9
Stakeholder Mapping
As for me, all I know is that I know nothing.
—Socrates1
Why do some managers perceive relationships with stakeholders as involving risk, conflict, and trade-offs, while others perceive them as rich in opportunity, interdependence, and mutual benefit? That was a question that Donal Crilly of London Business School and Pamela Sloan of HEC in Montreal set out to answer.2 Their findings help explain how managers can position themselves to better handle paradoxical problems.
Crilly and Sloan discovered that company leaders view the role of stakeholders in one of three ways. Some leaders treat stakeholders at arm's length. They see interactions with stakeholders as transactions and govern them with contracts. Other leaders work with stakeholders arm in arm. They see interactions as partnerships and govern them through team-like relationships. Still others work with stakeholders as if joined at the hip. They see interactions as collaborations and govern them through an especially high level of trust and interdependency.
Not surprisingly, Crilly and Sloan found that the leaders of arm's-length firms are the ones that see decisions involving stakeholders as full of risk, conflict, and trade-offs. Leaders of the other firms tend to see them as full of opportunity and mutual benefit. We might translate these findings to say that leaders of the arm's-length firms tend to say “Distrust and verify” when it comes to stakeholders. Leaders of the arm-in-arm firms say “Trust and verify.” And leaders of the joined-at-the-hip firms say “Trust and value.”
Which kind of leader are you? The ramifications of your answer are huge. If you're in a firm with warm and comfortable stakeholder relations, you naturally bring more people into decisions related to paradoxical problems, and in turn develop options with more knowledge, know-how, and a broader perspective. If you're in a firm with standoffish stakeholder relations, you probably cherish working the levers of control, and in turn put yourself at a disadvantage in coming up with solutions to the toughest problems facing organizations today.
Crilly and Sloan's findings, although just one study, confirm our experience in coaching leaders across industry. Those who come from firms that naturally reach out to stakeholders quickly move beyond either/or choices to both/and choices when faced with paradoxes. They accept fewer trade-offs and obtain more win-wins. They more naturally adopt purpose, reconciliation, and innovation mindsets, and they drive more swiftly toward paradox-resolving actions.
In Chapters Seven and Eight, we began to show how complete leaders use their head, heart, and guts in decisions. We showed how to engage your head in scanning the environment and shaping options with scenario thinking. In this chapter, we show how you can engage your heart—your emotional intelligence—in understanding and accommodating the needs of stakeholders. We call this stakeholder mapping.
We devote a chapter to this topic because stakeholders figure into almost all paradoxical problems. When you debate how to solve paradoxes, you are actually debating the gains and losses for various vested interests. On the surface, you may debate the issues. But underneath you are really arguing over the future and fortunes of various constituencies.
Recall Pepsi CEO Indra Nooyi's struggle to deal with the issue of sugary and salty foods. This was really a people problem masquerading as an issue. One of the major persons involved was Mayor Bloomberg of New York, who sought to tackle obesity by regulating products sold to New Yorkers. Pepsi couldn't ignore the needs of this stakeholder because of the size of the market and the visibility the nationally known Bloomberg gave to the issue.
The Value of Stakeholder Mapping
For many years, leaders who concerned themselves with stakeholder management ranked stakeholders in order of priority. In turn, they found ways to meet stakeholder demands to keep everyone satisfied (more or less). This approach stemmed from the thinking of a pioneer in the field of stakeholder thinking, R. Edward Freeman, a professor at the Darden School at the University of Virginia. But Freeman, with whom we work today, will tell you his thinking has evolved, and we agree with his new outlook. The interests of stakeholders today, he says, are jointly held. The only way to create value for the long term is to integrate the interests of multiple stakeholders in a single strategy.
To leaders who see only risk, conflicts, and trade-offs in stakeholder relationships, Freeman offers this observation: Your critics are always going to be there, but behind every critic is a new business opportunity. “How else are you going to get better if you don't have critics?” he asks. “Ultimately you need someone to give you detailed advice on how you could get better, what's wrong with what you're doing.”
When executives ask for Freeman's advice, he has this to say: Put yourself at the center. Figure out who affects you and whom you can affect. Think about the stakeholders around you in a new way, not as constraints but as resources. When you encounter the opposing forces of a paradoxical problem, tap this extended set of resources to create fresh value.3 You often get back more than you give away.
One of the most vibrant examples of a joined-at-the-hip firm creating value with stakeholders is Whole Foods Market. Whole Foods Co-CEO John Mackey has long championed a stakeholder philosophy. He says stakeholders are like spokes on a wheel. How do the self-managing teams at Whole Foods and their variety of stakeholders create the operating apparatus for the company? “We co-create it,” says Mackey in an interview with Freeman. “The stakeholder is involved in that creation.”4
In other words, the structures, processes, and strategies used in running Whole Foods stem from work by people in the stakeholder network. As a recent example, Whole Foods gathered a number of internal and external stakeholders to figure out standards for farmed mollusks (shellfish such as clams, mussels, and oysters). Whole Foods seafood buyers, people from the company's quality standards and food safety teams, oceanographers, and twenty East Coast farmers met in spring 2012 to go over draft standards. They talked about production-system aquaculture (versus wild capture), disease prevention, preventing impacts to sediments under farms, harvesting, predator control, traceability, and other topics. Out of that meeting came refined standards.5
How do companies keep focused on business when involving stakeholders in this way? By having a clear answer to the following: For what reason is the company creating value? Why is it doing what it's doing? At Whole Foods, Mackey and his people have decided, at least in part, that their purpose is to create healthy communities through healthy eating. Note that this approach does not raise the question of stakeholder ranking. It calls instead for putting a priority on asking stakeholders to act as resources to solve paradoxical problems. Company experts, scientists, environmentalists, and farmers all have a role.
In a separate development at Whole Foods, stores often sponsor farmers markets in their parking lots. The company actually invites local competitors (farmers) to sell produce at its doorstep. It even organizes the markets. This in turn helps Whole Foods fulfill its goal of creating healthy customer and supplier communities. The payback presumably shows up in the long term: Goodwill and shopping traffic contribute to healthy store sales and to an overall upward trend in demand for the products Whole Foods specializes in—healthy and locally grown food. Whole Foods, by organizing stakeholders around a purpose, has created a virtuous, value-creating cycle with stakeholders adding value all along the way.
The Process of Stakeholder Mapping
Every company is different, and so are the paradoxes leaders face. That means that every leader has to figure out the right process for stakeholder mapping, which will vary with the decision, the level or location in the company, and whether it involves only internal stakeholders or external. Here are practices we have found useful:6
- Identifying stakeholders and their positions
- Analyzing needs and behaviors
- Developing new strategies for stakeholders
- Devising new ways to interact
- Devising integrative strategies to manage paradox
Practice 1: Identifying Stakeholders and Their Positions
The first key practice is singling out the constituencies your company regularly influences or is influenced by—or more generally the constituencies the company affects or is affected by. Where do your company's interests intersect those of your stakeholders? In what fields of work or play do you and your stakeholders help or hurt each other? A complete stakeholder map makes explicit both the broad groupings and the particularly relevant subgroups—not just customers, for instance, but urban professionals in India, not just employees but finance staffers in regional offices.
Once you've listed your stakeholders, identify their interests and concerns. For example, at Colgate, CEO Ian Cook might include the concerns of a number of high-level stakeholders: Investors focused on financial performance, stock prices, and consistency in meeting growth objectives. Regulators responsible for product quality and maintaining ethical practices. Consumers wanting products to meet their standards, expectations, and needs. Employees seeking stable and fulfilling jobs. Customers—in Colgate's case, store buyers—who need to stock products that sell and perform. Professionals—dentists, veterinarians, and others—who use and recommend products for their patients. Each of these stakeholder groups has different needs and different expectations of Colgate. One of Cook's challenges is to ensure that all stakeholders' needs are met simultaneously.
That's the top level. The particularly relevant subgroups depend on decisions related to investment or marketing or product development. The professionals might include veterinarians concerned with specific pets. Colgate's pet food unit—Hill's Pet Nutrition—produces foods for prescription pet diets. Consider that some pet owners have cats troubled by hairballs that can cause choking, gagging, and vomiting. Colgate prescribes a diet and line of food that addresses that directly, and although Cook probably doesn't detail constituencies and concerns at that level, paradoxical problems may require just that kind of depth of stakeholder segmentation.
The result of the initial mapping of stakeholders is simple: A visual map and an analysis of how important each facet of a paradoxical issue is to each stakeholder. This is essentially an audit of stakeholder interests.
In the same way that managing paradox has become more complex, so has stakeholder mapping. Consider the medical device industry, in which we often consult. The most basic stakeholder question is a difficult one: Who is the customer? In the past, the answer was easy: patients and doctors. But now many players act like customers: hospitals, which have become centralized buyers; regulators, who weigh in on what can or can't be sold; courts and litigators, who decide risks of product liability; insurance companies, which decide what services deserve reimbursement. That makes mapping constituencies and analyzing the intersections of interest more difficult—and revealing.
Practice 2: Analyzing Needs and Behaviors
A second practice is gaining a deep understanding of stakeholder needs and behaviors. Most leaders go short on learning enough about their stakeholders to empathize with their point of view. You need to ask: How are people affected by my decisions on paradoxical problems? Am I sensitive enough to know what delights or dismays people about my actions? Do I have insight into their point of view so that I can reconcile differences? What are they willing to give up and what are their root desires? How could they change their behavior so they become more competitive or more cooperative?
Ed Freeman suggests an intriguing exercise. Describe your current stakeholders' behavior at the intersection of your interests. Write down a few bullet points. Then ask: How could that behavior change to help us fulfill our purpose? And how could it change to hurt us? The exercise yields four kinds of stakeholders: Those who can change their behavior to help you a lot or hurt you a lot. Those who can help you a lot but not hurt you (or hurt you more). Those who can hurt you a lot but not help you. And those who can do neither.
Freeman notes that you have to pay attention to the opportunities and risks in each case. As for risks, the people who are your strongest supporters are those who can often change the rules in a way to hurt you a lot but not help you much more. For example, if you drop your pension plan and reduce health care coverage, you could alienate loyal employees, badly hurting your ability to perform and attract talent. As for opportunities, counterintuitively, the people who are your critics are those who can often change in a way that helps you a lot but can't hurt you much (or hurt you much more than they already do). For example, long-time environmental activists can shift from antagonists to partners in changing your processes and products to give you marked competitive advantage in serving customers. Ironically, critics can help you most to co-create fresh actions to deal with paradoxical problems.
A deep analysis allows you to rationally reconcile differences. At one of our consumer-products clients, we consult with a top manager, Allison, who is in charge of global branding. She is responsible for strengthening, protecting, and evolving the global brand. She also has responsibility for marketing efforts to boost local sales from Hong Kong to Melbourne to Mexico City. She lives a paradox, a work life pulled in two directions, one for the good of the company and one for the good of local units. The pull is especially strong between the needs of unit heads in the developed and developing world.
The only way Allison can resolve the paradox is to understand the local stakeholders in the company—the marketing directors, general managers, and division presidents of country units. They do understand the importance of maintaining and strengthening the performance of global brands. Nevertheless, their primary objective is to focus on local needs and sales. Should they add sugar to make their product appeal more in India? Should they change the packaging? What type of product portfolio will work best in their markets?
Allison has to know what they can and can't do while protecting the brand and brand promise and while also meeting the needs of the local market and helping leaders meet their performance objectives. This means she has to help local units do two things: Create the marketing capability to sell products that meet the tastes of local consumers in the next three to five months—and stay firm on protecting global brand equity over three to five years. This juggling act is ongoing because the local markets are constantly changing—new competitors emerge, commodity prices change, regulatory hurdles appear. So she must be ever vigilant about the local versus global tensions.
Practice 3: Developing New Strategies for Stakeholders
A third practice is to develop strategies for creating more value with the help of stakeholders. We opened Chapter One with a story about Ron, the new chief operating officer of a travel services company. Ron maneuvered himself into a battle with multiple internal stakeholders, to the point that he accomplished little—either for the company or for burnishing his reputation for results. Ron knew who his stakeholders were, but he failed to listen to or analyze their needs and behaviors. To him, the regional sales chiefs were simply a roadblock to his superior plans and stratagems for building market share with a smarter brand, new website, new loyalty programs, and new customer amenities.
Ron faced stakeholders whose support he initially took for granted—but when he angered them they hurt him badly. Ron finally succeeded by analyzing the needs and behaviors of these stakeholders and coming up with a new personal strategy to succeed—a strategy to communicate humility through listening and negotiating.
He had to come down from his perch of superior intellect and accept that others in his matrix organization had power and ideas of their own. He had believed that when he rose to a position at the top, he could control people by fiat. But in fact the reverse was true: The higher he went, the more dependent on others he became. His need for stakeholder mapping was intense.
Interestingly, one of the paradoxical elements embedded in the problem Ron faced was the contradiction between trust and change. The more Ron pushed his change program without buy-in from others, the more he damaged the organization's trust in his actions. Ron didn't initially grasp that he had to balance the quality of his ideas with the need for ownership of the ideas by his stakeholders. Had he practiced stakeholder mapping more explicitly, he could have pinpointed from the start the stakeholders whose support he had to maintain—and the strategies for doing so. Instead, he swiftly undercut that support, and his efforts to repair the damage took six months of hard work.
The need for effective, thoughtful strategies is just as important when it comes to external stakeholders, whether they are in a position to help or hurt your company. Among the strategies effective with outsiders are changing the rules of the relationships, changing beliefs about the firm, trying to change the stakeholders' objectives, adopting the stakeholders' positions, and changing the forum and subjects of discussion.7 As Ed Freeman points out, after the landmark settlement against the tobacco industry, the company leaders faced stakeholders who could hardly hurt them any more. The companies changed the rules in different ways: Some took their critics' position that they had to reduce the harm done by their product. Others argued for more federal regulation and control.8
Practice 4: Devising New Ways to Interact
A fourth practice is to devise new ways to interact. Many of us assume we know other parties' viewpoints. But in decisions that affect people both inside and outside the firm, this is rarely the case. You need new ways for understanding needs, and this requires creating new opportunities, forums, and rules of interaction. How can you design a new process for interaction that brings out the most new material and perspectives for decision making? If business operates in an ecosystem, how do you involve the members of the ecosystem in the discussion? What is the right venue and process for co-creating new value for the whole system?
In one development, NGOs have taken the lead in bringing companies together from across industry to wrestle with the tough issues of climate change. CERES, the nonprofit founded after the Exxon Valdez oil spill, convenes eighty member companies to improve the firms' social and environmental performance. CERES members today come from many industry sectors, with companies ranging from GM and Starbucks to Bank of America and Exelon. CERES brings together leaders from the business, investor, and advocacy communities to exchange perspectives and enhance competitive advantage with sustainable strategies. This kind of venue, in which CERES will facilitate meetings between companies and institutional investors, did not formerly exist.9
In our consulting work, we help company leaders create new venues. We helped one large insurer, for example, meet directly with potential customers. From groups of people who signed up for focus groups, we identified those individuals who did not buy from the company but who bore no grudges against it. We then solicited their participation in deeper research, in which we asked them if researchers could talk to them individually in their homes. The researchers then spent the morning with customers, observing the customer's habits and asking about preferences. The researchers also happened to be top executives, who remained incognito. That allowed them to listen to consumers' concerns directly. They could hear firsthand why people spent money the way they did and why they chose not to buy from the insurer.
The giant brain of a company is only as smart as its capacity to collaborate. The brain comes from everyone reaching out and using each other's expertise in these different ways. In the past, leaders often communicated in a one-way fashion both within and outside the company. By jumping over the line to paradox management, leaders transcend this puzzle mentality, engaging more stakeholders and in turn enlarging the joint brain for greater achievements. The Internet and social media today provide added channels for conversation, allowing leaders to learn at Twitter speed.
As we mentioned in Chapter Six, Procter & Gamble pioneered the use of social media by putting some of its most vexing R&D challenges on the Internet for all to see and provide input. Nowadays, inventors and artists with a new idea rely on crowd-funding websites that encourage feedback and investments. Many large companies such as Nike use employee websites to seek input on human resource issues and even product development—asking employees for opinions and ideas about how to deal with new inventions, product ideas, or even policy issues. The Internet today allows the brain of a company to expand by incorporating many nodes of input from around the world.
Practice 5: Devising Integrative Strategies to Manage Paradox
A final practice is to devise new strategies that accommodate the behaviors, interests, and strategies of all stakeholder groups. For that, we circle back to our three mindsets: How can our joint purposes and values guide us to mutual value-creating actions? How can we reconcile our interests, as we might in a negotiation, allowing our principles to create win-win actions? Or how can we innovate to accomplish both of our objectives in new ways? This approach works just as well with people inside as outside the organization.
Consider the challenge facing large consumer goods companies. Although their products are ultimately used by the people who purchase them off the shelf, their customers are large retailers who resell the products to the public—companies such as Walmart, Target, Tesco, and Walgreens. Complicating their challenge is that these customers will also be offering competing products—Walmart sells both Coca-Cola and Pepsi, Colgate and Crest, Panasonic and Samsung. Competitive advantage will go to the consumer products companies that devise the best strategy for ensuring that both their needs and Walmart's are met. This is one reason why companies form dedicated teams of people to work directly with major retailers. Pepsi has a team of people located in Bentonville, Arkansas, whose job it is to work full time with Walmart. Companies like Pepsi want to be sure they develop strategies that are good for them and good for their customers.
A Basis in Trust
Senior leaders will always face contradictions, and they may believe they will always face the knotty task of trading off the interests of one stakeholder with those of another. Somebody will get shortchanged. This presumption is the antithesis of mapping and managing for stakeholders. In the short term, leaders may indeed trade off one stakeholder's interests with another's—employee salary raises for continued investment in innovation, for example. This may stem from a reconciliation mindset at a time of pinched resources. But in the long term, the knottier task is to find the intersection of interests where the stakeholders together create more value than the company could on its own.
This requires ongoing stakeholder mapping—not just episodic or ad hoc. It also requires something else: a high level of trust by stakeholders in their leaders. In this respect, we cite an equation: Trust equals stakeholder orientation divided by self-orientation. Benefiting from stakeholder mapping requires subsuming your own agenda—an agenda encompassing both your ambitions for yourself and your ambitions for the company—within the agenda of all combined. Stakeholder trust grows in proportion with the numerator (the whole) and inversely with the denominator (the self).10
Johnson & Johnson is one firm that has long sought to practice this approach. Its Credo specifies that the company will serve not just customers but employees, communities, and shareholders. This gives J&J leaders the permission and space to talk freely about stakeholder issues without worrying about being biased in favor of one stakeholder group. The debate over access to care versus profits proceeds under this presumption. Do you give inexpensive access to a compound in some countries or maintain global pricing and hence profits? As at Johnson & Johnson, it is an ongoing debate. The company and its leaders know it will have to constantly recalibrate. But the discussion is valuable in developing leaders who can think and reason, which ultimately leads to alignment between the J&J Credo and decision making.
You have to have a lot of emotional intelligence to let go of the headstrong intellect that thinks of all actions in terms of profits and instead plays to the good of the entire ecosystem of stakeholders. This is where we come back to the importance of moving from an arm's-length mentality to an arm-in-arm or joined-at-the-hip mentality. If you're a leader of a firm like the former, you manage with all head, like the latter, with head and heart. In the end, if you're one of the latter leaders, you will better master the challenge of managing paradox.