interests of all stakeholders; and adopting a 'noble cause' approach to improve the world. These strategies guide business models and specific stakeholder relations.

Takeaways

• 🚀 **Purpose is Paramount**: Companies must start by defining their purpose to understand their reason for existence and the value they aim to create.
• 🧭 **Stakeholder Value Creation**: The underlying value creation model should focus on the stakeholders the company wants to serve.
• 👥 **Employee-Shareholder-Customer Strategy**: A common strategy is to prioritize employees, customers, and shareholders, believing that satisfied employees lead to satisfied customers and increased shareholder value.
• 🎶 **Harmonizing Interests**: Some companies aim to balance and harmonize the interests of all stakeholders, viewing them as notes in a symphony that must work together.
• 🌍 **Noble Cause Companies**: There are companies driven by a noble cause, aiming to make a significant positive impact on the world.
• 💊 **Healthcare Examples**: Companies like Novo Nordisk focus on making a difference in areas such as diabetes, showing a noble cause approach.
• 🌱 **Environmental Stewardship**: Businesses like Patagonia and Whole Foods exemplify the noble cause strategy with a focus on environmental sustainability.
• 🔄 **Balancing Act**: Companies must balance the immediate interests of stakeholders with long-term sustainability, avoiding mistakes that could harm community or supplier relationships.
• 🛠️ **Business Model Alignment**: Once the company's purpose and stakeholder strategy are clear, the business model can be aligned to support these objectives.
• 🔄 **Enterprise First**: The script emphasizes an enterprise-first approach to thinking about stakeholders, ensuring a cohesive strategy before developing specific stakeholder strategies.

Q & A

What is the first step companies should take in managing for stakeholders?

Companies should start by defining their purpose, asking questions like 'Why are we here?', 'What are we trying to do?', and 'What kind of company do we want to be?'

What is the concept of 'Enterprise strategy' as mentioned in the script?

Enterprise strategy refers to a comprehensive approach to creating value for the company as a whole, rather than focusing on individual stakeholders.

What is the 'Employee Shareholder Customer Strategy'?

It's a strategy where companies focus on creating value for employees, shareholders, and customers by ensuring employees are engaged and provide great service to customers, which in turn benefits shareholders.

What does it mean to harmonize the interests of stakeholders?

It means balancing and aligning the interests of various stakeholders such as customers, suppliers, employees, communities, and investors so that they all work towards a common goal.

What is a 'noble cause company'?

A noble cause company is one that has a purpose centered around making a positive impact on the world, such as fighting diseases or promoting sustainability.

How does a company's purpose influence its business model?

A company's purpose acts as a guiding principle that helps shape its business model, affecting how it interacts with customers, employees, and other stakeholders.

Why is it important for companies to consider stakeholders beyond just employees, shareholders, and customers?

Considering a broader range of stakeholders can lead to more sustainable and ethical business practices, enhancing the company's reputation and long-term success.

What is the role of community and suppliers in a company's stakeholder strategy?

While not always the primary focus, community and suppliers play a crucial role in a company's operations and can significantly impact its success if not managed properly.

How does the script suggest companies should approach managing relationships with stakeholders?

Companies should start with a clear purpose and then develop specific strategies for each stakeholder group, ensuring that all stakeholders' interests are aligned with the company's overall goals.

What are some examples of noble cause companies mentioned in the script?

Examples include Novo Nordisk, which focuses on diabetes, Merck with its efforts on river blindness, Whole Foods, and Patagonia.

How does the concept of 'purpose' help in understanding a company's approach to stakeholders?

A clear purpose helps companies understand their values and how they can create value for different stakeholders, whether it's for a narrow or broad group or centered around a noble cause.

Outlines

00:00

🚀 Purpose-Driven Strategy for Stakeholders

The paragraph discusses the importance of companies starting with a clear purpose when managing for stakeholders. It emphasizes the need to understand why the company exists, what it stands for, and the type of company it aims to be. The speaker categorizes different enterprise strategies based on the stakeholders they prioritize. One common strategy is focusing on employees, customers, and shareholders, where satisfied employees lead to better customer service and increased shareholder value. Another strategy is to balance and harmonize the interests of all stakeholders, including customers, suppliers, employees, communities, and investors. Lastly, the paragraph introduces 'noble cause' companies that aim to make a positive impact on the world, such as Novo Nordisk with diabetes care or Mer's efforts against river blindness, driven by a purpose that extends beyond profit.

Keywords

💡Stakeholders

Stakeholders are individuals, groups, or entities who have an interest or stake in an organization and are affected by its actions, decisions, or policies. In the context of the video, managing for stakeholders is central to defining a company's purpose and strategy. The speaker discusses how companies should start by considering their purpose and the stakeholders they aim to serve, which can include employees, customers, shareholders, and the community.

💡Purpose

Purpose refers to the fundamental reason for an organization's existence beyond profit-making. It's the 'why' behind what a company does. The video emphasizes the importance of companies starting with their purpose and aligning it with the value they aim to create for their stakeholders. For example, the speaker mentions that companies must ask themselves 'why are we here' and 'what do we stand for' to define their purpose.

💡Value Creation

Value creation is the process by which a company generates benefits or value for its stakeholders. It's the underlying model that determines how a company will meet the needs of its stakeholders. The script discusses different strategies for value creation, such as focusing on a few key stakeholders or aiming to harmonize the interests of all stakeholders.

💡Enterprise Strategy

Enterprise strategy is a comprehensive plan that defines how an organization intends to create value for its stakeholders and achieve its purpose. The video outlines different types of enterprise strategies, including focusing on a narrow group of stakeholders, balancing interests of various stakeholders, or pursuing a noble cause that benefits society.

💡Employee Shareholder Customer Strategy

This is a specific type of enterprise strategy mentioned in the video where a company focuses on creating value for employees, shareholders, and customers. The idea is that satisfied employees will provide better service to customers, which in turn creates value for shareholders. This strategy is seen as sustainable as long as other stakeholders like the community and suppliers are not neglected.

💡Harmonize

To harmonize, in the context of the video, means to balance and align the interests of different stakeholders so that they work together towards a common goal. The speaker prefers this term due to its musical connotation, suggesting that while stakeholders may have different roles, they should contribute to a cohesive and harmonious whole.

💡Noble Cause Companies

Noble Cause Companies are those with a purpose that extends beyond their own interests to making a positive impact on the world. The video describes companies like Novo Nordisk and Merck, which aim to address significant global issues such as diabetes and river blindness, respectively. These companies' strategies are driven by a mission that is centered on creating value for society.

💡Business Model

A business model outlines how a company creates, delivers, and captures value. Once a company's purpose and enterprise strategy are established, as discussed in the video, the business model defines the specific mechanisms for interacting with customers, employees, and other stakeholders to achieve that purpose.

💡Sustainable Strategy

A sustainable strategy is one that can be maintained over the long term without depleting resources or causing harm. The video mentions that focusing on employees, customers, and shareholders can be a sustainable strategy if other stakeholders' interests are also considered, even if they are not the primary focus.

💡Community

Community refers to the local population or society at large that can be affected by a company's operations. The video script implies that while not all companies may prioritize community interests upfront, they still need to manage their impact on the community to maintain a sustainable and responsible business.

💡Suppliers

Suppliers are external parties that provide goods or services to a company. The video suggests that while suppliers might not always be the primary focus of a company's strategy, they are still an essential stakeholder group that needs to be managed responsibly to ensure the company's long-term success.

Highlights

Companies must start by defining their purpose and understanding their value creation model.

A common strategy is focusing on employees, shareholders, and customers to create value.

This strategy is sustainable as long as other stakeholders are not neglected.

Some companies aim to harmonize the interests of all stakeholders.

Harmonizing stakeholders involves aligning different interests to work together.

A third strategy involves companies with a noble cause aiming to make a real difference in the world.

Noble cause companies like Novo Nordisk and Merck focus on social impact.

Companies like Whole Foods and Patagonia are driven by a broader purpose beyond profit.

Stakeholder strategies should start with a clear purpose and then extend to specific groups.

Understanding the purpose helps in developing the business model and stakeholder relationships.

Enterprise strategy should integrate thinking about stakeholders before focusing on specifics.

Different companies have different approaches to balancing the interests of stakeholders.

The transcript discusses the importance of aligning employee satisfaction with customer service.

It highlights the idea that taking care of employees can lead to better customer service and shareholder value.

The concept of 'narrow' and 'broad' stakeholder strategies is introduced.

The transcript emphasizes the role of company values in driving stakeholder strategies.

It suggests that company values can be almost any kind, not strictly financial.

The transcript concludes that once a company's purpose is clear, it can inform specific stakeholder strategies.

Transcripts

companies have to

start in managing for stakeholders not

ironically with

stakeholders they have to start by

thinking about their purpose they have

to start by asking the question uh why

are we here what are we trying to do

what do we stand for what kind of

company do we want to be which

stakeholders do we want to create value

for what's our underlying value creation

model now I've observed a number of

kinds of purpose or as I like to call

this Enterprise strategy a strategy for

the Enterprise as a whole and then we

can talk about stakeholder by

stakeholder but if you think about

Enterprise as a whole one strategy might

be to pick two or three

stakeholders and really try to create

value for those many companies have what

I would call an employee uh shareholder

customer strategy what they try to do is

they try to have employees who are

really pumped up about the company who

want to be there who provide great

service for customers and this in turn

creates value for

shareholders right those those those

kinds of companies I'm again that's a

sustainable strategy over time as long

as uh you don't don't make mistakes with

Community as long as you don't make

mistakes with suppliers they're always

there but they don't have to be in the

Forefront and so you see company after

company saying well taking care of

employees is important if I take care of

employees they'll take care of my

customers and I'll create value for

shareholders the interest of of uh

employees customers and shareholders

going in the same direction here a lot

of those companies don't talk very much

about Community don't talk very much

about suppliers but they manage those

relationships uh in a in a in a

different way but not a bad way other

companies say no our job is to balance

and or harmonize uh is is is what I like

better because I'm a musician so I like

the idea that we're going to harmonize

the interest of these state of these St

stakeholders they all might be playing

different notes but the notes are going

to go together in the same way and they

see how do we get customers suppliers

employees communities and people with

the money going in the same direction uh

and that's the sort of basic idea behind

creating value for state for

stakeholders the narrow stakeholder uh

Enterprise strategy Works uh but the the

sort of basic five strategy uh works too

there's a third uh strategy that I've

seen a third approach to Enterprise

strategy that I've seen that's very

interesting and these are companies that

I've uh called a noble cause companies

there are companies um who have a

purpose and the purpose is around really

making the world a better place a doing

something that makes a real difference

in the world now we can have lots of

debates about what these are I mean some

people might uh think a acting from the

left makes the world a better place some

might think acting from the right makes

the world a better place we have

conversations about that but these

companies are trying to make a

difference in the world it's Nova

Nordisk uh trying to make a difference

around

diabetes uh it's uh MC and their famous

case of making a difference around river

blindness where mer would say medicine's

for people uh not for profits uh it

might be companies like Whole Foods uh

and Patagonia uh and there are lots of

others uh that are around simply maybe

they've come from entrepreneurs with a

vision maybe they've come from some

history of trying to make a difference

in the world but stakehold strategy for

stakeholders starts with this idea of

purpose either trying to create value

for a narrow group of

stakeholders trying to create value for

a broad group of stakeholders or trying

to have

some purpose where values are at the

center and they can be almost any kind

of Val of values it turn turns out once

we have that now we can say well this

will this will help us understand what

our business model is and now I can

think about how I deal with customers or

how I deal with employees particular or

how I deal with suppliers so it's

Enterprise

first trying to find this integrated way

of thinking about stakeholders and then

specific stakeholder strategies that

come after that