Managing the Extended Enterprise - files.transtutors.com · ate a satisfactory balance of interests...

Managing theExtended Enterprise:THE NEW STAKEHOLDER VIEW

James E. PostLee E. PrestonSybille Sachs

P racticing managers and management scholars recognize the criticalinterdependencies that exist among the firm, its employees, cus-tomers, investors, communities, and constituencies. Moreover, theyrecognize that such dependencies cannot be described in terms of

simple contractual exchanges, but involve interactions and network effects.Indeed, early in the last century—and just as the mechanistic idea of "scientificmanagement" was gaining acceptance—Mary Parker Follett discussed the cen-tral contribution of "interconnectedness" among diverse actors to business suc-cess.' Chester Barnard later described the business firm as a "cooperative"organization based on rational principles; and this characterization continuedto attract scholarly endorsement over the following decades.^ More recently.Freeman argued that the central challenge of strategic management was to cre-ate a satisfactory balance of interests among the diverse constituencies that con-tribute to, or place something at risk in, the running of a business.' Freeman'swriting popularized the term "stakeholders" to describe the entities and intereststhat are involved, either voluntarily or involuntarily, in the operations of thefirm. Although the strategic implications of Freeman's work have not been fullyrecognized, the "stakeholder model" has subsequently become a familiar andwidely accepted characterization of the contemporary business organization.

In this article, we develop a new "Stakeholder View" of the firm thatstresses the role of stakeholder relationships in the creation of organizationalwealth. This view is particularly useful for analyzing and managing the complex

This article is the result of a five-year research project funded by the Alfred P. Sloan Foundation andreported in full in J. Post, L. Preston and S. Sachs, Redefining the Corporation: Stakeholder Manage-ment and Organizational Wealth (Stanford University Press, 2002). The authors are grateful for thevaluable contributions made to this project by many colleagues and company executives, acknowl-edged in detail in the published volume. All interpretations are our own responsibility.

FA| [

Managing the Extended Enterprise: The New Stakeholder View

extended enterprises into which large corporations are evolving in the earlyyears of the 21" century. The term "extended enterprise" appears to have origi-nated at Chrysler Corporation, where it was used to shape information exchangeand cost reduction practices within the supply chain."* The concept was subse-quently generalized as a distinctive approach to manufacturing-logistics manage-ment.^ Contemporaneously, academicians have also developed a more detailedmodel of the firm operating within a network of relationships mediated throughboth market and non-market processes.^ Peter Drucker has described such anetwork organization as "a confederation or syndicate" and Michael Hammerhas moved beyond reengineering and now recognizes the extended enterpriseas a comprehensive metaphor for the contemporary large corporation.'

In our analysis the extended enterprise concept is enlarged to includenot only the focal firm's interactions with other businesses, but also its relation-ships with other stakeholders, both internal and external. We characterize theextended enterprise as the nodal element within a network of interrelated stake-holders that create, sustain, and enhance its value-creating capacity. The long-term survival and success of a firm is determined by its ability to establish andmaintain relationships within its entire network of stakeholders. As Leana andRousseau have observed,*' it is relationships rather than transactions that are theultimate sources of organizational wealth. (A transaction involves a direct quidpro quo and could be a one-time occurrence, while a relationship implies conti-nuity and might involve on-going conflict, as well as collaborative elements.)Responding to criticism of strategic management studies for their neglect ofpath-dependencies and contingencies, we demonstrate the validity of this frame-work by applying it to the evolution and impact of stakeholder managementpolicies and praaices in three major, but very different, firms—Cummins EngineCompany, Motorola, and the Royal Dutch/Shell Group."*

Until very recently the theory of strategic management was dominatedby a controversy over whether the primary determinant of a firm's successfulperformance was its access to resources or its position within its industry structure. Theeditors of a Special Issue of the Strategic Management Journal devoted to this issueeventually concluded that the attempt tochoose one of these explanations over the James E. Post is Professor of Management atother is fruitless because there are continu- Boston University. <[email protected]>ous "reciprocal interactions" between the Lee E. Preston is Professor Emeritus at Robert

firm and its environment, with competition = ^ . ^ '_,^ <[email protected]>

shaping capabilities and capabilities in turn, . . . . ,0 , . Svbille Sachs is an Associate Professor at the

shaping competitive positions. Even this i ^ ^ ^ ^ ^ ^^^^^^^ . ^^.^^^^ Administratioibenign conclusion, however, fails to take at the University of Zurich.Into account the third dimension of strate- <>sachs9ifbf.unizh.ch>gic activity—the social-political environ-ment. In this article, we integrate all three dimensions—resources, industrystruaure, and social-political setting—to create a new framework for strategicanalysis in the extended enterprise.

CALIFORNIA MAMAGEMEMT RpyiFV,' VOL 4^ NO I


The challenge of developing a comprehensive, dynamic model of strategicfirm behavior has a long history." The role of overarching values and institu-tional purposes—not restriaed to market transactions alone—has been empha-sized for decades by such scholars and practitioners as Chester Barnard, TomPeters and Robert Waterman (In Search of Excellence), and Jim Collins and JerryPorras {Built to Last). The interaction of market and non-market forces, and the

impact of such forces on competitive success.The key to solving the core has been explored by Baron, Mahon and

. . McGowan, and Edwards and Watkins.'^ NewStrategic problem is to analytical tools such as the balanced scorecard

understand the firm's entire set ^"^ double/triple-bottom line reports alsorefiect attempts to reconcile short-term/

of stakeholder relationships. long-term, customer/non-customer, and share-

holder/non-sharehoider complexities in themodem corporation. The common characteristic of all of these contributions isrecognition of the multiplicity and diversity of stakeholder relationships and ofthe fact than any stakeholder relationship may be the most critical one at a par-ticular time or on a particular issue. The key to solving the core strategic prob-lem is to understand the firm's entire set of stakeholder relationships. Theserelationships are the essential assets that managers must manage, and they arethe ultimate sources of organizational wealth.

The New StakeholderView

13

Contemporary analysis of the stakeholder model has evolved from meredescriptive accuracy to exploring its instrumental and normative implications.'-Following the argument that managers have a responsibility to meet the legiti-mate claims of all stakeholders, Jones and Hill developed a "stakeholder agency"model and argued that managers should act as "agents" for stakeholders (therelevant "principals")."* Although the specific instrumental impact of a stake-holder orientation on financial performance has been difficult to quantify,Michael Jensen, a well-known finance scholar, refiects a widespread consensusin the remark that "a firm cannot maximize value if it ignores the interests ofits stakeholders."'^ The new Stakeholder View presented here develops thesethemes in detail and also stresses the importance of inter-stakeholder relation-ships. The stakeholder model implies a complex web of relationships, not aseries of dyadic corporation-stakeholder links.

In spite of its widespread use, the term "stakeholder" is rarely given aprecise definition. To correct this deficiency, we propose the following:

The stakeholders in a firm are individuals and constituencies that contribute,cither voluntarily or involuntarily, to its wealth-creating capacity and activities,and who are therefore its potential beneficiaries and/or risk bearers.

This definition is consistent with the criteria for stakeholder identificationsuggested by Kochan and Rubenstein in their study of Saturn, Inc.'^ They notethat stakeholders: supply critical resources, place something of value "at risk/

CAUFORNIA MANAGEMENT REVIEW VOL 45. NO. I FALL 2002


and have sufficient power to affect the performance of the enterprise. Thesecriteria clearly exclude a firm's competitors from the list of its stakeholders. Intheir role as market rivals, competitors do not provide resources to the firm, nordo they stand to gain from its success in the same way that other stakeholdersdo. However, competitive firms may have a common interest in the welfare oftheir relevant industries and markets, and may gain or lose status and wealthas a result of the aaions of some of their colleagues. (Witness the damage doneto the entire professional accounting industry by the accusations against ArthurAndersen.) Hence, competitive firms with common interests may be recognizedstakeholders in the pursuit of those interests, although not in their competitionfor scarce resources or market share.

The new Stakeholder View posits that the capacity of a firm to generatesustainable wealth over time, and hence its long-term value, is determined byits relationships with critical stakeholders. The stakeholders of any firm are usu-ally quite diverse, but relationships between the firm and each of its stakehold-ers have many common features; and the stakeholders have common interests(as well as potential conflicts) among themselves. According to the StakeholderView, the critical challenge for contemporary management is recognition of themutual interests among the firm and its stakeholders, leading to the develop-ment of consistent and supportive policies for dealing with them.

We construct a visual representation of the Stakeholder View by convert-ing the familiar stakeholder model of the firm (Figure lA) into a diagram show-ing the position of the various stakeholders in relation to the three dimensionsof the strategic setting—resource base, industry-market, and social-politicalarena (Figure IB). The particular list of stakeholders shown here is merely illus-trative. The roles of various stakeholder groups as potential sources of organiza-tional wealth within the extended enterprise are summarized in Table 1.

The term "stakeholder management" refers to the development andimplementation of organizational policies and practices that take into accountthe goals and concerns of all relevant stakeholders. (It emphatically does notimply the mobilization or manipulation of stakeholders in an exploitative sense.)A recent example of stakeholder management in the extended enterprise is theresponse of Monsanto to the changing concerns of investors, customers, andworldwide public opinion, all of which challenged its "license to operate" (seeMonsanto sidebar and Figure 2).

Methodology and Data

Our research is based on the empirical maxim that "corporations are whatthey do." Our goal has been to find out how and why large, complex enterprisesadopt comprehensive stakeholder-oriented management policies and practices,what these policies and practices actually involve, and what their overall effectsmay be. The need for depth and comprehensiveness in this kind of research-together with the anticipated importance of evolutionary developments andpath-dependencies—necessarily implies that only a small number of firms can

CALIFORNIA MANAGEMENT REVIEW VOL. 45, NO. I FALL 200}

Managing the Extended Enterprise; The New StakeholderView

FIGURE I A . The Corporation and its Stakeholders

Investors:Shareowners and

Lenders

Supply Chain

Associates

THECORPORATION

PrivateOrganizations

LocalCommunities and

CitizensJoint Venture

Partnersand Alliances

Regulatory

Authorities

FIGURE IB . The StakeholderView of the Corporatton

Govemments

Supply Chain Associates

Investors:Shareowners and Lenders

Employees C CORPORATION

RESOURCE BASE

INDUSTRY STRUCTURE

SOCIAL POLITICAL ARENA

10 CALIFORNIA MANAGEMENT REVIEV^ VOL 45. NO. I FALL 2002

Managing the E> The Nevj Stakt-i

T A B L E I . Stakeholder Roles in the Extended Enterprise

StakeholderGroups

Extended EnterpriseAspects/Characteristics Roles and Impacts

RESOURCE BASE

Investor:Shareowners andLenders

Ownership; credit and financing networks;debt and equity markets

Sources of capital (debt/equity); capitalcost and risk management

Employees Recruitment and training; outsourcing;contract and temporary employment

Development of human capital; teamproduction; collaboration in the workplace

Customers/Users Downstream links and distribution;advertising

Reputation and brand loyalty; repeatpurchase; collaborative problem-solving;new products-services

INDUSTRY STRUCTURESupply ChainAssociates

Physical, informational, and financial linksin the supply chain

Network efficiencies; collaboration oncost reduction and technology

joint VentunsPartners andAlliances

Collaborative ov 'nership and management;information networks

Supplements firm's own capacity andresources; stabilizes firm market position

RegulatoryAuthorities

Interacts with units ofthe firm in multiplelevels and roles

Creates collaborative and/or conflictingincentives and behaviors among diverseelements ofthe enterprise network

Unions Agreements with numerous labororganizations (domestic and international);wages, hours, Vi'orking conditions; diversegoals, levels, capabilities

Workforce stability and conflict resolution;coordinate and mediate inter-unionconflict

SOCIAL POLITICALGovernments Operating within multiple jurisdictions;

multiple issues of national sovereignty;Cooperation wrth United Nations agencies

Possibilities for adaptive integration and/orconflict

Communities/Citizens

Relationships with numerous and diverseconstituencies

Mutual support and/or inter-jurisdictionalconflict; "license to operate" in local venues

Private Organizations Relationships with numerous and diverse(NGOs) constituencies

Multiple opportunities for collaborationand/or conflict; reputation; voluntarystandards (ISO 9000; UN GlobalCompact)

be studied. We began by identifying a set of firms that appear to have adoptedcomprehensive stakeholder management practices, and eventually focused onthree—Cummins Engine, Motorola, and the Royal Dutch/Shell Group (hereafterreferred to as "Shell").

"ALIFORNIA MANAGEMENT REVIEW VOL 45, NO I FALL ?

'rise; The New StakeholderView

Monsanto:Stakeholder Management in an Extended Enterprise

The extended enterprise is ascendant in knowledge-based industries with complex supplychains and marketing channels. Such firms operate amidst rapid technological change and theneed to coordinate decentralized operations through sophisticated information systems,Thecomplexity of such environments, and the importance of connprehensive strategies for dealingwith them, is well illustrated by the experience of Monsanto.

Monsanto has become a leading competitor in the "life sciences" industry through a decades-long transformation from the chemical industry to biotechnology.The company has businessrelationships involving a vast number of stakeholders around the world who affect its products,services, intellectual property, and business knowledge. !n 2000. Pharmacia, the world's thircllargest pharmaceutical company, acquired Monsanto, which had valuable patents and populardrug products {e.g., Celebrex). Monsanto has continued to operate as a relatively independentbusiness unit. In 2001, Pharmacia issued an initial public offering for Monsanto, selling of 15% ofIts shares at the time and subsequently announcing an intention to eventually turn over controlofthe company to other investors.

Monsanto's genetic seed business—a lower-margin product line, intended to sell in large vol-ume to major grain exporting countries such as the U.S., Brazil, Canada, Argentina, and Aus-tralia—has become the target of controversy, protest, and temorism. Intense pressure has builtup in Europe, where sophisticated activist groups have waged a high profile campaign againstGMOs (genetically modified organisms), accusing Monsanto of producing "Frankenstein foods."japan has refused to accept grain shipments from Canada because it included genetically modi-fied seed. As a result of these public reactions, it has been difFicult for Monsanto to secureregulatory and public approval for its GMOs, including seeds for wheat corn, soy and othercrops.

In the context of these issues, Monsanto CEO HendrikVerfaillie called for "breakthrough think-ing" to reposition the company. In response to conflicts between the company and regulatorsin several countries and to criticism from an international network of research scientists,activists, and non-governmental organizations, the "New Monsanto Pledge" was announcedon November 27,2000.Verfaillie said that Monsanto was, "knowingly and deliberately takinga different path" than in the past and acknowledged that the firm had been blinded at timesby its enthusiasm for new biotechnologies and failed to recognize public skepticism aboutthem. "When we tried to explain the benefits, the science and the safety, we did not under-stand that our tone—our very approach—was seen as arrogant" Verfaillie said. "We were stillin the 'trust me' mode when the expectation was 'show me.'"

The five-part pledge calls for steps that Include:

• creating an external biotechnology advisory council to discuss biotech issues:

• sharing Monsanto research with universities;

• supporting a requirement for firms to notify u.s. regulators about plans to market abiotech product;

12 CALIFORNIA MANAGEMENT REVIEW VOL 45. NO. I FALL 2002


• seeking global standards on biotech seed, grain, and food products; and

• selling only grain products approved as human food and livestock feed.

Each of these commitments will require Monsanto to engage in on-going consultation with its

stakeholders that w\\\ lead to redefining the way it does business. If Monsanto fails to manage

effectively the critical stakeholder relationships indicated by these commitments, it is likely to

fail as a business.

Monsanto's critical stakeholder relationships and issues presented in Figure 2, As the figure

shows, every aspect of Monsanto's business is connected to stakeholders in the resource,

competitive, and social-political arenas.

F I G U R E 2 . Critical Relations and Issues at Monsanto

CommunityRelationsEnvironmental

Issues "FrankensteinFoods"

EU Approvals;Import Licenses Strategic

Alliances

Employees \ Global• US Joint

• Global / Ventures

Suppliers /CustomersDomestic• Global

M O N S A N T O

RESOURCE BASE

INDUSTRY STRUCTURE

SOCIAL POLITICAL ARENA

It is obvious that these three companies differ from each other in manyrespects, and we do not intend to suggest that they are perfect examples ofstakeholder management. Each has experienced significant problems andchanges in critical stakeholder relationships over the past quarter century;each has been forced to realign its strategy, structure, and culture to adapt tonew circumstances: and each has made mistakes. Nevertheless, the combinedexperience of these three firms in dealing with diverse constituencies and issuesenables us to examine a wide range of critical firm-stakeholder relationshipsand provides considerable insight into the implications of the Stakeholder View

VOL 45, NO-1 FALL 2002 13

StakeholderView

T A B L E 2. Companies Under Study—Summary Data

Company,Headquarters,Year Founded Industry/Products Size Indicators Notes

Cummins Engine Co.Columbus, IN(1919)

Diesel engines Revenues of $6,6 billion(2000)

28,500 employees

Noted for its philanthropyand communityinvolvement.

Joint ventures and alliances(domestic and foreign) arecritical to business success.

MotorolaSchaumbur-g, IL

(1928)

RoyalDutch/ShellLondon/The Hague(1907)

Electronic components,systems, and services.

Wireless phones andmobile telecomequipment

Semiconductors as"embedded solutions."

Petroleum exploration,refining, transport.marketing of energyproducts,

Revenues of. $37,6 billion(2000)

140,000 employees

Revenues of. $ 150 billion(2000)

96,000 employees

Commitment to"uncompromisingintegrity" and "respect forindividual"; emphasis onquality and technologicalleadership.

"Second home" in China.

Giant, complex, globalfirm, challenged by bothbusiness and non-businessstakeholders thnDughoutthe 1990s,

in both theory and practice. By closely following the "path dependencies" and"complex contingencies" in a few well-observed cases, we show that the Stake-holder View provides a comprehensive perspective on the strategic situationsconfronting real firms and therefore offers a useful framework for strategicmanagement analysis and practice in the extended enterprise.

Cummins, Motorola, and Shell are firms well known to managementscholars. Summary descriptive data are shown in Table 2, and brief narrativeprofiles are presented in the accompanying "Company Profiles" sidebar. Thestakeholder relationships that have been most critical for each company duringthe past couple of decades are summarized in Table 3. These lists show thatthese companies have confronted challenging stakeholder issues in all threedimensions of the Stakeholder View in recent years, and that issues arising fromthe social-political arena have had particularly important and pervasive impact.

The Stakeholder View in Practice

The Stakeholder View recognizes linkages between the extended enter-prise and its multiple constituents as the principal means of sustaining andenhancing its wealth-creating capacity (see Table 1). Moreover, because of theirlinkage with the firm, these constituents have a "stake" in its operations; that is,they have something "at risk," the possibility of gaining greater or lesser benefits.

VOL45,NOI FALL, ?00?

Managing the Extended Enterprise: The New StakeholderView

TABLE 3.

Company

Cummins

Critical Stakeholder Relationships

Resource Base

EmployeesInvestors

and lssues,Three Companies

Industry Structure

Customers; alliances; EPAregulations

Social-PoliticalEnvironment

Community relations;environmental pollutionand protection

Motorola EmployeesInvestorsTechnology

Japan challenge: industrytechnical standards;relations with customer-competitors

Global ethics challenge;Iridium licenses; Chinarelations and policy

Shell EmployeesTechnology

Intra-company relations(Shell Group); jointventures

Relations with state-owned enterprises(SOEs) and govemments;ecological issues; human

Company Profiles

Cummins

From the time of its founding in 1919, Cummins Engine Company has consistently sought todevelop, build, and sell the best diesel engines in the world. Originally a traditional "family com-pany," Cummins was transformed after World War II, developing professional management andextending rts business outreach both at home and abroad, the latter mostly through joint ven-tures and alliances. Cummins' corporate culture is a blend of progressive humanitananism andconventional bottom-line thinking that emphasizes clear objectives and accountability forresuHs, References to "stakeholders," "doing the right thing," and "ethical standards" are com-monplace at Cummins, and leaders at every level understand that such Ideas are importantsources ofthe company's strength and creativity.

DespFte its long history of stakeholder-oriented policies and practices. Cummins has beenchallenged in recent years to realign its relationships with some major stakeholdersThe com-pany has faced ov^nership and governance challenges from hostile shareowners, conflicts withgovernment agencies and advocacy organizations about the environmental impact of dieseltechnology, and disagreements with some of its global business partners.The development andmaintenance of a highly trained, stable work force and of stable and reliable financial supporthave been critical factors in Cummins' success in a specialized, intensely competitive nichewithin the highly cyclical motor vehicle industry. When the environmental effects of dieseltechnology were challenged during the 1970s, Cummins needed to address both the compe-titive viability of its technology and the management of its relationship with regulators andenvironmental activists. Cummins' culture of shared values assures that the firm's responsibilityto operating communities and employees is considered on the same basis as responsibilityto investors and customers. Feedback from business partners has been consistently used

"ALIFORNIA MANAGEMENT REVIEW VOL 4S, NO I FA! I 700"


to improve both product and processes, enabling Cummins to enhance value for all of itsstakeholders.

Motorola

Motorola has grown from modest beginnings to become a global leader in electronics andtelecommunications technology. Its brand name and reputation for high product quality areknown throughout the world, and it has frequently been listed among America s "mostadmired" companies. It is also the largest U.S. investor in China. For the first half-century ofits existence, Motorola executives dealt with public officials and political figures only in connec-tion with government purchases. However the development of aggressive Japanese competi-tion during the 1970s brought a new awareness of the impact of public policy, both domesticand foreign, on the company s strategic environment and resumed in new strategic initiatives inthe social-political arena.

Motorola has long been a leader among muttinational corporations in expiicftly articulating itscultural norms and behavioral codes. Although the company operates In more than 120 coun-tries and is highly decentralized, two staff areas—technology and human resources—reportdirectly to the chief executive ofTicerThese reporting arrangements reflect the company'score commitment to technological leadership and its stress on human values and skills.

The company has made large investments in employee and executive training, usually carriedout under the auspices of Motorola University. It attempts to foster open internal communi-cations and a participatory management environment. A commitment to "uncompromisingintegrity" became the basis for company-wide policies reflecting respect for the individual,whether inside or outside the firm, and for an unwavering emphasis on technological leader-ship, The result was a long-term willingness to invest in and adopt new ideas, both managerialand technological, and to strive for global excellence in product quality Throughout the com-pany's battles with Japanese competitors regarding market practices, and with both domesticand foreign competitors over technical standards for products. Motorola sought to createvalue by improving quality and challenging barriers to competition. More recently, the emer-gence of strong international competrtors, and serious technological, financial, and marketingchallenges, led to major corporate reorganizations in 1998 and again in 2001 .Throughout thisperiod, one of Motoroia's primary concerns has been the adaptation of its fundamental valuescommitments to new operating environments, particularly the company's "second home" inChina.

Royal Dutch/Shell Group

Shell was one of the first truly international corporations and has been one of the ten largestcompanies in the world for nearly a century Historically its regional operating units were thedominant elements in a decentralized management structure.7>ie company is now somewhatmore centrally controlled through a Committee of Managing Directors (CMD) and is orga-nized globally into five lines of business: Exploration and Production, Chemicals, Gas and Coal,Shell International Renewables, and Oil Products. With a dominant technical orientation in topmanagement and relatively few senior executives recruited from outside, the company longfunctioned as an essentially closed system, sometimes referred to as "Planet Shell." Consensus

16 CALirORNIA MANAGEMENT REVIEW VOI. 4S NO 1 FAl I

Managing the E>clended Enterprise: The New StakeholderView

building was facilitated by a strong emphasis on long-range planning, based on the construction

of competing "scenarios" about major long-term global trends that would affect its status and

operations.

In the 1990s Shell executives came to believe that its corporate identity and reputation wereat stake in both the marketplace and the policy arena, Oil prices were at all-time lows, the rateof return on capital was unsatisfactory, and Shell's weak organizational structure was clearlyinadequate for effective control of a global enterprise. Shell began to develop a "New Shell"organizational structure by strengthening the functional, rather than geographic, dimension ofits organizational matrix and by providing for greater globa/ management oversight and controlby the six-member executive committee and the CMD.

By 1995, when the evolution ofthe "New Shell" model was well underway, external criticismabout the disposal ofthe Brent Spar oil storage facility in the North Sea and about Shell'srelationship with the repressive military regime in Nigeria revealed a need for company-wideanalysis and response to public concerns.The result was a major extension ofthe "New Shell"model to include the interests of diverse stakeholders, particularly non-business stakeholdersfrom the social and political arenaThe ultimate resuh: was a transformation in the compan/sself-image, with broad implications for its strategy, structure, and culture. Historic core compe-tencies came to be seen as core rigidities, and the company recognized a need to reframe itspurpose in terms of societal needs and expectations,

or experiencing greater or lesser harms, as a result of the firm's operations. TheStakeholder View raises three main questions for the analysis of strategic man-agement at Cummins, Motorola, and Shell over the past quarter century:

• How did the Stakeholder View affect the firms' analysis and managementof universally recognized "business" stakeholders—investors, employees,and customers?

• How does a comprehensive Stakeholder View framework of analysisimprove our understanding of the strategic options and actions of thesefirms over the past quarter-century?

• How did these firms develop and institutionalize a comprehensive Stake-holder View and with what results?

Relations with ^Business" StakeholdersBoth systematic research studies and common experience suggest that

most firms recognize investors, employees, and customers as critical "husiness"stakeholders." All three of these groups are conspicuously vital to the existenceand success of nearly all firms; and most firms have more numerous and fre-quent routine interactions with them than with other classes of stakeholders.Under ordinary circumstances, the "business" stakeholders come into contactwith the firm voluntarily because they believe they will thereby be better off thanthey would be otherwise. They stand to gain from the success of the firm in

CALIFORNIA MANAGEMENT REVIEW VOL45.NO.I FALL 2002 17

Managing the Extended Enterpnse; The New StakeholderView

creating new wealth through such things as innovation, productivity gains, andincreasing (or increasingly recognized) customer benefits.

Firms conventionally devote more attention to analyzing these "core"stakeholders—and to managing relations with them on a routine basis—thanthey do other groups. These functions are highly specialized, using differentinformation sources and modes of analysis. As a consequence, managerialresponsibility for them is dispersed. Hence, the prevailing view in both theoryand practice seems to be that relations between the firm and these stakeholdersinvolve dyadic linkages—firm-investors, firm-employees, and firm-customersrather than a network of mutually interactive stakeholder relationships. As aconsequence, there is no necessary consistency—and little consideration ofinconsistency—among the policies and practices surrounding each of these link-ages, and there is no attempt to develop synergies among them. Indeed, theprevailing (and alarmingly static) view seems to be that managing these linkagesis a zero-sum game (e.g., anything gained by employees comes out of the pock-ets of investors or customers).

The Stakeholder View directly challenges this perspective, emphasizingthat these stakeholder linkages are part of a single network, that consistency andbalance in stakeholder relations are critical manifestations of corporate culture,and—most important—that organization-wide stakeholder management shouldlead to the dynamic evolution of positive-sum strategies that give rise to benefitsfor all or most critical stakeholders over the long run. Competence instakeholder relations can be utilized throughout the extended enterprise net-work; it is a source of competitive advantage and a guarantor of the firm's"license to operate" within its environment.

Cummins' relationship with "business" stakeholders is epitomized by itssuccessful attempt to place Ford Motor Co., Tenneco, and Kubota (a Japanesefirm) in the dual roles of customer and investor, emphasizing their simultaneousinterest in both the availability and quality of Cummins' products and its long-term financial performance (each interest being essential to the other.) Cum-mins also brought the government of Brazil into partnership in its operations inthat country, again in pursuit of shared objectives. Most of Cummins' overseasactivities are structured as joint ventures or license agreements, the most impor-tant exception being CUMMSA, a Mexican facility that Cummins took over aftermanagement became convinced that its JV partner was sabotaging the projectthrough mismanagement of key stakeholder relationships. CUMMSA recentlybecame the first multinational corporation to be awarded the National Prize forExports by the President of Mexico.'* In the domestic U.S. context. Cumminsendured a crippling strike during the 1970s, an experience so harmful to boththe company and its employee stakeholders that it brought about a transforma-tion in Cummins' labor relations. As a result, the company's most recent unioncontract, signed in 1993, is scheduled to run for an unprecedented elevenyears.'^

Motorola's historic commitment to "uncompromising integrity" and"respect for the individual" provides an explicit basis for developing consistency

CALIFORNIA MANAGEMENT REVIEW VOL 45, NO. I FALL 2002

Managing the Extended Enterprise: The New StakebolderView

and positive-sum resulis in its stakeholder relationships. In a dramatic emphasison the common interests of employees and investors, CRT screens throughoutthe company's Schaumburg, Illinois, headquarters continuously display currentstock market activity and, in particular, the Motorola stock price. Motorola'semphasis on product-service quality, reflected in the "six sigma" quality standardthat it pioneered in the 1980s, is a manifestation of its value commitments forcustomers and carries the further implication that adherence to quality objec-tives will benefit employees and investors as well.

Shell's traditional orientation has been toward technological leadershipand the combination of resource-enhancement and risk-spreading made possiblethrough a network of alliances with other companies in its industry. The oilindustry is highly capital-intensive, and individual projects are subject to consid-erable risk, political as well as environmental and technological. Joint venturingwith major competitors {"co-opetition") is therefore commonplace, and it cre-ates stakeholder linkages with entities that would otherwise be more interestedin Shell's decline than in its success. (These collaborative activities also make itmore difficult for any new competitor to enter the industry, which benefits allthe established firms.) Shell has also gained competitive advantage by makingmajor breakthroughs in drilling, refining, and transport technologies, whichultimately benefit other industry participants as well.

Relations with Social and Political StakeholdersAn explicit purpose of the Stakeholder View is to emphasize the critical

importance of relationships with stakeholders in the social and political arena,and all three of the focal companies have actively developed relationships withsuch stakeholders as part of their long-term value-seeking strategies. Cummins,for example, recognized the potential impact of changing public concerns aboutenvironmental protection as early as 1969, when it announced an intention toincrease emission standards for its engines in advance of explicit governmentregulation. It subsequently collaborated with the EPA in a successful effort tostrengthen that agency's exclusive authority to set air pollution standards.Cummins ultimately initiated the formation of a unique government-businessresearch center, the Health Effects Institute, to monitor and analyze the effectsof diesel emissions. Motorola's two-pronged strategic response to competitivepressures from Japanese firms during the "chip wars" of the 1980s involved aninternal "quality crusade" linked with an external political campaign called"Meeting Japan's Challenge." More recently, the firm has been conspicuouslyinvolved in promoting the establishment of normal trade relations between theU.S. and China, a development with profound impact on its global competitiveposition and the value of its resource base.

Perhaps the most dramatic evidence of the impact of non-businessstakeholders on corporate strategies is provided by Shell's experience duringthe 1990s. In incidents that have been widely reported and discussed. Shell wassimultaneously challenged about both its plans to dispose of the Brent Spar oilstorage terminal by sinking it in the North Sea and its relationships with the

. MANAGEMENT REVIEW VOL.45,NO,I FALL 2002 19

Managingth. iJerVJew

national government and regional native peoples in Nigeria. The Brent Sparchallenge was led by the environmental activist organization Greenpeace andultimately involved a number of European politicians and the German govern-ment. The criticism of Shell's involvement in Nigeria came from a variety ofsources, including human rights organizations and even The Economist}'^

This entire experience led Shell's management to recognize the serious-ness of such external challenges, regardless of their specific merit. The result wasan attempt to bring about pervasive change throughout the complex and highlydecentralized Shell Group, replacing a closed "Planet Shell" culture with a newcommitment to "listening and responding" to external perspectives. It is impor-tant to note that Shell's next major foreign venture, the Camisea Project in Peru,was organized from the beginning around a comprehensive program of environ-mental and social impact assessment, including a formal plan for stakeholderparticipation involving local communities and interests as well as internationalorganizations concerned with the environment and human rights.^' Althoughthe Camisea venture was ultimately abandoned by Shell, it is serving as amodel for other current and future projects, such as the Malampaya (offshoreoil drilling in the Philippines) and Athabasca (oil sands mining in WesternCanada) projects."

Institutionalization

All three of the firms offer evidence of attempts to institutionalize thestakeholder perspective throughout their policies and practices. In the 1970s,Cummins established a "Corporate Action Division" (CAD) with a mandate toserve as an in-house resource for understanding the social and political contextof the company's operations, to coordinate related programs, and to work withmanagement at all levels to see that social responsibility considerations areincluded in their decisions and actions. The codes and guidelines developed bythe CAD eventually penetrated every layer and function of the corporation.CAD quickly became a model for similar initiatives in other companies.^'

Motorola's values commitment is formally stated in For Which We Stand:A Statement of Purpose, Objectives & Ethics (first published in 1973, periodicallyupdated, and eventually incorporated into the company's Code of Business Conductin 1999). A list of key stakeholders and an elaboration of the company's policiestoward each of them has been included in this document from the beginning.More recently. Motorola has attempted to update the specific content of its poli-cies—particularly with respect to their application in non-U.S. settings—and toincrease employee awareness of its value commitments through the MotorolaEthics Renewal Process (MERP). This effort, initiated by the CEO and Board ofDirectors, aimed to open tip an unrestricted and proactive dialogue within thecompany about ethical issues as they are encountered in everyday settings. Anew office was established within the company to lead this initiative, and newstudy materials were prepared to stimulate reflection and discussion. MERPhas evolved into a sustained learning process and has been followed by theestablishment of a Global Corporate Responsibility Task Eorce, chaired by the


CEO, with the goal of maintaining what the company considers its "ethicsadvantage" under changing operating and competitive conditions throughoutthe world.^"

As noted above, development of the "New Shell" organizational structure(with greater central coordination from the dual headquarters in London andThe Hague) was already underway when the Brent Spar and Nigeria issuesheightened top management's awareness of the potential impact of external,non-husiness stakeholders on Shell's global operations. This impact was broughtinto sharp focus by a 1997 shareholder

initiative sponsored by two British activist A striking feature of all of thesegroups. Ultimately identified as "Resolu- . « _i. • i.i_ * XLtion 10,- this initiative demanded that implementation efforts IS that they

Shell establish new internal management involve company-Wide recognitionand external reporting procedures con- _ . . . . . . . . icerning its environmental and social O the integrity of the mdrv.dual . . .

impacts. Ahhough Shell management -jp j g^ commitment to the valuesopposed this resolution and it wasdefeated, Shell subsequently evolved its and goals of the larger society.own version of the "triple bottom line"(financial, environmental, social) reporting system originally advocated by JohnElkington.^^ The Planning and External Affairs staff initiated an extensive pro-gram of communication and data-gathering, including a series of roundtablesinvolving Shell executives and external participants held in various parts of theworld. The results of these efforts were refined through additional studies andconsultations. One outcome of this work was Shell's 1997 announcement ofa new core purpose: "Helping people build a better world." The company alsoupdated its Statement of General Business Principles to include greater emphasis onbroad environmental and social issues, including human rights. To implementthese broad policy declarations. Shell initiated a global reporting and consulta-tion system and established a new internal publication. Interchange, specificallyintended to provide a forum for information and experience about public affairsmanagement. An annual "Shell Report" on the company's environmental andsocial impact and a separate report on health and safety issues were also begunat this time. In initiating these extensive communication efforts. Shell appar-ently reflected acceptance of the advice of one its consultants that it was notonly important for companies to be "doing the right thing," but also to be "seento be doing the right thing."^*

A striking feature of all of these implementation efforts is that theyinvolve company-wide recognition of the integrity of the individual, both insideand outside the firms, and a commitment to the values and goals of the largersociety within which the firm operates. The activities of Cummins' CAD and thesequence of ethics-related programs at Motorola were fundamentally based onnormative, rather than purely instrumental, considerations.

CAUFORNIA MANAGEMENT REVIEW VOL 45. NO. I FALL 2002 21


Implementation: From Concepts to Goals to Actions

Effective management of the extended enterprise requires both a newconception of the firm (i.e., a network, rather than a hierarchy) and a newapproaches to the practical issues and problems that arise in such a setting.Changing work practices (e.g., outsourcing), technological developments, global-ization, increased involvement in alliances and partnerships, and the emergenceof new public policy issues all cause firms to become more "extended" and torealize that their success—and therefore their value—increasingly depends moreon relationships than on the accumulation of conventional assets. (Indeed, in arapidly changing environment, excessive accumulation of inflexible assets mayprove to be a strategy for failure.)

With respect to the voluntary stakeholders in the firm—e.g., investors,employees, customers, market partners—the basic principle of stakeholder man-agement is mutual benefit. These stakeholders contribute directly to the opera-tions of the firm and expect to be made better off as a result. With respect toinvoluntary stakeholders, particularly those who may be negatively affected byexternalities such as pollution or congestion, the guiding principle has to bereduction or avoidance of harm and/or the creation of offsetting benefits. Thesestakeholders expect that they will be at least as well off as they would be if thefirm did not exist.

The challenge confronting the contemporary extended enterprise is thedevelopment, maintenance, and integration of favorable working relationshipswith stakeholders in each of the three dimensions of its strategic setting. Indealing with resource base stakeholders, the firm is challenged to maintain andenhance its ability to draw critical physical, financial, human, intellectual, andsocial assets into its extended domain. Within its industry structure, the firm is

challenged to establish and maintain rela-The key to effective implementation tionships that enable it lo enhance its

is recognition of Stai<eholder P ° ' " ' 7 ' " '*"^ marketplace and within° the value cham while conformmg to rele-

management as a core competence. vam regulatory guidelines and industrystandards. In the social-political arena,

the firm is challenged to identify key actors and issues throughout its extendedpurview, as well as to anticipate and respond to new developments, so as tobring long-term benefits (or at least no harm) to the entire organization and itscritical stakeholders.

The key to effective implementation is recognition of stakeholder man-agement as a core competence. In spite of the need to manage routine aspects ofeach corporation-stakeholder linkage within a specialized framework (e.g.,investor relations, human resource management, public affairs), the over-arch-ing commitment to establishing and maintaining favorable relationships with allstakeholders has to become an integral part of the culture of the organization.The strategies that the firm adopts to deal with various stakeholder groups andthe structures that are developed to implement the strategies both rest on abroad cultural base.

CALIFORNIA MANAGEMENT REVIEW VOL. 45. NO. i FALL

Managing the Extended Enterprise; The New Stakeholder View

Integrating a stakeholder perspective into corporate culture gives rise totwo practical implications:

• Management must become alert and responsive to the appearance of newstakeholder groups, concerns, and priorities.

• Management must become more aware of inter-stakeholder relationships(employees-customers-communities, for example) and of the importanceof mutually beneficial policies rather than policies that favor one stake-holder group at the expense of another.Richardson and Vidaurreta rightly emphasize that in order to implement

these insights, top management must assign responsibility and accountability forparticular stakeholder relationships to specific individuals or units, with the goalof making each relationship stronger over time and increasing its value to theentire enterprise.^'' The skills required for effective relationship managementinclude: listening and responding, negotiating, environmental scanning, issueforecasting, and measuring and reporting on both issues and impacts—all withinan atmosphere of openness and transparency. Knowledge about stakeholders(explicit and tacit) is a critical source of competitive advantage. The knowledgenetworks that connect the firm with its human resources (both employees andcontractual workers) and suppliers can enable it to increase the efficiency of itsoperations, develop unique product-service offerings, and create (or overcome)barriers to entry. Knowledge about customers—including their receptivity tovarious communication modes and other forms of infiuence—not only guidesmarketing efforts, but also creates opportunities for collaboration in the searchfor mutually beneficial product-service improvements. Knowledge about non-market stakeholders helps the firm to build constructive social and political rela-tionships, anticipate and minimize the impact of unfavorable developments, andpreserve its "license to operate" in the face of changing circumstances. As Childand McGrath have recently suggested, the evolution of information-based enter-prises is producing systemic changes in organizational design and process man-agement.^* Knowledge and understanding of the firm's stakeholder relationshipsis at the heart of this new reality.

The tasks involved in managing within a network of stakeholders can bebriefly summarized as:

• Identify relevant stakeholders and their potential impact on the successor failure of the enterprise.

" Specify the goals to be achieved in each stakeholder relationship (e.g.,loyalty, efficiency, and cooperation), the factors contributing to goal-achievement, and the risks involved.

• Develop opportunities for mutual benefit.

• Monitor inter-stakeholder relationships and attempt to harmonize orbalance them as much as possible.

CALIFORNIA MANAGEMENT REVIEW VOL 45. NO. I FALL 2002 23

Managing the Extended Enterprise; The New Stakeholder View

Assessing Stakeholder Management

In turbulent environments, mere 5Mrv/v(3/alone may indicate somethingabout the appropriateness of corporate policies and practices. The three compa-nies focused on here have survived in industries where many other firms havefailed or been forced into mergers during last couple of decades. In fact, thesefirms have not only survived—sometimes in the face of traumatic challenges—but have grown within their spheres of activity, made acquisitions, and enteredinto new alliances. With respect to Cummins and Motorola, the record of rela-tive "success" within turbulent environments can certainly be taken as favorableresults of long-term commitments and policies. Shell's adoption of open andproactive stakeholder relations policies is probably too recent to justify a conclu-sive judgment. One of Shell's senior executives remarked that "it has taken fiveyears to put this new system into place, and it will take at least another five losee if it works."^^ Certainly, there is no sign in any of the three companies thatstakeholder management policies had negative impacts.

A second manifestation of the impact of stakeholder management policiesis avoided costs. Cummins' costly strike of the 1970s, Motorola's disastrous experi-ence with Iridium (which involved many factors, one of which was disregard ofcustomer interests in price and physical convenience), and Shell's problems withthe protests about Brent Spar and Nigeria all constitute ample evidence of thecosts that may arise from disregard of key stakeholder interests. Indeed, thefirm's overall "license to operate" may be threatened when key stakeholdersbecome alienated. Cummins' avoidance of costs through the creation of theHealth Effects Institute, Motorola's reduced labor turnover costs associated withits status as an "employer of choice" in its industry and area, and the apparentsuccess of Shell's stakeholder-oriented policies in Peru (and the general declinein public criticism of its activities) all point to cost avoidance.

A third indicator of the favorable impact of stakeholder-oriented policiesin these companies is their continued acceptance and use. Successive generationsof managers at both Cummins and Motorola have embraced stakeholder man-agement concepts and implemented them within their own spheres of responsi-bility. Cummins' concern with community stakeholders has been demonstratedin all of its operating locations. Motorola has carried its fundamental humanresource policies around the world and has also used its prior experience in thepolitical arena effectively to address the issue of trade relations with China. Shellis applying lessons learned during the 1990s to new areas. The selection of PhilWatts as successor to Mark Moody-Stuart as chair of the Committee of Manag-ing Directors (and therefore, in effect, the CEO of the global company) suggeststhat Shell's top management believes the stakeholder-oriented structures andstrategies adopted since 1995 are proving effective.

A final piece of evidence is the expanded recognition and adoption of stake-holder-oriented policies by other companies and by the consulting community.IWo important recent industry publications undertaken at Pricewaterhouse-Coopers and KPMG have built on research at Shell and other companies to

14 CALIFORNIA MANAGEMENT REVIEW VOL. 45. NO. I FALL 2002


produce analytical schemes and policy guidelines appropriate to a wide rangeof firms and industries.*"

These efforts go beyond previous work on the "triple bottom line" and"balanced scorecard" and provide further evidence of the success of these poli-cies and practices.

Conclusion

The Stakeholder View of the firm offers a comprehensive analyticalframework for strategic management that integrates resource-based and indus-try-focused approaches and also includes critical, and often neglected, aspectsof the social and political environment. The contemporary large corporation hasbecome an "extended enterprise," engaged in diverse functions at multiple loca-tions and linked with numerous other entities and individuals in the course ofits operations. Strategic positioning in this stakeholder network enhances thefirm's sustainable competitiveness and potential for wealth creation. This viewemphasizes that stakeholder linkages are relational, not merely transactional. Thedevelopment and maintenance of favorable and productive stakeholder relationsis a "core competence" for management, a means of enhancing the enterprise'svalue and earning capacity and of improving its ability to respond to problemsand challenges.

Stakeholder management involves more than ad hoc response to specificand unrelated situations and crises, and more than case-by-case attention to thedyadic ties between the firm and individual stakeholder groups. Instead, anemphasis on stakeholder relations must pervade the firm, which results in com-mon and mutually consistent policies and practices involving multiple stake-holders and recognizes the mutual and overlapping interests of variousstakeholder groups. Within the firm's stakeholder network, all relationshipsmatter, although all are not of equal relevance or priority for every specific situa-tion or issue.

The foundation of stakeholder management in the extended enterpriseof the 2P' century is a humanistic commitment to the integrity of the individual,which necessarily implies a respect for individuals, groups, other organizations,and the general public. Successful stakeholder management also involves learn-ing, because stakeholder characteristics and interests change over time. Again,recognition of and interaction with stakeholders is an integral and on-going partof the management process. Stable and supportive stakeholder relationships arebuilt up over time on the basis of experience. Trust grows from trustworthybehavior, not from rhetoric. The Stakeholder View emphasizes that the survivaland success of the enterprise ultimately depends upon its mutual interactionswith its network of stakeholders. Favorable stakeholder relationships generatelong-term competitive advantages for the firm and for society as well.

TAI IFORNIA MANAGEMENT RFVIFW VOL 45, NO. I FAl [ ?no? 25


Notes1. See Melissa Schilling, 'Decades Ahead of Her Time: Advancing Stakeholder Theory Through

the Ideas of Mary Parker Follett,' Journal of Management History. 6/5 (2000): 224-242; MaryParker Follett, The New State: Group Organization, the Solution of Popular Government (New York,NY: Longmans Green, 1918).

2. Chester Barnard, The Functions ofthe Executive (Cambridge, MA: Harvard University Press,1938, 1962). See also, Herben Simon, Administrative Behavior {New York, NY: Macmillan,1947); Kenneth Andrews, The Concept of Corporate Strategy (Homewood, IL: Richard D. Irwin,1968); H. Igor Ansoff, Corporate Strategy (Burr Ridge, IL: Irwin, 1965).

3. R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston. MA: PitmanPublishing, 1984). The stakeholder literature has grown rapidly. See, tor example. Max B.E.Clarkson, ed.. The Corporation and Its Stakeholders: Classic and Contemporary Readings (Toronto;University of Toronto Press, 1998); W.M. Evan, and R.E. Freeman, 'A Stakeholder Theoryof the Modern Corporation: Kantian Capitalism," in T. Donaldson and PH. Werhane, eds..Ethical Issues in Business (Englewood Cliffs, NJ: Prentice Hall, 1993), pp. 166-171; T.M. Jonesand A.C. Wicks, "Convergent Stakeholder Theory,' Academy of Management Review. 24/2(April 1999): 206-221; R.W. Mills and B. Weinstein, "Beyond Shareholder Value—Reconcil-ing the Shareholder and Stakeholder Perspectives," Journal of General Management. 25/1(2000): 79-93; J.M. Logsdon, D.J. Wood, and L.E. Benson, eds.. Research in Stakeholder The-ory. 1997-1998 (Toronto: Clarkson Centre for Business Ethics, 2000).

4. See Ernest Raia, "The Extended Enterprise," Purchasing. March 4, 1993; Drew Winter andGreg Gardner, "An Interview with Chrysler's Thomas T. Stallkamp,' Ward's Auto World (July1997).

5. See Noel P. Greis and John D. Kasarda, "Enterprise Logistics in the Information Age," Califor-nia Management Review. 39/4 (Summer 1997): 55-78. See also, Henrique O'Neill and PeterSackett, 'The Extended Manufacturing Enterprise Paradigm," Management Decision, 32/8(1994): 42-49; J. Fulcher, "Extended Enterprise Systems,' Manufacturing Systems. 18/12(2000): 38-40.

6. See J.H. Dyer and H, Singh, "The Relational View: Cooperative Strategy and Sources ofInterorganizationa! Competitive Advantage." Academy of Management Journal. 23/4 (1998):660-79.

7. Peter Drucker and Michael Hammer are quoted in reference to the extended nature of themodern corporation in "A Survey of the Near Future," Economist. November 3, 2001,pp. 1-20. See also, Michael Hammer, Beyond Reengineering (T4ew York, NY: Harper. 1996).

8. C.R. Leanna and D.M. Rousseau, eds.. Relational Wealth (New York, NY: Oxford, 2000).9. Dan Schendel, 'Editor's introduaion," Strategic Management Journal. 18 (Summer 1997): 1-3.

The resource-based view of the firm is developed in J.B. Barney, "Is the Resource-Based'View' a Useful Perspeaive for Strategic Management Research? Yes.' Academy of Manage-ment Review. 26/1 (January 2001): 41-56. See also, R.L. Priem and J.E. Butler, 'Is theResource-Based 'View' a Useful Perspeaive for Strategic Management Research?" Academyof Management Review. 26/1 (January 2001): 22-40; R.L. Priem and J.E. Butler, 'Tautology inthe Resource-Based View and the Implications of Externally Determined Resource Value:Funher Comments," Academy of Management Review. 261 \ (January 2001): 57-66.

10. See Rebecca Henderson and W. Mitchell, "Introduction," Strategic Management Journal. 18(Special Issue, Summer 1997); Rebecca Henderson and W. Mitchell, "The Interactions ofOrganizational and Competitive Influences on Strategy and Performance," Strategic Manage-ment Journal. 18 (Special Issue, Summer 1997): 5-14.

11. See Chester Barnard, The Functions ofthe Executive (Cambridge, MA: Harvard University Press,1938); T. Peters and R. Waterman, In Search of Excellence (New York, NY: Douhleday, 1980);J. Collins and J. Porras, Built to Last (New York, NY: Free Press, 1994). The interplay of mar-ket and non-market faaors is discussed in David Baron, "Integrated Strategy: Market andNon-Market Components," California Management Review. 37/2 (Winter 1995): 47-65. Seealso John F. Mahon and Richard A. McGowan, Industry as a Player in the Political and SocialArena: Defining the Competitive Environment (Westport, CT: Quorum Press, 1996); M. Edwardsand M. Watkins, Winning the Influence Game. What Every Business Leader Should Know AboutGovernment (New York, NY: John Wiley & Sons, 2000). References for balanced scorecardand triple bottom line accounting innovations are listed in Note 25.

12. Baron, op. cit.; Mahon and McGowan, op. cit.; Edwards and Watkins, op. cit.

26 CAUFORNIA MANAGEMENT REVIEW VOL 45. NO, I FALL 2002

Managing the Extended Enterprise; The New StakeholderView

13. T. Donaldson and L.E. Preston, "Stakeholder Management and Organizational Wealth.'Academy of Management Review. 24/4 (1999): 619-620.

14. See T.M. Jones and C.L. Hill, "Stakeholder Agency Theory," Journal of Management Studies,29/2 (March 1992): 131-154; T.J. Rowley "Moving Beyond Dyadic Ties: A Network Theoryof Stakeholder Influences," Academy of Management Review. 22/4 (1997): 887-910,

15. Michael Jensen, "Value Maximization, Stakeholder Theory and the Corporate ObjectiveFunaion," in M. Beer, ed., Breaking the Code of Change (Boston, MA: Harvard Business SchoolPress, 2001).

16. See Thomas Kochan and Saul Rubenstein, "Toward a Stakeholder Theory of the Firm: TheSaturn Partnership," Organizational Science. 11/4 (2000): 367-386. See also Saul A. Ruben-stein and Thomas A. Kochan, Learning From Saturn: Possibilities for Corporate Governance andEmployee Relations (Ithaca. NY: Cornell University Press, 2001).

17. See B.R. Agle, J.A. Sonnenfeld, and R.K, Mitchell, "Managerial Determination of ImponantStakeholders," Academy of Management Journal, 42 (1999): 507-25; Ulrich Steger, "A MentalMap of Managers: An Empirical Investigation into Managers' Perceptions of StakeholderIssues," Business and the Contemporary World. 10 (1998): 579-609; S.L. Berman, A.C. Wicks,S. Kotha, and T.M. Jones, "Who Matters to CEOs? An Investigation ot Stakeholder Attrib-utes and Salience, Corporate Performance, and CEO Values," Academy of Management .loumal.42/5 (October 1999): 488-506; J.L. Cummings and J.P. Doh, "Identifying Who Matters:Mapping Key Players in Multiple Environments,' California Management Review, 42/2 (Winter2000): 83-104.

18. See Steven Knaebel, "Getting Our Bearings Through Bench Marking," in K. McGuiness, ed..Charting the Mexican Labyrinth: A Practical Guide to Success In Mexico (San Diego, CA: HPH Pan-ners, 1994); Business Wire, December 10. 2001.

19. Jeffrey L. Cruikshank and David B. Sicilia, The Engine That Could: 75 Years of Values-DrivenChange at Cummins Engine Company (Boston, MA: Harvard Business School Press, 1997),pp. 480-484.

20. r/ie£ciJMom«f, "Multinationals and Their Morals,'December 2, 1995, p. 18.21. Murray Jones, 'The Role of Stakeholder Participation: Linkages to Stakeholder Impact

Assessment and Social Capital in Camisea, Peru," Greener Management International. 19/3(1997): 87-97. See also Philip Mirvis, 'Transformation at Shell: Commerce and Citizenship,"Business and Society Review. 105/1 (Spring 2000): 63-84. Shell's commitment lo reponing isevident in the following documents, as well as updates available on its web site. See Shell,Shell Report—Profits and Principles: Does There Have to be a Choice? (London: Shell International,1998); Shell, Shell Report—People. Planet and Profits (London: Shell International, 1999).

22. See Shell, "Doing Business That's Socially Responsible," Interchange. 4 (2001): 10-12. Shellhas a long history of innovative long-term planning and the use of scenarios to support itsstrategic analysis. See, for example, A. de Geus, The Living Company (Boston, MA: HarvardBusiness School Press, 1997); Peter Schwartz, The Art of the Long View (New York, NY: Cur-rency Doubleday, 1991).

23. See Jeffrey Cruickshank and David Sicilia, The Engine That Could: 75 Years of Values-DrivenChange at Cummins Engine Company (Boston, MA: Harvard Business School Press, 1997),Chapter 8.

24. This effort is discussed in Chapter 4 of James E. Post, Lee E. Preston and Sybille Sachs,Redefining the Corporation: Stakeholder Management and Organizational Wealth (Stanford, CA:Stanford University Press, 2002). See also, R.S. Moorthy et al.. Uncompromising Integrity:Motorola's Global Challenge (Schaumburg, IL: Motorola University Press, 1998); Brian E.Peach, "The Motorola Case," presented at the annual meeting of the Academy of Manage-

' ment, August 9, 1999, available at <http://uwf.edu/bpeach/motorola>.25. See John Elkington, Cannibals with Forks: The Triple Bottom Line of 21" Century Business (Lon-

don: New Society Publishers, 1998); Robert Kaplan and David Nonon, The Balanced Scorecard(Boston, MA: Harvard Business School Press, 1996); Robert Kaplan and David Norton, TheStrategy-Focused Organization (Boston, MA: Harvard Business School Press, 2001).

26. See discussion in James E. Post, Lee E. Preston, and Sybille Sachs, Redefining the Corporation:Stakeholder Management and Organizational Wealth (Stanford, CA: Stanford University Press,2002), Chapter 8.

27. Tom Richardson and Augusto Vidauretta, Business Is a Contaa Sport (Indianapolis, IN: AlphaBooks, 2002), Chapter 1.

28. See John Child and Rita G. McGrath, 'Organizations Unfettered: Organizational Form in anInformation-Intensive Economy,' Academy of Management Journal. 44/6 (2001): II35-1148.

CALIFORNIA M^^MAGCMFNT RFVIFW VOL. 15. NO. I FALL 2003


29. Phil Watts, "Pursuing Sustainable Development," speech at Oxford University, May 2000.30. See R.G. Eccles, R.H. Merz., E.M. Keegan, and D.M.H. Phillips. The ValueReporting Revolution:

Moving beyond the Numbers Game (New York, NY: Wiley, 2001); KMPG, Beyond the NumbersGame (New York, NY: KPMG, 2000).

28 CALIFORNIA MANAGEMENT REVIEW VOL 45, NO. I FALL 2002

Managing the Extended Enterprise - files.transtutors.com · ate a satisfactory balance of interests...

Documents

Transcript of Managing the Extended Enterprise - files.transtutors.com · ate a satisfactory balance of interests...